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Potential Merger
9 Months Ended
Sep. 30, 2018
Business Combinations [Abstract]  
Potential Merger

Note 11. Potential Merger

On October 1, 2018, we, our Operating Partnership, Merger Sub, SSGT, and SSGT OP entered into the Merger Agreement in connection with the Mergers.

Subject to SSGT’s rights in connection with the go-shop provision described in further detail below, and pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the REIT Merger (the “REIT Merger Effective Time”), each share of SSGT common stock outstanding immediately prior to the REIT Merger Effective Time (other than shares owned by SSGT and its subsidiaries or us and our subsidiaries) will be automatically converted into the right to receive an amount in cash equal to $12.00, without interest and less any applicable withholding taxes (the “Merger Consideration”), which represents a total purchase price of approximately $340 million (which includes outstanding debt to be assumed or repaid as of September 30, 2018 but excludes transaction costs). Immediately prior to the REIT Merger Effective Time, all shares of SSGT common stock that are subject to vesting and other restrictions will become fully vested and non-forfeitable and, at the REIT Merger Effective Time, will be converted into the right to receive the Merger Consideration. At the effective time of the Partnership Merger, each outstanding unit of partnership interest in SSGT OP will be converted automatically into 1.127 units of partnership interest in our Operating Partnership. We are in the process of negotiating new loans in order to finance the Mergers, which would include the financing of the SSGT properties, the refinancing of certain of our existing properties and the payoff of certain of our existing loans.

Assuming all of the conditions to the Mergers are satisfied and the Mergers are consummated in accordance with the terms in the Merger Agreement, we will acquire all of the real estate owned by SSGT, consisting of 28 self storage facilities located in 10 states and in the Greater Toronto, Canada area, and comprising approximately 19,300 self storage units and approximately 2.1 million net rentable square feet of storage space.  Additionally, we will obtain the rights to acquire two self storage facilities currently under contract with SSGT.

The Merger Agreement contains customary representations, warranties and covenants. The closing of the REIT Merger is subject to the approval of the REIT Merger by the affirmative vote of the holders of a majority of all outstanding shares of SSGT’s common stock as of the record date for the special meeting of SSGT’s stockholders. The closing of the Mergers is also subject to various customary conditions. The closing of the REIT Merger is neither subject to a financing condition nor to the approval of our stockholders.

The Merger Agreement prohibits SSGT and its subsidiaries and representatives from soliciting, providing information or entering into discussions concerning proposals relating to alternative business combination transactions, subject to certain limited exceptions. However, under the terms of the Merger Agreement, during the period beginning on the date of the Merger Agreement and continuing until 11:59 p.m. New York City time on November 15, 2018 (the “Go Shop Period End Time”), SSGT (through the special committee of SSGT’s board of directors and its representatives) may initiate, solicit, provide information and enter into discussions concerning proposals relating to alternative business combination transactions. For up to five business days after the Go Shop Period End Time, SSGT may continue to participate in such discussions with a Go Shop Bidder (as defined in the Merger Agreement) and may, subject to certain conditions set forth in the Merger Agreement regarding the proposal made by such Go Shop Bidder, terminate the Merger Agreement and enter into an agreement with a Go Shop Bidder with respect to the proposal made by such Go Shop Bidder. The Merger Agreement also provides that, at any time beginning on the sixth business day after the Go Shop Period End Time and prior to receipt of the approval of SSGT’s stockholders, SSGT’s board of directors may, in certain circumstances, make an Adverse Recommendation Change (as such term is defined in the Merger Agreement) and terminate the Merger Agreement, subject to complying with certain conditions set forth in the Merger Agreement.

In connection with the termination of the Merger Agreement and SSGT’s entry into an alternative transaction with respect to a superior proposal, as well as under other specified circumstances, SSGT will be required to pay us a termination fee of $2.9 million in the event of termination on or prior to the fifth business day following the Go Shop Period End Time, or $9.6 million in the event of termination thereafter. In addition, the Merger Agreement provides for customary expense reimbursement under specified circumstances set forth in the Merger Agreement. The Merger Agreement also provides that we will be required to pay SSGT a reverse termination fee of $9.6 million under specified circumstances set forth in the Merger Agreement related to our failure to consummate the Closing.

We expect the SSGT stockholders meeting to occur in the first quarter of 2019 and, if the REIT Merger is approved by the SSGT stockholders, we expect the Mergers to close shortly thereafter.  However, there is no guarantee that the Mergers will be consummated.