SmartStop Self Storage REIT Inc. and Strategic Storage Trust IV Inc., two affiliated publicly registered non-traded real estate investment trusts, have agreed to merge in an all-stock transaction valued at $370 million.
Strategic Storage Trust IV plans to merge into a newly formed subsidiary of SmartStop, creating a company with a portfolio of 136 properties and a combined gross book value of approximately $1.5 billion of self-storage assets.
Per the merger agreement, SmartStop will acquire all of the real estate owned by Strategic Storage Trust IV, consisting of 24 wholly-owned self-storage facilities located across nine states, and five joint venture properties in various stages of development located in the Greater Toronto Area.
The total Strategic Storage Trust IV portfolio, including joint venture property estimates at completion of development, represents approximately 22,500 self-storage units and 2.6 million net rentable square feet.
In late April 2020, Strategic Storage Trust IV suspended the primary portion of its public offering, citing uncertainty relating to the ongoing COVID-19 outbreak and its potential economic impact.
“With this merger, the combined company will be better positioned to recognize expense efficiencies, reduce borrowing costs, and aggregate size and scale for the future,” said Michael S. McClure, chief executive officer of SmartStop. “Since all of the SST IV portfolio is already branded as SmartStop Self Storage, there will be total continuity of operations throughout the process.”
Under the terms of the agreement, Strategic Storage Trust IV stockholders will receive 2.1875 shares of SmartStop common stock for each share of common stock they own. This exchange ratio represents an increase of $0.10 per share from Strategic Storage Trust IV’s most recent estimated net asset value, when compared to SmartStop’s most recent estimated NAV of $10.40 per share.
Strategic Storage Trust IV’s most recent NAV per share is $22.65, calculated as of March 31, 2020. Shares were originally priced at $25.00.
The transaction values SST IV at approximately $370 million, based on September 30, 2020 share counts and debt principal balances outstanding. Following the transaction, SmartStop stockholders will own approximately 64 percent of the combined company, Strategic Storage Trust IV stockholders will own approximately 25 percent, and management will own approximately 11 percent.
The merger is expected to close during the first half of 2021, subject to the approval of Strategic Storage Trust IV stockholders and other customary closing conditions.
The agreement stipulates that in the event of a termination of the merger agreement by Strategic Storage Trust IV under certain circumstances, the company will be required to pay SmartStop a termination fee of approximately $7.2 million.
In connection with the signing of the merger agreement, Strategic Storage Trust IV temporarily suspended its distribution reinvestment plan, and will proceed paying all future distributions in cash, beginning with October’s declared distribution.
SmartStop’s distributions and distribution reinvestment plan remain unaffected.
SmartStop Self Storage REIT Inc., formerly known as Strategic Storage Trust II Inc., is a self-managed REIT that sponsors self-storage programs, including Strategic Storage Trust IV and other private programs. SmartStop has approximately $1.7 billion of real estate assets under management. SmartStop launched its initial public offering in January 2014 and raised $566 million in investor equity prior to closing in January 2017.
Strategic Storage Trust IV owns 24 properties comprising approximately 18,000 self-storage units, as well as one operating property and three parcels of land under development. The REIT’s offering was declared effective in March 2017 and raised approximately $236.1 million in investor equity.