Questions and Answers
Below we have provided some of the more frequently asked questions and answers relating to an offering of this type. Please see “Prospectus Summary” and the remainder of this prospectus for more detailed information about this offering.
Q: What is a real estate investment trust?
A: In general, a real estate investment trust, or REIT, is a company that:
- combines the capital of many investors to acquire or provide financing for commercial real estate;
- allows individual investors the opportunity to invest in a diversified portfolio of real estate under professional management;
- pays distributions to investors of at least 90% of its taxable income; and
- avoids the “double taxation” treatment of income that generally results from investments in a corporation because a REIT generally is not subject to federal corporate income taxes on its net income, provided certain income tax requirements are satisfied.
Q: What is Strategic Storage Trust, Inc.?
A: Strategic Storage Trust, Inc. is a Maryland corporation that elected to qualify as a REIT for federal income tax purposes for the taxable year ended December 31, 2008. We are currently the only public non-traded self storage REIT. We do not have any employees and are externally managed by our advisor, Strategic Storage Advisor, LLC.
Q: Do you currently own any self storage facilities?
A: Yes. As of June 30, 2012, our self storage portfolio was comprised as follows:
|| Sq. Ft. (Net)
(1) Does not include properties in which we own a minority interest, including the interests owned in the Montgomery County Self Storage, DST properties, the San Francisco Self Storage DST property, the Hawthorne property, the WP Baltimore Self Storage property and the Southwest Colonial, DST properties.
(2) Includes approximately 85,000 rentable square feet of industrial warehouse/office space at the Chicago – Ogden Ave. property.
(3) Includes the Mississauga and Brampton properties, which are currently partially or fully under development.
The map below shows the geographic location of our self storage portfolio as of June 30, 2012.
Q: What is your acquisition strategy?
A: We intend to invest a substantial amount of the net proceeds we raise in this offering in self storage facilities and related self storage real estate investments throughout the United States. We may also invest a portion of the net proceeds in self storage facilities outside the United States. Self storage facilities are properties that offer do-it-yourself, month-to-month storage space rental for personal or business use. According to the Self Storage Association’s Self Storage Industry Fact Sheet, the self storage industry in the United States consists of approximately 2.2 billion rentable square feet at approximately 46,500 facilities. The industry is highly fragmented and is comprised mainly of local operators and a few national owners and operators, including, we believe, only four publicly-traded self storage REITs. We believe the following factors will allow us to achieve market penetration, name recognition and national brand awareness and loyalty in the self storage industry, which will result in greater economies of scale:
- the size and diversification of our self storage portfolio;
- the management team of our advisor and property manager, which, in addition to our executive officers described elsewhere in this prospectus, includes regional and district property management professionals and on-site property management personnel; and
- our self storage branding strategy whereby we intend to re-brand every self storage facility under the “SmartStop® Self Storage” brand over the next several years, our call center which provides access to information regarding our self storage facilities, our new customer-friendly and mobile phone-friendly self storage website, www.smartstopselfstorage.com, which allows potential self storage customers to locate available units at any of our properties, and our new SmartStop App, which allows customers to organize and track the contents of their self storage units via their iPhone or Android device. Please see “Risk Factors – Risks Related to this Offering and an Investment in Strategic Storage Trust, Inc. – We do not own or control the intellectual property rights to the “SmartStop® Self Storage” brand and other trademarks and intellectual property used by us in connection with our self storage facilities; therefore, we could potentially lose revenues and incur significant costs if we cease to operate under this brand.”
Q: What is your strategy for use of debt?
A: Although we intend to use low leverage (50% or less) to make our investments during this offering, at certain times during this offering, including the present, our debt leverage levels may be temporarily higher as we acquire properties in advance of funds being raised in this offering. At the current time, the debt markets are extremely attractive, and our board believes that a higher debt leverage in these markets is beneficial to our long-term interests. Our board of directors will regularly monitor our investment pipeline in relation to our projected fundraising efforts and otherwise evaluate market conditions related to our debt leverage ratios throughout this offering. As of March 31, 2012, our debt leverage was approximately 59%.
Q: How will you own the self storage properties?
A: Strategic Storage Operating Partnership, L.P., our subsidiary operating partnership, will own, directly or indirectly through one or more special purpose entities, all of the self storage properties that we acquire. We are the sole general partner of our operating partnership, and therefore, we completely control the operating partnership. This structure is commonly known as an UPREIT.
Q: What is an UPREIT?
A: UPREIT stands for “Umbrella Partnership Real Estate Investment Trust.” An UPREIT is a REIT that holds all or substantially all of its properties through an operating partnership in which the REIT holds a controlling interest. Using an UPREIT structure may give us an advantage in acquiring properties from persons who might not otherwise sell their properties because of unfavorable tax results. Generally, a sale of property directly to a REIT, or a contribution in exchange for REIT shares, is a taxable transaction to the selling property owner. However, in an UPREIT structure, a seller of a property who desires to defer taxable gain on the sale of property may transfer the property to the UPREIT in exchange for limited partnership units in the UPREIT’s operating partnership without recognizing gain for tax purposes.
Q: What is a taxable REIT subsidiary?
A: A taxable REIT subsidiary is a fully taxable corporation that can perform activities unrelated to the leasing of self storage space to tenants or customers, such as third-party management, development and other independent business activities, as well as provide products and services to our tenants or customers. Our company is allowed to own up to 100% of the stock of taxable REIT subsidiaries. We will be subject to a 100% penalty tax on certain amounts if the economic arrangements among our tenants and customers, our taxable REIT subsidiary and us are not comparable to similar arrangements among unrelated parties. We, along with Strategic Storage TRS, Inc., our wholly-owned subsidiary, made an election to treat Strategic Storage TRS, Inc. as a taxable REIT subsidiary. Strategic Storage TRS, Inc. will, among other things, conduct certain activities (such as selling tenant insurance, moving supplies and locks and renting trucks or other moving equipment) that, if conducted by us, could cause us to receive non-qualifying income under the REIT gross income tests. We also have a Canadian taxable REIT subsidiary that currently conducts similar activities for the properties we acquire in Canada.
Q: If I buy shares, will I receive distributions, and how often?
A: Yes. We currently pay and expect to continue to pay distributions on a monthly basis to our stockholders. See “Description of Shares — Distribution Policy” and “— Distribution Declaration History.”
Q: Will the distributions I receive be taxable as ordinary income?
A: Yes and no. Generally, distributions that you receive, including distributions that are reinvested pursuant to our distribution reinvestment plan, will be taxed as ordinary income to the extent they are from current or accumulated earnings and profits. We expect that some portion of your distributions may not be subject to tax in the year received because depreciation expense reduces taxable income but does not reduce cash available for distribution. In addition, we may make distributions using offering proceeds. We are not prohibited from using offering proceeds to make distributions by our charter, bylaws or investment policies, and we may use an unlimited amount from any source to pay our distributions. The portion of your distribution that is not subject to tax immediately is considered a return of investors’ capital for tax purposes and will reduce the tax basis of your investment. This, in effect, defers a portion of your tax until your investment is sold or we are liquidated, at which time you would be taxed at capital gains rates. However, because each investor’s tax considerations are different, we suggest that you consult with your tax advisor. You also should review the section of this prospectus entitled “Federal Income Tax Considerations.”
Q: What kind of offering is this?
A: Through our dealer manager, we are offering a maximum of $1.0 billion in shares of our common stock (approximately 93 million shares) at $10.79 per share in our primary offering on a “best efforts” basis. We are also offering $95.0 million in shares of our common stock (approximately 9.3 million shares) at approximately $10.25 per share pursuant to our distribution reinvestment plan to those stockholders who elect to participate in such plan as described in this prospectus. We reserve the right to reallocate the shares of common stock we are offering between our primary offering and our distribution reinvestment plan. We commenced our initial public offering of shares of our common stock on March 17, 2008. On September 16, 2011 we terminated our initial public offering, having raised gross offering proceeds of approximately $289 million from the sale of approximately 29 million shares. On September 22, 2011, we commenced this “best efforts” public offering of up to $1.095 billion in shares of our common stock. As of August 7, 2012, we had received gross offering proceeds of approximately $105 million from the sale of approximately 10.6 million shares in our follow-on offering, resulting in aggregate gross offering proceeds of approximately $394 million from the sale of approximately 39.6 million shares in our follow-on offering and our initial public offering. As of August 7, 2012, approximately 99.4 million shares remained available for sale to the public under our follow-on offering, including shares available under our distribution reinvestment plan.
Q: How does a “best efforts” offering work?
A: When shares are offered to the public on a “best efforts” basis, the dealer manager and the participating broker-dealers are only required to use their best efforts to sell the shares and have no firm commitment or obligation to purchase any of the shares. Therefore, we may not sell all or any of the shares that we are offering.
Q: How long will this offering last?
A: The offering will not last beyond September 22, 2013 (two years after the effective date of this offering); provided, however, that the amount of shares of our common stock registered pursuant to this offering is the amount that we reasonably expect to be offered and sold within two years from the initial effective date of this offering and, to the extent permitted by applicable law, we may extend this offering for an additional year, or, in certain circumstances, longer. We reserve the right to terminate this offering earlier at any time.
Q: How many shares do you currently have outstanding?
A: As of August 7, 2012, we have approximately 43.5 million shares of common stock issued and outstanding, which includes unregistered shares issued in connection with two mergers with private real estate investment trusts sponsored by our sponsor.
Q: What is your estimated value per share and how does it impact the offering price per share?
A: On April 2, 2012, our board of directors approved an estimated value per share of our common stock of $10.79 based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding on an adjusted fully diluted basis, calculated as of December 31, 2011. The estimated value per share was based upon the recommendation and valuation of Strategic Storage Advisor, LLC, our external advisor, based on the methodologies and assumptions described further below. With regard to the valuation of our real estate properties, we engaged Cushman & Wakefield Western, Inc. to provide an appraisal of our portfolio of 91 wholly-owned self storage properties. The effective date of value was December 31, 2011 and the results of the valuation were communicated in a report dated February 1, 2012. As a result of the calculation of our estimated value per share, effective June 1, 2012, the offering price per share of shares of our common stock was increased from $10.00 per share to $10.79 per share. Please the “Calculation of Net Asset Value Per Share” section of this prospectus.
Q: What will you do with the money raised in this offering?
A: We will use the net offering proceeds from your investment to primarily make self storage investments pursuant to our acquisition strategy. We will primarily focus on investments that produce current income. The diversification of our portfolio is dependent upon the amount of proceeds we receive in this offering. If we sell the maximum offering, we estimate that approximately 88.25% of the money you invest will be used to primarily make investments in self storage facilities and related self storage real estate investments and pay real estate-related acquisition fees and acquisition expenses, while the remaining 11.75% will be used to pay sales commissions, dealer manager fees and other offering expenses. We expect our acquisition fees and acquisition expenses to constitute approximately 2.99% of our gross offering proceeds, which will allow us to invest approximately 85.26% in real estate investments. We may also use net offering proceeds to pay down debt or make distributions if our cash flows from operations are insufficient. See “Estimated Use of Proceeds.” As of June 30, 2012, our debt consisted of approximately $215 million in fixed rate debt and approximately $100.4 million in variable rate debt (excluding net unamortized debt discounts of approximately $0.9 million). Until we invest the proceeds of this offering pursuant to our acquisition strategy, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments will not earn significant returns, and we cannot guarantee how long it will take to fully invest the proceeds from this offering in properties.
Q: Who can buy shares?
A: Generally, you may buy shares pursuant to this prospectus provided that you have either (1) a net worth of at least $70,000 and a gross annual income of at least $70,000, or (2) a net worth of at least $250,000. For this purpose, net worth does not include your home, furnishings and automobiles. Some states have higher suitability requirements. You should carefully read the more detailed description under “Suitability Standards” immediately following the cover page of this prospectus.
Q: For whom is an investment in our shares recommended?
A: An investment in our shares may be appropriate if you (1) meet the suitability standards as set forth herein, (2) seek to diversify your personal portfolio with a finite-life, real estate-based investment, (3) seek to receive current income, (4) seek to preserve capital, (5) wish to obtain the benefits of potential long-term capital appreciation, and (6) are able to hold your investment for a long period of time. On the other hand, we caution persons who require liquidity or guaranteed income, or who seek a short-term investment.
Q: May I make an investment through my IRA, SEP or other tax-deferred account?
A: Yes. You may make an investment through your individual retirement account (IRA), a simplified employee pension (SEP) plan or other tax-deferred account. In making these investment decisions, you should consider, at a minimum, (1) whether the investment is in accordance with the documents and instruments governing your IRA, plan or other account, (2) whether the investment satisfies the fiduciary requirements associated with your IRA, plan or other account, (3) whether the investment will generate unrelated business taxable income (UBTI) to your IRA, plan or other account, (4) whether there is sufficient liquidity for such investment under your IRA, plan or other account, (5) the need to value the assets of your IRA, plan or other account annually or more frequently, and (6) whether the investment would constitute a prohibited transaction under applicable law.
Q: Is there any minimum investment required?
A: Yes. Generally, you must invest at least $1,000. Investors who already own our shares can make additional purchases for less than the minimum investment. Some states require a higher minimum investment. You should carefully read the more detailed description of the minimum investment requirements appearing under “Suitability Standards” immediately following the cover page of this prospectus.
Q: How do I subscribe for shares?
A: If you meet the suitability standards described herein and choose to purchase shares in this offering, you must complete a subscription agreement, like the one contained in this prospectus as Appendix A, for a specific number of shares and pay for the shares at the time you subscribe.
Q: May I reinvest my distributions?
A:Yes. Under our distribution reinvestment plan, you may reinvest the distributions you receive. The purchase price per share under our distribution reinvestment plan will be $10.25 per share during this offering. No sales commissions or dealer manager fees will be paid on shares sold under the distribution reinvestment plan. Please see “Description of Shares — Distribution Reinvestment Plan” for more information regarding our distribution reinvestment plan.
Q: If I buy shares in this offering, how may I later sell them?
A: At the time you purchase the shares, they will not be listed for trading on any national securities exchange. As a result, if you wish to sell your shares, you may not be able to do so promptly or at all, or you may only be able to sell them at a substantial discount from the price you paid. In general, however, you may sell your shares to any buyer that meets the applicable suitability standards unless such sale would cause the buyer to own more than 9.8% of the value of our then-outstanding capital stock (which includes common stock and any preferred stock we may issue) or more than 9.8% of the value or number of shares, whichever is more restrictive, of our then-outstanding common stock. See “Suitability Standards” and “Description of Shares — Restrictions on Ownership and Transfer.” We are offering a share redemption program, as discussed under “Description of Shares — Share Redemption Program,” which may provide limited liquidity for some of our stockholders; however, our share redemption program contains significant restrictions and limitations and we may suspend or terminate our share redemption program if our board of directors determines that such program is not in the best interests of our stockholders.
Q: What are some of the more significant risks involved in an investment in your shares?
A: An investment in our shares is subject to significant risks. You should carefully consider the information set forth under “Risk Factors” beginning on page 19 for a discussion of the material risk factors relevant to an investment in our shares. Some of the more significant risks include the following:
- We have limited established financing sources and we cannot assure you that we will be successful in the marketplace.
- We have incurred operating losses to date, have an accumulated deficit and our operations will not be profitable in 2012.
- To date, we have paid a majority of our distributions from sources other than cash flow from operations; therefore, we will have fewer funds available for the acquisition of properties, and our stockholders’ overall return may be reduced.
- There is currently no public trading market for our shares and there may never be one; therefore, it will likely be difficult for you to sell your shares.
- In determining our estimated net asset value per share, we primarily relied upon a valuation of our portfolio of properties as of December 31, 2011. Valuations and appraisals of our properties are estimates of fair value and may not necessarily correspond to realizable value upon the sale of such properties, therefore our estimated net asset value per share may not reflect the amount that would be realized upon a sale of each of our properties.
- Our share price is primarily based on the estimated per share value of our shares, but also based upon subjective judgments, assumptions and opinions by management, which may or may not turn out to be correct. Therefore, our share price may not reflect the precise amount that might be paid to you for your shares in a market transaction.
- Because this is a “blind pool” offering, you will not have the opportunity to evaluate the investments we will make with the proceeds of this offering before you purchase our shares.
- Our ability to operate profitably will depend upon the ability of our advisor to efficiently manage our day-to-day operations and the ability of our property manager to effectively manage our properties.
- We do not own or control the intellectual property rights to the “SmartStop® Self Storage” brand and other trademarks and intellectual property used by us in connection with our self storage facilities; therefore, we could potentially lose revenues and incur significant costs if we cease to operate under this brand.
- Because our president, H. Michael Schwartz, owns a 15% beneficial non-voting equity interest in our dealer manager, you may not have the benefit of an independent review of the prospectus or our company as is customarily performed in underwritten offerings.
- Our advisor, property manager and their officers and certain of our key personnel will face competing demands relating to their time, and this may cause our operating results to suffer.
- Our advisor will face conflicts of interest relating to the incentive fee structure under our advisory agreement, which could result in actions that are not necessarily in the long-term best interests of our stockholders.
- Payment of fees to our advisor and its affiliates will reduce cash available for investment and distribution.
- Because we are focused on the self storage industry, our rental revenues will be significantly influenced by demand for self storage space generally, and a decrease in such demand would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.
- We will depend on our on-site personnel to maximize customer satisfaction at each of our facilities, and any difficulties we encounter in hiring, training and retaining skilled field personnel may adversely affect our rental revenues.
- We may suffer reduced or delayed revenues for, or have difficulty selling, properties with vacancies.
- We may not be able to sell our properties at a price equal to, or greater than, the price for which we purchased such properties, which may lead to a decrease in the value of our assets.
- Adverse economic conditions will negatively affect our returns and profitability.
- If we breach covenants under our credit facility or our bridge loan with KeyBank National Association, we could be held in default under such loans, which could accelerate our repayment date and materially adversely affect the value of your investment in us.
- High interest rates may make it difficult for us to refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make.
- Failure to qualify as a REIT would adversely affect our operations and our ability to make distributions, as we would incur additional tax liabilities.
- You may have tax liability on distributions you elect to reinvest in our common stock.
- There are special considerations that apply to pension or profit-sharing trusts or IRAs investing in our shares which could cause an investment in our company to be a prohibited transaction and could result in additional tax consequences.
Q: Will I be notified of how my investment is doing?
A: Yes. We will provide you with periodic updates on the performance of your investment with us, including:
- supplements to the prospectus during the offering period;
- quarterly distribution reports;
- an annual report; and
- an annual IRS Form 1099.
We intend to provide the estimated value of our shares in our annual report each year. On April 2, 2012, our board of directors approved a net asset valuation of $10.79 per share. We intend to use this net asset valuation as the estimated per share value of our shares until the next net asset valuation approved by our board of directors, which we expect to occur within the next two years. The estimated value per share does not represent the fair value of our assets less our liabilities according to GAAP nor does it represent a liquidation value of our assets and liabilities or the amount at which our shares of common stock would trade on a national securities exchange. Please see “Calculation of Net Asset Value Per Share,” and the “Risk Factors — Risks Related to Our Corporate Structure” and “Investment By Tax-Exempt Entities and ERISA Considerations — Annual Valuation Requirement” sections of our prospectus.
Q: When will I get my detailed tax information?
A: Your IRS Form 1099 will be placed in the mail by January 31 of each year.
Q: Who can help answer my questions?
A: If you have more questions about the offering or if you would like additional copies of this prospectus, you should contact your registered representative or contact:
Select Capital Corporation
31351 Rancho Viejo Road, Suite 205
San Juan Capistrano, California 92675
Telephone: (866) 699-5338