10-Q
Strategic Storage Trust VI, Inc. (SGST)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the quarterly period ended June 30, 2022
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the transition period from to
Commission File Number: 333-256598
Strategic Storage Trust VI, Inc.
(Exact name of Registrant as specified in its charter)
| Maryland | 85-3494431 |
|---|---|
| (State or other jurisdiction of<br><br>incorporation or organization) | (IRS Employer<br><br>Identification No.) |
10 Terrace Road,
Ladera Ranch, California 92694
(Address of principal executive offices)
(877) 327-3485
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
|---|---|---|
| None | None | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
|---|---|---|---|
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 4, 2022, there were 10,719,930 outstanding shares of Class P common stock, 876,051 outstanding shares of Class A common stock, 1,488,451 outstanding shares of Class T common stock and 129,771 outstanding shares of Class W common stock of the registrant.
FORM 10-Q
STRATEGIC STORAGE TRUST VI, INC.
TABLE OF CONTENTS
| Page<br>No. | ||
|---|---|---|
| Cautionary Note Regarding Forward-Looking Statements | 2 | |
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Consolidated Financial Statements | 3 |
| Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021 | 4 | |
| Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited) | 5 | |
| Consolidated Statements of Equity for the Three Months Ended March 31, 2021 and June 30, 2021 (unaudited) | 6 | |
| Consolidated Statements of Equity for the Three Months Ended March 31, 2022 and June 30, 2022 (unaudited) | 7 | |
| Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited) | 8 | |
| Notes to Consolidated Financial Statements (unaudited) | 9 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 39 |
| Item 4. | Controls and Procedures | 39 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 40 |
| Item 1A. | Risk Factors | 40 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 40 |
| Item 3. | Defaults Upon Senior Securities | 40 |
| Item 4. | Mine Safety Disclosures | 41 |
| Item 5. | Other Information | 41 |
| Item 6. | Exhibits | 41 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q of Strategic Storage Trust VI, Inc., other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “seek,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission. We cannot guarantee the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Any such forward-looking statements are subject to risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, including without limitation changes in the political and economic climate, economic conditions and fiscal imbalances in the United States, and other major developments, including wars, natural disasters, epidemics and pandemics, including the outbreak of COVID-19, military actions, and terrorist attacks. The occurrence or severity of any such event or circumstance is difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations and provide distributions to stockholders, and our ability to find suitable investment properties, may be significantly hindered.
For further information regarding risks and uncertainties associated with our business, and important factors that could cause our actual results to vary materially from those expressed or implied in such forward-looking statements, please refer to the factors listed and described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in our Registration Statement on Form S-11 (SEC Registration No. 333-256598), as filed with the Securities and Exchange Commission, as supplemented by the risk factors included in Part II, Item 1A of this Form 10-Q.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The information furnished in the accompanying unaudited consolidated balance sheets and related consolidated statements of operations, equity and cash flows reflects all adjustments (consisting of normal and recurring adjustments) that are, in management’s opinion, necessary for a fair and consistent presentation of the aforementioned consolidated financial statements.
The accompanying consolidated financial statements should be read in conjunction with the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report on Form 10-Q. The accompanying consolidated financial statements should also be read in conjunction with our consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2021 included in our Registration Statement on Form S-11 (SEC Registration No. 333-256598). Our results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the operating results expected for the full year.
STRATEGIC STORAGE TRUST VI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31,<br>2021 | |||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Real estate facilities: | |||||
| Land | 26,991,944 | $ | 10,811,899 | ||
| Buildings | 148,477,378 | 61,778,581 | |||
| Site improvements | 6,137,772 | 2,766,245 | |||
| 181,607,094 | 75,356,725 | ||||
| Accumulated depreciation | (2,182,956 | ) | (597,090 | ) | |
| 179,424,138 | 74,759,635 | ||||
| Construction in process | 180,584 | 86,987 | |||
| Real estate facilities, net | 179,604,722 | 74,846,622 | |||
| Cash and cash equivalents | 10,291,074 | 3,934,933 | |||
| Restricted cash | 887,497 | 645,826 | |||
| Investments in unconsolidated real estate ventures (Note 4) | 9,741,389 | 9,632,360 | |||
| Other assets, net | 1,155,497 | 797,285 | |||
| Intangible assets, net of accumulated amortization | 2,159,447 | 1,014,552 | |||
| Total assets | 203,839,626 | $ | 90,871,578 | ||
| LIABILITIES AND EQUITY | |||||
| Secured debt, net | 105,440,486 | $ | 47,856,858 | ||
| Accounts payable and accrued liabilities | 2,838,895 | 1,194,900 | |||
| Distributions payable | 588,351 | 225,507 | |||
| Due to affiliates | 463,597 | 725,621 | |||
| Total liabilities | 109,331,329 | 50,002,886 | |||
| Commitments and contingencies (Note 7) | |||||
| Redeemable common stock | 1,218,807 | 329,158 | |||
| Equity: | |||||
| Strategic Storage Trust VI, Inc. equity: | |||||
| Preferred Stock, 0.001 par value; 200,000,000 shares authorized; none issued and outstanding at June 30, 2022 and December 31, 2021 | — | — | |||
| Class P Common stock, 0.001 par value; 30,000,000 shares authorized; 10,696,527 and 5,062,804 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 10,697 | 5,063 | |||
| Class A Common stock, 0.001 par value; 300,000,000 shares authorized; 573,628 and no shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 574 | — | |||
| Class T Common stock, 0.001 par value; 300,000,000 shares authorized; 668,406 and no shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 668 | — | |||
| Class W Common stock, 0.001 par value; 70,000,000 shares authorized; 86,522 and no shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 87 | — | |||
| Additional paid-in capital | 101,492,784 | 40,737,265 | |||
| Distributions | (3,513,726 | ) | (985,132 | ) | |
| Accumulated deficit | (8,016,099 | ) | (2,985,345 | ) | |
| Total Strategic Storage Trust VI, Inc. equity | 89,974,985 | 36,771,851 | |||
| Noncontrolling interests in our Operating Partnership | 3,314,505 | 3,767,683 | |||
| Total equity | 93,289,490 | 40,539,534 | |||
| Total liabilities and equity | 203,839,626 | $ | 90,871,578 |
All values are in US Dollars.
See notes to consolidated financial statements.
STRATEGIC STORAGE TRUST VI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Revenues: | ||||||||||||
| Self storage rental revenue | $ | 1,842,784 | $ | 127,847 | $ | 2,781,172 | $ | 127,847 | ||||
| Ancillary operating revenue | 30,334 | 8,816 | 44,906 | 8,816 | ||||||||
| Total revenues | 1,873,118 | 136,663 | 2,826,078 | 136,663 | ||||||||
| Operating expenses: | ||||||||||||
| Property operating expenses | 934,796 | 90,754 | 1,413,069 | 90,754 | ||||||||
| Property operating expenses – affiliates | 442,865 | 41,341 | 677,247 | 41,341 | ||||||||
| General and administrative | 560,536 | 226,488 | 1,031,086 | 226,488 | ||||||||
| Depreciation | 1,067,282 | 94,358 | 1,598,322 | 94,358 | ||||||||
| Intangible amortization expense | 470,289 | 41,850 | 696,794 | 41,850 | ||||||||
| Acquisition expense – affiliates | 127,024 | 88,256 | 257,162 | 88,256 | ||||||||
| Other property acquisition expenses | 221,664 | 251,517 | 543,332 | 251,517 | ||||||||
| Total operating expenses | 3,824,456 | 834,564 | 6,217,012 | 834,564 | ||||||||
| Operating loss | (1,951,338 | ) | (697,901 | ) | (3,390,934 | ) | (697,901 | ) | ||||
| Other income (expense): | ||||||||||||
| Interest expense | (780,683 | ) | (132,102 | ) | (1,189,976 | ) | (132,102 | ) | ||||
| Interest expense – debt issuance costs | (504,041 | ) | — | (587,688 | ) | — | ||||||
| Equity in loss of unconsolidated affiliate | — | (56,943 | ) | — | (57,104 | ) | ||||||
| Other | (644 | ) | 406 | (1,352 | ) | 406 | ||||||
| Foreign currency adjustment | (313,113 | ) | (23,329 | ) | (163,835 | ) | (23,329 | ) | ||||
| Net loss | (3,549,819 | ) | (909,869 | ) | (5,333,785 | ) | (910,030 | ) | ||||
| Net loss attributable to the noncontrolling interests in our Operating Partnership | 169,197 | 253,865 | 303,031 | 253,865 | ||||||||
| Net loss attributable to Strategic Storage Trust VI, Inc. common stockholders | $ | (3,380,622 | ) | $ | (656,004 | ) | $ | (5,030,754 | ) | $ | (656,165 | ) |
| Net loss per Class P share—basic and diluted | $ | (0.31 | ) | $ | (0.70 | ) | $ | (0.55 | ) | $ | (1.40 | ) |
| Net loss per Class A share—basic and diluted | $ | (0.31 | ) | $ | — | $ | (0.55 | ) | $ | — | ||
| Net loss per Class T share—basic and diluted | $ | (0.31 | ) | $ | — | $ | (0.55 | ) | $ | — | ||
| Net loss per Class W share—basic and diluted | $ | (0.31 | ) | $ | — | $ | (0.55 | ) | $ | — | ||
| Weighted average Class P shares outstanding—basic and diluted | 10,636,369 | 930,945 | 8,948,264 | 468,152 | ||||||||
| Weighted average Class A shares outstanding—basic and diluted | 181,845 | — | 91,425 | — | ||||||||
| Weighted average Class T shares outstanding—basic and diluted | 111,933 | — | 56,276 | — | ||||||||
| Weighted average Class W shares outstanding—basic and diluted | 29,278 | — | 14,706 | — |
See notes to consolidated financial statements.
Strategic Storage Trust VI, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
| Common Stock | Total | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Class P | Class A | Class T | Class W | Strategic | Noncontrolling | ||||||||||
| Number of<br>Shares | Common<br>Stock<br>Par Value | Number of<br>Shares | Common<br>Stock<br>Par Value | Number of<br>Shares | Common<br>Stock<br>Par Value | Number of<br>Shares | Common<br>Stock<br>Par Value | Additional<br>Paid-in<br>Capital | Distributions | Accumulated<br>Deficit | Storage<br>Trust VI, Inc.<br>Equity | Interests in<br>our Operating<br>Partnership | Total<br>Equity | Redeemable<br>Common<br>Stock | |
| Balance as of January 1, 2021 | — | $— | — | $— | — | $— | — | $— | $— | $— | $— | $— | $— | $— | $— |
| Gross proceeds from issuance of common stock | 5,666 | 6 | — | — | — | — | — | — | 50,994 | — | — | 51,000 | 2,000 | 53,000 | — |
| Offering costs | — | — | — | — | — | — | — | — | (50,994) | — | — | (50,994) | — | (50,994) | — |
| Distributions | — | — | — | — | — | — | — | — | — | (15) | — | (15) | — | (15) | — |
| Net loss attributable to Strategic Storage Trust VI, Inc. | — | — | — | — | — | — | — | — | — | — | (161) | (161) | — | (161) | — |
| Balance as of March 31, 2021 | 5,666 | 6 | — | — | — | — | — | — | — | (15) | (161) | (170) | 2,000 | 1,830 | — |
| Gross proceeds from issuance of common stock | 1,936,508 | 1,936 | — | — | — | — | — | — | 17,501,874 | — | — | 17,503,810 | — | 17,503,810 | — |
| Offering costs | — | — | — | — | — | — | — | — | (2,909,726) | — | — | (2,909,726) | — | (2,909,726) | — |
| Noncontrolling interest assumed in consolidation of Operating Partnership | — | — | — | — | — | — | — | — | — | — | — | — | 4,574,294 | 4,574,294 | — |
| Changes to redeemable common stock | — | — | — | — | — | — | — | — | (25,330) | — | — | (25,330) | — | (25,330) | 25,330 |
| Distributions | — | — | — | — | — | — | — | — | — | (116,037) | — | (116,037) | — | (116,037) | — |
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | — | — | — | — | (45,941) | (45,941) | — |
| Issuance of shares for distribution reinvestment plan | 2,895 | 3 | — | — | — | — | — | — | 25,327 | — | — | 25,330 | — | 25,330 | — |
| Net loss attributable to Strategic Storage Trust VI, Inc. | — | — | — | — | — | — | — | — | — | — | (656,004) | (656,004) | — | (656,004) | — |
| Net loss attributable to the noncontrolling interests in our Operating Partnership | — | — | — | — | — | — | — | — | — | — | — | — | (253,865) | (253,865) | — |
| Balance as of June 30, 2021 | 1,945,069 | $1,945 | — | $— | — | $— | — | $— | $14,592,145 | $(116,052) | $(656,165) | $13,821,873 | $4,276,488 | $18,098,361 | $25,330 |
See notes to consolidated financial statements.
Strategic Storage Trust VI, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(Unaudited)
| Common Stock | Total | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Class P | Class A | Class T | Class W | Strategic | Noncontrolling | ||||||||||
| Number of<br>Shares | Common<br>Stock<br>Par Value | Number of<br>Shares | Common<br>Stock<br>Par Value | Number of<br>Shares | Common<br>Stock<br>Par Value | Number of<br>Shares | Common<br>Stock<br>Par Value | Additional<br>Paid-in<br>Capital | Distributions | Accumulated<br>Deficit | Storage<br>Trust VI, Inc.<br>Equity | Interests in<br>our Operating<br>Partnership | Total<br>Equity | Redeemable<br>Common<br>Stock | |
| Balance as of December 31, 2021 | 5,062,804 | $5,063 | — | $— | — | $— | — | $— | $40,737,265 | $(985,132) | $(2,985,345) | $36,771,851 | $3,767,683 | $40,539,534 | $329,158 |
| Gross proceeds from issuance of common stock | 5,430,060 | 5,430 | — | — | — | — | — | — | 52,604,231 | — | — | 52,609,661 | — | 52,609,661 | — |
| Offering costs | — | — | — | — | — | — | — | — | (4,695,057) | — | — | (4,695,057) | — | (4,695,057) | — |
| Changes to redeemable common stock | — | — | — | — | — | — | — | — | (268,630) | — | — | (268,630) | — | (268,630) | 268,630 |
| Distributions | — | — | — | — | — | — | — | — | — | (892,243) | — | (892,243) | — | (892,243) | — |
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | — | — | — | — | (67,840) | (67,840) | — |
| Issuance of shares for distribution reinvestment plan | 28,737 | 29 | — | — | — | — | — | — | 268,601 | — | — | 268,630 | — | 268,630 | — |
| Net loss attributable to Strategic Storage Trust VI, Inc. | — | — | — | — | — | — | — | — | — | — | (1,650,132) | (1,650,132) | — | (1,650,132) | — |
| Net loss attributable to the noncontrolling interests in our Operating Partnership | — | — | — | — | — | — | — | — | — | — | — | — | (133,834) | (133,834) | — |
| Balance as of March 31, 2022 | 10,521,601 | 10,522 | — | — | — | — | — | — | 88,646,410 | (1,877,375) | (4,635,477) | 82,144,080 | 3,566,009 | 85,710,089 | 597,788 |
| Gross proceeds from issuance of common stock | 109,890 | 110 | 572,182 | 572 | 668,360 | 668 | 86,436 | 86 | 14,445,929 | — | — | 14,447,365 | — | 14,447,365 | — |
| Offering costs | — | — | — | — | — | — | — | — | (1,612,400) | — | — | (1,612,400) | — | (1,612,400) | — |
| Changes to redeemable common stock | — | — | — | — | — | — | — | — | (621,019) | — | — | (621,019) | — | (621,019) | 621,019 |
| Distributions | — | — | — | — | — | — | — | — | — | (1,636,351) | — | (1,636,351) | — | (1,636,351) | — |
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | — | — | — | — | (82,307) | (82,307) | — |
| Issuance of shares for distribution reinvestment plan | 65,036 | 65 | 196 | 1 | 46 | — | 86 | 1 | 620,952 | — | — | 621,019 | — | 621,019 | — |
| Issuance of restricted stock | — | — | 1,250 | 1 | — | — | — | — | — | — | — | 1 | — | 1 | — |
| Stock based compensation expense | — | — | — | — | — | — | — | — | 12,912 | — | — | 12,912 | — | 12,912 | — |
| Net loss attributable to Strategic Storage Trust VI, Inc. | — | — | — | — | — | — | — | — | — | — | (3,380,622) | (3,380,622) | — | (3,380,622) | — |
| Net loss attributable to the noncontrolling interests in our Operating Partnership | — | — | — | — | — | — | — | — | — | — | — | — | (169,197) | (169,197) | — |
| Balance as of June 30, 2022 | 10,696,527 | $10,697 | 573,628 | $574 | 668,406 | $668 | 86,522 | $87 | $101,492,784 | $(3,513,726) | $(8,016,099) | $89,974,985 | $3,314,505 | $93,289,490 | $1,218,807 |
See notes to consolidated financial statements.
STrategic Storage Trust VI, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended<br>June 30, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Cash flows from operating activities: | ||||||
| Net loss | $ | (5,333,785 | ) | $ | (910,030 | ) |
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||
| Depreciation and amortization | 2,295,116 | 136,208 | ||||
| Amortization of debt issuance costs | 587,688 | — | ||||
| Interest payment added to debt principal | — | 51,297 | ||||
| Stock based compensation expense related to issuance of restricted stock | 12,912 | — | ||||
| Unrealized foreign currency adjustment | 163,835 | 23,329 | ||||
| Changes in operating assets and liabilities: | ||||||
| Other assets, net | (217,628 | ) | 9,263 | |||
| Accounts payable and accrued liabilities | 750,254 | 82,599 | ||||
| Due to affiliates | (194,024 | ) | (554,610 | ) | ||
| Net cash used in operating activities | (1,935,632 | ) | (1,161,944 | ) | ||
| Cash flows from investing activities: | ||||||
| Purchase of real estate facilities | (107,891,695 | ) | (7,904,327 | ) | ||
| Additions to real estate facilities | (293,960 | ) | (9,238 | ) | ||
| Deposits on acquisitions of real estate facilities | (160,000 | ) | (326,951 | ) | ||
| Investments in unconsolidated real estate ventures | (259,972 | ) | (88,446 | ) | ||
| Net cash used in investing activities | (108,605,627 | ) | (8,328,962 | ) | ||
| Cash flows from financing activities: | ||||||
| Proceeds from issuance of secured debt | 88,637,702 | — | ||||
| Repayment of secured debt | (30,608,851 | ) | — | |||
| Prepaid debt issuance costs | — | (84,769 | ) | |||
| Debt issuance costs | (1,100,911 | ) | — | |||
| Gross proceeds from issuance of common stock | 67,831,027 | 18,236,810 | ||||
| Offering costs | (6,193,648 | ) | (2,592,354 | ) | ||
| Distributions paid to common stockholders | (1,279,865 | ) | (24,770 | ) | ||
| Distributions paid to noncontrolling interest in our Operating Partnership | (146,383 | ) | (45,941 | ) | ||
| Net cash provided by financing activities | 117,139,071 | 15,488,976 | ||||
| Net change in cash, cash equivalents and restricted cash | 6,597,812 | 5,998,070 | ||||
| Cash, cash equivalents and restricted cash, beginning of year | 4,580,759 | — | ||||
| Cash, cash equivalents and restricted cash, end of period | $ | 11,178,571 | $ | 5,998,070 | ||
| Supplemental disclosures and non-cash transactions: | ||||||
| Cash paid for interest | $ | 839,672 | $ | — | ||
| Deposits applied to purchase of real estate | $ | — | $ | 200,000 | ||
| Real estate assumed in consolidation of Operating Partnership | $ | — | $ | 16,284,439 | ||
| Investment in unconsolidated real estate venture assumed in consolidation of Operating Partnership | $ | — | $ | 3,711,918 | ||
| Debt assumed in consolidation of Operating Partnership | $ | — | $ | 14,237,599 | ||
| Non controlling interest assumed in connection with consolidation of Operating Partnership | $ | — | $ | 4,574,294 | ||
| Distribution payable to noncontrolling interest in our Operating Partnership assumed in consolidation of Operating Partnership | $ | — | $ | 22,594 | ||
| Accounts payable, accrued liabilities and due to affiliate assumed in consolidation of Operating Partnership | $ | — | $ | 1,318,303 | ||
| Proceeds from issuance of common stock in accounts payable and accrued liabilities | $ | (1,124,000 | ) | $ | (680,000 | ) |
| Offering costs included in accounts payable and accrued liabilities | $ | 466,781 | $ | 368,366 | ||
| Issuance of shares pursuant to distribution reinvestment plan | $ | 889,649 | $ | 25,330 | ||
| Distributions payable to common stockholders | $ | 561,217 | $ | 65,952 | ||
| Distributions payable to noncontrolling interests in our Operating Partnership | $ | 27,134 | $ | 22,594 |
See notes to consolidated financial statements.
STRATEGIC STORAGE TRUST VI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Note 1. Organization
Strategic Storage Trust VI, Inc., a Maryland corporation (the “Company”), was formed on October 14, 2020 under the Maryland General Corporation Law for the purpose of engaging in the business of investing in self storage facilities and commenced formal operations on March 10, 2021. Our year-end is December 31. As used herein, “we,” “us,” “our” and “Company” refer to Strategic Storage Trust VI, Inc. and each of our subsidiaries.
SmartStop REIT Advisors, LLC is our sponsor (our “Sponsor”). Our Sponsor is an indirect subsidiary of SmartStop Self Storage REIT, Inc. (“SmartStop”). Our Sponsor is a company focused on providing self storage advisory, asset management, and property management services. Our Sponsor owns 90% of the economic interests (and 100% of the voting membership interests) of Strategic Storage Advisor VI, LLC (our “Advisor”) and owns 100% of Strategic Storage Property Management VI, LLC (our “Property Manager”).
We have no employees. Our Advisor, a Delaware limited liability company, was formed on October 7, 2020. Our Advisor is responsible for managing our affairs on a day-to-day basis and identifying and making acquisitions and investments on our behalf under the terms of an advisory agreement we entered into with our Advisor on February 26, 2021 (our “Private Offering Advisory Agreement”), which was amended and restated on March 17, 2022 (our "Advisory Agreement"). A majority of our officers are also officers of our Advisor, Sponsor and SmartStop.
On January 15, 2021, our Advisor purchased approximately 110 shares of our common stock for $1,000 and became our initial stockholder. Our Articles of Incorporation authorized 30,000 shares of common stock with a par value of $0.001 per share. Our Articles of Amendment and Restatement (our "Charter") authorized 700,000,000 shares of common stock with a par value of $0.001 per share and 200,000,000 shares of preferred stock with a par value of $0.001 per share. On February 26, 2021, pursuant to a confidential private placement memorandum (the “private placement memorandum”), we commenced a private offering of up to $200,000,000 in shares of our common stock and $20,000,000 in shares of common stock pursuant to our distribution reinvestment plan (the “Private Offering”). On March 10, 2021, we commenced formal operations.
In connection with the Public Offering, defined below, we filed articles of amendment to our Charter (the “Articles of Amendment”) and articles supplementary to our Charter (the “Articles Supplementary”). Following the filing of the Articles of Amendment and the Articles Supplementary, we authorized 30,000,000 shares of common stock designated as Class P shares, 300,000,000 shares of common stock designated as Class A shares, 300,000,000 shares of common stock designated as Class T shares, and 70,000,000 shares of common stock designated as Class W shares. Any common stock sold in the Private Offering were redesignated as Class P common stock upon the filing of the Articles of Amendment. On May 28, 2021, we filed a Form S-11 Registration Statement, which was subsequently amended, with the Securities and Exchange Commission (“SEC”) to register a maximum of $1,000,000,000 in shares of Class A, Class T, and Class W common stock for sale to the public (the “Primary Offering”) and $95,000,000 in shares of Class A, Class T, and Class W common stock for sale pursuant to our distribution reinvestment plan (collectively, the “Public Offering”). On March 17, 2022, the SEC declared our registration statement effective and the primary portion of our Private Offering was terminated.
As of June 30, 2022, approximately 10.6 million shares of Class P common stock have been sold in the Private Offering for gross offering proceeds of approximately $100.7 million. As of June 30, 2022, approximately 0.6 million Class A shares, approximately 0.7 million Class T shares and approximately 0.1 million Class W shares had been sold in the Public Offering for gross offering proceeds of approximately $5.9 million, approximately $6.7 million and approximately $0.8 million, respectively. Through our distribution reinvestment plan, we have issued approximately 130,000 Class P shares, approximately 200 Class A shares, approximately 50 Class T shares and approximately 90 Class W shares for gross proceeds of approximately $1.2 million.
We have invested the net proceeds from our Private Offering and Public Offering primarily in self storage facilities consisting of both income-producing and growth properties located in the United States and Canada. As of June 30, 2022, we owned 11 operating self storage properties located in seven states (Arizona, Delaware, Florida, Nevada, Oregon, Pennsylvania and Washington) as well as 50% equity interests in two unconsolidated real estate ventures located in the Greater Toronto Area that are intended to be developed into self storage facilities, with subsidiaries of SmartCentres Real Estate Investment Trust (“SmartCentres”) owning the other 50% of such entity. For more information, see Note 3 - Real Estate Facilities and Note 4 - Investment in Unconsolidated Real Estate Ventures.
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Our operating partnership, Strategic Storage Operating Partnership VI, L.P., a Delaware limited partnership (our “Operating Partnership”), was formed on October 15, 2020. On January 15, 2021, SmartStop Storage Advisors, LLC (“SSA”), an affiliate of our Advisor, purchased a limited partnership interest in our Operating Partnership for $1,000 and we contributed the initial $1,000 capital contribution we received to our Operating Partnership in exchange for the general partner interest. On February 26, 2021, in connection with entering into the Private Offering Advisory Agreement, SSA made an additional $1,000 investment in our Operating Partnership in exchange for additional limited partnership interests and a special limited partnership interest.
On March 10, 2021, SmartStop OP, L.P. (“SmartStop OP”), an affiliate of our Sponsor and the operating partnership of SmartStop, contributed $5.0 million to our Operating Partnership, in exchange for 549,451 units of limited partnership interest in our Operating Partnership (the “OP Investment”). The OP Investment was made net of sales commissions and dealer manager fees, but without giving effect to the early investor discounts available to purchasers of shares in the Private Offering. At the effective time of the OP Investment, SmartStop OP was admitted as a limited partner to our Operating Partnership. As of June 30, 2022, SmartStop OP’s investment in our Operating Partnership represented approximately 4% of the outstanding units of limited partnership interest.
Our Operating Partnership will own, directly or indirectly through one or more special purpose entities, all of the self storage properties that we acquire. We will conduct certain activities through our taxable REIT subsidiary, Strategic Storage TRS VI, Inc., a Delaware corporation (the “TRS”) which was formed on October 16, 2020 and is a wholly owned subsidiary of our Operating Partnership.
Our Property Manager, a Delaware limited liability company, was formed on October 7, 2020 to manage our properties. Our Property Manager will derive substantially all of its income from the property management services it performs for us. Our Property Manager may enter into sub-property management agreements with third party management companies and pay part of its management fee to such sub-property manager. See Note 6 – Related Party Transactions – Property Management Agreement.
Our dealer manager is Pacific Oak Capital Markets, LLC, a Delaware limited liability company (our “Dealer Manager”). On February 26, 2021, we entered into a dealer manager agreement with our Dealer Manager (the “Private Offering Dealer Manager Agreement”), pursuant to which our Dealer Manager was responsible for marketing our shares being offered pursuant to the Private Offering. In connection with our Public Offering, we entered into a dealer manager agreement with our Dealer Manager, pursuant to which our Dealer Manager is responsible for marketing our shares being offered pursuant to our Primary Offering (the "Dealer Manager Agreement"). An affiliate of our Dealer Manager owns a 10% non-voting economic interest in our Advisor.
As we accept subscriptions for shares of our common stock, we transfer all of the net offering proceeds to our Operating Partnership as capital contributions in exchange for additional units of interest in our Operating Partnership. However, we will be deemed to have made capital contributions in the amount of gross proceeds received from investors, and our Operating Partnership will be deemed to have simultaneously paid the sales commissions and other costs associated with the offerings. In addition, our Operating Partnership is structured to make distributions with respect to limited partnership units that are equivalent to the distributions made to holders of common stock. Finally, a limited partner in our Operating Partnership may later exchange his or her limited partnership units in our Operating Partnership for shares of our common stock at any time after one year following the date of issuance of their limited partnership units, subject to certain restrictions outlined in the limited partnership agreement of our Operating Partnership, which was amended and restated in connection with the Public Offering (the “Operating Partnership Agreement”). SSA and SmartStop OP are prohibited from exchanging or otherwise transferring units representing $202,000 of the limited partnership units acquired in their initial investments in our Operating Partnership so long as our Advisor is acting as our Advisor pursuant to our Advisory Agreement.
Recent Market Conditions
The current COVID-19 pandemic continues to impact the global economy, as well as the United States and the markets in which we will operate. Our rental revenue and operating results depend significantly on the demand for self storage space. While we have not seen a material impact on the demand for self storage space resulting from the COVID-19 outbreak as of the date of these financial statements, if the outbreak causes weakness in national, regional and local economies that negatively impact the demand for self storage space and/or increase bad debts, our business, financial condition, liquidity, results of operations and prospects could be adversely impacted. In addition, as a result of the COVID-19 pandemic, there have been, and may continue to be, temporary shut downs or restrictions placed on businesses and entities by cities, counties, states, or the federal government. These events may negatively impact the demand for self storage space or the willingness or ability of customers to visit our facilities, which could reduce rental revenue and ancillary operating revenue produced by our
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facilities. These events may also require us to make certain operational changes such as suspending rate increases and late fees or pausing auctions, which could adversely impact our business, financial condition, liquidity and results of operations.
The ultimate extent and duration of the COVID-19 pandemic could still affect the self storage industry and/or us, potentially by the impact of governmental orders or broader economic conditions, which impact our customers, and in turn could affect our financial condition, collections, liquidity, and results of operations. These potential future developments are uncertain and cannot be predicted. This includes new information that may also emerge concerning the breadth of the COVID-19 outbreak, as well as the actions to contain or treat its impact, including the distribution and broad acceptance of various vaccines for COVID-19 or the efficacy of those vaccines against new COVID-19 variants.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC.
Principles of Consolidation
Our financial statements, and the financial statements of our Operating Partnership, including its wholly-owned subsidiaries, are consolidated in the accompanying consolidated financial statements. The portion of these entities not wholly-owned by us is presented as noncontrolling interests. All intercompany accounts and transactions have been eliminated in consolidation. Please see consolidation considerations section below.
Consolidation Considerations
Current accounting guidance provides a framework for identifying a variable interest entity (“VIE”) and determining when a company should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements. In general, a VIE is an entity or other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. Generally, a VIE should be consolidated if a party with an ownership, contractual, or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and noncontrolling interest at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest. Our Operating Partnership is deemed to be a VIE and is consolidated by the Company as the primary beneficiary.
As a result of the OP Investment on March 10, 2021, our Operating Partnership and its subsidiaries were recorded as an equity investment by us from commencement of operations through April 30, 2021 as an affiliate of our Sponsor was determined to be the primary beneficiary. As we sold shares in the Private Offering and contributed the net offering proceeds to our Operating Partnership we became the primary beneficiary and consolidated the Operating Partnership and its wholly-owned subsidiaries on May 1, 2021. As a result of consolidation, we allocated the assets acquired and liabilities assumed to tangible and intangible assets based on their fair values as of the date of consolidation. The aggregate of the fair values were primarily allocated to real estate facilities of approximately $16.0 million, intangible assets of approximately $0.3 million, investment in unconsolidated real estate venture of $3.7 million, secured debt of approximately $14.2 million, other current liabilities of approximately $1.3 million and non controlling interest of approximately $4.6 million. There was no material impact on our net loss as a result of consolidation of our Operating Partnership on May 1, 2021.
As of June 30, 2022, we had not entered into any other contracts/interests that would be deemed to be variable interests in VIEs other than our joint ventures with SmartCentres, which are accounted for under the equity method of accounting. Please see Note 4 - Investments in Unconsolidated Real Estate Ventures. Other than the entities noted above, we do not currently have any material relationships with unconsolidated entities or financial partnerships.
Equity Investments
Under the equity method, our investments are stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings will generally be recognized based on our ownership interest in the earnings of each of the unconsolidated investments.
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Noncontrolling Interest in Consolidated Entities
We account for the noncontrolling interest in our Operating Partnership in accordance with the related accounting guidance. Due to our control through our general partnership interest in our Operating Partnership and the limited rights of the limited partner, our Operating Partnership, including its wholly-owned subsidiary, was consolidated by us beginning May 1, 2021, and the limited partner interest is reflected as a noncontrolling interest in the accompanying consolidated balance sheets. The noncontrolling interest shall be attributed its share of income and losses, even if that attribution results in a deficit noncontrolling interest balance.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. Management will adjust such estimates when facts and circumstances dictate. Actual results could materially differ from those estimates. The most significant estimates made include the allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed at relative fair value, the determination if certain entities should be consolidated, the evaluation of potential impairment of long-lived assets, and the estimated useful lives of real estate assets and intangibles.
Cash and Cash Equivalents
We consider all short-term, highly liquid investments that are readily convertible to cash with a maturity of three months or less at the time of purchase to be cash equivalents.
We may maintain cash and cash equivalents in financial institutions in excess of insured limits, but believe this risk will be mitigated by only investing in or through major financial institutions.
Restricted Cash
Restricted cash consists primarily of impound reserve accounts for interest and property taxes in connection with the requirements of certain of our loan agreements.
Real Estate Purchase Price Allocation
We account for asset acquisitions in accordance with GAAP which requires that we allocate the purchase price of a property to the tangible and intangible assets acquired and the liabilities assumed based on their relative fair values. This guidance requires us to make significant estimates and assumptions, including fair value estimates, which requires the use of significant unobservable inputs, as of the acquisition date.
The value of the tangible assets, consisting of land and buildings, is determined as if vacant. Substantially all of the leases in place at acquired properties are at market rates, as the majority of the leases are month-to-month contracts. We also consider whether in-place, market leases represent an intangible asset. We recorded approximately $1.8 million and $0.4 million, in intangible assets to recognize the value of in-place leases related to our acquisitions during the six months ended June 30, 2022 and 2021, respectively. We do not expect, nor to date have we recorded, intangible assets for the value of customer relationships because we expect we will not have concentrations of significant customers and the average customer turnover will be fairly frequent.
Allocation of purchase price to acquisitions of facilities are allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates which take into account the relative size, age, and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available.
Acquisitions that do not meet the definition of a business, as defined under current GAAP, are accounted for as asset acquisitions. During the six months ended June 30, 2022 and 2021, our acquisitions did not meet the definition of a business because substantially all of the fair value was concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets) or because the acquisition did not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. As a result, once an acquisition is deemed probable, transaction costs are capitalized rather than expensed. During the six months ended June 30, 2022 and 2021, our acquisitions did not meet the definition of a business, and we capitalized approximately $1.7 million and $0.1 million, respectively, of acquisition-related transaction costs.
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During each of the three months ended June 30, 2022 and 2021, we expensed approximately $0.3 million of acquisition-related transaction costs that did not meet our capitalization policy. During the six months ended June 30, 2022 and 2021, we expensed approximately $0.8 million and $0.3 million, respectively, of acquisition-related transaction costs that did not meet our capitalization policy during the respective periods.
Evaluation of Possible Impairment of Long-Lived Assets
Management monitors events and changes in circumstances that could indicate that the carrying amounts of our long-lived assets, including those held through joint ventures, may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of the assets may not be recoverable, we will assess the recoverability of the assets by determining whether the carrying value of the long-lived assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, we will adjust the value of the long-lived assets to the fair value and recognize an impairment loss. For the three and six months ended June 30, 2022 and 2021, no impairment losses were recognized.
Advertising Costs
Advertising costs are included in property operating expenses and general and administrative expenses, depending on the nature of the expense, in the accompanying consolidated statement of operations. These costs are expensed in the period in which the cost is incurred. The Company incurred advertising costs of approximately $0.1 million and $0.2 million for the three and six months ended June 30, 2022, respectively, and $20,000 for each of the three and six months ended June 30, 2021.
Revenue Recognition
Management believes that all of our leases are operating leases. Rental income is recognized in accordance with the terms of the leases, which generally are month-to-month. Revenues from any long-term operating leases will be recognized on a straight-line basis over the term of the lease. The excess of rents received over amounts contractually due pursuant to the underlying leases will be included in accounts payable and accrued liabilities in our consolidated balance sheet and contractually due but unpaid rent will be included in other assets.
Allowance for Doubtful Accounts
Tenant accounts receivable is reported net of an allowance for doubtful accounts. Management records a general reserve estimate based upon a review of the current status of tenant accounts receivable. It is reasonably possible that management’s estimate of the allowance will change in the future.
Real Estate Facilities
Real estate facilities are recorded based on relative fair value as of the date of acquisition. We capitalize costs incurred to develop, construct, renovate and improve properties, including interest and property taxes incurred during the construction period. The construction period begins when expenditures for the real estate assets have been made and activities that are necessary to prepare the asset for its intended use are in progress. The construction period ends when the asset is substantially complete and ready for its intended use.
Depreciation of Real Property Assets
Our management is required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives.
Depreciation of our real property assets is charged to expense on a straight-line basis over the estimated useful lives as follows:
| Description | Standard Depreciable<br>Life |
|---|---|
| Land | Not Depreciated |
| Buildings | 35 years |
| Site Improvements | 7-10 years |
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Depreciation of Personal Property Assets
Personal property assets consist primarily of furniture, fixtures and equipment and are depreciated on a straight-line basis over the estimated useful lives generally ranging from 3 to 5 years, and are included in other assets on our consolidated balance sheets.
Foreign Currency Translation
For non-U.S. functional currency operations, assets and liabilities are translated to U.S. dollars at current exchange rates. Revenues and expenses are translated at the average rate for the period. Transactions denominated in a currency other than the functional currency of the related operations are recorded at rates of exchange in effect at the date of the translation. Changes in investments classified as short term in accordance with GAAP are recorded in foreign currency adjustments in the accompanying Statements of Operations.
Intangible Assets
We have allocated a portion of our real estate purchase price to in-place leases. We are amortizing in-place leases on a straight-line basis over 18 months, the estimated average rental period for the leases. As of June 30, 2022, the gross amounts allocated to in-place lease intangibles were approximately $3.2 million and accumulated amortization of in-place lease intangibles totaled approximately $1.0 million. As of December 31, 2021, the gross amounts allocated to in-place lease intangibles were approximately $1.3 million and accumulated amortization of in-place lease intangibles totaled approximately $0.3 million. The total estimated future amortization expense of intangible assets for the years ending December 31, 2022 and 2023 is approximately $1.0 million and $1.2 million, respectively.
Debt Issuance Costs
The net carrying value of costs incurred in connection with obtaining non revolving debt are presented on the consolidated balance sheets as a reduction of the related debt. Debt issuance costs are amortized on a straight-line basis over the term of the related loan, which is not materially different than the effective interest method. As of June 30, 2022 and December 31, 2021, accumulated amortization of debt issuance costs related to non revolving debt totaled approximately $0.3 million and $0.1 million, respectively. For the three and six months ended June 30, 2022, we expensed approximately $0.3 million in debt issuance cost related to the Huntington Credit Facility.
Organizational and Offering Costs
Our Advisor may fund organization and offering costs on our behalf. We are required to reimburse our Advisor for such organization and offering costs; provided, however, our Advisor will fund, and will not be reimbursed for, 1.0% of the gross offering proceeds from the sale of Class W shares towards payment of organization and offering expenses, which we will recognize as a capital contribution from our Advisor. Our Advisor must reimburse us within 60 days after the end of the month in which the initial public offering terminates to the extent we paid or reimbursed organization and offering costs (excluding sales commissions, dealer manager fees, stockholder servicing fees and dealer manager servicing fees) in excess of 15% of the gross offering proceeds from the Primary Offering. If at any point in time we determine that the total organization and offering costs are expected to exceed 15% of the gross proceeds anticipated to be received from the Primary Offering, we will recognize such excess as a capital contribution from our Advisor. Offering costs are recorded as an offset to additional paid-in capital, and organization costs are recorded as an expense.
In connection with our Private Offering, our Dealer Manager received a sales commission of up to 6.0% of gross proceeds from sales in the Private Offering and a dealer manager fee equal to up to 3.0% of gross proceeds from sales in the Private Offering under the terms of the Private Offering Dealer Manager Agreement.
In connection with our Primary Offering, our Dealer Manager will receive a sales commission of up to 6.0% of gross proceeds from sales of Class A shares and up to 3.0% of gross proceeds from the sales of Class T shares in the Primary Offering and a dealer manager fee up to 3.0% of gross proceeds from sales of both Class A shares and Class T shares in the Primary Offering under the terms of the Dealer Manager Agreement. Our Dealer Manager does not receive an upfront sales commission or dealer manager fee from the sales of Class W shares in the Primary Offering. In addition, our Dealer Manager receives an ongoing stockholder servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 1% of the purchase price per share of the Class T shares sold in the Primary Offering. Our Dealer Manager also receives an ongoing dealer manager servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 0.5% of the purchase price per share of the Class W shares sold in the Primary Offering. We will cease paying the stockholder servicing fee with respect to the Class T shares sold in the Primary Offering at the earlier of (i) the date we list our shares on a national securities exchange, merge or consolidate with or into another entity, or sell or dispose of all or substantially all of our assets,
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(ii) the date at which the aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the sale of Class A shares, Class T shares, and Class W shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan), which calculation shall be made by us with the assistance of our Dealer Manager commencing after the termination of our Primary Offering; (iii) with respect to a particular Class T share, the third anniversary of the issuance of the share; and (iv) the date that such Class T share is redeemed or is no longer outstanding. We will cease paying the dealer manager servicing fee with respect to the Class W shares sold in the Primary Offering at the earlier of (i) the date we list our shares on a national securities exchange, merge or consolidate with or into another entity, or sell or dispose of all or substantially all of our assets, (ii) the date at which the aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the sale of Class A shares, Class T shares, and Class W shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan),which calculation shall be made by us with the assistance of our Dealer Manager commencing after the termination of our Primary Offering; (iii) the end of the month in which the aggregate underwriting compensation paid in our Primary Offering with respect to Class W shares, comprised of the dealer manager servicing fee, equals 9.0% of the gross proceeds from the sale of Class W shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan), which calculation shall be made by us with the assistance of our Dealer Manager commencing after the termination of our Primary Offering, and (iv) the date that such Class W share is redeemed or is no longer outstanding.
Our Dealer Manager enters into participating dealer agreements with certain other broker-dealers which authorize them to sell our shares. Upon sale of our shares by such broker-dealers, our Dealer Manager will re-allow all of the sales commissions and, subject to certain limitations, the stockholder servicing fees paid in connection with sales made by these broker-dealers. Our Dealer Manager may also re-allow to these broker-dealers a portion of their dealer manager fee as marketing fees, reimbursement of certain costs and expenses of attending training and education meetings sponsored by our Dealer Manager, payment of attendance fees required for employees of our Dealer Manager or other affiliates to attend retail seminars and public seminars sponsored by these broker-dealers, or to defray other distribution-related expenses. Our Dealer Manager will also receive reimbursement of bona fide due diligence expenses; however, to the extent these due diligence expenses cannot be justified, any excess over actual due diligence expenses would have been considered underwriting compensation subject to a 10% FINRA limitation and, when aggregated with all other non-accountable expenses in connection with our Public Offering, may not exceed 3% of gross offering proceeds from sales in the Public Offering. We record a liability within Accounts Payable and Accrued Liabilities for the future estimated stockholder and dealer manager servicing fees and a reduction to additional paid-in capital at the time of sale of the Class T and Class W shares as an offering cost.
Redeemable Common Stock
We adopted a share redemption program that will enable stockholders to sell their shares to us in limited circumstances.
We record amounts that are redeemable under the share redemption program as redeemable common stock in the accompanying consolidated balance sheets since the shares are redeemable at the option of the holder and therefore their redemption is outside our control. The maximum amount redeemable under our share redemption program will be limited to the number of shares we could repurchase with the amount of the net proceeds from the sale of shares under the distribution reinvestment plan. However, accounting guidance states that determinable amounts that can become redeemable but that are contingent on an event that is likely to occur (e.g., the passage of time) should be presented as redeemable when such amount is known. Therefore, the net proceeds from the distribution reinvestment plan are considered to be temporary equity and are presented as redeemable common stock in our consolidated balance sheets.
In addition, current accounting guidance requires, among other things, that financial instruments that represent a mandatory obligation of us to repurchase shares be classified as liabilities and reported at settlement value. For the six months ended June 30, 2022 and 2021, we did not receive any redemption requests.
Fair Value Measurements
The accounting standard for fair value measurements and disclosures defines fair value, establishes a framework for measuring fair value, and provides for expanded disclosure about fair value measurements. Fair value is defined by the accounting standard for fair value measurements and disclosures as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels. The following summarizes the three levels of inputs and hierarchy of fair value we will use when measuring fair value:
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• Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access;
• Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as interest rates and yield curves that are observable at commonly quoted intervals; and
• Level 3 inputs are unobservable inputs for the assets or liabilities that are typically based on an entity’s own assumptions as there is little, if any, related market activity.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level that is significant to the fair value measurement in its entirety.
The accounting guidance for fair value measurements and disclosures provides a framework for measuring fair value and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In determining fair value, we will utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment will be necessary to interpret Level 2 and 3 inputs in determining fair value of our financial and non- financial assets and liabilities. Accordingly, there can be no assurance that the fair values we will present will be indicative of amounts that may ultimately be realized upon sale or other disposition of these assets.
Financial and non-financial assets and liabilities measured at fair value on a non-recurring basis in our consolidated financial statements consist of real estate and related liabilities assumed related to our acquisition. The fair value of these assets and liabilities were determined as of the acquisition date using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity. In general, we consider multiple valuation techniques when measuring fair values. However, in certain circumstances, a single valuation technique may be appropriate. All of the fair values of the assets and liabilities assumed at the consolidation of the Operating Partnership were derived using Level 3 inputs.
The carrying amounts of cash and cash equivalents, restricted cash, other assets, variable-rate debt, accounts payable and accrued liabilities, distributions payable and amounts due to affiliates are expected to approximate fair value.
The table below summarizes our fixed rate notes payable at June 30, 2022 and December 31, 2021. The estimated fair value of financial instruments are subjective in nature and are dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The fair value of the fixed rate notes payable was estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts we would realize in a current market exchange.
| June 30, 2022 | December 31, 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Fair<br>Value | Carrying<br>Value | Fair<br>Value | Carrying<br>Value | |||||
| Fixed Rate Secured Debt | $ | 4,700,000 | $ | 4,800,000 | $ | 4,850,000 | $ | 4,800,000 |
Income Taxes
We intend to make an election to be taxed as a Real Estate Investment Trust (“REIT”), under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2021. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the REIT’s ordinary taxable income to stockholders (which is computed without regard to the dividends paid deduction or net capital gains and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT
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and intend to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes.
Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.
We filed an election to treat our TRS as a taxable REIT subsidiary. In general, the TRS performs additional services for our customers and generally engages in any real estate or non-real estate related business. The TRS is subject to corporate federal and state income tax. The TRS follows accounting guidance which requires the use of the asset and liability method. Deferred income taxes represent the tax effect of future differences between the book and tax bases of assets and liabilities.
Recently Issued Accounting Guidance
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848).” ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
Note 3. Real Estate Facilities
The following summarizes the activity in real estate facilities during the six months ended June 30, 2022:
| Real estate facilities | |||
|---|---|---|---|
| Balance at December 31, 2021 | $ | 75,356,725 | |
| Facility acquisitions | 106,050,006 | ||
| Improvements and additions | 200,363 | ||
| Balance at June 30, 2022 | $ | 181,607,094 | |
| Accumulated depreciation | |||
| Balance at December 31, 2021 | $ | (597,090 | ) |
| Depreciation expense | (1,585,866 | ) | |
| Balance at June 30, 2022 | $ | (2,182,956 | ) |
The following table summarizes the purchase price allocations for our acquisitions during the six months ended June 30, 2022:
| Property | Acquisition<br>Date | Real Estate<br>Assets | Intangibles | Total(1) | 2022<br>Revenue(2) | 2022<br>Property<br>Operating<br>Income(2)(3) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Vancouver – WA | 03/29/22 | $ | 24,612,304 | $ | 655,415 | $ | 25,267,719 | $ | 267,746 | $ | 148,926 |
| Portland – OR | 03/31/22 | $ | 14,916,544 | $ | 256,765 | $ | 15,173,309 | $ | 138,539 | $ | 24,840 |
| Newark– DE | 04/26/22 | $ | 20,004,449 | $ | 243,259 | $ | 20,247,708 | $ | 86,699 | $ | 20,099 |
| Levittown – PA | 04/26/22 | $ | 21,164,957 | $ | 260,555 | $ | 21,425,512 | $ | 88,159 | $ | 11,170 |
| Chandler – AZ | 05/17/22 | $ | 25,351,752 | $ | 425,695 | $ | 25,777,447 | $ | 96,918 | $ | 40,411 |
| $ | 106,050,006 | $ | 1,841,689 | $ | 107,891,695 | $ | 678,061 | $ | 245,446 |
(1) The allocations noted above are based on a determination of the relative fair value of the total consideration provided and represent the amount paid for the transaction, including capitalized acquisition costs.
(2) The operating results of the facilities acquired above have been included in our consolidated statements of operations since their respective acquisition date.
(3) Property operating income excludes corporate general and administrative expenses, asset management fees, depreciation, amortization, and acquisition expenses.
Note 4. Investments in Unconsolidated Real Estate Ventures
We have entered into various agreements with a subsidiary of SmartCentres, an unaffiliated third party, to acquire tracts of land and develop them into self storage facilities.
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We account for these investments using the equity method of accounting and they are stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings (loss) will generally be recognized based on our ownership interest in the earnings (loss) of each of the unconsolidated investments.
The Company's investments in unconsolidated real estate ventures is summarized as follows:
| Carrying Value of<br>Investment | ||||||||
|---|---|---|---|---|---|---|---|---|
| Location | Date Real Estate<br>Venture Acquired<br>Land | Real Estate <br>Venture Status | Equity<br>Ownership % | June 30,<br>2022 | December 31,<br>2021 | |||
| Toronto | Toronto, Ontario | April 2021 | Under development | 50% | $ | 3,743,981 | $ | 3,750,217 |
| Toronto II | Toronto, Ontario | December 2021 | Under development | 50% | 5,997,408 | 5,882,143 | ||
| $ | 9,741,389 | $ | 9,632,360 |
On April 19, 2021, our Operating Partnership (through its subsidiaries) and SmartCentres (through its subsidiaries) acquired an undeveloped tract of land located in Toronto, Ontario (the “Toronto Land”) from an unaffiliated third party. The Toronto Land is owned by a limited partnership in which we (through our subsidiaries) and SmartCentres (through its subsidiaries) are each a 50% limited partner and each have an equal ranking general partner. At closing, our Operating Partnership (through its subsidiaries) subscribed for 50% of the units of the limited partnership at an agreed upon subscription price of approximately CAD $4.25 million, representing a contribution equivalent to 50% of the purchase price of the Toronto Land. We expect that the limited partnership will develop the Toronto Land and build a self storage facility (the “Toronto Property”). The project is expected to be funded with debt proceeds.
On December 14, 2021, our Operating Partnership (through its subsidiaries) and SmartCentres (through its subsidiaries) acquired three parcels of land located in Toronto, Ontario (the “Toronto II Land”) from an unaffiliated third party. The Toronto II Land is owned by a limited partnership in which we (through our subsidiaries) and SmartCentres (through its subsidiaries) are each a 50% limited partner and each have an equal ranking general partner. At closing, our Operating Partnership (through its subsidiaries) subscribed for 50% of the units of the limited partnership at an agreed upon subscription price of approximately CAD $6.6 million, representing a contribution equivalent to 50% of the purchase price of the Toronto II Land. We expect that the limited partnership will develop the Toronto II Land into a self storage facility (the “Toronto II Property”). The project is expected to be funded with debt proceeds.
Note 5. Secured Debt
The Company’s secured debt is summarized as follows:
| Secured Debt | June 30,<br>2022 | December 31,<br>2021 | Interest<br>Rate | Maturity<br>Date | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Huntington Credit Facility | $ | 95,091,351 | $ | 37,062,500 | 4.21 | % | 11/30/2024 | |||
| Skymar Las Vegas Loan | 4,800,000 | 4,800,000 | 4.125 | % | 8/1/2024 | |||||
| SmartStop Delayed Draw Mezzanine Loan | 6,800,000 | 6,800,000 | 4.79 | % | 12/30/2022 | |||||
| Debt issuance costs, net | (1,250,865 | ) | (805,642 | ) | ||||||
| Total Secured Debt | $ | 105,440,486 | $ | 47,856,858 |
The weighted average interest rate on our consolidated debt as of June 30, 2022 was approximately 4.29%.
Huntington Loan
On March 11, 2021, in connection with the acquisition of the Phoenix Property, we, through an indirect, wholly-owned subsidiary of our Operating Partnership, entered into a term loan agreement (the “Huntington Loan Agreement”) with Huntington National Bank, a national banking association, as lead arranger and administrative agent for approximately $9.0 million (the “Huntington Loan”). At closing, we drew approximately $8.6 million. The remaining $0.4 million served as an interest holdback to cover monthly interest payments until fully utilized. The proceeds of the Huntington Loan were used to partially fund the acquisition of the Phoenix Property. The Huntington Loan was secured by a deed of trust on the Phoenix Property. We and our Operating Partnership served as limited guarantors with respect to the Huntington Loan. The interest rate on the Huntington Loan was equal to the greater of (i) 3.50% per annum, or (ii) 30-day LIBOR plus 2.75%. Payments on the Huntington Loan were interest only until March 11, 2024, which was the initial maturity date.
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On November 30, 2021, in conjunction with entering into the Huntington Credit Facility, the Huntington Loan was repaid and terminated in accordance with the Huntington Loan Agreement without fees or penalties.
Huntington Credit Facility
On November 30, 2021, we, through three special purpose entities (collectively, the “Borrower”) wholly owned by our operating partnership, entered into a credit agreement (the “Credit Agreement”) with Huntington National Bank (“Huntington”), as administrative agent and sole lead arranger.
Under the terms of the Credit Agreement, the Borrower has a maximum borrowing capacity of $50 million (the “Huntington Credit Facility”). However, certain financial requirements with respect to both the Borrower and the “Pool” of “Mortgaged Properties” (as each term is defined in the Credit Agreement) must be satisfied prior to making any drawdowns on the Huntington Credit Facility in accordance with the Credit Agreement. At close, we borrowed approximately $22.4 million on the Huntington Credit Facility, secured by a first mortgage deed of trust on the Surprise, Phoenix and Phoenix II Properties. In conjunction with the initial draw on the Huntington Credit Facility, the Huntington Loan was repaid and terminated in accordance with the Huntington Loan Agreement without any fees or penalties. On December 30, 2021, in conjunction with the acquisitions of the Bradenton Property and Apopka Property, we borrowed an additional approximately $14.7 million pursuant to the Huntington Credit Facility and the Bradenton and Apopka Properties were added as security. On April 26, 2022, the Vancouver Property was added as security to the Huntington Credit Facility and we borrowed approximately $12.9 million.
On May 17, 2022, we entered into an amendment and joinder to amend the Huntington Credit Facility (the “Second Amendment”). Under the terms of the Second Amendment, we increased our borrowing capacity by $50 million for a total borrowing capacity of $100 million. In conjunction with the increase of the maximum borrowing capacity we drew approximately $14.5 million on the Huntington Credit Facility to acquire the Chandler Property and the property was added as security. On May 26, 2022, we borrowed approximately $30.6 million on the Huntington Credit Facility, secured by a first mortgage deed of trust on the Levittown, Newark and Portland Properties. In conjunction with the May 26, 2022 draw on the Huntington Credit Facility, the Huntington Bridge Loan (described below) was repaid and terminated in accordance with the Huntington Bridge Loan Agreement without any fees or penalties.
The Huntington Credit Facility is a term loan that has a maturity date of November 30, 2024, which may, in certain circumstances, be extended at the option of the Borrower until November 30, 2026. Payments due under the Huntington Credit Facility are interest-only during the initial term of the loan.
The amounts outstanding under the Huntington Credit Facility bear interest at a variable rate equal to Secured Overnight Financing Rate (“SOFR”) plus 2.61%, adjusted monthly, with a floor of 3.25%. As of June 30, 2022, the interest rate on the Huntington Credit Facility was 4.21%. The loan may be prepaid in whole, but not in part, at any time, subject to certain conditions as set forth in the Credit Agreement.
The Credit Agreement contains certain customary representations and warranties, affirmative, negative and financial covenants, borrowing conditions, and events of default. We serve as a limited recourse guarantor with respect to the Huntington Credit Facility. In particular, the financial covenants include a minimum debt service coverage ratio and minimum net worth and liquid assets requirements applicable to us and our Operating Partnership as guarantors. As of June 30, 2022, we are in compliance with all such covenants.
Huntington Bridge Loan
On April 26, 2022, in connection with the acquisition of the Levittown and Newark Properties, we, through an indirect, wholly-owned subsidiary of our Operating Partnership, entered into a term loan agreement (the “Huntington Bridge Loan Agreement”) with Huntington National Bank, for approximately $30.6 million (the “Huntington Bridge Loan”). The Huntington Bridge Loan was secured by a deed of trust on the Levittown, Newark and Portland Properties. We and our Operating Partnership served as limited guarantors with respect to the Huntington Bridge Loan. The interest rate on the Huntington Bridge Loan was equal to Secured Overnight Financing Rate (“SOFR”) plus 2.61%, adjusted monthly, with a floor of 3.25%. Payments on the Huntington Bridge Loan were interest only until July 25, 2022, which was the initial maturity date. On May 26, 2022, in connection with a draw on the Huntington Credit Facility, the Huntington Bridge Loan was repaid and terminated in accordance with the Huntington Bridge Loan Agreement without fees or penalties.
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Skymar Loan
On July 8, 2021, we, through a wholly-owned special purposes entity, entered into a $4.8 million financing with Skymar Capital Corporation (“Skymar”) as lender pursuant to a mortgage loan (the “Skymar Las Vegas Loan”). The Las Vegas Loan is secured by a first mortgage deed of trust on the Las Vegas property. The loan has a maturity date of August 1, 2024. Monthly payments due under the loan agreement (the “Las Vegas Loan Agreement”) are interest-only for the first two years, with principal and interest payments thereafter.
The amount outstanding under the Las Vegas Loan bears interest at an annual fixed rate equal to 4.125%. The loan may be prepaid in whole, but not in part, at any time, subject to certain conditions as set forth in the Las Vegas Loan Agreement. The loan documents contain: agreements; representations; warranties and borrowing conditions; reserve requirements and events of default all as set forth in such loan documents. In addition, and pursuant to the terms of the limited recourse guaranty, we serve as a non-recourse guarantor with respect to the Las Vegas Loan.
Loans from SmartStop OP, L.P.
On March 11, 2021, in connection with the acquisition of the Phoenix Property, we, through a wholly owned subsidiary of our Operating Partnership, entered into a mezzanine loan agreement (the “Mezzanine Loan Agreement”) with SmartStop OP, an affiliate of our sponsor, for $3.5 million (the “Mezzanine Loan”). The Mezzanine Loan required a commitment fee equal to 1.0% of the amount drawn at closing of the Mezzanine Loan. The proceeds of the Mezzanine Loan were used to partially fund the acquisition of the Phoenix Property. The Mezzanine Loan was secured by a pledge of the equity interest in the indirect, wholly-owned subsidiary of our Operating Partnership that owns the Phoenix Property. Our Operating Partnership served as a limited guarantor with respect to the Mezzanine Loan.
The interest rate on the Mezzanine Loan was equal to 8.5% per annum. Payments on the Mezzanine Loan were interest only until September 7, 2021, which was the initial maturity date of the Mezzanine Loan. In accordance with the terms of the Mezzanine Loan Agreement, we extended the maturity date of the Mezzanine Loan through March 6, 2022 by providing written notice to SmartStop OP, at which time the interest rate of the Mezzanine Loan increased to 9.25% per annum. On November 12, 2021, we repaid the outstanding balance on the Mezzanine Loan along with all accrued interest. The loan was terminated in accordance with the Mezzanine Loan Agreement without fees or penalties.
On April 16, 2021, in connection with the acquisition of the Toronto Land, we, through our Operating Partnership, entered into a term loan agreement (the “Term Loan Agreement”) with SmartStop OP, for $2.1 million (the “Term Loan”). The Term Loan required a commitment fee equal to 1.0% of the amount of the Term Loan. The proceeds of the Term Loan were used to fund our contribution to the limited partnership that purchased the Toronto Land. The Term Loan was secured by a pledge of the equity interest in the wholly-owned subsidiary of our Operating Partnership that indirectly owns a portion of the Toronto Property.
The initial interest rate on the Term Loan was equal to 8.5% per annum. Commencing on October 14, 2021 and continuing until April 16, 2022, the maturity date of the Term Loan (the “Maturity Date”), the interest rate was equal to 9.25% per annum. Payments on the Term Loan were interest only until the Maturity Date. On November 12, 2021, we repaid the outstanding balance on the Term Loan along with all accrued interest. The loan was terminated in accordance with the Term Loan Agreement without fees or penalties.
On December 30, 2021, in connection with the acquisition of the Bradenton Property and the Apopka Property, we, through a wholly-owned subsidiary of our operating partnership, entered into a mezzanine loan agreement (the “SmartStop Delayed Draw Mezzanine Loan Agreement”) with SmartStop OP, an affiliate of our sponsor, for up to $45 million (the “SmartStop Delayed Draw Mezzanine Loan”). The SmartStop Delayed Draw Mezzanine Loan required a commitment fee equal to 1.0% of the amount drawn at closing. On December 30, 2021, we borrowed $6.8 million pursuant to the SmartStop Delayed Draw Mezzanine Loan. The proceeds were used to partially fund the acquisitions of the Bradenton Property and the Apopka Property. The SmartStop Delayed Draw Mezzanine Loan is secured by a pledge of the equity interest in the indirect, wholly-owned subsidiaries of our operating partnership that own the Bradenton Property and the Apopka Property. Our Operating Partnership serves as a non-recourse guarantor with respect to the SmartStop Delayed Draw Mezzanine Loan.
The interest rate on the SmartStop Delayed Draw Mezzanine Loan is a variable rate equal to LIBOR plus 3%. Payments are interest only until December 30, 2022, which is the initial maturity date. We may, in certain circumstances, extend the ultimate maturity date of the SmartStop Delayed Draw Mezzanine Loan through December 30, 2023 upon written notice to SmartStop OP, in which event the interest rate will increase to LIBOR plus 4% per annum. As of June 30, 2022, the interest rate on the SmartStop Delayed Draw Mezzanine Loan was 4.79%. The SmartStop Delayed Draw Mezzanine Loan
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may be prepaid in whole or in part at any time without fees or penalty and, in certain circumstances, equity interests securing the SmartStop Delayed Draw Mezzanine Loan may be released from the pledge of collateral.
On July 8, 2022, in connection with the acquisition of the St. Johns Property, we amended the SmartStop Delayed Draw Mezzanine Loan to allow for the addition of the St. Johns Property and we drew an additional $7.2 million pursuant to the SmartStop Delayed Draw Mezzanine Loan. The proceeds were used to partially fund the acquisition of the St. Johns Property. See Note 10 - Subsequent Events.
The following table presents the future principal payment requirements on our outstanding secured debt as of June 30, 2022:
| 2022 | $ | 6,800,000 | |
|---|---|---|---|
| 2023 | — | ||
| 2024 | 99,891,351 | ||
| Thereafter | — | ||
| Total payments | 106,691,351 | ||
| Debt issuance costs, net | (1,250,865 | ) | |
| Total | $ | 105,440,486 |
Note 6. Related Party Transactions
Fees to Affiliates
Our Private Offering Advisory Agreement and our Private Offering Dealer Manager Agreement entitled our Advisor and our Dealer Manager to specified fees upon the provision of certain services with regard to the Private Offering and investment of funds in real estate properties, among other services, as well as reimbursement for organization and offering costs incurred by our Advisor on our behalf and reimbursement of certain costs and expenses incurred by our Advisor in providing services to us.
In addition, our Advisory Agreement with our Advisor and our Dealer Manager Agreement with our Dealer Manager entitle our Advisor and our Dealer Manager to specified fees upon the provision of certain services with regard to the Public Offering and investment of funds in real estate properties, among other services, as well as reimbursement for organization and offering costs incurred by our Advisor on our behalf and reimbursement of certain costs and expenses incurred by our Advisor in providing services to us.
Organization and Offering Costs
Organization and offering costs of the Private Offering paid by our Advisor on our behalf will be reimbursed to our Advisor. In addition, organization and offering costs of the Public Offering have been paid and will continue to be paid by our Advisor on our behalf and will be reimbursed to our Advisor; provided, however, that our Advisor will fund, and will not be reimbursed for, 1.0% of the gross offering proceeds from the sale of Class W shares towards payment of organization and offering expenses. Organization and offering costs consist of all expenses (other than sales commissions, the dealer manager fee, stockholder servicing fees and dealer manager servicing fees) to be paid by us in connection with the Private Offering and Public Offering, including our legal, accounting, printing, mailing and filing fees, charges of our escrow holder and other accountable organization and offering expenses, including, but not limited to, (i) amounts to reimburse our Advisor for all marketing related costs and expenses such as salaries and direct expenses of employees of our Advisor and its affiliates in connection with registering and marketing our shares; (ii) technology costs associated with the Private Offering and Public Offering; (iii) our costs of conducting our training and education meetings; (iv) our costs of attending retail seminars conducted by participating broker-dealers; and (v) payment or reimbursement of bona fide due diligence expenses. Our Advisor will be required to reimburse us within 60 days after the end of the month which the Public Offering terminates to the extent we paid or reimbursed organization and offering costs (including sales commissions, dealer manager fees, stockholder servicing fees, and dealer manager servicing fees) in excess of 15% of the gross offering proceeds from the Primary Offering.
Advisory Agreements
We do not have any employees. Our Advisor is primarily responsible for managing our business affairs and carrying out the directives of our board of directors. Our Advisor receives various fees and expenses under the terms of our Advisory Agreement. As discussed above, we will be required under our Advisory Agreement to reimburse our Advisor for organization and offering costs; provided, however, our Advisor funded, and will not be reimbursed for, 1% of the gross offering proceeds from the sale of Class W shares towards payment of organization and offering expenses. As noted above,
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the Advisory Agreement also requires our Advisor to reimburse us to the extent that offering expenses, including sales commissions, dealer manager fees, stockholder servicing fees and dealer manager servicing fees, are in excess of 15% of gross proceeds from the Primary Offering.
Our Advisor receives acquisition fees equal to 1.0% of the contract purchase price of each property we acquire plus reimbursement of any acquisition expenses our Advisor incurs. Our Advisor also receives a monthly asset management fee equal to 0.0625%, which is one-twelfth of 0.75%, of our aggregate asset value, as defined. Under our Advisory Agreement, our Advisor will receive a disposition fee equal to the lesser of 1% of the contract sales price of each property sold or 50% of the competitive commission rate.
SSA may also be entitled to various subordinated distributions under our operating partnership agreement if we (1) list our shares of common stock on a national exchange, (2) terminate or do not renew the Advisory Agreement, (3) liquidate our portfolio, or (4) effect a merger or other corporate reorganization.
Our Advisory Agreement provides for reimbursement of our Advisor’s direct and indirect costs of providing administrative and management services to us. Beginning four fiscal quarters after commencement of the Public Offering, pursuant to our Advisory Agreement, our Advisor will be required to pay or reimburse us the amount by which our aggregate annual operating expenses, as defined, exceed the greater of 2% of our average invested assets or 25% of our net income, as defined, unless a majority of our independent directors determine that such excess expenses were justified based on unusual and non-recurring factors. For any fiscal quarter for which total operating expenses for the 12 months then ended exceed the limitation, we will disclose this fact in our next quarterly report or within 60 days of the end of that quarter and send a written disclosure of this fact to our stockholders. In each case the disclosure will include an explanation of the factors that the independent directors considered in arriving at the conclusion that the excess expenses were justified.
Property Management Agreement
Each of our self storage properties is managed by our Property Manager under separate property management agreements. Under each agreement, our Property Manager receives a fee for its services in managing our properties, generally equal to the greater of $3,000 or 6% of the gross revenues from the properties plus reimbursement of the Property Manager’s costs of managing the properties. In addition, our Property Manager or an affiliate has the exclusive right to offer tenant insurance plans, tenant protection plans or similar programs (collectively “Tenant Programs”) to customers at our properties and is entitled to substantially all of the benefits of such Tenant Programs. The property management agreements have a three-year term and automatically renew for successive three year periods thereafter, unless we or our Property Manager provide prior written notice at least 90 days prior to the expiration of the term. After the end of the initial three year term, either party may terminate a property management agreement generally upon 60 days’ prior written notice. With respect to each new property we acquire for which we enter into a property management agreement with our Property Manager we also pay our Property Manager a one-time start-up fee in the amount of $3,750.
All of our properties are operated under the “SmartStop® Self Storage” brand. An affiliate of our Sponsor owns the rights to the “SmartStop® Self Storage” brand.
Transfer Agent Agreement
Our Chief Executive Officer is also the chief executive officer and indirect owner of the parent company of our transfer agent (our "Transfer Agent"), which is a registered transfer agent with the SEC. Pursuant to our transfer agent agreement, our Transfer Agent provides transfer agent and registrar services to us. These services are substantially similar to what a third party transfer agent would provide in the ordinary course of performing its functions as a transfer agent, including, but not limited to: providing customer service to our stockholders, processing the distributions and any servicing fees with respect to our shares and issuing regular reports to our stockholders. Our Transfer Agent may retain and supervise third party vendors in its efforts to administer certain services. Our Transfer Agent also conducts transfer agent and registrar services for our Sponsor and other non-traded REITs sponsored by our Sponsor.
Fees paid to our Transfer Agent are based on a fixed quarterly distribution fee, monthly open account fee, monthly portal fee, one-time initial account setup fee, one-time transfer fee and phone call fee per investor call received by our transfer agent. In addition, we will reimburse our Transfer Agent for all reasonable expenses or other charges incurred by it in connection with the provision of its services to us, and we will pay our Transfer Agent fees for any additional services we may request from time to time, in accordance with its rates then in effect. Upon the request of our Transfer Agent, we may also advance payment for substantial reasonable out-of-pocket expenditures to be incurred by it.
The initial term of the Transfer Agent Agreement is three years, which term will be automatically renewed for one year successive terms, but either party may terminate the Transfer Agent Agreement upon 90 days’ prior written notice. In the
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event that we terminate the Transfer Agent Agreement, other than for cause, we will pay our transfer agent all amounts that would have otherwise accrued during the remaining term of the Transfer Agent Agreement; provided, however, that when calculating the remaining months in the term for such purposes, such term is deemed to be a 12-month period starting from the date of the most recent annual anniversary date.
Pursuant to the terms of the agreements described above, the following table summarizes related party costs incurred and paid by us for the year ended December 31, 2021 and the six months ended June 30, 2022, as well as any related amounts payable as of December 31, 2021 and June 30, 2022:
| Year Ended December 31, 2021 | Six Months Ended June 30, 2022 | |||||
|---|---|---|---|---|---|---|
| Incurred | Paid | Payable | Incurred | Paid | Payable | |
| Expensed | ||||||
| Operating expenses<br> (including organizational costs) | $1,120,374 | $997,903 | $122,471 | $889,680 | $664,803 | $347,348 |
| Asset management fees | 178,282 | 156,138 | 22,144 | 474,540 | 496,684 | — |
| Property management fees | 96,505 | 88,300 | 8,205 | 202,707 | 210,912 | — |
| Transfer Agent expenses | 42,949 | 42,949 | — | 105,536 | 101,174 | 4,362 |
| Acquisition expenses (1) | 662,957 | 551,302 | 111,655 | 277,843 | 345,611 | 43,887 |
| Capitalized | ||||||
| Acquisition related (2) | 1,442,319 | 1,046,673 | 395,646 | 2,821,625 | 3,149,271 | 68,000 |
| Additional Paid-in Capital | ||||||
| Offering costs | 501,712 | 436,212 | 65,500 | 50,000 | 115,500 | — |
| Total | $4,045,098 | $3,319,477 | $725,621 | $4,821,931 | $5,083,955 | $463,597 |
(1) Amounts include third party acquisition expenses paid by our Sponsor and reimbursed by the Company.
(2) Amounts include acquisition fees paid to our Sponsor and third party earnest money deposits paid by our Sponsor and reimbursed by the Company.
Tenant Programs
We may offer Tenant Programs to customers at our properties pursuant to which our Property Manager or an affiliate is entitled to substantially all of the net revenue attributable to the sale of Tenant Programs at our properties.
In order to protect the interest of the Property Manager in receiving these revenues in light of the fact that we control the properties and, hence, the ability of the Property Manager to receive such revenues, we and an affiliate of our Property Manager agreed to transfer our respective rights in such revenue to a joint venture entity owned 0.1% by our TRS subsidiary and 99.9% by our Property Manager’s affiliate (the “PM Affiliate”). Under the terms of the operating agreement of the joint venture entity, dated March 8, 2021 (the “JV Agreement”), our TRS receives 0.1% of the net revenues generated from such Tenant Programs and the PM Affiliate receives the other 99.9% of such net revenues. The JV Agreement further provides, among other things, that if a member or its affiliate terminates all or substantially all of the property management agreements or defaults in its material obligations under the JV Agreement or undergoes a change of control, as defined, (the “Triggering Member”), the other member generally shall have the right (but not the obligation) to either (i) sell all of its interest in the joint venture to the Triggering Member at fair market value (as agreed upon or as determined under an appraisal process) or (ii) purchase all of the Triggering Member’s interest in the joint venture at 95% of fair market value. For the six months ended June 30, 2022 and 2021, an affiliate of our Property Manager received net revenue from this joint venture of approximately $145,000 and $15,000, respectively.
Storage Auction Program
Our Sponsor owns a minority interest in a company that owns 50% of an online auction company (the “Auction Company”) that serves as a web portal for self storage companies to post their auctions for the contents of abandoned storage units online instead of using live auctions conducted at the self storage facilities. The Auction Company receives a service fee for such services. During the six months ended June 30, 2022 and 2021, we paid approximately $1,200 and none in fees to
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the Auction Company related to our properties, respectively. Our properties will receive the proceeds from such online auctions.
Note 7. Commitments and Contingencies
Distribution Reinvestment Plan
We adopted a distribution reinvestment plan that will allow our stockholders to have distributions otherwise distributable to them invested in additional shares of our common stock at a price equal to 95% of the then-current per share offering price. We adopted an amended and restated distribution reinvestment plan in connection with the Public Offering. The purchase price per share will be 95% of the latest per share offering price offered in the Private Offering for Class P shares and 95% of the current offering price of our shares in the Primary Offering for Class A, Class T and Class W shares. No sales commission or dealer manager fee will be paid on shares sold through the distribution reinvestment plan. We may amend or terminate the distribution reinvestment plan for any reason at any time upon 10 days’ prior written notice to stockholders.
As of June 30, 2022, we have sold approximately 130,000 Class P shares, 200 Class A shares, 50 Class T shares and 90 Class W shares through our distribution reinvestment plan offering.
Share Redemption Program
We adopted a share redemption program for stockholders purchasing Class P shares in the Private Offering and a separate share redemption program for stockholders purchasing Class A shares, Class T shares and Class W shares in the Public Offering, each of which enables stockholders to sell their shares to us in limited circumstances. As long as our common stock is not listed on a national securities exchange or over-the-counter market, our stockholders who have held their stock for at least one year may be able to have all or any portion of their shares of stock redeemed by us. We may redeem the shares of stock presented for redemption for cash to the extent that we have sufficient funds available to fund such redemption.
Until we establish a net asset value per share, the redemption price per share for Class A shares, Class T shares and Class W shares purchased in our Public Offering shall initially be equal to the net investment amount of such shares, which will be based on the “amount available for investment” percentage for the respective class of shares, assuming the maximum amount of our public offering is raised, shown in the estimated use of proceeds table in our prospectus in effect as of the investor’s purchase date. For each class of shares, this amount will equal the then-current offering price of the shares, less the associated sales commissions, dealer manager fees and estimated organization and offering expenses not reimbursed by our Advisor assuming the maximum amount of our Public Offering is raised.
The redemption price per for Class P shares purchased in the Private Offering will depend on the length of time such stockholders have held such shares as follows (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock):
• after one year from the purchase date — 90.0% of the Redemption Amount (as defined below);
• after two years from the purchase date — 92.5% of the Redemption Amount;
• after three years from the purchase date — 95.0% of the Redemption Amount; and
• after four years from the purchase date — 100% of the Redemption Amount.
At any time we are engaged in an offering of Class P shares, the Redemption Amount for Class P shares purchased under the share redemption program will always be equal to or lower than the applicable per share offering price for such Class P shares. As long as we are engaged in an offering of Class P shares, the Redemption Amount shall be the lesser of the amount such stockholders paid for their Shares or the price per share in the offering. If we are no longer engaged in an offering of Class P shares, the per Share Redemption Amount will be determined by our board of directors.
Our board of directors may amend, suspend or terminate the share redemption program with 30 days’ notice to our stockholders. We may provide this notice by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to our stockholders.
There are several limitations on our ability to redeem shares under the share redemption program, including, but not limited to:
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• Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” (as defined under the share redemption program) or bankruptcy, we may not redeem shares until the stockholder has held his or her shares for one year.
• During any calendar year, we will not redeem in excess of 5% of the weighted-average number of shares outstanding during the prior calendar year.
• The cash available for redemption is limited to the proceeds from the sale of shares pursuant to our distribution reinvestment plan.
• We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.
Operating Partnership Redemption Rights
The limited partners of our Operating Partnership have the right to cause our Operating Partnership to redeem their limited partnership units for cash equal to the value of an equivalent number of our shares, or, at our option, we may purchase their limited partnership units by issuing one share of our common stock for each limited partnership unit redeemed. These rights may not be exercised under certain circumstances that could cause us to lose our REIT election. Furthermore, limited partners may exercise their redemption rights only after their limited partnership units have been outstanding for one year. SSA and SmartStop OP are prohibited from exchanging or otherwise transferring units representing $202,000 of the initial investments in our Operating Partnership so long as our Advisor is acting as our Advisor pursuant to our Advisory Agreement.
Other Contingencies
From time to time, we are party to legal proceedings that arise in the ordinary course of our business. We are not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.
Note 8. Declaration of Distributions
Cash Distribution Declaration
On June 23, 2022, our board of directors declared a daily distribution rate of approximately $0.001644 per day per share on the outstanding shares of common stock payable to Class A, Class T, Class W and Class P stockholders of record of such shares as shown on our books at the close of business on each day of the period commencing on July 1, 2022 and ending September 30, 2022. In connection with this distribution, for the stockholders of Class T shares, after the stockholder servicing fee is paid, approximately $0.001370 per day will be paid per Class T share and for the stockholders of Class W shares, after the dealer manager servicing fee is paid, approximately $0.001515 per day will be paid per Class W share. Such distributions payable to each stockholder of record during a month will be paid the following month.
Note 9. Potential Acquisitions
Potential Acquisition of Etobicoke Property
On May 19, 2021, an affiliate of our Sponsor assigned its interest in a purchase and sale agreement (the “Etobicoke Purchase Agreement”) with an unaffiliated third party for the acquisition of a parcel of land to be developed into a self storage facility located in Etobicoke, in the city of Toronto, Ontario (the “Etobicoke Property”) to a wholly-owned subsidiary of our Operating Partnership. The purchase price of the Etobicoke Property is approximately CAD $2.2 million. The Etobicoke Property will be developed into a self storage facility. We expect the acquisition of the Etobicoke Property to close in the second half of 2022. Construction is expected to commence following the closing of the acquisition. We expect to fund the acquisition of the Etobicoke Property with a combination of net proceeds from our offerings and/or potential future debt financing. If we fail to complete the acquisition, we may forfeit CAD $250,000 in earnest money deposits.
Potential Acquisition of Scarborough Property
On July 15, 2021, an affiliate of our Sponsor assigned its interest in a purchase and sale agreement (the “Scarborough Purchase Agreement”) with an unaffiliated third party for the acquisition of a parcel of land to be developed into a self storage facility located in Scarborough, in the city of Toronto, Ontario (the “Scarborough Property”) to a wholly-owned subsidiary of our Operating Partnership. The purchase price of the Scarborough Property is approximately CAD $2.2 million.
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We expect the acquisition of the Scarborough Property to close in the first half of 2023. Construction is expected to commence following the closing of the acquisition. We expect to fund the acquisition of the Scarborough Property with a combination of net proceeds from our offerings and/or potential future debt financing. If we fail to complete the acquisition, we may forfeit CAD $250,000 in earnest money deposits.
Potential Acquisition of Hamilton Property
On August 31, 2021, one of our subsidiaries entered into a contribution agreement with a subsidiary of SmartCentres, to acquire a tract of land owned by SmartCentres and located in Hamilton, Ontario (the “Hamilton Land”) in the Greater Toronto Area of Canada.
Upon closing, the Hamilton Land will be owned by a limited partnership (the “Hamilton Limited Partnership”), in which we (through our subsidiaries) and SmartCentres (through its subsidiaries) will each be a 50% limited partner and each have an equal ranking general partner in the Hamilton Limited Partnership. It is intended that the Hamilton Limited Partnership develops a self storage facility on the land. At closing, we (through our subsidiaries) will subscribe for 50% of the units in the Hamilton Limited Partnerships at an agreed upon subscription price of approximately CAD $750,000, representing contributions equivalent to 50% of the agreed upon fair market value of the land. We expect the acquisition of the Hamilton Land to close in the first half of 2023. Construction is expected to commence following the closing of the acquisition. We expect to fund the acquisition of the Hamilton Land with a combination of net proceeds from our offerings and/or potential future debt financing. If we fail to complete the acquisition, we may forfeit CAD $75,000 in earnest money deposits.
Note 10. Subsequent Events
Acquisition of St. Johns Property
On July 8, 2022, we, through an indirect, wholly-owned subsidiary of our Operating Partnership, acquired a self storage facility located in St. Johns, Florida (the “St. Johns Property”) from an unaffiliated third party. The purchase price for the St. Johns Property was approximately $14.4 million, plus closing costs and acquisition fees, which was funded by proceeds from our offerings and a draw on the SmartStop Delayed Draw Mezzanine Loan.
SmartStop Delayed Draw Mezzanine Loan
On July 8, 2022, in connection with the acquisition of the St. Johns Property, we amended the SmartStop Delayed Draw Mezzanine Loan to allow for the addition of the St. Johns Property and we drew approximately $7.2 million pursuant to the SmartStop Delayed Draw Mezzanine Loan. The proceeds of the SmartStop Delayed Draw Mezzanine Loan were used to partially fund the acquisition of the St. Johns Property. The SmartStop Delayed Draw Mezzanine Loan is secured by a pledge of the equity interest in the indirect, wholly-owned subsidiary of our Operating Partnership that owns the St. Johns Property. Our Operating Partnership serves as a non-recourse guarantor with respect to the SmartStop Delayed Draw Mezzanine Loan.
Potential Acquisition of New Westminster Property
On August 3, 2022, one of our subsidiaries entered into a contribution agreement with a subsidiary of SmartCentres, to acquire a tract of land owned by SmartCentres and located in New Westminster, British Columbia (the “New Westminster Land”).
Upon closing, the New Westminster Land will be owned by a limited partnership (the “New Westminster Limited Partnership”), in which we (through our subsidiaries) and SmartCentres (through its subsidiaries) will each be a 50% limited partner and each have an equal ranking general partner in the New Westminster Limited Partnership. It is intended that the New Westminster Limited Partnership develops a self storage facility on the land. At closing, we (through our subsidiaries) will subscribe for 50% of the units in the New Westminster Limited Partnership at an agreed upon subscription price of approximately CAD $3.3 million, representing contributions equivalent to 50% of the agreed upon fair market value of the land. We expect the acquisition of the New Westminster Land to close in the second half of 2023. Construction is expected to commence following the closing of the acquisition. We expect to fund the acquisition of the New Westminster Land with a combination of net proceeds from our offerings and/or potential future debt financing. If we fail to complete the acquisition, we may forfeit CAD $330,000 in earnest money deposits.
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Offering Status
As of August 4, 2022, in connection with our offerings we have issued approximately 10.7 million Class P shares for gross offering proceeds of approximately $102.2 million, approximately 0.9 million Class A shares for gross offering proceeds of approximately $9.0 million, approximately 1.5 million Class T shares for gross offering proceeds of approximately $14.9 million and approximately 0.1 million Class W shares for gross offering proceeds of approximately $1.2 million.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and notes thereto contained elsewhere in this report. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with our consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2021 included in our Registration Statement on Form S-11 (SEC Registration No. 333-256598). See also “Cautionary Note Regarding Forward Looking Statements” preceding Part I.
Overview
Strategic Storage Trust VI, Inc., a Maryland corporation (the “Company”), was formed on October 14, 2020 under the Maryland General Corporation Law for the purpose of engaging in the business of investing in self storage facilities and commenced formal operations on March 10, 2021. We intend to elect to be treated as a REIT under the Internal Revenue Code for federal income tax purposes beginning with our taxable year ended December 31, 2021.
On February 26, 2021, pursuant to a confidential private placement memorandum, we commenced a private offering of up to $200,000,000 in shares of our common stock and $20,000,000 shares of common stock pursuant to our distribution reinvestment plan. Please see Note 1 of the Notes to the Consolidated Financial Statements contained elsewhere in this report for additional information. The primary portion of our private offering was terminated on March 17, 2022. We received approximately $100.7 million in offering proceeds from the sale of our common stock pursuant to the private offering. Through our distribution reinvestment plan, we have issued approximately 130,000 Class P shares for gross proceeds of approximately $1.2 million.
In connection with the Public Offering, defined below, we filed articles of amendment to our Charter (the “Articles of Amendment”) and articles supplementary to our Charter (the “Articles Supplementary”). Following the filing of the Articles of Amendment and the Articles Supplementary, we authorized 30,000,000 shares of common stock designated as Class P shares, 300,000,000 shares of common stock designated as Class A shares, 300,000,000 shares of common stock designated as Class T shares, and 70,000,000 shares of common stock designated as Class W shares. Any common stock sold in the Private Offering were redesignated as Class P common stock upon the filing of the Articles of Amendment. On May 28, 2021, we filed a Form S-11 Registration Statement, which was subsequently amended, with the Securities and Exchange Commission (“SEC”) to register a maximum of $1,000,000,000 in shares of Class A, Class T, and Class W common stock for sale to the public (the “Primary Offering”) and $95,000,000 in shares of Class A, Class T, and Class W common stock for sale pursuant to our distribution reinvestment plan (collectively, the “Public Offering”). On March 17, 2022, the SEC declared our registration statement effective. As of June 30, 2022, approximately 0.6 million Class A shares, approximately 0.7 million Class T shares and approximately 0.1 million Class W shares had been sold in the Public Offering for gross offering proceeds of approximately $5.9 million, approximately $6.7 million and approximately $0.8 million, respectively. Through our distribution reinvestment plan, we have issued approximately 200 Class A shares, approximately 50 Class T shares and approximately 90 Class W shares for gross proceeds of approximately $3,000.
We have invested the net proceeds from our Private Offering and Public Offering primarily in self storage facilities consisting of both income-producing and growth properties located in the United States and Canada. As of June 30, 2022, we owned 11 operating self storage properties located in seven states (Arizona, Delaware, Florida, Nevada, Oregon, Pennsylvania and Washington) as well as 50% equity interests in two unconsolidated real estate ventures located in the Greater Toronto Area that are intended to be developed into self storage facilities, with subsidiaries of SmartCentres Real Estate Investment Trust (“SmartCentres”) owning the other 50% of such entity.
As of June 30, 2022, our self storage portfolio was comprised as follows:
| State | No. of<br>Properties | Units(1) | Sq. Ft.<br>(net)(2) | % of Total<br>Rentable<br>Sq. Ft. | Physical<br>Occupancy<br>%(3) | Rental<br>Income<br>%(4) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Arizona | 4 | 2,840 | 374,200 | 43 | % | 81 | % | (5) | 43 | % | ||||||
| Delaware | 1 | 830 | 80,700 | 9 | % | 48 | % | (5) | 6 | % | ||||||
| Florida | 2 | 1,140 | 119,900 | 14 | % | 87 | % | 17 | % | |||||||
| Nevada | 1 | 335 | 51,900 | 6 | % | 91 | % | 9 | % | |||||||
| Oregon | 1 | 520 | 56,200 | 7 | % | 70 | % | (5) | 7 | % | ||||||
| Pennsylvania | 1 | 810 | 78,000 | 9 | % | 49 | % | (5) | 6 | % | ||||||
| Washington | 1 | 1,090 | 100,000 | 12 | % | 82 | % | 12 | % | |||||||
| 11 | 7,565 | 860,900 | 100 | % | 76 | % | 100 | % |
(1) Includes all rentable units, consisting of storage units and parking units (approximately 150 units).
(2) Includes all rentable square feet consisting of storage units and parking units (approximately 77,600 square feet).
(3) Represents the occupied square feet of all facilities we owned in a state divided by total rentable square feet of all the facilities we owned in such state as of June 30, 2022.
(4) Represents rental income for all facilities we own in a state divided by our total rental income for the month ended June 30, 2022.
(5) The Chandler, Newark, Portland and Levittown properties are newly constructed or lease-up properties. The aforementioned properties' occupancy as of their respective acquisition dates and as of June 30, 2022 are as follows:
| Property | Acquisition Date | Initial<br>Occupancy % | Physical<br>Occupancy % |
|---|---|---|---|
| Chandler - AZ | 5/17/2022 | 58% | 64% |
| Newark - DE | 4/26/2022 | 27% | 48% |
| Portland - OR | 3/31/2022 | 51% | 70% |
| Levittown - PA | 4/26/2022 | 31% | 49% |
Investments in Unconsolidated Real Estate Ventures
We have entered into joint venture agreements with a subsidiary of SmartCentres, an unaffiliated third party, to acquire tracts of land and develop them into self storage facilities. We account for these investments using the equity method of accounting and they will be stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings (loss) will generally be recognized based on our ownership interest in the earnings of each of the unconsolidated investments.
The following table summarizes our investments in unconsolidated real estate ventures as of June 30, 2022:
| Location | Date Real Estate<br>Venture Acquired<br>Land | Real Estate<br>Venture <br>Status | Equity<br>Ownership % | Approx. Units<br>at Completion | Approx.<br>Sq. Ft. (net)<br>at Completion | |
|---|---|---|---|---|---|---|
| Toronto | Toronto, Ontario | April 2021 | Under Development | 50% | 1,200 | 98,500 |
| Toronto II | Toronto, Ontario | December 2021 | Under Development | 50% | 1,500 | 121,500 |
| 2,700 | 220,000 |
Development costs are currently expected to be approximately CAD $17.5 million for the Toronto Property and approximately CAD $22.6 million for the Toronto II Property, and are expected to be funded with debt proceeds. We expect development on these properties to be completed in the second half of 2023.
Critical Accounting Policies
We have established accounting policies which conform to generally accepted accounting principles (“GAAP”) in the U.S. Preparing financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Following is a discussion of the estimates and assumptions used in setting accounting policies that we consider critical in the presentation of our financial statements. Many estimates and assumptions involved in the application of GAAP may have a material impact on our financial condition or operating performance, or on the comparability of such information to amounts reported for other periods, because of the subjectivity and judgment required to account for highly uncertain items or the susceptibility of such items to change. These estimates and assumptions affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities at the dates of the financial statements and our reported amounts of revenue and expenses during the period covered by this report. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied or different amounts of assets, liabilities, revenues and expenses would have been recorded, thus resulting in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements. Additionally, other companies may use different
estimates and assumptions that may impact the comparability of our financial condition and results of operations to those companies.
We believe that our critical accounting policies include the following: real estate purchase price allocations; the evaluation of whether any of our long-lived assets have been impaired; the determination of the useful lives of our long-lived assets; and the evaluation of the consolidation of our interests in joint ventures. The following discussion of these policies supplements, but does not supplant the description of our significant accounting policies, as contained in Note 2 of the Notes to the Consolidated Financial Statements contained in this report, and is intended to present our analysis of the uncertainties involved in arriving upon and applying each policy.
Real Estate Purchase Price Allocation
We account for acquisitions in accordance with GAAP which requires that we allocate the purchase price of a property to the tangible and intangible assets acquired and the liabilities assumed based on their relative fair values. This guidance requires us to make significant estimates and assumptions, including fair value estimates, which requires the use of significant unobservable inputs as of the acquisition date.
The value of the tangible assets, consisting of land and buildings, is determined as if vacant. Because we believe that substantially all of the leases in place at properties we will acquire will be at market rates, as the majority of the leases are month-to-month contracts, we do not expect to allocate any portion of the purchase prices to above or below market leases. We also consider whether in-place, market leases represent an intangible asset. Acquisitions of portfolios of facilities are allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates which take into account the relative size, age, and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available.
Our allocations of purchase prices are based on certain significant estimates and assumptions, variations in such estimates and assumptions could result in a materially different presentation of the consolidated financial statements or materially different amounts being reported in the consolidated financial statements.
Impairment of Long-Lived Assets
The majority of our assets, other than cash and cash equivalents, consist of long-lived real estate assets as well as intangible assets related to our acquisitions. We will evaluate such assets for impairment based on events and changes in circumstances that may arise in the future and that may impact the carrying amounts of our long-lived assets, including those held through joint ventures. When indicators of potential impairment are present, we will assess the recoverability of the particular asset by determining whether the carrying value of the asset will be recovered, through an evaluation of the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. This evaluation is based on a number of estimates and assumptions. Based on this evaluation, if the expected undiscounted future cash flows do not exceed the carrying value, we will adjust the value of the long-lived asset and recognize an impairment loss. Our evaluation of the impairment of long-lived assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as the amount of impairment loss recognized, if any, may vary based on the estimates and assumptions we use.
Estimated Useful Lives of Long-Lived Assets
We assess the useful lives of the assets underlying our properties based upon a subjective determination of the period of future benefit for each asset. We record depreciation expense with respect to these assets based upon the estimated useful lives we determine. Our determinations of the useful lives of the assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as such determinations, and the corresponding amount of depreciation expense, may vary dramatically based on the estimates and assumptions we use.
Consolidation of Investments in Joint Ventures
We evaluate the consolidation of our investments in joint ventures in accordance with relevant accounting guidance. This evaluation requires us to determine whether we have a controlling interest in a joint venture through a means other than voting rights, and, if so, such joint venture may be required to be consolidated in our financial statements. Our evaluation of our joint ventures under such accounting guidance could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as the joint venture entities included in our financial statements may vary based on the estimates and assumptions we use.
REIT Qualification
We intend to make an election under Section 856(c) of the Internal Revenue Code of 1986 (the “Code”) to be taxed as a REIT under the Code, commencing with the taxable year ended December 31, 2021. By qualifying as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and could have a material adverse impact on our financial condition and results of operations. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes.
Recent Market Conditions
Our rental revenue and operating results depend significantly on the demand for self storage space. Due to the COVID-19 pandemic, our operations have adjusted to meet the needs of our customers and employees, while striving to create a safe environment for everyone at our properties and corporate offices. Additionally, we have expanded our options for customers to rent units via contactless means, including directly through our website and call center.
The challenges associated with the COVID-19 pandemic were partially offset by other trends that helped maintain the demand for self storage. The broader shift of people working from home, elevated migration patterns and strength in the housing market helped drive continued growth in self storage demand.
The underlying relative strength in the self storage industry in the midst of the COVID-19 pandemic continued into 2022. The ultimate extent and duration of the COVID-19 pandemic could still affect the self storage industry and/or us, potentially by the impact of governmental orders or broader economic conditions, which impact our customers, and in turn could affect our financial condition, collections, liquidity, and results of operations. These potential future developments are uncertain and cannot be predicted. This includes new information that may also emerge concerning the breadth of the COVID-19 outbreak, as well as the actions to contain or treat its impact, including the distribution and broad acceptance of various vaccines for COVID-19 or the efficacy of those vaccines against new COVID-19 variants.
Results of Operations
Overview
We derive revenues principally from: (i) rents received from tenants who rent storage units under month-to-month leases at each of our self storage facilities; and (ii) sales of packing- and storage-related supplies at our storage facilities. Therefore, our operating results depend significantly on our ability to retain our existing tenants and lease our available self storage units to new tenants, while maintaining and, where possible, increasing the prices for our self storage units. Additionally, our operating results depend on our tenants making their required rental payments to us.
Competition in the market areas in which we operate is significant and affects the occupancy levels, rental rates, rental revenues and operating expenses of our facilities. Development of any new self storage facilities would intensify competition of self storage operators in markets in which we operate.
On March 10, 2021, we commenced formal operations and we acquired our first six self storage properties during 2021. As of June 30, 2022 and 2021, we owned 11 and two self storage facilities, respectively.
Our operating results for the three months ended June 30, 2021 include partial period results for the two self storage facilities acquired during the second quarter of 2021. Our operating results for the three months ended June 30, 2022 include full period results for eight properties and partial period results for three properties acquired during the second quarter of 2022. As such, we believe there is little basis for comparison between the three months ended June 30, 2022 and 2021. Operating results in future periods will depend on the results of operations of these properties and the real estate properties that we acquire in the future.
Our operating results for the six months ended June 30, 2021 include partial period results for the two properties acquired during the first six months of 2021. Our operating results for the six months ended June 30, 2022 include full period results for six self storage facilities, and partial period results for five properties acquired during the first six months of 2022. As such, we believe there is little basis for comparison between the six months ended June 30, 2022 and 2021. Operating
results in future periods will depend on the results of operations of these properties and the real estate properties that we acquire in the future.
Comparison of the Three Months Ended June 30, 2022 and 2021
Total Revenues
Total revenues for the three months ended June 30, 2022 and 2021 were approximately $1.9 million and approximately $0.1 million, respectively. The increase in total revenue is primarily attributable to a full quarter of operations for eight properties and partial quarter of operations for three properties acquired in the second quarter of 2022, compared to partial quarter of operations for two properties acquired in the second quarter of 2021. We expect total revenues to increase in the future commensurate with our future acquisition activity and lease-up of our non-stabilized properties.
Property Operating Expenses
Property operating expenses for the three months ended June 30, 2022 and 2021 were approximately $0.9 million and approximately $0.1 million, respectively. Property operating expenses include the costs to operate our facilities including payroll, utilities, insurance, real estate taxes, and marketing. The increase in property operating expenses is primarily attributable to a full quarter of operations for eight properties and partial quarter of operations for three properties acquired in the second quarter of 2022, compared to partial quarter of operations for two properties acquired in the second quarter of 2021. We expect property operating expenses to increase in the future as our operational activity increases but decrease as a percentage of total revenues as we lease-up our non-stabilized properties.
Property Operating Expenses – Affiliates
Property operating expenses – affiliates for the three months ended June 30, 2022 and 2021 were approximately $0.4 million and approximately $0.1 million, respectively. Property operating expenses – affiliates includes property management fees and asset management fees. The increase in property operating expenses – affiliates is primarily attributable to a full quarter of operations for eight properties and partial quarter of operations for three properties acquired in the second quarter of 2022, compared to partial quarter of operations for two properties acquired in the second quarter of 2021. We expect property operating expenses – affiliates to increase in the future as our operational activity increases.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2022 and 2021 were approximately $0.6 million and approximately $0.2 million, respectively. General and administrative expenses consist primarily of legal expenses, directors’ and officers’ insurance, transfer agent fees, an allocation of a portion of our Advisor’s payroll related costs, accounting expenses and board of directors related costs. The increase in general and administrative expenses is primarily attributable to an increase in costs commensurate with the increase in our operational activity. We expect general and administrative expenses to increase in the future as our operational activity increases, but decrease as a percentage of total revenue.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the three months ended June 30, 2022 and 2021 were approximately $1.5 million and approximately $0.1 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of intangible assets resulting from our acquisitions. The increase in depreciation and amortization expense is primarily attributable to a full quarter of operations for eight properties and partial quarter of operations for three properties acquired in the second quarter of 2022, compared to partial quarter of operations for two properties acquired in the second quarter of 2021. We expect depreciation and amortization expense to increase in future periods commensurate with our future acquisition activity.
Acquisition Expenses – Affiliates
Acquisition expenses – affiliates for each of the three months ended June 30, 2022 and 2021 were approximately $0.1 million. Acquisition expenses primarily relate to the costs associated with our potential acquisitions prior to the acquisitions becoming probable in accordance with our capitalization policy. We expect acquisition expenses- affiliates to fluctuate in the future commensurate with our acquisition activity.
Other Property Acquisition Expenses
Other property acquisition expenses for the three months ended June 30, 2022 and 2021 were approximately $0.2 million and approximately $0.3 million, respectively. Acquisition expenses primarily relate to the costs associated with our potential acquisitions prior to the acquisitions becoming probable in accordance with our capitalization policy. We expect other property acquisition expenses to fluctuate in the future commensurate with our acquisition activity.
Interest Expense
Interest expense for the three months ended June 30, 2022 and 2021 was approximately $0.8 million and approximately $0.1 million, respectively. Interest expense consists of interest incurred on the loans related to our 11 self storage properties in 2022 compared to two properties in 2021. We expect interest expense to fluctuate in the future commensurate with our future debt level and interest rates.
Interest Expense – Debt Issuance Costs
Interest expense – debt issuance costs for the three months ended June 30, 2022 and 2021 were approximately $0.5 million and none, respectively. Interest expense – debt issuance costs reflects the amortization of fees incurred in connection with obtaining financing. The increase is primarily related to the write off of approximately $0.3 million in debt issuance cost related to the Huntington Credit Facility in accordance with GAAP. We expect interest expense – debt issuance costs to increase commensurate with our future financing activity.
Foreign currency adjustment
Foreign currency adjustment for the three months ended June 30, 2022 and 2021 was approximately $0.3 million and approximately $0.1 million, respectively. Foreign currency adjustment consists of changes in foreign currency related to our investments in unconsolidated real estate ventures, classified as short term in accordance with GAAP. We expect foreign currency adjustment to change in the future based upon changes in exchange rates, as well as future investments in real estate in currencies other than United States dollars, classified as short term in accordance with GAAP.
Comparison of the Six Months Ended June 30, 2022 and 2021
Total Revenues
Total revenues for the six months ended June 30, 2022 and 2021 were approximately $2.8 million and approximately $0.1 million, respectively. The increase in total revenue is primarily attributable to a full period of operations for six properties and partial period of operations for five properties acquired during the first six months of 2022, compared to partial period of operations for two properties acquired during the first six months of 2021. We expect total revenues to increase in the future commensurate with our future acquisition activity and lease-up of our non-stabilized properties.
Property Operating Expenses
Property operating expenses for the six months ended June 30, 2022 and 2021 were approximately $1.4 million and approximately $0.1 million, respectively. Property operating expenses include the costs to operate our facilities including payroll, utilities, insurance, real estate taxes, and marketing. The increase in property operating expenses is primarily attributable to a full period of operations for six properties and partial period of operations for five properties acquired during the first six months of 2022, compared to partial period of operations for two properties acquired during the first six months of 2021. We expect property operating expenses to increase in the future as our operational activity increases but decrease as a percentage of total revenues as we lease-up our non-stabilized properties.
Property Operating Expenses – Affiliates
Property operating expenses – affiliates for the six months ended June 30, 2022 and 2021 were approximately $0.7 million and approximately $0.1 million, respectively. Property operating expenses – affiliates includes property management fees and asset management fees. The increase in property operating expenses – affiliates is primarily attributable to a full period of operations for six properties and partial period of operations for five properties acquired during the first six months of 2022, compared to partial period of operations for two properties acquired during the first six months of 2021. We expect property operating expenses – affiliates to increase in the future as our operational activity increases.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2022 and 2021 were approximately $1.0 million and approximately $0.2 million, respectively. General and administrative expenses consist primarily of legal expenses, directors’ and officers’ insurance, transfer agent fees, an allocation of a portion of our Advisor’s payroll related costs, accounting expenses and board of directors related costs. The increase in general and administrative expenses is primarily attributable to an increase in costs commensurate with the increase in our operational activity. We expect general and administrative expenses to increase in the future as our operational activity increases, but decrease as a percentage of total revenue.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the six months ended June 30, 2022 and 2021 were approximately $2.3 million and approximately $0.1 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of intangible assets resulting from our acquisitions. The increase in depreciation and amortization expense is primarily attributable to a full period of operations for six properties and partial period of operations for five properties acquired during the first six months of 2022, compared to partial period of operations for two properties acquired during the first six months of 2021. We expect depreciation and amortization expense to increase in future periods commensurate with our future acquisition activity.
Acquisition Expenses – Affiliates
Acquisition expenses – affiliates for the six months ended June 30, 2022 and 2021 were approximately $0.3 million and approximately $0.1 million, respectively. Acquisition expenses primarily relate to the costs associated with our potential acquisitions prior to the acquisitions becoming probable in accordance with our capitalization policy. We expect acquisition expenses - affiliates to fluctuate in the future commensurate with our acquisition activity.
Other Property Acquisition Expenses
Other property acquisition expenses for the six months ended June 30, 2022 and 2021 were approximately $0.5 million and approximately $0.3 million, respectively. Acquisition expenses primarily relate to the costs associated with our potential acquisitions prior to the acquisitions becoming probable in accordance with our capitalization policy. We expect other property acquisition expenses to fluctuate in the future commensurate with our acquisition activity.
Interest Expense
Interest expense for the six months ended June 30, 2022 and 2021 was approximately $1.2 million and approximately $0.1 million, respectively. Interest expense consists of interest incurred on the loans related to our 11 self storage properties in 2022 compared to two properties in 2021. We expect interest expense to fluctuate in the future commensurate with our future debt level and interest rates.
Interest Expense – Debt Issuance Costs
Interest expense – debt issuance costs for the six months ended June 30, 2022 and 2021 were approximately $0.6 million and none, respectively. Interest expense – debt issuance costs reflects the amortization of fees incurred in connection with obtaining financing. The increase is primarily related to the write off of approximately $0.3 million in debt issuance cost related to the Huntington Credit Facility in accordance with GAAP. We expect interest expense – debt issuance costs to increase commensurate with our future financing activity.
Foreign currency adjustment
Foreign currency adjustment for the six months ended June 30, 2022 and 2021 was approximately $0.2 million and approximately $0.1 million, respectively. Foreign currency adjustment consists of changes in foreign currency related to our investments in unconsolidated real estate ventures, classified as short term in accordance with GAAP. We expect foreign currency adjustment to change in the future based upon changes in exchange rates, as well as future investments in real estate in currencies other than United States dollars, classified as short term in accordance with GAAP.
Liquidity and Capital Resources
Cash Flows
A comparison of cash flows for operating, investing and financing activities for the six months ended June 30, 2022 and 2021 is as follows:
| Six Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| June 30,<br>2022 | June 30,<br>2021 | Change | |||||||
| Net cash flow provided by (used in): | |||||||||
| Operating activities | $ | (1,935,632 | ) | $ | (1,161,944 | ) | $ | (773,688 | ) |
| Investing activities | (108,605,627 | ) | (8,328,962 | ) | (100,276,665 | ) | |||
| Financing activities | 117,139,071 | 15,488,976 | 101,650,095 |
Cash flows used in operating activities for the six months ended June 30, 2022 and 2021 were approximately $1.9 million and approximately $1.2 million, respectively, a change of approximately $0.8 million. The increase in cash used in our operating activities is primarily the result of increased acquisitions of lease up and non stabilized properties.
Cash flows used in investing activities for the six months ended June 30, 2022 and 2021 were approximately $108.6 million and approximately $8.3 million, respectively, a change of approximately $100.3 million. The increase in cash used in our investing activities is primarily the result of cash used for the purchase of real estate.
Cash flows provided by financing activities for the six months ended June 30, 2022 and 2021 were approximately $117.1 million and approximately $15.5 million, respectively, a change of approximately $101.7 million. The increase in cash provided by our financing activities is primarily the result of an increase in net proceeds raised from our Offering of approximately $46.0 million and a $57.0 million increase in net debt proceeds used to acquire real estate.
Short-Term Liquidity and Capital Resources
Our Advisor funded and was responsible for our organization and offering costs on our behalf, prior to the commencement of our formal operations on March 10, 2021 when we acquired the Phoenix Property. Currently, we generally expect that we will meet our short-term operating liquidity requirements, including potential development costs related to our joint venture investments as described in “- Investments in Unconsolidated Real Estate Ventures” above from the combination of proceeds from our offerings, proceeds from secured or unsecured financing from banks or other lenders, and net cash provided by property operations.
Distribution Policy and Distributions
We commenced paying distributions to our stockholders in March 2021 and intend to continue to pay regular distributions to our stockholders. From the commencement of paying cash distributions in March 2021, 100% of our cash distributions have been paid from the net proceeds of our Offerings. Until we are generating operating cash flow sufficient to fund distributions to our stockholders, we may decide to make stock distributions or to make distributions using a combination of stock and cash, or to fund some or all of our distributions from the proceeds of our private offering, proceeds of our Public Offering or from borrowings in anticipation of future cash flow, which may reduce the amount of capital we ultimately invest in properties. Because substantially all of our operations will be performed indirectly through our Operating Partnership, our ability to pay distributions depends in large part on our Operating Partnership’s ability to pay distributions to its partners, including to us. In the event we do not have enough cash from operations to fund cash distributions, we may borrow, issue additional securities or sell assets in order to fund the distributions or make the distributions out of net proceeds from our Public Offering. Therefore, it is likely that some or all of the distributions that we make will represent a return of capital to you, at least in the first few years of operation. Though we have no present intention to make in-kind distributions, we are authorized by our charter to make in-kind distributions of readily marketable securities, distributions of beneficial interests in a liquidating trust established for our dissolution and the liquidation of our assets in accordance with the terms of the charter or distributions that meet all of the following conditions: (a) our board of directors advises each stockholder of the risks associated with direct ownership of the property; (b) our board of directors offers each stockholder the election of receiving such in-kind distributions; and (c) in-kind distributions are only made to those stockholders who accept such offer.
Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flows from operations. However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our investments in the current real estate and financial environment and the types and mix of investments in our portfolio. As a result, future distributions declared and paid may exceed cash flow from operations.
Distributions will be paid to our stockholders as of the record date selected by our board of directors. We pay distributions monthly based on daily declaration and record dates so that investors may be entitled to distributions immediately upon purchasing our shares. We expect to continue to regularly pay distributions unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Distributions will be authorized at the discretion of our board of directors, which will be directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Code. Our board of directors may increase, decrease or eliminate the distribution rate that is being paid at any time. Distributions will be made on all classes of our common stock at the same time. The per share amount of distributions on different classes of shares will likely differ because of different allocations of class-specific expenses. Specifically, distributions on Class T shares and Class W shares will likely be lower than distributions on Class A shares and Class P shares because Class T shares are subject to ongoing stockholder servicing fees and Class W shares are subject to ongoing dealer manager servicing fees. The funds we receive from operations that are available for distribution may be affected by a number of factors, including the following:
• the amount of time required for us to invest the funds received in the offerings;
• our operating and interest expenses;
• the amount of distributions or dividends received by us from our indirect real estate investments;
• our ability to keep our properties occupied;
• our ability to maintain or increase rental rates;
• the performance of our lease-up, development and redevelopment properties;
• any significant delays in construction for development or redevelopment properties;
• construction defects or capital improvements;
• capital expenditures and reserves for such expenditures;
• the issuance of additional shares; and
• financings and refinancings.
We must distribute to our stockholders at least 90% of our taxable income each year in order to meet the requirements for being treated as a REIT under the Code. Our directors may authorize distributions in excess of this percentage as they deem appropriate. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period, but may be made in anticipation of cash flow that we expect to receive during a later period and may be made in advance of actual receipt of funds in an attempt to make distributions relatively uniform. To allow for such differences in timing between the receipt of income and the payment of expenses, and the effect of required debt payments, among other things, we could be required to borrow funds from third parties on a short-term basis, issue new securities, or sell assets to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. We are not prohibited from undertaking such activities by our charter, bylaws or investment policies, and we may use an unlimited amount from any source to pay our distributions. These methods of obtaining funding could affect future distributions by increasing operating costs and decreasing available cash, which could reduce the value of our stockholders' investments in our shares. In addition, such distributions may constitute a return of investors’ capital.
We have not been able to and may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from debt financing or from proceeds from the issuance of common stock in our offerings. The payment of distributions from sources other than cash flows from operations may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.
Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flows from operations. However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our investments in the current real estate and financial environment and the types and mix of investments in our portfolio. As a result, future distributions declared and paid may exceed cash flow from operations.
The following shows our distributions paid and the sources of such distributions for the respective periods presented:
| Six Months Ended<br>June 30, 2022 | Six Months Ended<br>June 30, 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Distributions paid in cash —<br> common stockholders | $ | 1,279,865 | $ | 24,770 | ||||
| Distributions paid in cash —<br> Operating Partnership unitholders | 146,383 | 62,509 | ||||||
| Distributions reinvested | 889,649 | 25,330 | ||||||
| Total distributions | $ | 2,315,897 | $ | 112,609 | ||||
| Source of distributions | ||||||||
| Cash flows provided by operations | $ | — | 0.0 | % | $ | — | 0.0 | % |
| Proceeds from offerings | 1,426,248 | 61.6 | % | 87,279 | 77.5 | % | ||
| Offering proceeds from distribution<br> reinvestment plan | 889,649 | 38.4 | % | 25,330 | 22.5 | % | ||
| Total sources | $ | 2,315,897 | 100.0 | % | $ | 112,609 | 100.0 | % |
From our inception through June 30, 2022, we have paid cumulative distributions of approximately $3.0 million, as compared to cumulative net loss attributable to our common stockholders of approximately $8.0 million. For the six months ended June 30, 2022, we paid distributions of approximately $2.3 million, as compared to a net loss attributable to our common stockholders of approximately $5.0 million. Net loss attributable to our common stockholders for the six months ended June 30, 2022, reflects non-cash depreciation and amortization of approximately $2.3 million and acquisition related expenses of approximately $0.8 million. From our inception through June 30, 2022, cumulative net loss attributable to our
common stockholders reflects non-cash depreciation and amortization of approximately $3.2 million, and acquisition related expenses of approximately $2.1 million.
For the six months ended June 30, 2021, we paid distributions of approximately $0.1 million, as compared to a net loss attributable to our common stockholders of approximately $0.7 million. Net loss attributable to our common stockholders for the six months ended June 30, 2021 reflects non-cash depreciation and amortization of approximately $0.1 million and acquisition related expenses of approximately $0.3 million.
Indebtedness
As of June 30, 2022, our total indebtedness was approximately $105.4 million which included approximately $101.9 million of variable rate debt and approximately $4.8 million of fixed rate debt, less approximately $1.3 million in net debt issuance costs.
Long-Term Liquidity and Capital Resources
On a long-term basis, our principal demands for funds will be for property acquisitions, either directly or through entity interests, for the payment of operating expenses and distributions, and for the payment of interest on our outstanding indebtedness, if any.
Our material cash requirements from known contractual and other obligations primarily relate to the following, for which information on both a short-term and long-term basis is provided in the indicated notes to the consolidated financial statements:
• Debt — Refer to Note 5 of the Notes to the Consolidated Financial Statements. Future cash payments for interest on debt over the next 12 months is approximately $4.5 million. Future cash payments for maturing debt over the next 12 months is approximately $6.8 million. We expect to meet these future obligations with a combination of proceeds from our offerings, operations and future debt financing.
• Commitments and contingencies — Refer to Note 7 of the Notes to the Consolidated Financial Statements.
Long-term potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, issuance of equity instruments and undistributed funds from operations. To the extent we are not able to secure requisite financing in the form of a credit facility or other debt, we will be dependent upon proceeds from the issuance of equity securities and cash flows from operating activities in order to meet our long-term liquidity requirements and to fund our distributions.
Off Balance Sheet Arrangements
We have joint ventures with SmartCentres, which are accounted for using the equity method of accounting (Refer to Note 4 of the Notes to the Consolidated Financial Statements). Other than the foregoing, we do not currently have any relationships with unconsolidated entities or financial partnerships. Such entities are often referred to as structured finance or special purpose entities, which typically are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Subsequent Events
Please see Note 10 of the Notes to the Consolidated Financial Statements contained in this report.
Seasonality
We believe that we will experience minor seasonal fluctuations in the occupancy levels of our facilities which we believe will be slightly higher over the summer months due to increased moving activity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk and to a lesser extent, foreign currency risk. We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund acquisition, expansion, and financing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes.
As of June 30, 2022, our total indebtedness was approximately $105.4 million, which included approximately $101.9 million in variable rate debt and approximately $4.8 million in fixed rate debt, less approximately $1.3 million in net debt issuance costs. A change in interest rates on variable debt could impact the interest incurred and cash flows and its fair value. If the underlying rate of the related index on our variable rate debt were to increase by 100 basis points, the increase in interest would decrease future earnings and cash flows by approximately $1.0 million annually.
Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.
The following table summarizes future debt maturities and average interest rates on our outstanding debt as of June 30, 2022:
| Payments due during the years ended December 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | |||||||||||
| Variable rate debt | $ | 6,800,000 | $ | — | $ | 95,091,351 | $ | — | $ | — | $ | — | $ | 101,891,351 | |||
| Average interest<br> rate(1) | 4.50 | % | 4.21 | % | 4.21 | % | N/A | N/A | N/A | ||||||||
| Fixed rate debt | $ | — | $ | — | $ | 4,800,000 | $ | — | $ | — | $ | — | $ | 4,800,000 | |||
| Average interest rate | 4.125 | % | 4.125 | % | 4.125 | % | N/A | N/A | N/A |
(1) Interest expense for the variable rate debt was calculated based on the rate in effect on June 30, 2022.
Currently, our only foreign exchange rate risk comes from our investments in our Canadian joint ventures and the Canadian Dollar (“CAD”). As a result of fluctuations in currency exchange, our cash flows and results of operations could be affected.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our Chief Executive Officer (our Principal Executive Officer) and Chief Financial Officer (our Principal Financial Officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
The following should be read in conjunction with the risk factors set forth in the “Risk Factors” section of our Registration Statement on Form S-11 (SEC Registration No. 333-256598).
We have incurred a net loss to date, have an accumulated deficit and our operations may not be profitable in 2022.
We incurred a net loss attributable to common stockholders of approximately $5.0 million for the six months ended June 30, 2022. Our accumulated deficit was approximately $8.0 million as of June 30, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) We were previously engaged in a private offering of up to $220.0 million in shares of common stock to accredited investors (as defined in Rule 501 under the Act) pursuant to a confidential private placement memorandum dated February 26, 2021, as amended and supplemented. Our private offering was terminated on March 17, 2022. During the three months ended June 30, 2022, we had sold approximately 0.1 million class P shares in our private offering for gross offering proceeds of approximately $1.1 million. During the three months ended June 30, 2022, through our distribution reinvestment plan, we have issued approximately 65,000 Class P shares for gross proceeds of approximately $0.6 million. As of June 30, 2022, we have received net offering proceeds of approximately $92.5 million from the sale of approximately 10.6 million shares of common stock in the private offering after commissions, fees and expenses. We incurred approximately $8.2 million in sales commissions and dealer manager fees in connection with the private offering. Pacific Oak Capital Markets, LLC was the dealer manager for the private offering. Each of the purchasers of our shares of common stock under our private offering has represented that he or she is an accredited investor. Based upon these representations, we believe that the issuances of our shares of common stock were exempt from the registration requirements pursuant to Rule 506 and Section 4(a)(2) of the Act and Regulation D promulgated thereunder.
(b) On March 17, 2022, our Offering (SEC File No. 333-256598) of up to $1.0 billion in shares of our common stock in our primary offering was declared effective by the SEC, consisting of three classes of shares: Class A shares for $10.33 per share (up to $450 million in shares), Class T shares for $10.00 per share (up to $450 million in shares), and Class W shares for $9.40 per share (up to $100 million in shares) and up to $95 million in shares pursuant to our distribution reinvestment plan at $9.81 per share for Class A shares, $9.50 per share for Class T shares and $9.40 per share for Class W shares. As of June 30, 2022, we had sold approximately 0.6 million Class A shares for gross offering proceeds of approximately $5.9 million, approximately 0.7 million Class T shares for gross offering proceeds of approximately $6.7 million and approximately 0.1 million Class W shares for gross offering proceeds of approximately $0.8 million pursuant to our Primary Offering. Through our distribution reinvestment plan, we have issued approximately 200 Class A shares, approximately 50 Class T shares and approximately 90 Class W shares for gross proceeds of approximately $3,000. In conjunction with the Private Offering Transaction and the Primary Offering, we have incurred approximately $9.1 million in sales commissions and dealer manager fees (of which approximately $7.0 million was re-allowed to a third party broker-dealer), and approximately $3.2 million in organization and offering costs.
(c) Our share redemption program enables our stockholders to have their shares redeemed by us, subject to the significant conditions and limitations described in our Registration Statement on Form S-11 (SEC Registration No. 333-256598). Since inception, we have not received any redemption requests nor have we redeemed any shares of common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits required to be filed with this report are set forth on the Exhibit Index hereto and incorporated by reference herein.
EXHIBIT INDEX
The following exhibits are included in this report on Form 10-Q for the period ended June 30, 2022 (and are numbered in accordance with Item 601 of Regulation S-K).
* Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| STRATEGIC STORAGE TRUST VI, INC.<br><br>(Registrant) | ||
|---|---|---|
| Dated: August 8, 2022 | By: | /s/ Matt F. Lopez |
| Matt F. Lopez<br><br>Chief Financial Officer and Treasurer<br><br>(Principal Financial and Accounting Officer) |
EX-10.7
OMNIBUS FIRST AMENDMENT TO
MEZZANINE LOAN DOCUMENTS
This Omnibus First Amendment to Mezzanine Loan Documents (the “Amendment”) is made and entered into as of July 8, 2022 (the “Amendment Effective Date”) is made by and between SMARTSTOP OP, L.P., a Delaware limited partnership, having an address at 10 Terrace Road, Ladera Ranch, California 92694 (together with its successors and assigns, “Lender”), and SST VI MEZZ, LLC, a Delaware limited liability company, having its principal place of business at 10 Terrace Road, Ladera Ranch, California 92694 (together with its permitted successors and assigns, “Borrower”).
R E C I T A L S:
A. Lender has previously extended a loan (the “Loan”) to Borrower in the principal amount of up to $45,000,000.00 (the “Loan Amount”) pursuant to the terms and conditions of that certain Mezzanine Loan Agreement dated as of December 30, 2021, by and among Lender and Borrower (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Loan Agreement.
B. The Loan is represented by that certain Promissory Note dated as of December 30, 2021 (the “Note”), which Note is secured by, among other things, that certain Environmental Indemnity Agreement dated as of December 30, 2021 (the “Environmental Indemnity”).
C. The parties hereto desire to amend the Loan Documents on the terms and conditions set forth herein and in the Loan Documents.
AMENDMENT
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Recitals. Each of the parties hereto hereby acknowledges the accuracy of the Recitals, which are incorporated herein by reference.
2. Definitions. Except as otherwise provided herein, terms defined in the Loan Agreement shall have the same meaning when used herein. Terms defined in the singular shall have the same meaning when used in the plural and vice versa.
3. Modifications and Amendment to the Loan Agreement. The Loan Agreement is hereby modified and amended as follows:
(a) Amendments. The Loan Agreement is hereby amended to delete the stricken text (indicated textually in the same manner as the following example: stricken text or stricken text) and to add the underlined text (indicated textually in the same manner as the
following example: double underlined text or double underlined text) as set forth in the Loan Agreement attached hereto as Exhibit A.
4. Modifications and Amendment to the Environmental Indemnity. The term “Mortgage Borrower” in the last sentence of Section 2 of the Environmental Indemnity is hereby deleted and replaced with term “Property Borrower”, with such term being as defined in the Loan Agreement, as amended by this Amendment.
5. Representations and Warranties. Borrower hereby (a) affirms and again makes the representations and warranties set forth in Article 4 of the Loan Agreement as of the Amendment Effective Date, except to the extent that any such representations and warranties refer specifically to an earlier date, and (b) represents and warrants that no Event of Default has occurred and remains continuing or will occur immediately after giving effect to this Amendment or observing any provision hereof.
6. Payment of Expenses and Attorneys’ Fees. Borrower shall pay all reasonable expenses of Lender relating to the negotiation, drafting of documents, and documentation of this Amendment and all related documents, including, without limitation, all reasonable attorneys’ fees and legal expenses.
7. References. Each reference in the Loan Documents to any of the Loan Documents shall be a reference to such documents as modified herein.
8. Loan Documents Remain in Full Force and Effect; Collateral. The Loan Documents are ratified and affirmed by the parties hereto, and shall remain in full force and effect as modified hereby. Lender hereby reserves all rights granted under the Loan Agreement, the other Loan Documents, this Amendment and any other contract or instrument among Borrower and Lender, as applicable. Any property rights or rights to or interests in property granted as security in the Loan Documents shall remain as security for the Loan and the obligations of Borrower in the Loan Documents.
9. Integrated Agreement; Amendment. This Amendment, together with the Loan Agreement and the Loan Documents, constitutes the entire agreement between Lender and Borrower concerning the subject matter hereof, and may not be altered or amended except by written agreement signed by Lender.
10. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.
11. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Signature pages may be detached from the counterparts and attached to a single copy of this Amendment to physically form one document. Receipt by Lender of an executed copy of this Amendment by facsimile or electronic mail shall constitute conclusive evidence of execution and delivery by the signatory thereto.
12. Entire Agreement; Interpretation. All other prior and contemporaneous agreements, arrangements, and understandings between the parties hereto as to the subject matter
hereof are, except as otherwise expressly provided herein, rescinded. This Amendment and the Loan Agreement, and this Amendment and the Environmental Indemnity, shall respectively be read and interpreted together as one agreement
[Signature Pages Follow]
IN WITNESS WHEREOF, this Amendment has been executed and becomes effective as of the Amendment Effective Date.
LENDER:
SMARTSTOP OP, L.P.,
a Delaware limited partnership
By: SmartStop Self Storage REIT, Inc.,
a Maryland corporation
Its: General Partner
By: /s/ H. Michael Schwartz
Name: H. Michael Schwartz
Title: Chief Executive Officer
[Signatures continued on following page]
[Signature Page to First Amendment to Mezzanine Loan Agreement]
BORROWER:
SST VI MEZZ, LLC,
a Delaware limited liability company
By: Strategic Storage Trust VI, Inc.,
a Maryland corporation
Its: Manager
By: /s/ H. Michael Schwartz
Name: H. Michael Schwartz
Title: Chief Executive Officer
[End of signatures]
[Signature Page to First Amendment to Mezzanine Loan Agreement]
EXHIBIT A
AMENDED MEZZANINE LOAN AGREEMENT
(see attached)
i
77035158.2
6649112 v01EXHIBIT A
TO
FIRST AMENDMENT
TO MEZZANINE LOAN AGREEMENT
(Amended Mezzanine Loan Agreement as of July 8, 2022)
MEZZANINE LOAN AGREEMENT
MEZZANINE LOAN AGREEMENT
Dated as of December 30, 2021
by and between
SST VI MEZZ, LLC
(as Borrower)
and
SMARTSTOP OP, L.P. (as Lender)
ii
77035158.2
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS; PRINCIPLES OF CONSTRUCTION 1
Section 1.1. Definitions 1
Section 1.2. Location of Additional Defined Terms. 8
Section 1.3. Principles of Construction 9
ARTICLE 2 THE LOAN 9
Section 2.1. The Loan 9
Section 2.2. Interest Rate 9
Section 2.3. Payments 1011
Section 2.4. Prepayments 11
Section 2.5. Extension Option 12
Section 2.6. Advances 12
ARTICLE 3 INTENTIONALLY DELETED 13
ARTICLE 4 REPRESENTATIONS AND WARRANTIES 13
Section 4.1. Organization 1314
Section 4.2. Authorization 1314
Section 4.3. Enforceability 14
Section 4.4. Litigation 14
Section 4.5. Full and Accurate Disclosure 14
Section 4.6. Compliance 1415
Section 4.7. ERISA 1415
Section 4.8. Not Foreign Person 15
Section 4.9. Investment Company Act; Public Utility Holding Company Act; Federal Reserve Regulations 1516
Section 4.10. Title to the Collateral; Liens 1516
Section 4.11. Condemnation 16
Section 4.12. Utilities and Public Access 16
Section 4.13. Separate Lots 16
Section 4.14. Assessments 16
Section 4.15. Flood Zone 16
Section 4.16. Physical Condition 16
Section 4.17. Intentionally Omitted. 1617
Section 4.18. Leases and Rents 1617
Section 4.19. Compliance with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering Laws 17
Section 4.20. Organizational Chart 1718
Section 4.21. Principal Place of Business; State of Organization 1718
Section 4.22. Filing and Recording Taxes 18
Section 4.23. Single-Purpose Entity 18
Section 4.24. Insurance 18
Section 4.25. Intentionally Omitted 18
Section 4.26. Survival 18
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ARTICLE 5 COVENANTS 1819
Section 5.1. Compliance with Legal Requirements; Impositions and Other Claims; Contests 1819
Section 5.2. Maintenance; Waste; Alterations 1920
Section 5.3. Access to Property and Records 20
Section 5.4. Intentionally Omitted 20
Section 5.5. REIT Status and Partnership Operations 20
Section 5.6. Intentionally Omitted 20
Section 5.7. Leases 2021
Section 5.8. Place of Business; State of Organization 2021
Section 5.9. Zoning; Joint Assessment 21
Section 5.10. Title Insurance Proceeds 21
Section 5.11. Material Agreements. 2122
ARTICLE 6 TRANSFERS AND CHANGE OF BUSINESS 2122
Section 6.1. Transfer 2122
Section 6.2. Other Indebtedness 2223
Section 6.3. Liens 2223
Section 6.4. ERISA 2223
Section 6.5. Single-Purpose Entity 2324
Section 6.6. Partial Release 2324
ARTICLE 7 INSURANCE, CASUALTY, CONDEMNATION AND RESTORATION 24
Section 7.1. Insurance. 24
Section 7.2. Casualty 25
Section 7.3. Condemnation 2526
Section 7.4. Restoration. 26
ARTICLE 8 DEFAULTS 27
Section 8.1. Event of Default 27
Section 8.2. Remedies 2829
Section 8.3. Remedies Cumulative 2829
Section 8.4. Lender Appointed Attorney-In-Fact 2930
Section 8.5. Lender’s Right to Perform 2930
ARTICLE 9 INTENTIONALLY OMITTED 2930
ARTICLE 10 EXCULPATION 2930
Section 10.1. Exculpation 2930
ARTICLE 11 MISCELLANEOUS 3132
Section 11.1. Survival 3132
Section 11.2. Lender’s Discretion 32
Section 11.3. Governing Law 32
Section 11.4. Modification, Waiver in Writing 33
Section 11.5. Delay Not a Waiver 33
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Section 11.6. Notices 3334
Section 11.7. Trial By Jury 3435
Section 11.8. Headings 3435
Section 11.9. Severability 3435
Section 11.10. Preferences 3435
Section 11.11. Waiver of Notice 3435
Section 11.12. Remedies of Borrower 35
Section 11.13. Exhibits Incorporated 3536
Section 11.14. Offsets, Counterclaims and Defenses 3536
Section 11.15. No Joint Venture or Partnership 3536
Section 11.16. Waiver of Marshalling of Assets Defense 3536
Section 11.17. Waiver of Offsets/Defenses/Counterclaim 3536
Section 11.18. Construction of Documents 36
Section 11.19. Brokers and Financial Advisors 36
Section 11.20. Counterparts 3637
Section 11.21. Estoppel Certificates 3637
Section 11.22. Reserved. 3637
Section 11.23. Bankruptcy Waiver 3637
Section 11.24. Entire Agreement 37
Section 11.25. Expenses; Liability and Indemnification 3738
Section 11.26. Publicity 39
Section 11.27. Time of the Essence 3940
Section 11.28. Taxes 3940
Section 11.29. Further Assurances 3940
ARTICLE 12 SPECIAL PROVISIONS 40
Section 12.1. The Mortgage Loan and Additional Matters. 40
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SCHEDULES AND EXHIBITS
Schedule 1 – Loan Documents S1‑1
Exhibit A – Organizational Chart of Borrower A-1
Exhibit B – Intentionally Omitted B-1
Exhibit C – Definition of Single-Purpose Entity C-1
77035158.2
MEZZANINE LOAN AGREEMENT
THIS MEZZANINE LOAN AGREEMENT (as the same may from time to time hereafter be modified, supplemented or amended, this “Agreement”), dated as of December 30, 2021 (the “Closing Date”), is made by and between SMARTSTOP OP, L.P., a Delaware limited partnership, having an address at 10 Terrace Road, Ladera Ranch, California 92694 (together with its successors and assigns, “Lender”), and SST VI MEZZ, LLC, a Delaware limited liability company, having its principal place of business at 10 Terrace Road, Ladera Ranch, California 92694 (together with its permitted successors and assigns, “Borrower”).
RECITALS
Borrower desires to obtain a loan (the “Loan”) from Lender in the principal amount of up to $45,000,000.00 (the “Loan Amount”) the proceeds of which are to be used by Borrower to capitalize MortgageProperty Borrower (hereinafter defined) in connection with MortgageProperty Borrower’s acquisition of the Property (hereinafter defined), including the reasonable out-of-pocket costs and expenses related thereto. Lender is willing to make the Loan on the terms and conditions set forth in this Agreement and the other Loan Documents.
NOW, THEREFORE, in consideration of the making of the Loan by Lender, the parties hereby agree as follows:
ARTICLE I - DEFINITIONS; PRINCIPLES OF CONSTRUCTION
I.01. Definitions. For all purposes of this Agreement and the other Loan Documents, the following terms shall have the following respective meanings. The location of additional defined terms is set forth in Section 1.2 below:
“Accrued Interest” means all accrued but unpaid interest due under the Note.
“Advance” means, individually and collectively, as the context requires, (i) the Initial Advance and (ii) future advances of proceeds under the Loan pursuant to Section 2.6 hereof.
“Affiliate” means, as to any Person, any other Person that, (i) directly or indirectly owns twenty percent (20%) or more of all Equity Interests in such Person, and/or (ii) is in Control of, is Controlled by or is under common Control with such Person, and/or (iii) is a director, partner, officer or employee of such Person or of an Affiliate of such Person, and/or (iv) is the spouse, issue, parent or officer of such Person or an Affiliate of such Person.
“Apopka Borrower” means SST VI 2200 Coral Hills Rd, LLC, a Delaware limited liability company.
“Apopka Mortgage” means that certain Mortgage, Security Agreement, Fixture Filing and Assignment of Leases and Rents entered into by Apopka Borrower in favor of Mortgage Lender.
“Apopka Property” means that certain real property located at 2200 Coral Hills Road, Apopka, Florida 32703.
“Bankruptcy Action” means with respect to any Person (a) such Person filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary petition against such Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law in which such Person colludes with, or otherwise assists such Person, or soliciting or causing to be solicited petitioning creditors for any involuntary petition against such Person; (c) such Person filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; or soliciting or causing to be solicited petitioning creditors for any involuntary petition from any Person: (d) such Person seeking, consenting to or acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for such Person or any portion of the Property; or (e) such Person making an assignment for the benefit of creditors, or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due.
“Bankruptcy Code” means 11 U.S.C. § 101 et seq., as the same may be amended from time to time.
“Bradenton Borrower” means SST VI 6424 14th St W, LLC, a Delaware limited liability company.
“Bradenton Mortgage” means that certain Mortgage, Security Agreement, Fixture Filing and Assignment of Leases and Rents entered into by Bradenton Borrower in favor of Mortgage Lender.
“Bradenton Property” means that certain real property located at 6424 14th Street, West Bradenton, Florida 34207.
“Business Day” shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor statutes thereto.
“Collateral Value” means (x) the value of the Property, as determined by Lender in its reasonable discretion, minus (y) the outstanding principal balance of the Mortgage Loan.
“Control” (and terms correlative thereto) when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities or other beneficial interests, by contract or otherwise.
“Default Rate” means a rate per annum equal to the lesser of (a) the Maximum Legal Rate and (b) five percent (5%) above the Interest Rate.
“Environmental Indemnity” means that certain Environmental Indemnity Agreement, dated of even date here with, entered into by Borrower and Guarantor in favor of Lender.
“Equity Interests” means (a) partnership interests (general or limited) in a partnership; (b) membership interests in a limited liability company; (c) shares or stock interests in a corporation, (d) the beneficial ownership interests in a trust, and (e) any other legal or beneficial ownership interests in a Person.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended or re-codified from time to time, and the regulations promulgated thereunder.
“Floating Index” means LIBOR, as determined by Lender, as LIBOR is displayed on the LIBOR Reference Source chosen at Lender’s discretion two (2) Business Days prior to the commencement of any Monthly Interest Accrual Period (however, in the event LIBOR is not displayed on the LIBOR Reference Source on such date, then such date shall be deemed to mean the next immediately preceding date on which LIBOR is displayed on the LIBOR Reference Source), provided, however, in the event LIBOR is replaced by a LIBOR Successor Rate pursuant to Section 2.2(e) of this Agreement, then such LIBOR Successor Rate shall be used as the new Floating Index.
“Governmental Authority” means any national, federal, state, regional or local government, or any other political subdivision of any of the foregoing, in each case with jurisdiction over Borrower, MortgageProperty Borrower, the Property, or any Person with jurisdiction over Borrower, MortgageProperty Borrower or the Property exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
“Guarantor” means Strategic Storage Operating Partnership VI, L.P., a Delaware limited partnership.
“Impositions” means all ground rents and all taxes (including, without limitation, all real estate, ad valorem or value added, sales (including those imposed on lease rentals), use, single business, gross receipts, intangible transaction privilege, privilege, license or similar taxes), assessments (including, without limitation, to the extent not discharged prior to the Closing Date, all assessments for public improvements or benefits, whether or not commenced or completed within the term of the Loan), water, sewer or other rents and charges, excises, levies, fees (including, without limitation, license, permit, inspection, authorization and similar fees), and all other governmental charges, in each case whether general or special, ordinary or extraordinary, foreseen or unforeseen, of every character in respect of the Property, (including all interest and penalties thereon), which at any time prior to, during or in respect of the term hereof may be assessed or imposed on or in respect of or be a Lien upon (i) Borrower or MortgageProperty Borrower (including, without limitation, all income, franchise, single business or other taxes imposed on Borrower for the privilege of doing business in the jurisdiction in which the Property is located) or Lender (including taxes resulting from future changes in law which impose upon Lender or any trustee an obligation to pay any property taxes or other taxes or which otherwise adversely affect Lender’s interests), (ii) the Collateral, the Property or any part thereof, or (iii) any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in
connection with the Property or the leasing or use of the Property or any part thereof, or the acquisition or financing of the acquisition of the Property by Borrower or MortgageProperty Borrower.
“Indebtedness” means, at any given time, the Principal Indebtedness, together with all accrued and unpaid interest thereon and all other obligations and liabilities due or to become due to Lender pursuant hereto or any of the other Loan Documents.
“Indemnified Party” means each of Lender, each of its Affiliates and their respective successors and assigns, any Person who is or will have been involved with the servicing of the Loan, Persons who may hold or acquire or will have held a full or partial interest in the Loan (including investors, as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefit of third parties) (including any other Person who holds or acquires or will have held a participation or other full or partial interest in the Loan or the collateral therefor), and the respective officers, directors, and employees, agents, Affiliates, successors and assigns of any and all of the foregoing.
“Initial Advance” means the initial advance of Loan proceeds in the amount of $6,800,000.00 to Borrower made on the Closing Date.
“Initial Term” means the one (1) year period commencing on the Closing Date and ending on the unextended Maturity Date.
“Interest Accrual Period” shall mean, with respect to any Payment Date, the period commencing on and including the first (1st) day of the preceding calendar month and ending on and including the last day of such preceding calendar month; provided, however, that (i) no Interest Accrual Period shall end later than the Maturity Date (other than for purposes of calculating interest at the Default Rate) and (ii) in the event the Closing Date is a date other than the first (1st) day of a calendar month, the initial Interest Accrual Period shall begin on and include the Closing Date and shall end on and include the last day of the calendar month in which the Closing Date occurs.
“Interest Rate” means a variable rate of interest, per annum, determined by Lender with respect to each Interest Accrual Period equal to the sum of (a) the Spread plus (b) the Floating Index.
“Leases” means all leases and other agreements or arrangements affecting the use or occupancy of all or any portion of the Property now in effect or hereafter entered into (including all lettings, subleases, licenses, concessions, tenancies and other occupancy agreements covering or encumbering all or any portion of the Property), together with any guarantees, supplements, amendments, modifications, extensions and renewals of the same.
“Legal Requirements” means (a) all statutes, laws, rules, orders, regulations, ordinances, judgments, orders, decrees and injunctions of Governmental Authorities affecting Borrower, MortgageProperty Borrower, the Loan Documents, the Property or any part thereof, and all permits and regulations relating thereto, (b) all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in
force affecting the Property or any part thereof, (c) terms of any insurance policy maintained by or on behalf of Borrower, and (d) the organizational documents of Borrower or MortgageProperty Borrower.
“LIBOR” means the one-month London Interbank Offered Rate.
“LIBOR Reference Source” means the display for the LIBOR quote provided by the ICE Benchmark Administration Limited, a United Kingdom company, Bloomberg, Reuters or the Wall Street Journal (as chosen by Lender, at Lender’s sole and absolute discretion) or such other commercially available source providing such quotations as may be designated by Lender from time to time.
“LIBOR Successor Rate Conforming Changes” means, with respect to any proposed LIBOR Successor Rate, any conforming changes to the timing and frequency of determining rates and making payments of interest and other administrative matters as may be appropriate, in the discretion of Lender, to reflect the adoption of such LIBOR Successor Rate and to permit the administration thereof by Lender in a manner substantially consistent with market practice (or, if Lender determines that adoption of any portion of such market practice is not administratively feasible or that no market practice for the administration of such LIBOR Successor Rate exists, in such other manner of administration as Lender determines in its sole and absolute discretion).
“Lien” means any mortgage, deed of trust, deed to secure debt, lien pledge, easement, restrictive covenant, hypothecation, assignment, security interest, conditional sale or other title retention agreement, financing lease having substantially the same economic effect as any of the foregoing, or financing statement or similar instrument.
“Loan Documents” means, collectively, this Agreement and all other documents, agreements, instruments and certificates now or hereafter evidencing, securing or delivered to Lender in connection with the Loan, including the documents listed on Schedule 1 attached hereto, as each may be (and each of the defined terms shall refer to such documents as they may be) amended, restated, or otherwise modified from time to time.
“Losses” means any losses, actual damages, costs, fees, expenses, claims, suits, judgments, awards, liabilities (including strict liabilities), obligations, debts, diminutions in value, fines, penalties, charges, amounts paid in settlement, foreseeable and unforeseeable consequential damages, litigation costs, reasonable attorneys’ fees, engineers’ fees, environmental consultants’ fees, and investigation costs (including costs for sampling, testing and analysis of soil, water, air, building materials, and other materials and substances whether solid, liquid or gas), of whatever kind or nature, and whether or not incurred in connection with any judicial or administrative proceedings, actions, claims, suits, judgments or awards.
“Material Adverse Effect” means a material adverse effect upon (a) the business or financial position or results of operation of Borrower, (b) the ability of Borrower to perform, or of Lender to enforce, any of the Loan Documents or (c) the value of the Collateral.
“Material Agreement” means each contract and agreement relating to the ownership, management, development, use, operation, leasing, maintenance, repair or
improvement of the Property, other than the Leases, under which there is an obligation of MortgageProperty Borrower to pay more than $100,000 per annum.
“Maturity Date” shall mean December 30, 2022, as such date may be extended pursuant to and in accordance with Section 2.5 hereof, or such other date on which the final payment of the principal amount of the Loan becomes due and payable as herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise.
“Maximum Legal Rate” means the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan.
“Mortgage” means, individually and collectively, as the context may require, (i) the Apopka Mortgage, (ii) the Bradenton Mortgage, and (iii) any mortgages, deeds of trust, and other collateral documents in connection with the Mortgage Loan securing any New Property (as may be from time to time amended, revised, modified, supplemented or amended and restated).
“Mortgage Borrower” means, individually and collectively, as the context may require, (i) Apopka Borrower, (ii) Bradenton Borrower, and (iii) any entity owning any New Property that is subject to a Mortgage Loan pursuant to the Mortgage Loan Documents.
“Mortgage Lender” means The Huntington National Bank, a national banking association, in its capacity as administrative agent under the Mortgage Loan Agreement, acting for itself and the lenders a party thereto.
“Mortgage Loan” means, individually and collectively, as the context may require, each advance by Mortgage Lender to the applicable Mortgage Borrower pursuant to the Mortgage Loan Documents.
“Mortgage Loan Agreement” means that certain Syndicated Term Loan Agreement entered into by and between SST VI 4715 E Baseline Rd, LLC, SST VI 4730 E Baseline Rd, LLC, SST VI 11658 W Bell Rd, LLC, Apopka Borrower and Bradenton Borrower, collectively, as borrower, and Mortgage Lender, as lender, as such Syndicated Term Loan Agreement may be from time to time amended, revised, modified, supplemented or amended and restated.
“Mortgage Loan Documents” means the “Loan Documents” as defined in the Mortgage Loan Agreement.
“Net Cash Flow” means net cash flow from operations of the Property distributed by Mortgage Borrower to Borrower from time to time in accordance with the Mortgage Loan Agreement.
“New Property” means, individually and collectively, as the context may require, any real property acquired by any MortgageProperty Borrower subsequent to the Closing Date.
“Non-Mortgage Borrower” means, individually and collectively, as the context may require, any entity owning any New Property that is not subject to a Mortgage Loan pursuant to the Mortgage Loan Documents.
“Payment Date” shall mean the first (1st) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately preceding Business Day.
“Permitted Encumbrances” means, (a) with respect to the Collateral, collectively, the Liens created by the Loan Documents, and (b) with respect to the Property only, collectively, (i) the Lien created by the Mortgage Loan Documents, (ii) all Liens and other matters disclosed in each title insurance policy insuring the applicable Mortgage, or any part thereof which have been approved by Lender, (iii) Liens, if any, for Impositions imposed by any Governmental Authority not yet due or delinquent, and (iv) such governmental, public utility and private restrictions, covenants, reservations, easements, licenses or other agreements of an immaterial nature which may be granted by MortgageProperty Borrower after the Closing Date and which do not have a Material Adverse Effect.
“Person” means any individual, corporation, limited liability company, partnership, joint venture, estate, trust, unincorporated association, or any other entity, any Governmental Authority, and any fiduciary acting in such capacity on behalf of any of the foregoing.
“Prescribed Laws” shall mean, collectively, (a) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (The USA PATRIOT Act), (b) Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, (c) the International Emergency Economic Power Act, 50 U.S.C. § 1701 et. seq. and (d) all other Legal Requirements relating to money laundering or terrorism.
“Prime Rate” means the rate of interest published in The Wall Street Journal (or if The Wall Street Journal ceases publishing such rate, a successor national business periodical of similar standing designated by Lender by written notice to Borrower) from time to time as the “Prime Rate.”
“Principal Indebtedness” means the principal amount of the Loan outstanding as the same may be increased or decreased, as a result of Advances, prepayment or otherwise, from time to time.
“Property” means, individually and collectively, as the context may require, (i) the Apopka Property, (ii) the Bradenton Property, and (iii) any New Property.
“Property Borrower” means, individually and collectively, as the context may require, any Mortgage Borrower and Non-Mortgage Borrower. For the avoidance of doubt, if and to the extent a provision hereunder suggests that any term or condition of the Mortgage Loan Agreement would be applicable to a Non-Mortgage Borrower, such provision shall be interpreted to be solely applicable to a Mortgage Borrower.
“SOFR” means, with respect to any Business Day, a rate per annum equal to the secured overnight financing rate for such Business Day published by the SOFR Administrator on the SOFR Administrator’s Website on the immediately succeeding Business Day.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” means the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
“Spread” means (i) with respect to Initial Term, three hundred basis points (3.00%) per annum, and (ii) upon Borrower’s exercise of the Extension Option, with respect to the period of time commencing on the day after expiration of the Initial Term through and until the Extended Maturity Date, four hundred basis points (4.00%) per annum.
“Subordination and Standstill Agreement” means that certain Subordination and Standstill Agreement dated as of the date hereof between Lender and Mortgage Lender, as the same may be from time to time amended, revised, modified, supplemented or amended and restated.
“Transfer” means (a) any conveyance, transfer, sale, Lease, assignment or Lien, whether by operation of law or otherwise, of, on or affecting (i) all or any portion of the Property or the Collateral, or (ii) any direct or indirect legal or beneficial interest in Borrower or MortgageProperty Borrower (including any profit interest or the issuance of any new direct or indirect Equity Interest in Borrower or MortgageProperty Borrower), and (b) any change in Control of Borrower or MortgageProperty Borrower.
I.02. Location of Additional Defined Terms.
Defined Term Location
“Agreement” First Paragraph
“Award” The Mortgage
“Borrower” First Paragraph
“Closing Date” First Paragraph
“Collateral” The Pledge Agreement
“ERISA Affiliate” Section 4.7
“Event of Default” Section 8.1
“Extended Maturity Date” Section 2.5
“Extension Notice” Section 2.5
“Extension Option” Section 2.5
“Hazardous Substances” Environmental Indemnity
“Improvements” The Mortgage
“Insolvency Action” Section 8.1(f)
“Insurance Threshold” The Mortgage
“Inventory” The Mortgage
“Lender” First Paragraph
“LIBOR Successor Rate” Section 2.2(e)
“Loan Amount” Recitals
“Material Alterations” Section 5.2
“Net Insurance Proceeds” Mortgage
“Note” Schedule 1
“Partial Release” Section 6.6
“Partial Release Conditions” Section 6.6
“Permitted Trade Payables” Exhibit C, clause (xx)
“Permitted Transfer” Section 6.1
“Pledge Agreement” Schedule 1
“REIT” Section 5.5
“Rents” The Mortgage
“Restoration” The Mortgage
“Single-Purpose Entity” Exhibit C
“SPE Covenants” Exhibit C
“UCC” The Pledge Agreement
I.03. Principles of Construction. All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified. All uses of the word “including” shall mean “including, without limitation” unless the context shall indicate otherwise. Unless otherwise specified, the words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined.
ARTICLE II - THE LOAN
II.01. The Loan. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make, and Borrower hereby agrees to borrow and accept, the Initial Advance of Loan proceeds on the Closing Date, and Lender hereby further agrees to make future Advances of Loan proceeds available to Borrower, subject to the terms, conditions and provisions of Section 2.6 hereof, during the Initial Term. On the Closing Date, Borrower shall pay a commitment fee to Lender in an amount equal to one percent (1%) of the Loan Amount. Any amount borrowed and repaid hereunder may not be reborrowed. Borrower’s obligation to pay the Indebtedness is evidenced by this Agreement and by the Note and secured by the Pledge Agreement and the other Loan Documents to the extent provided therein.
II.02. Interest Rate.
(a) Interest Rate. Subject to Section 2.2(d) hereof, and without limiting the terms thereof, provided no Event of Default has occurred and is continuing, interest on the Principal Indebtedness shall accrue from the Closing Date at the Interest Rate until repaid in accordance with the applicable terms and conditions hereof.
(b) Interest Calculation. Interest on the Principal Indebtedness shall be calculated by multiplying (a) the actual number of days elapsed in the period for which the calculation is
being made by (b) a daily rate based on a three hundred sixty (360) day year by (c) the Principal Indebtedness.
(c) Default Rate. From and after the occurrence of any Event of Default, the Indebtedness shall accrue interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein.
(d) Usury Savings. This Agreement, the Note and the other Loan Documents are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Principal Indebtedness at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest at a rate in excess of the Maximum Legal Rate, the Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding.
(e) LIBOR Successor Rate. Notwithstanding anything to the contrary in this Agreement or any of the other Loan Documents, if Lender determines (which determination shall be conclusive absent manifest error), that:
(i) adequate and reasonable means do not exist for ascertaining LIBOR, including, without limitation, because the LIBOR Reference Source is not available or published on a current basis, and such circumstances are unlikely to be temporary; or
(ii) the administrator of the LIBOR Reference Source or a Governmental Authority having jurisdiction over Lender has made a public statement identifying a specific date after which LIBOR or the LIBOR Reference Source shall no longer be made available or be broadly used for determining the interest rate of loans; or
(iii) loans currently being executed, or that include provisions similar to that contained in this Section 2.2, are being executed or amended (as applicable) to incorporate or adopt a new benchmark interest rate to replace LIBOR,
then, reasonably promptly after such determination by Lender, Lender may amend this Agreement to replace LIBOR with SOFR (hereinafter any such proposed rate shall be referred to as a “LIBOR Successor Rate”), together with any proposed LIBOR Successor Rate Conforming Changes, and any such amendment shall become effective as of the date of such amendment.
II.03. Payments.
(a) Payment Before the Maturity Date. On each Payment Date up to and including the Maturity Date, as applicable, Borrower shall pay to Lender all Net Cash Flow
(provided, however, that with respect to a Mortgage Borrower, such Net Cash Flow shall only consist of the portion of Net Cash Flow distributed by such Mortgage Borrower to Borrower in accordance with the Mortgage Loan Agreement), which, provided no Event of Default exists, shall be applied in the following order:
(i) first, to Accrued Interest for any Interest Accrual Period prior to the Interest Accrual Period immediately preceding such Payment Date;
(ii) second, to the unpaid Accrued Interest for all prior Interest Accrual Periods preceding such Payment Date; and
(iii) third, any remaining funds shall be disbursed to an account that Borrower designates in writing.
(b) Payments Generally. If a Payment Date is not a Business Day, then amounts due on such date shall be due on the immediately following Business Day. All amounts due pursuant to this Agreement and the other Loan Documents shall be payable without setoff, counterclaim, defense or any other deduction whatsoever.
(c) Payment on Maturity Date. Borrower shall pay to Lender on the Maturity Date the outstanding principal balance of the Loan, all Accrued Interest and all other amounts due hereunder and under the Note and the other Loan Documents.
(d) Intentionally Omitted.
(e) Method and Place of Payment. Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to Lender not later than 11:00 A.M., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender’s office or as otherwise directed by Lender, and any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day.
II.04. Prepayments.
(a) Voluntary Prepayments. Borrower may prepay the Principal Indebtedness, in whole or in part, at any time and from time to time, without fees or penalty, and without prior notice to Lender.
(b) Mandatory Prepayments. On the next occurring Payment Date following the date on which Lender actually receives any Net Insurance Proceeds, if Lender is not obligated, or does not elect pursuant to the terms hereof, to make such Net Insurance Proceeds available to Borrower for Restoration, Borrower is hereby deemed to have authorized Lender to apply Net Insurance Proceeds as a prepayment of, the Principal Indebtedness, together with unpaid interest thereon shall be due in connection with any prepayment made pursuant to this Section 2.4(b). Any partial prepayment under this Section 2.4(b) shall be applied to the last payments of principal due under the Loan.
(c) Prepayments After Default. Following an Event of Default, and for so long as such Event of Default continues, any prepayment shall be applied to payments of principal of the Loan and other amounts due under the Loan Documents in such order and priority as Lender may determine in its sole discretion.
(d) Release on Payment in Full. Lender shall, upon the written request and at the expense of Borrower, upon payment in full of all principal and interest due on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and this Agreement, release the Lien of the Pledge Agreement.
II.05. Extension Option. Borrower shall have a one-time option to extend the initially-stated Maturity Date for one additional term (the “Extension Option”) of one (1) year to December 30, 2023 (the “Extended Maturity Date”), subject to the satisfaction of all of the following conditions: (a) Borrower shall have delivered to Lender written notice (the “Extension Notice”) of the exercise of the Extension Option not less than ten (10) days prior to the initially-stated Maturity Date, (b) no default or Event of Default shall exist as of the date on which the Extension Notice is given, and (c) Borrower shall pay a fee to Lender in an amount equal to one quarter of one percent (0.25%) of the outstanding Loan Amount at the time that Borrower exercises the Extension Option.
II.06. Advances. Following the Initial Advance to Borrower, Borrower may request in writing that Lender up to five (5) additional Advances to Borrower for the acquisition and development of New Properties, and Lender shall make such Advances to Borrower in an aggregate amount (together with the Initial Advance) not to exceed the face amount of the Note, provided that all of the conditions set forth in this Section 2.6 have been satisfied with respect to each such Advance, within ten (10) Business Days of the satisfaction of all such conditions. Each such Advance funded by Lender shall be and constitute part of the Loan. The conditions to any Advance shall be as follows:
(a) No Event of Default has occurred and is continuing at the time such request is made or at the time the applicable Advance is made;
(b) Borrower shall have delivered to Lender the following:
(i) true, complete and correct copies of the organizational documents of the MortgageProperty Borrower in connection with such New Property;
(ii) with respect to a New Property that will be owned by Mortgage Borrower and subject to a Mortgage pursuant to the Mortgage Loan Agreement, copies of each Mortgage Loan Document in connection with the Mortgage Loan secured by such New Property;
(iii) copies of all material acquisition documents executed in connection with the acquisition of such New Property as Lender may request;
(iv) a fully executed pledge and security agreement pledging, among other things, the Equity Interests of the applicable MortgageProperty Borrower in favor of Lender, in the same form as the Pledge Agreement, duly executed by Borrower and
sufficient in number for distribution to Lender and Borrower, each of which shall be originals, unless otherwise specified;
(v) a UCC-1 Financing Statement in form and substance satisfactory to Lender pledging, among other things, the Equity Interests of the applicable MortgageProperty Borrower in favor of Lender; and
(vi) with respect to a New Property that will be owned by Mortgage Borrower and subject to a Mortgage pursuant to the Mortgage Loan Agreement, if required by the Mortgage Lender and Lender, in their sole discretion, a fully executed amendment to the Subordination and Standstill Agreement, in form and substance satisfactory to the Mortgage Lender and Lender;
(c) Borrower shall be deemed to have re-stated each of the representations and warranties contained in this Agreement as of the date of any such Advance, all of which shall be true and correct except those that are no longer true solely due to the passage of time or one or more events permitted to occur under the Loan Documents;
(d) Borrower shall deliver such other certificates, documents and instruments as Lender may request; and
(e) Borrower shall pay all of Lender’s costs and expenses (including, without limitation, attorneys’ fees) associated with Borrower’s request for an Advance (as well as any other then-outstanding fees and costs of Lender), whether or not the Advance is ultimately made.
ARTICLE III - INTENTIONALLY DELETED
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as of the Closing Date as follows:
IV.01. Organization. Borrower (a) is duly organized and validly existing in good standing under the laws of the State of its formation, (b) is duly qualified to do business in each jurisdiction in which the nature of its business or any of the Property makes such qualification necessary, (c) has the requisite power and authority to carry on its business as now being conducted, and (d) has the requisite power to execute and deliver, and perform its obligations under, the Loan Documents. Borrower is a “registered organization” within the meaning of the Uniform Commercial Code in effect in the State where Borrower is organized, and Borrower’s organizational identification number issued by such State is set forth under its signature hereto.
IV.02. Authorization. The execution and delivery by Borrower of the Loan Documents, Borrower’s performance of its obligations thereunder and the creation of the Liens provided for in the Loan Documents (a) have been duly authorized by all requisite action on the part of Borrower, (b) will not violate any provision of any applicable Legal Requirements, and (c) will not be in
conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, or result in the creation or imposition of any Lien of any nature whatsoever upon any of the property or assets of Borrower pursuant to any limited liability company agreement, operating agreement, partnership agreement, articles or by-laws or other organizational documents of Borrower or any of its direct or indirect members, partners or other owners, or any indenture, agreement or instrument. Except for those obtained or filed on or prior to the Closing Date, Borrower is not required to obtain any consent, approval or authorization from, or to file any declaration or statement with, any Governmental Authority in connection with or as a condition to the execution, delivery or performance of the Loan Documents. The Loan Documents to which Borrower is a party have been duly executed and delivered by such parties.
IV.03. Enforceability. The Loan Documents executed by Borrower in connection with the Loan are the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their terms, subject only to bankruptcy, insolvency and other laws generally affecting creditors’ rights and the enforcement of debtors’ obligations. Such Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower, including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable (subject to principles of equity and bankruptcy, insolvency and other laws generally affecting creditors’ rights and the enforcement of debtors’ obligations).
IV.04. Litigation. There are no material actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending and served or, to Borrower’s knowledge, threatened, involving or concerning Borrower, MortgageProperty Borrower, Guarantor, the Property or the Collateral.
IV.05. Full and Accurate Disclosure. No statement of fact made by or on behalf of Borrower in the Loan Documents or in any other document or certificate delivered to Lender by Borrower contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no fact which materially adversely affects, nor which might materially adversely affect, the use, operation or value of the Property or the business, operations or condition (financial or otherwise) of Borrower or MortgageProperty Borrower. All information submitted by Borrower to Lender, including all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof, are accurate, complete and correct in all material respects and there has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect. Since the delivery of such data, there has been no material adverse change in the financial position of Borrower, MortgageProperty Borrower or the Property, or in the results of operations of Borrower or MortgageProperty Borrower. Neither Borrower nor MortgageProperty Borrower has incurred any obligation or liability, contingent or otherwise, not reflected in such financial data which might materially adversely affect its business operations or the Property.
IV.06. Compliance. Borrower, the Property and MortgageProperty Borrower’s use thereof and operations thereat comply in all material respects with all applicable Legal
Requirements, including, without limitation, building and zoning ordinances and codes. MortgageProperty Borrower has obtained (in its own name) all permits necessary to use and operate the Property, and all such permits are in full force and effect.
IV.07. ERISA. Neither Borrower nor any ERISA Affiliate (as defined below) sponsors, maintains, contributes to, has any obligation to contribute to, or has any direct or indirect liability with respect to any “employee benefit plan,” “multiemployer plan,” or any other “plan” (each as defined in ERISA). Borrower is not an “employee benefit plan,” as defined in Section 3(3) of ERISA, subject to Title I of ERISA, a “plan,” as defined in Section 4975(e)(1) of the Code, subject to Code Section 4975, or a “governmental plan” within the meaning of Section 3(32) of ERISA. None of the assets of Borrower constitutes “plan assets” of one or more of any such plans under 29 C.F.R. Section 2510.3-101 or “plan assets: for purposes of Section 3(42) of ERISA or otherwise. Transactions by or with Borrower are not subject to and do not violate any state or other statute, regulation or other restriction regulating investment of, or fiduciary obligations with respect to, governmental plans, and such state and other statutes, regulations and other restrictions do not in any manner prohibit, restrict or otherwise affect the ability of the Borrower to perform its obligations under the Loan Documents or the exercise or enforcement of, or the ability of Lender to exercise or enforce, any and all of its rights and remedies under the Loan Documents. If an investor or direct or indirect equity owner in Borrower is a plan that is not subject to Title I of ERISA or Section 4975 of the Code, but is subject to the provisions of any federal, state, local, non-U.S. or other laws or regulations that are similar to those portions of ERISA or the Code, the assets of the Borrower do not constitute the assets of such plan under such other laws. “ERISA Affiliate” means any corporation or trade or business that is a member of any group of organizations (a) described in Section 414(b) or (c) of the Code, of which Borrower is a member, and (b) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code, of which Borrower is a member. Borrower shall take or refrain from taking, as the case may be, such actions as may be necessary to cause the representations and warranties in this Section 4.7 to remain true and accurate throughout the term of the Loan.
IV.08. Not Foreign Person. Borrower is not a “foreign person” within the meaning of § 1445(f)(3) of the Code.
IV.09. Investment Company Act; Public Utility Holding Company Act; Federal Reserve Regulations. Borrower is not (i) an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended, (ii) a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of either a “holding company” or a “subsidiary company” within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by any Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents.
IV.10. Title to the Collateral; Liens. Borrower owns good, indefeasible, marketable and insurable title to the Collateral, free and clear of all Liens, other than the Permitted Encumbrances and the Pledge Agreement creates a valid and perfected first lien on the Collateral. Except as set forth in the Mortgage Lender’s title insurance policy, as applicable, there are no matters, conditions, encumbrances, defects or liens affecting title to the Property or MortgageProperty Borrower’s interest therein, as applicable.
IV.11. Condemnation. No condemnation or similar proceeding has been commenced or is contemplated with respect to all or any portion of the Property or for the relocation of roadways providing access to the Property.
IV.12. Utilities and Public Access. The Property has adequate rights of access to public ways and is served by all private and public utilities, including without limitation water, sewer, sanitary sewer and storm drainage facilities, adequate for the current and intended uses thereof. All public utilities necessary or convenient to the full use and enjoyment of the Property are located either in the public right-of-way abutting the Property (which are connected so as to serve the Property without passing over other property) or in recorded easements serving the Property and, with respect to a Property owned by a Mortgage Borrower, such easements are set forth in and insured by the title insurance policy insuring the Mortgage. All roads necessary for the use of the Property for its current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities.
IV.13. Separate Lots. The Property is comprised of one or more parcels, each of which constitutes a separate tax lot and none of which constitutes a portion of any other tax lot.
IV.14. Assessments. There are no pending or proposed special or other assessments for public improvements or otherwise affecting the Property, nor are there any contemplated improvements to the Property that may result in such special or other assessments.
IV.15. Flood Zone. The Property is not located in a flood hazard area as designated by the Federal Emergency Management Agency, or, if so located, the flood insurance required pursuant to Section 7.1(e) hereof is in full force and effect with respect to the Property.
IV.16. Physical Condition. The Property is free of material structural defects and all building systems contained therein are in good condition and good working order in all material respects, and neither MortgageProperty Borrower nor Borrower have received notice from any insurance company or bonding company of any defects or inadequacies in the Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond.
IV.17. Intentionally Omitted.
IV.18. Leases and Rents. Except as set forth on the occupancy report delivered by Borrower to Lender prior to the date hereof, with respect to each Property, (i) each Lease is in full force and effect; (ii) the tenants have commenced the payment of rent under the Leases, and to Borrower’s actual knowledge, there are no offsets, claims or defenses to the enforcement thereof;
(iii) all rents due and payable under the Leases have been paid and no portion thereof has been paid for any period more than thirty (30) days in advance; (iv) the rent payable under each Lease is the amount of fixed rent set forth in the occupancy report, and, to Borrower’s actual knowledge, there is no claim or basis for a claim by the tenant thereunder for an adjustment to the rent; (v) no tenant has made any claim against the landlord under any Lease which remains outstanding, to Borrower’s actual knowledge, there are no defaults on the part of the landlord under any Lease, and, to Borrower’s actual knowledge, no event has occurred which, with the giving of notice or passage of time, or both, would constitute such a default; (vi) to Borrower’s actual knowledge, there is no present default by the tenant under any Lease, and no events or circumstances exist which, with the passage of time or the giving of notice, or both, would constitute a default under a Lease and enforcement of the Leases by MortgageProperty Borrower would be subject to no defenses of any kind; (vii) all security deposits under Leases are as set forth on the occupancy report; (viii) MortgageProperty Borrower is the sole owner of the entire lessor’s interest in each Lease; (ix) each Lease is the valid, binding and enforceable obligation of MortgageProperty Borrower and the applicable tenant thereunder, and (x) no Person has any possessory interest in, or right to occupy, the Property except under the terms of the Leases or a Permitted Encumbrance. Except as previously disclosed to Lender, none of the Leases contains any option to purchase or right of first refusal to purchase the Property or any part thereof. NeitherWith respect to Property owned by Mortgage Borrower only, neither the Leases nor the rents have been assigned or pledged except to Mortgage Lender, and no other Person has any interest therein except the tenants thereunder.
The representations, warranties and provisions of this Section 4.19 shall survive the expiration and termination of this Agreement and the repayment of the Indebtedness.
IV.19.
. The organizational chart attached hereto as Exhibit A is true, complete and correct on and as of the date hereof. No Person other than those Persons shown on Exhibit A has any ownership interest in, or right of control, directly or indirectly, in Borrower. Borrower is the owner of 100% of the direct legal and beneficial ownership interest in MortgageProperty Borrower.
IV.20. Principal Place of Business; State of Organization. Borrower’s State of formation and organization and principal place of business as of the Closing Date is as set forth in the introductory paragraph hereof. Borrower’s organizational identification number is 6477136.
IV.21. Filing and Recording Taxes. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Property to MortgageProperty Borrower have been paid. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Mortgage Loan Documents, including, without limitation, the Mortgage, have been paid.
IV.22. Single-Purpose Entity. Borrower is Single-Purpose Entity that complies with the SPE Covenants.
IV.23. Insurance. Borrower has obtained (or has caused MortgageProperty Borrower to obtain) and has delivered to Lender certificates for all insurance policies required under Article 7 hereof, with all premiums currently payable thereunder, reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. No claims have been made under any such policies, and no Person, including Borrower and MortgageProperty Borrower, has done, by act or omission, anything that would impair the coverage of any such policies.
IV.24. Intentionally Omitted.
IV.25. Survival. Borrower agrees that all of the representations and warranties of Borrower set forth in this Article 4 and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrower. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf.
ARTICLE V - COVENANTS
Borrower covenants and agrees that, from the Closing Date and until payment in full of the Indebtedness:
V.01. Compliance with Legal Requirements; Impositions and Other Claims; Contests.
(a) Borrower shall (and shall cause MortgageProperty Borrower to) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises necessary for the conduct of its and MortgageProperty Borrower’s business and comply in all respects with all applicable Legal Requirements, including, without limitation, Prescribed Laws, contracts, permits, and private covenants, conditions and restrictions that at any time apply to Borrower, MortgageProperty Borrower or the Property. Borrower shall notify Lender promptly of any written notice or order that Borrower or MortgageProperty Borrower receives from any Governmental Authority relating to Borrower’s or MortgageProperty Borrower’s failure to comply with such applicable Legal Requirements.
(b) Borrower shall pay (or cause MortgageProperty Borrower to pay) all Impositions and insurance premiums with respect to itself, MortgageProperty Borrower, the Collateral and the Property as the same become due and payable and otherwise in accordance with the terms hereof. Borrower may (and may permit MortgageProperty Borrower to), at its expense, after prior notice to Lender, contest by appropriate proceedings, properly and timely initiated and conducted in good faith and with due diligence, the validity or application of any Legal Requirements, Imposition, or any claims of mechanics, materialmen, suppliers or vendors, and may withhold payment of the same pending such proceedings if permitted by law, as long as (i) no Event of Default exists, (ii) such proceedings are conducted by Borrower and MortgageProperty Borrower in accordance with all Legal Requirements pertaining thereto, (iii) in the case of any Impositions or claims of mechanics, materialmen, suppliers or vendors or amounts due under Legal Requirements, such proceedings shall suspend the collection thereof from the Property or the
Collateral, (iv) neither the Property, the Collateral nor any part thereof or interest therein will be in danger of being sold, forfeited or lost, (v) Lender would not, by virtue of such permitted contest, be exposed to any risk of civil or criminal liability, and neither the Property nor any part thereof or any interest therein would be subject to the imposition of any Lien for which Borrower has not furnished additional security as provided in clause (vi) below, and which would be released if Borrower or Lender pays the amount being contested, and Borrower and Lender would have the opportunity to do so, in the event of Borrower’s failure to prevail in the contest, and (vii) Borrower shall have furnished to Lender additional security in respect of the claim being contested or the loss or damage that may result from Borrower’s failure to prevail in such contest in such amount as may be requested by Lender, but in no event less than 125% of the amount of such claim. Notwithstanding the foregoing, Borrower shall not be required to furnish the additional security described in clause (vii) above so long as such Property Borrower is a Mortgage Borrower hereunder, and has furnished the same to Mortgage Lender pursuant to the Mortgage Loan Agreement.
V.02. Maintenance; Waste; Alterations. Borrower shall (and shall cause MortgageProperty Borrower to) at all times keep the Property in good repair, working order and condition, except for reasonable wear and use. Borrower shall not (and shall cause MortgageProperty Borrower not to) permit the Improvements or any portion thereof to be removed or demolished or otherwise altered (provided, however, that Borrower may permit MortgageProperty Borrower to remove, demolish or alter worn out or obsolete Improvements or any portion thereof that are promptly replaced with Improvements or any portion thereof, as applicable, of equivalent value and functionality, unless Borrower reasonably determines that such replacement is not necessary for the operation of the Property and the value, use, condition and functionality of hethe Property shall be maintained without decline in the absence of such replacement). Borrower may not, without Lender’s approval, perform alterations to the Improvements or any portion thereof which (a) exceed $250,000 (not including (i) tenant improvement work performed pursuant to the terms of any Lease executed on or prior to the date hereof, (ii) alterations performed in connection with a Restoration, and (iii) work performed pursuant to Section 5.6), or (b) are not in the ordinary course of Borrower or MortgageProperty Borrower’s business (such alterations, “Material Alterations”). Borrower shall not (and shall not permit MortgageProperty Borrower to) perform any Material Alteration unless approved in writing by Lender in Lender’s reasonable discretion and, if Lender requires, providing to Lender (or cause the MortgageProperty Borrower to), as security for the payment of such Material Alterations and as additional security for the Indebtedness, cash or a letter of credit and/or completion and performance bonds as required by, and in form and substance acceptable to, Lender, and Lender may apply such security from time to time at the option of Lender to pay for such alterations. Borrower shall reimburse Lender for all actual costs and expenses incurred by Lender, including the fees charged by any professional engaged by Lender in connection with any such Material Alteration.
V.03. Access to Property and Records. Borrower shall (and shall cause MortgageProperty Borrower to) permit agents, representatives and employees of Lender (at Lender’s cost and expense if no Event of Default has occurred), to inspect (a) the Property or any part thereof, and (b) such books, records and accounts of Borrower and MortgageProperty Borrower and to make such copies or extracts thereof as Lender shall desire, in each case at such
reasonable times as may be requested by Lender upon reasonable advance notice, subject to the rights of tenants under Leases. Borrower agrees to bear and shall pay or reimburse Lender on demand for all reasonable costs and expenses incurred by Lender in connection with the inspections described in this Section 5.3, provided, that so long as no Event of Default exists Lender’s costs and expenses shall not exceed $250 for any single inspection.
V.04. Intentionally Omitted.
V.05. REIT Status and Partnership Operations. Borrower shall at all times comply with the requirements of Rev. Proc. 2003-65 issued by the Internal Revenue Service and ensure the satisfaction of the tests applicable to Strategic Storage Trust VI, Inc., a Maryland corporation (the “REIT”), in its capacity as a real estate investment trust. Borrower shall furnish, within thirty (30) days following the end of each calendar quarter, supporting information and documentation to Lender that Borrower, Guarantor and the REIT have at all times complied with and operated in accordance with Rev. Proc. 2003-65. Borrower, Guarantor and the REIT shall at all times operate consistent with Rev. Proc. 2003-65 and shall, withing five (5) Business Days, notify Lender of any changes that would impact the status of the REIT, including, without limitation, the acquisition of taxable corporations.
V.06. Intentionally Omitted.
V.07. Leases. Borrower shall cause Mortgage Borrower (i) Property Borrower to observe and perform all of the material obligations imposed upon the lessor under the Leases, and (ii) Mortgage Borrower to comply at all times with the covenants set forth in the applicable provision pertaining to the assignment of leases in the Mortgage. Borrower shall not permit Mortgage Borrower to make any assignment or pledge of any Leases or Rents to anyone other than Mortgage Lender until the Indebtedness is paid in full.
V.08. Place of Business; State of Organization. Borrower shall not (and shall not permit MortgageProperty Borrower to) change its principal place of business or place where its books and records are kept, without giving Lender at least thirty (30) days’ prior written notice thereof, and shall not change the jurisdiction in which it is organized without Lender’s prior written consent, and in each case Borrower shall promptly provide Lender such information as Lender may reasonably request in connection therewith. Upon Lender’s request, Borrower shall execute and deliver additional financing statements, security agreements and other instruments that may be necessary to effectively evidence or perfect Lender’s security interest in the Collateral as a result of such change of principal place of business or place of organization. Borrower’s principal place of business and the place where Borrower keeps its books and records, including recorded data of any kind or nature, regardless of the medium or recording, including software, writings, plans, specifications and schematics, has been for the preceding four (4) months (or, if less, the entire period of the existence of Borrower) and will continue to be the address of Borrower set forth in the introductory paragraph of this Agreement (unless Borrower notifies Lender in writing at least thirty (30) days prior to the date of such change).
V.09. Zoning; Joint Assessment. Borrower shall not permit MortgageProperty Borrower to materially change the Property’s use or initiate, join in or consent to any (a) change in any private restrictive covenant, zoning ordinance or other public or private restrictions limiting or
defining the Property’s uses or any part thereof (including filing a declaration of condominium, map or any other document having the effect of subjecting the Property to the condominium or cooperative form of ownership), except those necessary in connection with the uses permitted pursuant to this Agreement, or (b) joint assessment of the Property with any other real or personal property.
V.10. Title Insurance Proceeds. Borrower covenants, subject to the Mortgage Lender’s rights under the Mortgage Loan Documents, to remit (or cause the MortgageProperty Borrower to remit) to Lender all title insurance proceeds paid by the title insurance company insuring MortgageProperty Borrower’s title to the Property upon the occurrence of any loss under such title insurance policy (“Title Insurance Proceeds”); provided, however, in no event shall the Title Insurance Proceeds paid to Lender exceed, in the aggregate, the outstanding Indebtedness; and provided further, that with respect to Property owned by Mortgage Borrower, the remittance of such proceeds shall be subject to the Mortgage Lender’s rights under the Mortgage Loan Documents.
V.11. Material Agreements. Borrower shall not permit MortgageProperty Borrower, without Lender’s prior written consent (which consent shall not be unreasonably withheld) to: (a) enter into, modify, surrender, terminate or waive any provision of any Material Agreement to which it is a party (unless the other party thereto is in material default and the termination of such agreement would be commercially reasonable), except for such waivers and modifications that are on arms’ length basis and on commercially reasonable terms.
ARTICLE VI - TRANSFERS AND CHANGE OF BUSINESS
Borrower covenants and agrees that, from the Closing Date and until payment in full of the Indebtedness:
VI.01. Transfer. Borrower will not allow any Transfer to occur other than the following Transfers (in each case provided that no Event of Default then exists) (each, a “Permitted Transfer”):
(a) Permitted Encumbrances;
(b) Leases entered into in accordance with the Loan Documents or the Mortgage Loan Documents;
(c) Intentionally Omitted;
(d) Transfers of all or substantially all of the Collateral (but not any direct interest in the Property) to another party (the “Transferee”), provided that, (A) intentionally omitted, (B) the identity, experience, financial condition, creditworthiness, single purpose nature and bankruptcy remoteness of the Borrower, Transferee, and the replacement guarantors and indemnitors shall be reasonably satisfactory to Lender, (C) Borrower, Transferee, Guarantor and the replacement guarantors and indemnitors shall execute and deliver any and all documentation
as may be reasonably required by Lender in form and substance reasonably satisfactory to Lender (including assumption documents and new pledge agreements if necessary), (D) counsel to Transferee and the replacement guarantors and indemnitors shall deliver to Lender opinion letters relating to such transfer (including a non-consolidation opinion, if a non-consolidation opinion was required in connection with the closing of the Loan, and a tax opinion) in form and substance reasonably satisfactory to Lender, (E) in the case of a Transfer of the Collateral, (1) the organizational structure of the MortgageProperty Borrower and Borrower, their organizational documents, and the Equity Interests to be pledged to Lender, are all approved by Lender in its sole and absolute discretion, and (2) Lender shall have received a new policy of UCC insurance (or an amendment to its existing policy) confirming the creation and perfection of its Lien on the such new pledged collateral, and (F) Borrower pays all reasonable expenses incurred by Lender in connection with such Transfer, including Lender’s reasonable attorneys fees and expenses;
(e) Intentionally Omitted;
(f) Intentionally Omitted; and
(g) Transfers of direct or indirect Equity Interests in Borrower among the holders thereof as of the date hereof provided no such Transfer results in a change in Control of Borrower.
VI.02. Other Indebtedness. Borrower shall not incur, create, assume, allow to exist, become or be liable in any manner with respect to any other indebtedness or monetary obligations, except for the Indebtedness and Permitted Trade Payables. Borrower shall not permit (a) Mortgage Borrower to incur, create, assume, allow to exist, become or be liable in any manner with respect to any other indebtedness or monetary obligations, except as permitted by the Mortgage Loan Agreement; or (b) Non-Mortgage Borrower to incur, create, assume, allow to exist, become or be liable in any manner with respect to any other indebtedness or monetary obligations, except as permitted by this Agreement.
VI.03. Liens. Borrower shall not create, incur, assume or suffer to exist any Lien on the Collateral or permit any such action to be taken, except: (i) Permitted Encumbrances; and (ii) Liens created by or permitted pursuant to the Loan Documents. Borrower shall not permit MortgageProperty Borrower to create, incur, assume or suffer to exist any Lien on any portion of the Property or permit any such action to be taken, except: (i) Permitted Encumbrances; (ii) with respect to Collateral subject to a Security Instrument under the Mortgage Loan Documents, Liens created by or permitted pursuant to thesuch Mortgage Loan Documents; and (iii) Liens for Impositions not yet due.
VI.04. ERISA. Borrower shall not engage in any transaction that would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA. Borrower further covenants and agrees to deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its sole discretion, that (i) Borrower is not and does not maintain an “employee benefit plan” as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a “governmental plan” within the meaning of Section 3(32) of ERISA; (ii) Borrower is not subject to any state statute regulating investments of,
or fiduciary obligations with respect to, governmental plans; and (iii) one or more of the following circumstances is true:
(A) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. § 2510.3-101(b)(2);
(B) Less than twenty-five percent (25%) of each outstanding class of equity interests in Borrower is held by “benefit plan investors” within the meaning of 29 C.F.R. § 2510.3-101(f)(2); or
(C) Borrower qualifies as an “operating company” or a “real estate operating company” within the meaning of 29 C.F.R. § 2510.3-101(c) or (e).
VI.05. Single-Purpose Entity. Borrower shall not cease to be a Single-Purpose Entity. Borrower shall not permit Non-Mortgage Borrower to cease to be a Single-Purpose Entity (as defined in the Mortgage Loan Agreement) and shall at all times comply with the SPE Covenants. Borrower shall not permit Mortgage Borrower to cease to be a Single Purpose Entity (as defined in the Mortgage Loan Agreement) and shall at all times comply with the SPE Covenants. Borrower shall not modify, amend, restate or replace MortgageProperty Borrower’s organizational documents in any material manner, nor suffer or permit any other Person to modify, amend, restate or replace Borrower’s organizational documents in any material manner, in each case without the prior written consent of Lender.
VI.06. Partial Release. Subject to the provisions of this Section 6.6, Borrower shall have the right to obtain a release from Lender of all or a portion of the Collateral (a “Partial Release”) upon satisfaction of each and every one of the following conditions precedent (singularly and collectively referred to as the “Partial Release Conditions”):
(a) upon request by Lender, Borrower shall provide to Lender an appraisal in form and substance reasonably satisfactory to Lender for the Property;
(b) Lender shall have reasonably determined that the Collateral Value is equal to or greater than one hundred fifty percent (150%) of the then-current outstanding principal balance of the Loan;
(c) no Event of Default shall have occurred and be continuing or shall occur solely as a result of such Partial Release;
(d) Borrower shall have submitted to Lender a written request for such Partial Release at least ten (10) days prior to the proposed Partial Release;
(e) Borrower shall have executed and delivered to Lender such other certificates, documents or instruments as Lender may reasonably require in connection with the Partial Release; and
(f) Borrower shall have paid all of Lender’s reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) incurred in connection with the
ARTICLE VII - INSURANCE, CASUALTY, CONDEMNATION AND RESTORATION
VII.01. Insurance.
(a) With respect to a Mortgage Borrower, Borrower shall cause such Mortgage Borrower to maintain at all times during the term of the Loan the insurance required under Section 9 of the Mortgage Loan Agreement, including, without limitation, meeting all insurer requirements thereunder. With respect to a Non-Mortgage Borrower, Borrower shall cause such Non-Mortgage Borrower to maintain at all times during the term of the Loan substantially the same insurance that is required of Mortgage Borrower. In addition, with respect to Mortgage Borrower only, Borrower shall cause Lender to be named as loss payee on property coverages and named as an additional insured, together with Mortgage Lender, as their interest may appear, under such of the insurance policies required under of the Mortgage Loan Agreement as Lender shall require. In the event Property Borrower constitutes a Mortgage Borrower hereunder, then Mortgage Lender shall also be named as an additional insured in the manner as Lender. Borrower shall also cause all insurance policies required under this Section 7.1 to provide for at least thirty (30) days prior notice to Lender in the event of policy cancellation or material changes. Not less than five (5) Business Days prior to the expiration dates of the Policies theretofore furnished to Lender pursuant to the terms hereof, certificates of insurance accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder shall be delivered by Borrower to Lender; provided, however, that in the case of renewal Policies, Borrower may furnish Lender with certificates of insurance therefor to be followed by the original Policies when issued.
(b) If at any time Lender is not in receipt of written evidence that all insurance required hereunder and under the Mortgage Loan Agreement is in full force and effect, Lender shall have the right, without notice to Borrower, to take such action as Lender deems necessary to protect its interest in the Collateral, including the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate and all expenses incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and until paid shall be secured by the Pledge Agreement and shall bear interest at the Default Rate.
(c) For purposes of this Agreement, Lender shall have the same approval rights over the insurance referred to above (including, without limitation, the insurers, deductibles and coverages thereunder, as well as the right to require other reasonable insurance pursuant thereto) as are provided in favor of the Mortgage Lender in the Mortgage Loan Agreement. The policies delivered pursuant to the Mortgage Loan Agreement shall include endorsements pursuant to which Lender shall have the same rights as the Mortgage Lender.
(d) In the event that the Mortgage Loan has been paid in full, except during the continuance of an Event of Default, Borrower shall permit Mortgage Borrower to settle any insurance or condemnation claims with respect to the insurance proceeds or condemnation awards which in the aggregate are less than or equal to the Insurance Threshold. Lender shall have the
right to participate in and reasonably approve any settlement for insurance or condemnation claims with respect to the insurance proceeds or condemnation awards which in the aggregate are equal to or greater than the Insurance Threshold. If an Event of Default shall have occurred and be continuing, Borrower hereby irrevocably empowers Lender, in the name of Mortgage Borrower as its true and lawful attorney in fact, to file and prosecute such claim and to collect and to make receipt for any such payment.
(e) Upon repayment in full of the Mortgage Loan, the provisions of Section 9 of the Mortgage Loan Agreement shall be deemed incorporated into this Agreement in their entirety.
VII.02. Casualty. If the Property (or any part thereof) shall sustain a loss or damage, Borrower shall give prompt notice of such loss or damage to Lender and shall cause Mortgage Borrower to promptly commence and diligently prosecute the completion of the Restoration of the Property in accordance with the applicable terms and conditions of the Mortgage Loan Agreement. Borrower shall cause Mortgage Borrower to pay all costs of Restoration (including, without limitation, any applicable deductibles under the insurance policies) whether or not such costs are covered by the Net Insurance Proceeds. In the event of a loss or damage where the loss does not exceed the Insurance Threshold, Borrower may (or may cause Mortgage Borrower to) settle and adjust such claim so long as no Event of Default has occurred and is continuing. Any such adjustment must be carried out in a commercially reasonable and timely manner. In the event of a loss or damage where the loss exceeds the Insurance Threshold or if an Event of Default then exists, Borrower may (and may cause or permit Mortgage Borrower to) settle and adjust such claim only with the prior written consent of Lender (which consent shall not be unreasonably withheld or delayed) and Lender shall have the opportunity to participate, at Borrower’s cost, in any such adjustment; provided, however, if Borrower fails to (and fails to cause Mortgage Borrower) settle and adjust such claim within ninety (90) days after the loss or damage, Lender shall have the right to settle and adjust such claim at Borrower’s cost and without Borrower’s consent. Notwithstanding any loss or damage, Borrower shall continue to pay the Indebtedness at the time and in the manner provided for its payment in the Note and in this Agreement.
VII.03. Condemnation. Borrower shall promptly give Lender notice of the actual or threatened commencement of any proceeding for the condemnation of the Property of which Borrower has knowledge and shall cause Mortgage Borrower to deliver to Lender copies of any and all papers served in connection with such proceedings. Provided no Event of Default has occurred and is continuing, in the event of a condemnation where the amount of the taking does not exceed the Insurance Threshold, Borrower may (or may cause Mortgage Borrower to) settle and compromise such condemnation. Any such settlement and compromise must be carried out in a commercially reasonable and timely manner. In the event of a condemnation where the amount of the taking exceeds the Insurance Threshold or if an Event of Default then exists, Borrower may (and may cause or permit Mortgage Borrower to) settle and compromise the condemnation only with the prior written consent of Lender (which consent shall not be unreasonably withheld or delayed) and Lender shall have the opportunity to participate, at Borrower’s cost, in any litigation and settlement discussions in respect thereof, and Borrower shall from time to time deliver to Lender all instruments requested by it to permit such participation. Borrower shall, at its expense, cause Mortgage Borrower to diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in
the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through condemnation or otherwise (including but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Indebtedness at the time and in the manner provided for its payment in the Note and in this Agreement and the Indebtedness shall not be reduced until any Award shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Indebtedness. Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided herein or in the Note. If the Property or any portion thereof is taken by a condemning authority, Borrower shall cause Mortgage Borrower to promptly commence and diligently prosecute the Restoration of the Property and otherwise comply with the applicable provisions of the Mortgage Loan Agreement. Borrower shall cause Mortgage Borrower to pay all costs of Restoration whether or not such costs are covered by the Net Insurance Proceeds.
VII.04. Restoration.
(a) Borrower shall deliver, or shall cause Mortgage Borrower to deliver, to Lender all reports, plans, specifications, documents and other materials that are delivered to Mortgage Lender under the applicable terms and conditions of the Mortgage Loan Agreement in connection with a Restoration of the Property after a loss or damage or condemnation, simultaneously with any such delivery to Mortgage Lender. Subject only to the rights of Mortgage Lender pursuant to the Mortgage Loan Agreement, all Net Insurance Proceeds that are permitted by the terms of the Mortgage Loan Documents to be paid to Mortgage Borrower or otherwise distributed to Borrower or Mortgage Borrower (rather than being used to rebuild or improve the Property in accordance with the Mortgage Loan Documents) shall be immediately paid over to Lender and are hereby assigned to Lender as additional collateral security hereunder.
(b) Borrower shall (or shall cause Mortgage Borrower to) keep Lender timely informed of the progress of any Restoration and the status of any negotiations with insurers relating to any such loss or damage or condemnation. In addition, Borrower shall (or shall cause Mortgage Borrower to) provide Lender with any and all documentation reasonably requested by Lender relating to any loss or damage or condemnation or Restoration. If any Net Insurance Proceeds are to be disbursed by Mortgage Lender for Restoration, Borrower shall deliver or cause to be delivered to Lender copies of all written correspondence delivered to and received from Mortgage Lender that relates to the Restoration and release of the Net Insurance Proceeds. If, in connection with a Restoration, Mortgage Lender does not require the deposit by Mortgage Borrower of any Net Insurance Proceeds pursuant to the applicable terms and conditions of the Mortgage Loan Agreement, Lender shall have the right to demand that Borrower make a deposit of such Net Insurance Proceeds in accordance with those same terms and conditions, such Net Insurance Proceeds to then be governed by such terms and conditions as if each reference therein to “Administrative Agent” and “Borrower” referred to Lender and Borrower, respectively.
(c) Notwithstanding any provision in this Agreement to the contrary, all Net Insurance Proceeds will be made available to Mortgage Borrower in accordance with the Mortgage Loan Agreement. In the event the Mortgage Loan has been paid in full and Lender receives any Net Insurance Proceeds, Lender shall either apply such proceeds to the Indebtedness or for the
Restoration in accordance with the same terms and conditions contained in the Mortgage Loan Agreement. Upon repayment in full of the Mortgage Loan, the provisions of the Mortgage Loan Agreement governing Restoration and use of Net Insurance Proceeds shall be incorporated into this Agreement in their entirety.
ARTICLE VIII - DEFAULTS
VIII.01. Event of Default. The occurrence of one or more of the following events shall be an “Event of Default” hereunder:
(a) if Borrower fails to make any payment of interest on the Indebtedness or amounts due pursuant to and in accordance with Article 2, or pay any other amount payable pursuant to the Loan Documents within five (5) days after written notice from Lender (provided such notice and cure period shall not apply to the payment due on the Maturity Date);
(b) if Borrower fails to pay the outstanding Indebtedness on the Maturity Date;
(c) if any of the Impositions are not paid when the same are due and payable;
(d) if Borrower attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents;
(e) if Borrower breaches any of its respective covenants contained Section 5.5 or Article 6 hereof;
(f) if Borrower fails to comply with the covenants as to Prescribed Laws set forth in Section 5.1(a) hereof;
(g) intentionally omitted;
(h) intentionally omitted;
(i) if an Event of Default occurs under and as defined in the Mortgage Loan Agreement (without regard to any subsequent payment or performance of any such obligations by Lender pursuant to Section 13.1 below or otherwise); or
(j) the occurrence of a Transfer that is not a Permitted Transfer;
(k) if any representation or warranty made herein or in any other Loan Document, or in any report, certificate, financial statement or other Instrument, agreement or document furnished by Borrower in connection with this Agreement or any other Loan Document shall be false in any material respect as of the date such representation or warranty was made or remade;
(l) if any Bankruptcy Action occurs with respect to Borrower, MortgageProperty Borrower or Guarantor; provided, however, that if such Bankruptcy Action was involuntary and not consented to by Borrower, MortgageProperty Borrower, Guarantor or any of their Affiliates,
such Bankruptcy Action shall not be an Event of Default unless the same is not discharged, stayed or dismissed within ninety (90) days after the filing or commencement thereof;
(m) the failure of Borrower to maintain (or cause MortgageProperty Borrower to maintain) the insurance policies required pursuant to Article 7;
(n) if any guaranty given in connection with the Loan shall cease to be in full force and effect or any guarantor shall deny or disaffirm its obligations thereunder;
(o) if an Event of Default occurs under and as defined in the Mortgage Loan Agreement (without regard to any subsequent payment or performance of any such obligations by Lender pursuant to Section 13.1 below or otherwise); or
(p) a default shall be continuing under any of the other obligations, agreements, undertakings, terms, covenants, provisions or conditions of this Agreement not otherwise referred to in this Section 8.1, or under any other Loan Document, for ten (10) days after notice to Borrower (and Guarantor, if applicable), in the case of any default which can be cured by the payment of a sum of money or for thirty (30) days after written notice, in the case of any other default (unless otherwise provided herein or in such other Loan Document); provided, however, that if such non-monetary default under this clause (i) is susceptible of cure but cannot reasonably be cured within such thirty (30) day period and provided further that Borrower (or Guarantor, if applicable) shall have commenced to cure such default within such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) day period shall be extended for such time as is reasonably necessary for Borrower (or Guarantor, if applicable) in the exercise of due diligence to cure such default, but in no event shall such period exceed ninety (90) days after the original notice.
VIII.02. Remedies. Upon the occurrence and during the continuance of an Event of Default, all or any one or more of the rights, powers and other remedies available to Lender against Borrower under any Loan Document, or at law or in equity may be exercised by Lender at any time and from time to time (including the right to accelerate and declare the outstanding Indebtedness to be immediately due and payable), without notice or demand, whether or not all or any portion of the Indebtedness shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to all or any portion of the Collateral. Notwithstanding anything contained to the contrary herein, the outstanding Indebtedness shall be accelerated and immediately due and payable, without any election by Lender upon the occurrence of a Bankruptcy Action with respect to Borrower, MortgageProperty Borrower or Guarantor. Any amounts recovered from the Collateral or any other collateral for the Loan after an Event of Default may be applied by Lender toward the payment of any interest and/or principal of the Loan and/or any other amounts due under the Loan Documents in such order, priority and proportions as Lender determines.
VIII.03. Remedies Cumulative. The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrower pursuant to this Agreement or the other Loan Documents executed by or with respect to Borrower, or existing at law or in equity or otherwise. Lender’s
rights, powers and remedies may be pursued singly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender’s discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of any Event of Default shall not be construed to be a waiver of any subsequent Event of Default or to impair any remedy, right or power consequent thereon. Any and all of Lender’s rights with respect to the Collateral shall continue unimpaired, and Borrower shall be and remain obligated in accordance with the terms hereof, notwithstanding (i) the release or substitution of Property at any time, or of any rights or interest therein or (ii) any delay, extension of time, renewal, compromise or other indulgence granted by Lender in the event of any Event of Default with respect to the Collateral or otherwise hereunder. Notwithstanding any other provision of this Agreement, Lender reserves the right to seek a deficiency judgment or preserve a deficiency claim, in connection with the foreclosure under the Pledge Agreement with respect to the Collateral to the extent necessary to foreclose on other parts of the Collateral.
VIII.04. Lender Appointed Attorney-In-Fact. Borrower hereby irrevocably and unconditionally constitutes and appoints Lender as Borrower’s true and lawful attorney-in-fact, with full power of substitution, at any time after the occurrence and during the continuance of an Event of Default to execute, acknowledge and deliver any documents, agreements or instruments and to exercise and enforce every right, power, remedy, option and privilege of Borrower under all Loan Documents, and do in the name, place and stead of Borrower, all such acts, things and deeds for and on behalf of and in the name of Borrower under any Loan Document, which Borrower could or might do or which Lender may deem necessary or desirable to more fully vest in Lender the rights and remedies provided for under the Loan Documents and to accomplish the purposes thereof. The foregoing powers of attorney are irrevocable and coupled with an interest.
VIII.05. Lender’s Right to Perform. If Borrower fails to perform any covenant or obligation contained herein for a period of five (5) Business Days after Borrower’s receipt of notice thereof from Lender, without in any way limiting Section 8.1, Lender may, but shall have no obligation to, perform, or cause performance of, such covenant or obligation, and the expenses of Lender incurred in connection therewith shall be payable by Borrower to Lender upon demand, together with interest thereon at the Default Rate. Notwithstanding the foregoing, Lender shall have no obligation to send notice to Borrower of any such failure.
ARTICLE IX - INTENTIONALLY OMITTED
ARTICLE X - EXCULPATION
X.01. Exculpation. Subject to the qualifications below, Lender shall not enforce the liability and obligation of Borrower (or any of Borrower’s members, managers, partners, shareholders, officers, directors or Affiliates, whether director or indirect, collectively, the “Borrower Parties”) to perform and observe the obligations contained in the Note, this Agreement, the Pledge Agreement or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender may bring a
foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its interest under the Note, this Agreement, the Pledge Agreement and the other Loan Documents, or in the Collateral or any other collateral given to Lender pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower’s interest in the Collateral and in any other collateral given to Lender, and Lender, by accepting the Note, this Agreement, the Pledge Agreement and the other Loan Documents, agrees for itself and its successors and assigns that it and its successors and assigns shall not sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding under, or by reason of, or in connection with, the Note, this Agreement, the Pledge Agreement or the other Loan Documents. The provisions of this Section shall not, however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b) impair the right of Lender to name Borrower as a party defendant in any action or suit for foreclosure and sale under the Pledge Agreement; (c) affect the validity or enforceability of any guaranty made in connection with the Loan or any of the rights and remedies of Lender thereunder; (d) impair the right of Lender to obtain the appointment of a receiver; (e) impair the enforcement of the Pledge Agreement; (f) constitute a prohibition against Lender seeking a deficiency judgment against Borrower in order to fully realize the security granted by the Pledge Agreement or commencing any other appropriate action or proceeding in order for Lender to exercise its remedies against the Collateral; or (g) constitute a waiver of the right of Lender to enforce the liability and obligation of Borrower under the terms of this Agreement, by money judgment or otherwise, to the extent of any actual out of pocket loss, damage, cost, expense, liability, claim or other obligation suffered or incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following:
(1) fraud or material misrepresentation or failure to disclose a material fact by Borrower or any of the Borrower Parties in connection with the Loan;
(2) the gross negligence or willful misconduct of Borrower or any of the Borrower Parties;
(3) the breach of any representation, warranty, covenant or indemnification provision in this Agreement or the Environmental Indemnity concerning environmental laws, hazardous substances and asbestos and any indemnification of Lender with respect thereto in any of such documents;
(4) willful physical waste of the Property to the extent that sufficient cash flow of the Property is available to prevent such waste;
(5) the removal or disposal of any portion of the Property after an Event of Default;
(6) the misappropriation or conversion by or on behalf of Borrower of (A) any insurance proceeds paid by reason of any loss or damage, (B) any Award received in connection with a condemnation or similar proceeding, (C) any Rents or other revenues derived from the Property following an Event of Default or (D) any Rents paid more than one (1) month in advance following an Event of Default;
(7) if Borrower or any other entity that is required to be a Single-Purpose Entity fails to comply with the SPE Covenants or maintain its status as a Single-Purpose Entity; or
(8) if any Transfer occurs other than as permitted by this Agreement.
Notwithstanding anything to the contrary in this Agreement, the Note or any of the Loan Documents, (A) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Indebtedness secured by the Mortgage or to require that all collateral shall continue to secure all of the Indebtedness in accordance with the Loan Documents, and (B) the Indebtedness shall be fully recourse to Borrower (i) in the event of: (a) Borrower filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary petition against Borrower under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by any other Person in which Borrower or any of the Borrower Parties colludes with or otherwise assists such Person, or soliciting or causing to be solicited petitioning creditors for any involuntary petition against Borrower from any Person; (c) Borrower or any of the Borrower Parties filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (d) Borrower or any of the Borrower Parties consenting to or acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for Borrower or all or any portion of the Property; (e) Borrower or any of the Borrower Parties making an assignment for the benefit of creditors, or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due; or (ii) if Borrower or any Borrower Party, or any Affiliate of Borrower or Affiliate of any Borrower Party, in any judicial or quasi-judicial case, action or proceeding directly or indirectly contests the validity or enforceability of the Loan Documents or directly or indirectly contests or intentionally hinders, delays or obstructs the pursuit of any rights or remedies by Lender (including the commencement and/or prosecution of a foreclosure action after an Event of Default. The provisions of this Article 10 shall survive the expiration and termination of this Agreement and the repayment of the Indebtedness.
ARTICLE XI - MISCELLANEOUS
XI.01. Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the execution and delivery of this Agreement and the execution and delivery by Borrower to Lender of the Note, and shall continue in full force and effect so long as any portion of the Indebtedness is outstanding and unpaid unless a longer period, or survival following repayment of the Indebtedness, is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party. All covenants, promises and agreements in this Agreement contained, by or on behalf of Borrower, shall inure to the benefit of the respective successors and assigns of Lender. Nothing in this Agreement or in any other Loan Document, express or implied, shall give to any Person other than the parties and the holder(s) of the Note, the Pledge Agreement and the
other Loan Documents, and their legal representatives, successors and assigns, any benefit or any legal or equitable right, remedy or claim hereunder.
XI.02. Lender’s Discretion. Whenever pursuant to this Agreement or any other Loan Document, Lender exercises any right, option or election given to Lender to approve or disapprove, or consent or withhold consent, or any arrangement or term is to be satisfactory to Lender or is to be in Lender’s discretion, the decision of Lender to approve or disapprove, consent or withhold consent, or to decide whether arrangements or terms are satisfactory or not satisfactory or acceptable or not acceptable to Lender in Lender’s discretion, shall (except as is otherwise specifically herein provided) be in the sole and absolute discretion of Lender.
XI.03. Governing Law. THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND DELIVERED TO LENDER BY BORROWER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, AND THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5 1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS MAY AT LENDER’S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5 1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.
XI.04. Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, the Note or any other Loan Document, or consent to any departure by Borrower therefrom, shall in any event be effective
unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to or demand on Borrower shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances.
XI.05. Delay Not a Waiver. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege under any Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under any Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under any Loan Document, or to declare a default for failure to effect prompt payment of any such other amount.
XI.06. Notices. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) hand delivery, with proof of attempted delivery, (b) certified or registered United States mail, postage prepaid, (c) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) email (with confirmation of receipt) provided that such email notice must also be delivered by one of the means set forth in (a), (b) or (c) above, addressed to the parties as follows (or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section 11.6) :
If to Lender: SmartStop OP, L.P. 10 Terrace Road Ladera Ranch, California 92694 Attention: H. Michael Schwartz Email: hms@sam.com
with a copy to: Nelson Mullins Riley & Scarborough LLP 201 17th Street NW Suite 1700 Atlanta, Georgia 30363
Attention: Rusty A. Fleming, Esq. Email: rusty.fleming@nelsonmullins.com
If to Borrower: SST VI Mezz, LLC 10 Terrace Road Ladera Ranch, California 92694 Attention: H. Michael Schwartz Email: hms@sam.com
with a copy to: Flynn Law Offices, P.C.
1133 Airline Drive, Suite 2201
Grapevine, Texas 76051
Attention: Scott Flynn, Esq. Email: sflynn@flynnlawpc.com
A party receiving a notice which does not comply with the technical requirements for notice under this Section 11.6 may elect to waive any deficiencies and treat the notice as having been properly given. A notice shall be deemed to have been given: (a) in the case of hand delivery, at the time of delivery; (b) in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; (c) in the case of expedited prepaid delivery upon the first attempted delivery on a Business Day; or (d) in the case of telecopier, upon receipt of answerback confirmation, provided that such telecopied notice was also delivered as required in this Section 11.6.
XI.07. Trial By Jury. BORROWER AND LENDER, TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS.
XI.08. Headings. The Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.
XI.09. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
XI.10. Preferences. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the Indebtedness or other obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Lender for Borrower’s benefit, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Indebtedness or other obligations or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender.
XI.11. Waiver of Notice. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Agreement or the
other Loan Documents does not specifically and expressly provide for the giving of notice by Lender to Borrower.
XI.12. Remedies of Borrower. In the event that a claim or adjudication is made that Lender or its servicers or agents, has acted unreasonably or unreasonably delayed acting in any case where by law or under any Loan Document, Lender, such servicer or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its servicers nor its agents, shall be liable for any monetary damages, and Borrower’s sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender or any such servicer or agent has acted reasonably shall be determined by an action seeking declaratory judgment.
XI.13. Exhibits Incorporated. The information set forth on the cover, heading and recitals hereof, and the Exhibits attached hereto, are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof.
XI.14. Offsets, Counterclaims and Defenses. Any assignee of Lender’s interest in and to the Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to the Loan, and the Loan Documents which Borrower may otherwise have against any assignor, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon, the Loan Documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower.
XI.15. No Joint Venture or Partnership. Borrower and Lender intend that the relationship created hereunder be solely that of borrower and lender. Nothing herein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between any of Borrower or any contractor or Governmental Authority and Lender nor to grant Lender any interest in the Collateral other than that of secured party or lender.
XI.16. Waiver of Marshalling of Assets Defense. To the fullest extent that Borrower may legally do so, Borrower waives all rights to a marshalling of the assets of Borrower, and of the Collateral, or to a sale in inverse order of alienation in the event of foreclosure of the interests hereby created, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Collateral for the collection of the Indebtedness without any prior or different resort for collection, or the right of Lender or any trustee under the Pledge Agreement to the payment of the Indebtedness in preference to every other claimant whatsoever.
XI.17. Waiver of Offsets/Defenses/Counterclaim. Borrower hereby waives the right to assert a counterclaim, other than compulsory counterclaim, in any action or proceeding brought against Borrower by Lender or Lender’s servicers or agents. No failure by Lender to perform any of its obligations hereunder shall be a valid defense to, or result in any offset against, any payments that Borrower is obligated to make under any of the Loan Documents.
XI.18. Construction of Documents. The parties hereto acknowledge that they were represented by counsel in connection with the negotiation and drafting of the Loan Documents and that the Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same.
XI.19. Brokers and Financial Advisors. Borrower and Lender hereby represent that they have dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement, other than as disclosed to Lender (any such disclosed broker, the “Broker”), and Borrower shall promptly pay Broker a commission pursuant to a separate agreement. Borrower hereby agrees to indemnify and hold Lender harmless from and against any and all Losses relating to or arising from a claim by any Person (including Broker) that such Person acted, directly or indirectly, by or on behalf of Guarantor, Borrower, MortgageProperty Borrower or any Affiliate thereof or was retained directly or indirectly, by or on behalf of Guarantor, Borrower, MortgageProperty Borrower or any Affiliate thereof in connection with the transactions contemplated herein. If Borrower has dealt with one or more of foregoing described Persons, Borrower acknowledges and agrees that such Persons may receive additional compensation and/or fees from Lender. The provisions of this Section 11.19 shall survive the expiration and termination of this Agreement and the repayment of the Indebtedness.
XI.20. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.
XI.21. Estoppel Certificates. Borrower and Lender each hereby agree at any time and from time to time, but in no event more than one time per calendar quarter, upon not less than fifteen (15) days prior written notice by Borrower or Lender to execute, acknowledge and deliver to the party specified in such notice, a statement, in writing, certifying that this Agreement is unmodified and in full force and effect (or if there have been modifications, that the same, as modified, is in full force and effect and stating the modifications hereto), and stating whether or not, to the knowledge of such certifying party, any Event of Default has occurred, and, if so, specifying each such Event of Default; provided, however, that it shall be a condition precedent to Lender’s obligation to deliver the statement pursuant to this Section 11.21, that Lender shall have received, together with Borrower’s request for such statement, a certificate of Borrower stating that no Event of Default exists as of the date of such certificate (or specifying such Event of Default).
XI.22. Reserved.
XI.23. Bankruptcy Waiver. Borrower hereby agrees that, in consideration of the recitals and mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, if Borrower (i) files with any bankruptcy court of competent jurisdiction or be the subject of any petition under Title 11 of the U.S. Code, as amended, (ii) is the subject of any order for relief issued under Title 11 of the U.S. Code, as amended, (iii) files or is the subject of any petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future law relating to bankruptcy, insolvency or other relief of debtors, (iv) has sought or consents to or
acquiesces in the appointment of any trustee, receiver, conservator or liquidator or (v) is the subject of any order, judgment or decree entered by any court of competent jurisdiction approving a petition filed against such party for any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal or state act or law relating to bankruptcy, insolvency or other relief for debtors, the automatic stay provided by the U.S. Bankruptcy Code shall be modified and annulled as to Lender, so as to permit Lender to exercise any and all of its rights and remedies, upon request of Lender made on notice to Borrower and any other party in interest but without the need of further proof or hearing. Neither Borrower nor any Affiliate of Borrower shall contest the enforceability of this Section 11.24.
XI.24. Entire Agreement. This Agreement, together with the Exhibits hereto and the other Loan Documents constitutes the entire agreement among the parties hereto with respect to the subject matter contained in this Agreement, the Exhibits hereto and the other Loan Documents and supersedes all prior agreements, understandings and negotiations between the parties.
XI.25. Expenses; Liability and Indemnification.
(a) Borrower covenants and agrees to pay or, if Borrower fails to pay, to reimburse, Lender upon receipt of written notice from Lender for all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees and disbursements) incurred by Lender in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby and all the costs of furnishing all legal opinions (including without limitation any opinions requested by Lender as to any legal matters arising under this Agreement or the other Loan Documents with respect to the Property); (ii) the creation, perfection or protection of Lender’s Liens in the Collateral (including fees and expenses for title and lien searches and filing and recording fees and expenses, UCC insurance, due diligence expenses, travel expenses, accounting firm fees, costs of the appraisal, environmental report(s) (and an environmental consultant), surveys and the engineering report(s) obtained by or delivered to Lender in connection with the Loan), and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents, (iii) monitoring Borrower’s ongoing performance of and compliance with Borrower’s respective agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental and insurance requirements; (iv) Lender’s ongoing performance and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date; (v) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by Lender; (vi) securing Borrower’s compliance with any requests made pursuant to the provisions of this Agreement and the other Loan Documents; (vii) enforcing or preserving any rights, either in response to third party claims or in prosecuting or defending any action or proceeding or other litigation, in each case against, under or affecting Borrower, MortgageProperty Borrower, Guarantor, this Agreement, the other Loan Documents, the Property, the Collateral, or any other security given for the Loan; (viii) any exercise by Lender of any rights
or remedies under the Loan Documents arising out of any Event of Default or breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in, this Agreement or the other Loan Documents, including without limitation all costs of collection and defense, including attorneys’ fees and costs, incurred by Lender or Borrower in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, together with all required service or use taxes; (ix) any bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower or any of its constituent Persons or an assignment by Borrower or any of its constituent Persons for the benefit of its creditors; and (x) in connection with any proposed refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a “work-out”, whether or not arising out of any insolvency or bankruptcy proceedings, regardless of whether the same shall be consummated.
(b) Lender shall not be liable for any loss sustained by Borrower resulting from any act or omission of any Indemnified Party unless it is finally judicially determined that such loss was solely caused by the fraud, gross negligence or willful misconduct of Lender or any Indemnified Party. Lender shall not be obligated to perform or discharge any obligation, duty or liability with respect to the ownership, operation and/or maintenance of the Property (including under any Lease, Contract or permit) or under or by reason of any Loan Document. Unless and until Lender becomes the fee owner of the Property following an Event of Default the Loan Documents shall not place responsibility for the control, care, management or repair of the Property upon Lender, nor for complying with any Lease, Contract or permit, nor shall Lender be responsible or liable for any waste committed on the Property, or for any dangerous or defective condition of the Property, or for any negligence in the management, upkeep, repair or control of the Property resulting in loss or injury or death to any tenant, licensee, guest, employee or stranger.
(c) Borrower shall indemnify and hold the Indemnified Parties harmless against any and all Losses, and reimburse them for any costs and expenses incurred, in connection with, arising out of or as a result of any of (i) any Events of Default, or any breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in, this Agreement or the other Loan Documents, (ii) the use or intended use of the proceeds of the Loan, (iii) the exercise of any of Lender’s or the Indemnified Parties’ remedies under any Loan Document, (iv) any alleged obligations or undertakings to perform or discharge any obligation, duty or liability with respect to the ownership, operation and/or maintenance of the Property (including under any Lease, Contract or permit), (v) any claim brought by any third party arising out of any condition or occurrence at or pertaining to the Property; (vi) any design, construction, operation, repair, maintenance, use, non‑use or condition of the Property, including claims or penalties arising from violation of any applicable laws or insurance requirements, as well as any claim based on any patent or latent defect, whether or not discoverable by Lender; (vii) any performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof; or (viii) any contest referred to in Section 5.1 hereof; except to the extent that it is finally judicially determined that any such Loss resulted directly and solely from the fraud, gross negligence or willful misconduct of such Indemnified Party. If any Indemnified Party becomes involved in any action, proceeding or investigation in connection with any matter described in clauses (i) through (viii) above, Borrower shall periodically reimburse any Indemnified Party upon demand therefor in an amount equal to its reasonable legal and other expenses (including the costs
of any investigation and preparation) incurred in connection therewith to the extent such legal or other expenses are the subject of indemnification hereunder.
XI.26. Publicity. Lender shall have the right to issue press releases, advertisements and other promotional materials describing the Loan (including the amount and purpose of the Loan) and Lender’s participation in the origination of the Loan. All news releases, publicity or advertising by Borrower or their affiliates through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents, to Lender or any of its Affiliates shall be subject to the prior approval of Lender, except for disclosures required by law which shall not require Lender approval but which shall require prior notice to Lender.
XI.27. Time of the Essence. Time shall be of the essence in the performance of all obligations of Borrower hereunder and under each of the other Loan Documents.
XI.28. Taxes. All payments made under the Loan Documents shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, and all liabilities with respect thereto, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority. If Borrower is required by law to deduct any of the foregoing from any sum payable under the Loan Document, such sum shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 11.29), Lender receives an amount equal to the sum Lender would have received had no such deductions been made. In the event of the passage of any Legal Requirement subsequent to the date hereof in any manner changing or modifying Legal Requirements now in force governing the taxation of mortgages or security agreements or debts secured thereby or the manner of collecting such taxes so as to adversely affect Lender or the Lien of the Loan Documents, Borrower will pay any such tax on or before the due date thereof. In the event Borrower is prohibited by Legal Requirements from assuming liability for payment of any such taxes (or if any Legal Requirement would penalize Lender if Borrower makes such payment or if, in the reasonable opinion of Lender, the making of such payment might result in the imposition of interest beyond the Maximum Legal Rate) or from paying any other Imposition, the outstanding Indebtedness shall, at the option of Lender, become due and payable on the date that is one hundred twenty (120) days after Lender provides notice to Borrower of such change in law and its election to accelerate the Maturity Date; and failure to pay such amounts on the date due shall be an Event of Default; provided, however, that any such prepayment made under this Section 11.29 shall be made without the payment of any penalty or premium.
XI.29. Further Assurances. Borrower shall execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary, to (a) evidence, preserve and/or protect the Collateral at any time securing or intended to secure the Indebtedness, and/or (b) enable Lender to perfect, exercise and enforce Lender’s rights and remedies under any Loan Document, as Lender shall require from time to time in its discretion.
ARTICLE XII - SPECIAL PROVISIONS
XII.01. The Mortgage Loan and Additional Matters.
(a) Compliance with Mortgage Loan Documents. Borrower shall cause Mortgage Borrower to: (i) pay all principal, interest and other sums required to be paid by Mortgage Borrower under and pursuant to the provisions of the Mortgage Loan Documents; (ii) diligently perform and observe all of the terms, covenants and conditions of the Mortgage Loan Documents on the part of Mortgage Borrower to be performed and observed; (iii) promptly deliver to Lender a true and complete copy of any notice by Mortgage Lender to Mortgage Borrower, Borrower, or Guarantor of any default by Mortgage Borrower under the Mortgage Loan Documents and of any other material written correspondence (including electronically transmitted items) given or received by Mortgage Borrower or Guarantor to or from the Mortgage Lender or its agents; (iv) not enter into or be bound by any Mortgage Loan Documents after the date hereof, agree to any modifications, consolidation, restatement, or waiver of any existing Mortgage Loan Documents, grant to Mortgage Lender any consent or waiver, or exercise any remedy available to Mortgage Borrower under the Mortgage Loan Documents or any right or election under the Mortgage Loan Documents, in each case without the prior written approval of Lender; and (v) provide Lender with a copy of any amendment or modification of, or waiver or consent granted under, the Mortgage Loan Documents within five (5) days after its receipt thereof. Any breach or attempted breach of this Section 12.1(a) shall constitute an immediate Event of Default hereunder.
(b) Mortgage Loan Defaults.
(i) Borrower agrees to notify Lender promptly upon the occurrence of any default under the Mortgage Loan Documents. If any default occurs under the Mortgage Loan Documents, Borrower agrees that Lender shall have the immediate right, without prior notice to Borrower, but shall be under no obligation to (A) pay all or any part of the Mortgage Loan and any other sums that are then due and payable, and perform any act or take any action on behalf of Borrower and/or Mortgage Borrower as may be appropriate, to cause all of the terms, covenants and conditions of the Mortgage Loan Documents on the part of Mortgage Borrower to be performed or observed thereunder to be promptly performed or observed, and (B) pay any other amounts and take any other action as Lender, in its sole and absolute discretion, shall deem advisable to protect or preserve the rights and interests of Lender in the Loan and/or the Collateral. Borrower shall not impede, interfere with, hinder or delay, and shall not permit Mortgage Borrower to impede, interfere with, hinder or delay, any effort or action on the part of Lender to cure any default or asserted default under the Mortgage Loan, or to otherwise protect or preserve Lender’s interests in the Loan and the Collateral following a default or asserted default under the Mortgage Loan.
(ii) Borrower hereby grants Lender and its designees the right to enter upon the Property at any time following the occurrence and during the continuance of any default, or the assertion by Mortgage Lender that a default has occurred, under the Mortgage Loan Documents, for the purpose of taking any such action or to appear in, defend or bring any action or proceeding to protect Lender’s interest. Lender may take such action as Lender deems
reasonably necessary or desirable to carry out the intents and purposes of this subsection (including communicating with Mortgage Lender with respect to any Mortgage Loan defaults), without prior notice to, or consent from, Borrower or Mortgage Borrower. Lender shall have no obligation to complete any cure or attempted cure undertaken or commenced by Lender.
(iii) All sums so paid and the costs and expenses incurred by Lender in exercising rights under this Section 12.1(c) (including its reasonable attorneys’ fees and costs) (A) shall be added to the Principal Indebtedness, (B) shall bear interest at the Default Rate for the period from the date that such costs or expenses were incurred to the date of payment to Lender, and (C) shall be secured by the Pledge Agreement. Borrower hereby indemnifies Lender from and against all Losses of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Lender as a result of the foregoing actions. In the event that Lender makes any payment in respect of the Mortgage Loan, Lender shall be subrogated to all of the rights of Mortgage Lender under the Mortgage Loan Documents against the Property, in addition to all other rights it may have under the Loan Documents.
(iv) If Lender shall receive a copy of any notice of default under the Mortgage Loan Documents sent by Mortgage Lender, such notice shall constitute full protection to Lender for any action taken or omitted to be taken by Lender, in good faith, in reliance thereon. As a material inducement to Lender’s making the Loan, Borrower hereby absolutely and unconditionally releases and waives all claims against Lender arising out of Lender's exercise of its rights and remedies provided in this Section 12.1, except for Lender’s gross negligence or willful misconduct.
(c) Mortgage Loan Estoppels. Borrower shall cause Mortgage Borrower to, from time to time, obtain from Mortgage Lender such certificates of estoppel with respect to compliance by Mortgage Borrower with the terms of the Mortgage Loan Documents as may be reasonably requested by Lender.
(d) Acquisition of the Mortgage Loan. None of Borrower, Mortgage Borrower, Guarantor, or any Affiliate of any of the foregoing shall acquire or agree to acquire the Mortgage Loan, or any portion thereof or any interest therein, or any direct or indirect ownership interest in the holder of the Mortgage Loan, via purchase, transfer, exchange, operation of law, or otherwise, and any breach or attempted breach of this Section 12.1(e) shall constitute an immediate Event of Default hereunder. If, solely by operation of applicable subrogation law, Borrower, Mortgage Borrower, Guarantor, or any Affiliate of any of the foregoing shall have failed to comply with the foregoing, then Borrower shall (i) immediately notify Lender of such failure, and (ii) cause any and all such prohibited parties acquiring any interest in the Mortgage Loan Documents (A) not to enforce the Mortgage Loan Documents, and (B) upon the request of Lender, to the extent any of such prohibited parties has or have the power or authority to do so, to promptly (1) cancel the promissory note evidencing the Mortgage Loan, (2) reconvey and release the Liens securing the Mortgage Loan and any other collateral under the Mortgage Loan Documents, and (3) discontinue and terminate any enforcement proceeding(s) under the Mortgage Loan Documents.
(e) Deed in Lieu of Foreclosure. Without the express prior written consent of Lender, Borrower shall not, and Borrower shall not cause, suffer or permit Mortgage Borrower to,
enter into, execute, deliver, or consent to, as the case may be, any deed-in-lieu or consensual foreclosure with or for the benefit of Mortgage Lender or any of its Affiliates or designees.
(f) Refinancing or Prepayment of the Mortgage Loan. Except as expressly permitted by the Mortgage Loan Documents, Borrower shall not make or permit to be made any partial or full prepayment of amounts owing under the Mortgage Loan or any refinancing of the Mortgage Loan without the prior written consent of Lender. Without limiting the foregoing, any sums that would otherwise be payable to Mortgage Borrower or distributable to Borrower in connection with the refinancing or other repayment of the Mortgage Loan (including any refund of reserves and escrows on deposit with Mortgage Lender) shall be immediately remitted by Borrower to Lender up to the amount necessary to fully repay the Indebtedness.
(g) Intentionally Omitted.
(h) Subordination and Standstill Agreement. Borrower hereby acknowledges and agrees that any agreement entered into between Lender and Mortgage Lender (including the Subordination and Standstill Agreement) will be solely for the benefit of Lender and Mortgage Lender, and that neither Borrower nor Mortgage Borrower shall be third-party beneficiaries (intended or otherwise) of any of the provisions therein, have any rights thereunder, or be entitled to rely on any of the provisions contained therein. Lender and Mortgage Lender have no obligation to disclose to Borrower or Mortgage Borrower the contents of any such agreement (including the Subordination and Standstill Agreement). Borrower’s obligations hereunder are and will be independent of any such agreement (including the Subordination and Standstill Agreement) and shall remain unmodified by the terms and provisions thereof.
(i) Intentionally Omitted.
(j) Distributions. Unless prohibited by the Mortgage Loan Agreement, on each date on which amounts are due and payable to Lender pursuant to the Loan Documents, Borrower shall exercise its rights under the organizational documents of Mortgage Borrower to cause Mortgage Borrower to make to a distribution of funds to Borrower in an amount sufficient to allow Borrower to make such required payment to Lender. During the existence of an Event of Default, Borrower shall not make any distributions of any kind, returns of capital, or repayment of any loans (in each case whether in cash, assets, Equity Interests, or proceeds of any kind) to any Person that owns Equity Interest in Borrower.
(k) Independent Approval Rights. If any action, proposed action or other decision is consented to or approved by Mortgage Lender, such consent or approval shall not be binding or controlling on Lender. Borrower hereby acknowledges and agrees that (i) the risks of Mortgage Lender in making the Mortgage Loan are different from the risks of Lender in making the Loan, (ii) in determining whether to grant, deny, withhold or condition any requested consent or approval, Mortgage Lender and Lender may reasonably reach different conclusions, and (iii) Lender has an absolute independent right to grant, deny, withhold or condition any requested consent or approval based on its own point of view, but subject to the standards of consent set forth herein. Furthermore, the denial by Lender of a requested consent or approval shall not create any liability or other obligation of Lender if the denial of such consent or approval results directly or indirectly in a default under the Mortgage Loan, and Borrower hereby waives any claim of liability
against Lender arising from any such denial unless Lender has not complied with any applicable standard for consent. The rights described above may be exercised by any entity which owns and controls, directly or indirectly, substantially all of the interests in Lender.
(l) VCOC Matters. Notwithstanding anything to the contrary contained in the Loan Documents, Lender shall have the right, in accordance with the terms of this Agreement, (i) to consult with and advise Borrower and Mortgage Borrower with respect to the management of significant business activities and financial developments of Borrower and Mortgage Borrower; provided, however, that such consultations shall not include discussions of environmental compliance programs or disposal of Hazardous Substances; (ii) to examine the books and records of Borrower and Mortgage Borrower; (iii) to receive monthly, quarterly and year-end financial reports, including balance sheets, statements of income, owner’s equity and cash flow, a management report and schedules of outstanding indebtedness (including pursuant to Section 5.5 hereof); and (iv) to approve any acquisition by Borrower of any other significant property (other than personal property required for the day to day operation of the Property). The rights described above may be exercised by any entity which owns and controls, directly or indirectly, substantially all of the interests in Lender.
[Signatures on the following pages]
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written.
LENDER:
SMARTSTOP OP, L.P.,
a Delaware limited partnership
By: SmartStop Self Storage REIT, Inc.,
a Maryland corporation
Its: General Partner
By:
Name:
Title:
[Signatures continued on following page]
Mezzanine Loan Agreement
BORROWER:
SST VI MEZZ, LLC,
a Delaware limited liability company
By: Strategic Storage Trust VI, Inc.,
a Maryland corporation
Its: Manager
By:___________________________
Name: ________________________
Title: _________________________
[End of signatures]
Mezzanine Loan Agreement
Schedule 1
Loan Documents
(a) Promissory Note made by Borrower in favor of Lender in the original principal amount of the Loan Amount (the “Note”);
(b) Pledge and Security Agreement made by Borrower in favor of Lender (the “Pledge Agreement”);
(c) Environmental Indemnity Agreement made by Borrower and Guarantor in favor of Lender;
(d) Guaranty of Recourse Obligations made by Guarantor in favor of Lender; and
(e) Uniform Commercial Code-Financing Statement to be filed in the State of Delaware.
1-1
EXHIBIT A
Organizational Chart of Borrower
See attached.
A-1
EXHIBIT B
Intentionally Omitted
B-1
EXHIBIT C
Definition of Single-Purpose Entity
“Single-Purpose Entity” means a corporation, limited partnership, or limited liability company which, at all times since its formation and at all times prior to, on and after the date thereof, has complied with and shall at all times comply with the following requirements (herein referred to as the “SPE Covenants”):
(i) was, is and will be organized solely for the purpose of owning the direct or indirect Equity Interests in MortgageProperty Borrower,
(ii) has not, does not and will not engage in any business unrelated to the direct or indirect Equity Interests in MortgageProperty Borrower,
(iii) has not owned, does not own and will not own any asset or property other than the direct or indirect Equity Interests in MortgageProperty Borrower,
(iv) has not engaged, sought or consented to, and to the fullest extent permitted by law, has not and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation or merger, in whole or in part, and, except as otherwise expressly permitted by this Agreement, and has not and will not engage in, seek or consent to any asset sale, transfer of partnership or membership or shareholder interests, or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation, limited liability company agreement or operating agreement (as applicable),
(v) [Intentionally Deleted],
(vi) [Intentionally Deleted],
(vii) [Intentionally Deleted],
(viii) has not and will not fail to correct any known misunderstanding regarding the separate identity of such entity,
(ix) [Intentionally Deleted],
(x) without the unanimous consent of all of the partners, directors or managers or members, as applicable, has not and will not with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest (w) file a bankruptcy, insolvency or reorganization petition or otherwise institute insolvency proceedings or otherwise seek any relief under any laws relating to the relief from debts or the protection of debtors generally; (x) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for such entity or all or any portion of such entity’s properties; (y) make any assignment for the benefit of such entity’s creditors; or (z) take any action that might cause such entity to become insolvent,
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(xi) has maintained and will maintain its books, records, financial statements, accounting records, bank accounts and other entity documents in its own name and separate from any other Person, and has not permitted, and has not and will not permit, its assets to be listed as assets on the financial statement of any other entity except as required for consolidated financial statements by generally accepted accounting principles; provided, however, that any such consolidated financial statement shall contain a note indicating that its separate assets and liabilities are neither available to pay the debts of the consolidated entity nor constitute obligations of the consolidated entity;
(xii) has maintained and will maintain its books, records, resolutions and agreements as official records,
(xiii) has not commingled, and will not commingle, its funds or other assets with those of any other Person, other than as provided in this Agreement, and has not participated and will not participate in any cash management system with any other Person;
(xiv) has held and will hold its assets in its own name, and has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person,
(xv) has conducted and will conduct its business in its name, except for services rendered under a business management services agreement with an affiliate that complies with the terms set forth in clause (xxviii) below, so long as the manager, or equivalent thereof, under such business management services agreement holds itself out as an agent of such Single-Purpose Entity
(xvi) has filed and will file its own tax returns (to the extent required to file any tax returns) and has not filed and will not file a consolidated federal income tax return with any other Person;
(xvii) has been, is and intends to remain solvent, and has paid and will pay its own debts and liabilities out of its own funds and assets (to the extent of such funds and assets) as the same shall become due, and will give prompt written notice to Lender of the insolvency or bankruptcy filing of Borrower or any general partner, managing member or controlling shareholder of Borrower, or the insolvency or bankruptcy filing of any Guarantor;
(xviii) has done and will do or cause to be done, all things necessary to observe all partnership, corporate or limited liability company formalities (as applicable) and preserve its existence and good standing, and, without the prior written consent of Lender, will not, amend, modify or otherwise change any of the single purpose, separateness or bankruptcy remote provisions or requirements of the partnership certificate, partnership agreement, articles of incorporation and bylaws, articles of organization or operating agreement, trust or other organizational documents (except as required by law),
(xix) has maintained and will maintain an arms-length relationship with its Affiliates,
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(xx) With respect to Mortgage Borrower, will have no indebtedness other than the indebtedness pursuant to the Mortgage Loan Agreement and unsecured trade payables in the ordinary course of business in amounts that are normal and reasonable under the circumstances relating to the ownership and operation of the Property which (1) do not exceed, at any time, a maximum amount of two percent (2%) of the Loan Amount (as defined in the Mortgage Loan Agreement) and, (2) are not evidenced by a note and (3) are paid within 30 days of the date incurred, or (B) with respect to Borrower, will have no indebtedness other than the Loan and unsecured trade payables in the ordinary course of business relating to the ownership of the direct or indirect Equity Interests in MortgageProperty Borrower which (1) do not exceed, at any time, $50,000 and (2) are paid within 60 days of the date incurred (the foregoing clause (B), “Permitted Trade Payables”),
(xxi) has not assumed and will not assume, guarantee, become obligated for or hold out its credit as being available to satisfy the debts or obligations of any other Person, or the decisions or actions respecting the daily business or affairs of any other Person,
(xxii) has not and will not acquire obligations or securities of its partners, members or shareholders or any other Person,
(xxiii) has allocated and will allocate fairly and reasonably shared expenses, including shared office space, and has maintained and utilized and will maintain and utilize separate stationery, invoices and checks bearing its own name,
(xxiv) except as permitted under the Loan Documents, has not pledged and will not pledge its assets for the benefit of any other Person,
(xxv) has held and will hold itself out to the public as a legal entity separate and distinct from any other Person and under its own name,
(xxvi) has not made and will not make loans or advances to any Person,
(xxvii) has not identified and will not identify its partners, members, shareholders or Affiliates, or any Affiliate of any of them, as a division or part of it, and has not identified itself, and shall not identify itself, as a division of any other Person
(xxviii) except as permitted under the Loan Documents, has not entered and will not enter into any contract or agreement with its partners, members, shareholders or its affiliates except in the ordinary course of its business and on terms which are intrinsically fair and are no less favorable to it than would be obtained in a comparable arms-length transaction with an unrelated third party and which are fully disclosed to and approved by Lender in writing in advance,
(xxix) has paid and will pay its own liabilities and expenses, including the salaries of its own employees (if any), out of its own funds and assets, and has maintained and will maintain a sufficient number of employees (if any) in light of its contemplated business operations;
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(xxx) intends to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations,
(xxxi) [Intentionally Deleted],
(xxxii) [Intentionally Deleted],
(xxxiii) [Intentionally Deleted];
(xxxiv) [Intentionally Deleted],
(xxxv) [Intentionally Deleted],
(xxxvi) has not permitted and will not permit any Affiliate independent access to its bank accounts,
(xxxvii) has not and will not have any obligation to indemnify its partners, officers, directors, managers or members, as the case may be, unless such an obligation was and is fully subordinated to the Indebtedness and, to the fullest extent permitted by law, will not constitute a claim against such entity in the event that cash flow in excess of the amount required to pay the Indebtedness is insufficient to pay such indemnity obligation,
(xxxviii) has not held and will not hold debt or evidence of debt issued by any other Person, other than cash and investment-grade securities issued by an entity that is not affiliated with it and held in the ordinary course of its business activities conducted in accordance with the SPE Covenants,
(xxxix) to the fullest extent permitted by law, including Section 18-1101(c) of the Delaware Limited Liability Company Act, has considered and will consider the interests of its creditors in connection with all of limited liability company actions; and
(xl) has caused and will cause its agents and other representatives to act at all times with respect to such entity consistently and in furtherance of the foregoing and in the best interests of such entity.
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EX-31.1
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, H. Michael Schwartz, certify that:
(1) I have reviewed this Quarterly Report on Form 10-Q of Strategic Storage Trust VI, Inc;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Intentionally omitted;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: August 8, 2022 | By: | /s/ H. Michael Schwartz |
|---|---|---|
| H. Michael Schwartz | ||
| Chief Executive Officer and President | ||
| (Principal Executive Officer) |
EX-31.2
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Matt F. Lopez, certify that:
(1) I have reviewed this Quarterly Report on Form 10-Q of Strategic Storage Trust VI, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Intentionally omitted;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: August 8, 2022 | By: | /s/ Matt F. Lopez |
|---|---|---|
| Matt F. Lopez | ||
| Chief Financial Officer and Treasurer | ||
| (Principal Financial and Accounting Officer) |
EX-32.1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Strategic Storage Trust VI, Inc. (the “Company”), in connection with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 (the “Report”) hereby certifies, to his knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| Date: August 8, 2022 | By: | /s/ H. Michael Schwartz |
|---|---|---|
| H. Michael Schwartz | ||
| Chief Executive Officer and President | ||
| (Principal Executive Officer) |
EX-32.2
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Strategic Storage Trust VI, Inc. (the “Company”), in connection with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 (the “Report”) hereby certifies, to his knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| Date: August 8, 2022 | By: | /s/ Matt F. Lopez |
|---|---|---|
| Matt F. Lopez | ||
| Chief Financial Officer and Treasurer | ||
| (Principal Financial and Accounting Officer) |