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Strategic Storage Growth Trust, Inc. Reports 2018 First Quarter Results

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Strategic Storage Growth Trust, Inc. Reports 2018 First Quarter Results

Storage Growth Trust, Inc. (“SSGT”) announced continued growth in total revenues and total net operating income (“NOI”), as well as same-store results, including revenues, NOI and annualized rent per occupied square footage, as part of its overall operating results for the three months ended March 31, 2018.

“We continue to experience solid growth in SSGT’s portfolio, both in our same-store results and in our more recent lease-up acquisitions,” said H. Michael Schwartz, chairman and chief executive officer of SSGT. “Accordingly, we are pleased to announce an increase in distributions to SSGT shareholders, beginning in the 3rd quarter of 2018, of an additional $0.10 per share on an annualized basis, which brings the current distributions of $0.40 per share to $0.50 per share.”

First Quarter 2018 Highlights

  • Increased total revenue by approximately $1.7 million, or 61%, when compared to the same period in 2017.
  • Increased same-store revenues and NOI by 10.1% and 20.4%, respectively, compared to the same period in 2017.
  • Increased same-store annualized rent per occupied square foot by approximately 14.3%, when compared to the same period in 2017 from $11.95 to $13.66.
  • Increased modified funds from operations by approximately $0.6 million, or 129%, when compared to the same period in 2017.

First Quarter 2018 Acquisitions

Pembroke Pines, Florida

On February 1, 2018, SSGT closed on a newly constructed self storage facility following the issuance of a certificate of occupancy located in Pembroke Pines, Florida for a purchase price of approximately $15.7 million, plus closing costs and acquisition fees.

Riverview, Florida

On February 21, 2018, SSGT closed on a newly constructed self storage facility following the issuance of a certificate of occupancy located in Riverview, Florida for a purchase price of approximately $7.8 million, plus closing costs and acquisition fees.

Eastlake, California

On March 9, 2018, SSGT closed on a newly constructed self storage facility following the issuance of a certificate of occupancy located in Eastlake, California for a purchase price of approximately $17.0 million, plus closing costs and acquisition fees.

Potential Acquisitions

Gilbert, Arizona

On April 5, 2017, a subsidiary of SSGT executed a purchase and sale agreement with an unaffiliated third party for the acquisition of property that is being developed into a self storage facility located in Gilbert, AZ (the “Riggs Road Property”). The purchase price for the Riggs Road Property is $10.0 million. SSGT expects the acquisition of the Riggs Road Property to close in the first quarter of 2019 after construction is complete on the self storage facility and a certificate of occupancy has been issued.

Las Vegas, Nevada

On May 9, 2017, a subsidiary of SSGT entered into an assignment with a subsidiary of its sponsor in which the subsidiary of its sponsor assigned SSGT a purchase and sale agreement with an unaffiliated third party for the acquisition of property that is being developed into a self storage facility located in Las Vegas, NV (the “Deer Springs Property”). The purchase price for the Deer Springs Property is approximately $9.2 million. SSGT expects the acquisition of the Deer Springs Property to close in the third quarter of 2018 after construction is complete on the self storage facility and a certificate of occupancy has been issued.

Quarterly Distribution

On April 19, 2018, SSGT’s board of directors declared a daily distribution in the amount of $0.0013698630 per share on outstanding shares of common stock, payable to both Class A and Class T stockholders of record of such shares shown on its books as of the close of business each day during the period commencing July 1, 2018 and ending September 30, 2018. In connection with this distribution, after the stockholder servicing fee is paid, approximately $0.0011 per day will be paid per Class T share. Such distributions payable to each stockholder of record during a month will be paid the following month.

Capital Transactions

In January 2018, SSGT repaid the mortgage on its property in Phoenix, Arizona of approximately $5.1 million in full.

Other Items

Updated NAV

On April 19, 2018, the board of directors of SSGT, upon recommendation of its nominating and corporate governance committee, approved an estimated value per share of its common stock of $11.58 for its Class A Shares and Class T Shares based on the estimated value of SSGT’s assets less the estimated value of its liabilities, or net asset value, divided by the number of shares outstanding on a fully diluted basis, calculated as of December 31, 2017. See SSGT’s Current Report on Form 8-K filed with the SEC on April 20, 2018 for a description of the methodologies and assumptions used to determine, and the limitations of, the estimated value per share.

McKinney, Texas

On May 1, 2018, SSGT closed on a newly constructed self storage facility following the issuance of a certificate of occupancy located in McKinney, Texas for a purchase price of approximately $10.4 million, plus closing costs and acquisition fees, which was funded through a drawdown on its Amended KeyBank Facility.

STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2018
(Unaudited)
December 31,
2017
ASSETS
Real estate facilities:
Land $ 47,296,806 $ 40,955,234
Buildings 162,951,385 125,878,582
Site improvements 11,361,722 9,527,049
221,609,913 176,360,865
Accumulated depreciation (8,380,249) (7,052,779)
213,229,664 169,308,086
Construction in process 9,442,643 10,753,238
Real estate facilities, net 222,672,307 180,061,324
Cash and cash equivalents 5,787,681 52,720,171
Other assets, net 5,045,360 5,825,906
Debt issuance costs, net 355,922 465,378
Intangible assets, net 646,266 856,979
Total assets $ 234,507,536 $ 239,929,758
LIABILITIES AND EQUITY
Secured debt, net $ 2,340,502 $ 5,594,779
Accounts payable and accrued liabilities 4,260,463 3,800,992
Due to affiliates 3,262,515 3,406,088
Distributions payable 837,609 833,488
Total liabilities 10,701,089 13,635,347
Commitments and contingencies
Redeemable common stock 6,555,774 5,679,485
Equity:
Strategic Storage Growth Trust, Inc. equity:
Preferred Stock, $0.001 par value; 200,000,000 shares authorized; none issued and outstanding at March 31, 2018 and December 31, 2017
Class A Common stock, $0.001 par value; 350,000,000 shares authorized; 19,034,444 and 18,942,639 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively 19,035 18,943
Class T Common stock, $0.001 par value; 350,000,000 shares authorized; 7,594,917 and 7,566,333 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively 7,596 7,567
Additional paid-in capital 247,551,740 247,552,584
Distributions (13,081,330) (10,655,612)
Accumulated deficit (17,230,460) (16,607,616)
Accumulated other comprehensive income 59,406 371,923
Total Strategic Storage Growth Trust, Inc. equity 217,325,987 220,687,789
Noncontrolling interests in our Operating Partnership (75,314) (72,863)
Total equity 217,250,673 220,614,926
Total liabilities and equity $ 234,507,536 $ 239,929,758
STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2018 2017
Revenues:
Self storage rental revenue $ 4,243,064 $ 2,686,487
Ancillary operating revenue 114,364 17,944
Total revenues 4,357,428 2,704,431
Operating expenses:
Property operating expenses 1,741,018 1,149,496
Property operating expenses – affiliates 555,697 299,327
General and administrative 756,538 581,134
Depreciation 1,345,528 679,105
Intangible amortization expense 210,713 198,588
Acquisition expenses – affiliates 112,580 609,019
Other property acquisition expenses 88,709 102,806
Total operating expenses 4,810,783 3,619,475
Operating loss (453,355) (915,044)
Other income (expense):
Interest expense (41,429) (15,100)
Interest expense – debt issuance costs (140,712) (148,239)
Other 12,183 (13,209)
Net loss (623,313) (1,091,592)
Net loss attributable to the noncontrolling interests in our Operating Partnership 469 1,395
Net loss attributable to Strategic Storage Growth Trust, Inc. common stockholders $ (622,844) $ (1,090,197)
Net loss per Class A share—basic and diluted $ (0.02) $ (0.08)
Net loss per Class T share—basic and diluted $ (0.02) $ (0.08)
Weighted average Class A shares outstanding—basic and diluted 18,982,872 10,981,585
Weighted average Class T shares outstanding—basic and diluted 7,581,269 2,948,658
STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES
NON-GAAP MEASURE – COMPUTATION OF FUNDS FROM OPERATIONS
(Unaudited)
Three Months Ended March 31,
2018 2017
Net loss (attributable to common stockholders) $ (622,844) $ (1,090,197)
Add:
Depreciation 1,327,470 669,605
Amortization of intangible assets 210,713 198,588
Deduct:
Adjustment for noncontrolling interests (1,162) (1,210)
FFO (attributable to common stockholders) 914,177 (223,214)
Other Adjustments:
Acquisition expenses(1) 201,289 711,825
Adjustment for noncontrolling interests (152) (960)
MFFO (attributable to common stockholders) $ 1,115,314 $ 487,651

SSGT’s results of operations for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017 have been impacted by a favorable increase in same-store net operating income results of approximately $0.3 million and an increase in other net operating income of approximately $0.6 million, partially offset by increased asset management fees and general and administrative expenses associated with the related new facilities.

(1) In evaluating investments in real estate, SSGT differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for publicly registered, non-traded REITs that have generally completed their acquisition activity and have other similar operating characteristics. By excluding any expensed acquisition related expenses, SSGT believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of SSGT’s properties. Acquisition fees and expenses include payments to SSGT’s Advisor and third parties. Acquisition related expenses that do not meet SSGT’s capitalization criteria under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by SSGT, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property.

Non-cash Items Included in Net Loss:

Provided below is additional information related to selected non-cash items included in net loss above, which may be helpful in assessing SSGT’s operating results:

  • Debt issuance costs of approximately $141,000 and $148,000, respectively, were recognized for the three months ended March 31, 2018 and 2017.

STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES
NON-GAAP MEASURE – COMPUTATION OF SAME-STORE OPERATING RESULTS
(Unaudited)

The following table sets forth operating data for SSGT’s same-store facilities (those properties included in the consolidated results of operations since January 1, 2017, excluding one lease-up property SSGT owned as of January 1, 2017) for the three months ended March 31, 2018 and 2017. SSGT considers the following data to be meaningful as this allows for the comparison of results without the effects of acquisition or development activity.

Same-Store Facilities Non Same-Store Facilities Total
2018 2017 %
Change
2018 2017 %
Change
2018 2017 %
Change
Revenue(1) $ 2,740,188 $ 2,489,091 10.1 % $ 1,617,240 $ 215,340 N/M $ 4,357,428 $ 2,704,431 61.1 %
Property operatingexpenses(2) 1,060,652 1,094,088 (3.1) % 975,887 223,274 N/M 2,036,539 1,317,362 54.6 %
Operating income $ 1,679,536 $ 1,395,003 20.4 % $ 641,353 $ (7,934) N/M $ 2,320,889 $ 1,387,069 67.3 %
Number of facilities 13 13 14 6 27 19
Rentable squarefeet(3) 979,900 979,900 1,047,800 509,600 2,027,700 1,489,500
Average physicaloccupancy(4)(6) 88.0 % 91.3 % N/M N/M 71.8 % 80.1 %
Annualized rent per occupiedsquare foot(5) $ 13.66 $ 11.95 N/M N/M $ 14.34 $ 11.80
N/M Not meaningful
(1) Revenue includes rental revenue, ancillary revenue, and administrative and late fees.
(2) Property operating expenses excludes corporate general and administrative expenses, asset management fees, interest expense, depreciation, amortization expense and acquisition expenses, but includes property management fees.
(3) Of the total rentable square feet, parking represented approximately 154,000 and approximately 142,000 as of March 31, 2018 and 2017, respectively. On a same-store basis, for the same periods, parking represented approximately 106,000 square feet.
(4) Determined by dividing the sum of the month-end occupied square feet for the applicable group of facilities for each applicable period by the sum of their month-end rentable square feet for the period. Properties are included in the respective calculations in their first full month of operations, as appropriate.
(5) Determined by dividing the aggregate realized revenue for each applicable period by the aggregate of the month-end occupied square feet for the period. Properties are included in the respective calculations in their first full month of operations, as appropriate. SSGT have excluded the realized revenue and occupied square feet related to parking herein for the purpose of calculating annualized rent per occupied square foot.
(6) Decrease in total average physical occupancy for the quarter ended March 31, 2018 as compared to March 31, 2017 is primarily a result of SSGT’s acquisition of five lease-up properties subsequent to March 31, 2017.

SSGT’s increase in same-store revenue of approximately $0.3 million was the result of increased rent per occupied square foot of approximately 14.3%, net of decreased average physical occupancy of 3.3%, for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. Additionally, contributing to the increase in revenue was approximately $0.1 million of tenant insurance related revenue, of which SSGT had none in the three months ended March 31, 2017.

The following table presents a reconciliation of net loss to net operating income as presented on SSGT’s consolidated statements of operations for the periods indicated:

For the Three Months Ended March 31,
2018 2017
Net loss $ (623,313) $ (1,091,592)
Adjusted to exclude:
Asset management fees (1) 260,176 131,461
General and administrative 756,538 581,134
Depreciation 1,345,528 679,105
Intangible amortization expense 210,713 198,588
Acquisition expenses – affiliates 112,580 609,019
Other property acquisition expenses 88,709 102,806
Interest expense 41,429 15,100
Interest expense – debt issuance costs 140,712 148,239
Other (12,183) 13,209
Operating income $ 2,320,889 $ 1,387,069
(1) Asset management fees are included in Property operating expenses – affiliates in the consolidated statements of operations.

ADDITIONAL INFORMATION REGARDING NOI, FFO, and MFFO

Net Operating Income (“NOI”)

NOI is a non-GAAP measure that SSGT defines as net income (loss), computed in accordance with GAAP, generated from properties before corporate general and administrative expenses, costs incurred in connection with the property management change, asset management fees, interest expense, depreciation, amortization, acquisition expenses and other non-property related expenses. SSGT believes that NOI is useful for investors as it provides a measure of the operating performance of its operating assets because NOI excludes certain items that are not associated with the ongoing operation of the properties. Additionally, SSGT believes that NOI is a widely accepted measure of comparative operating performance in the real estate community. However, SSGT’s use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

Funds from Operations (“FFO”) and Modified Funds from Operations (“MFFO”)

Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, or FFO, which SSGT believes to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to SSGT’s net income (loss) as determined under GAAP.

SSGT defines FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment write downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. SSGT’s FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Diminution in value may occur if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances or other measures necessary to maintain the assets are not undertaken. However, SSGT believes that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. In addition, in the determination of FFO, SSGT believes it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indications exist and if the carrying value, or book value, exceeds the total estimated undiscounted future cash flows (including net rental revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Testing for impairment is a continuous process and is analyzed on a quarterly basis. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and that SSGT intends to have a relatively limited term of its operations; it could be difficult to recover any impairment charges through the eventual sale of the property. To date, SSGT has not recognized any impairments.

Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, SSGT believes that the use of FFO, which excludes the impact of real estate related depreciation and amortization and impairments, assists in providing a more complete understanding of its performance to investors and to its management, and when compared year over year, reflects the impact on SSGT’s operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income (loss).

However, FFO or modified funds from operations (“MFFO”), discussed below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating SSGT’s operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be considered a more relevant measure of operational performance and is, therefore, given more prominence than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting rules under GAAP that were put into effect and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses. Prior to January 1, 2018, when SSGT adopted new accounting guidance, such costs were entirely expensed as operating expenses under GAAP. Subsequent to January 1, 2018, certain of such costs continue to be expensed, albeit to a much lesser extent. SSGT believes these fees and expenses do not affect its overall long-term operating performance. Publicly registered, non-traded REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. The purchase of properties, and the corresponding expenditures associated with that process, is a key feature of SSGT’s business plan in order to generate operational income and cash flow in order to make distributions to investors. While other start-up entities may also experience significant acquisition activity during their initial years, SSGT believes that publicly registered, non-traded REITs are unique in that they typically have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. As disclosed in the prospectus for SSGT’s offering, SSGT will use the proceeds raised in its offering, including under its distribution reinvestment plan, to acquire properties and SSGT expects to begin the process of achieving a liquidity event (i.e., listing of its shares of common stock on a national securities exchange, a merger or sale, the sale of all or substantially all of its assets, or another similar transaction) within three to five years after the completion of its offering, which is generally comparable to other publicly registered, non-traded REITs. Thus, SSGT does not intend to continuously purchase assets and intends to have a limited life. The decision whether to engage in any liquidity event is in the sole discretion of the board of directors of SSGT. Due to the above factors and other unique features of publicly registered, non-traded REITs, the Investment Program Association, or the IPA, an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered, non- traded REITs and which SSGT believes to be another appropriate supplemental measure to reflect the operating performance of a publicly registered, non-traded REIT having the characteristics described above. MFFO is not equivalent to SSGT’s net income (loss) as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if SSGT does not ultimately engage in a liquidity event. SSGT believes that, because MFFO excludes any acquisition fees and expenses that affect its operations only in periods in which properties are acquired and that SSGT considers more reflective of investing activities, as well as other non-operating items included in FFO, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of SSGT’s operating performance after the period in which it is acquiring properties and once its portfolio is in place. By providing MFFO, SSGT believes it is presenting useful information that assists investors and analysts to better assess the sustainability of its operating performance after its offering has been completed and its properties have been acquired. SSGT also believes that MFFO is a recognized measure of sustainable operating performance by the publicly registered, non- traded REIT industry. Further, SSGT believes MFFO is useful in comparing the sustainability of its operating performance after its offering and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of SSGT’s operating performance after its offering has been completed and properties have been acquired, as it excludes any acquisition fees and expenses that have a negative effect on SSGT’s operating performance during the periods in which properties are acquired.

SSGT defines MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds From Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items included in the determination of GAAP net income (loss): acquisition fees and expenses; amounts relating to straight line rents and amortization of above or below intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; non-recurring impairments of real estate related investments; mark-to-market adjustments included in net income; non-recurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, adjustments relating to contingent purchase price obligations included in net income, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income (loss) in calculating cash flows from operations and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized.

SSGT’s MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, SSGT excludes acquisition related expenses. The other adjustments included in the IPA’s Practice Guideline are not applicable to SSGT for the periods presented. Acquisition fees and expenses are paid in cash by SSGT, and it has not set aside or put into escrow any specific amount of proceeds from its offering to be used to fund acquisition fees and expenses. SSGT does not intend to fund acquisition fees and expenses in the future from operating revenues and cash flows, nor from the sale of properties and subsequent re-deployment of capital and concurrent incurring of acquisition fees and expenses. Acquisition fees and expenses include payments to SSGT’s advisor and third parties. Certain acquisition related expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by SSGT, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. In the future, if SSGT is not able to raise additional proceeds from its offering, this could result in SSGT paying acquisition fees or reimbursing acquisition expenses due to its advisor, or a portion thereof, with net proceeds from borrowed funds, operational earnings or cash flows, net proceeds from the sale of properties, or ancillary cash flows. As a result, the amount of proceeds available for investment and operations would be reduced, or SSGT may incur additional interest expense as a result of borrowed funds.

Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income (loss) in determining cash flows from operations. In addition, SSGT views fair value adjustments of derivatives and the amortization of fair value adjustments related to debt as items which are unrealized and may not ultimately be realized or as items which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance.

SSGT uses MFFO and the adjustments used to calculate it in order to evaluate its performance against other publicly registered, non-traded REITs which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance if SSGT does not continue to operate in this manner. SSGT believes that its use of MFFO and the adjustments used to calculate it allow it to present its performance in a manner that reflects certain characteristics that are unique to publicly registered, non-traded REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures may be useful to investors. For example, acquisition fees and expenses are intended to be funded from the proceeds of SSGT’s offering and other financing sources and not from operations. By excluding expensed acquisition fees and expenses, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to SSGT’s current operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, SSGT believes MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of SSGT’s performance, as an alternative to cash flows from operations, which is an indication of SSGT’s liquidity, or indicative of funds available to fund SSGT’s cash needs including its ability to make distributions to its stockholders. FFO and MFFO should be reviewed in conjunction with other measurements as an indication of SSGT’s performance. MFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete.

Neither the SEC, NAREIT, nor any other regulatory body has passed judgment on the acceptability of the adjustments that SSGT uses to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the publicly registered, non-traded REIT industry and SSGT would have to adjust its calculation and characterization of FFO or MFFO.

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Lockdown 2.0 – Here’s how to be the best-looking person in the virtual room

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Lockdown 2.0 – Here's how to be the best-looking person in the virtual room 1

By Jeff Carlson, author of The Photographer’s Guide to Luminar 4 and Take Control of Your Digital Photos

suggests “the product you’re creating is not the camera, the lens or a webcam’s clever industrial design. It’s the subject, you, which is just on e part of the entire image they see. You want that image to convey quality, not convenience.”

Technology experts at Reincubate saw an opportunity in the rise of remote-working video calls and developed the app, Camo, to improve the video quality of our webcam calls. As part of this, they consulted the digital photography expert and author, Jeff Carlson, to reveal how we can look our best online. 

It’s clear by now that COVID-19 has normalised remote working, but as part of this the importance of video calls has risen exponentially. While we’re all used to seeing the more casual sides of our colleagues (t-shirt and shorts, anyone?), poor webcam quality is slightly less forgivable.

But how can we improve how we look on video? We consulted Jeff Carlson for some top tips– here is what he had to say.

  1. Improve the picture quality of your call

The better your camera, the higher quality your webcam calls will be. Most webcams (as well as currently being hard to get hold of and expensive), are subpar. A DSLR setup will give you the best picture, but will cost $1,500+. You can also use your iPhone’s amazing camera as a webcam, using the new app from Reincubate, Camo.

Jeff’s comments “The iPhone’s camera system features dedicated coprocessors for evaluating and adjusting the image in real time. Apple has put a tremendous amount of work into its imaging software as a way to compensate for the necessarily small camera sensors. Although it all works in service of creating stills and video, you get the same benefits when using the iPhone as a webcam.”

Aidan Fitzpatrick, CEO of Reincubate explains why the team created Camo, “Earlier this year our team moved to working remotely, and in video calls everyone looked pretty bad, irrespective of whether they were on built-in Mac webcams or third-party ones. Thus began my journey to build Camo: an iPhone has one of the world’s best cameras in it, so could we make it work as a webcam? Category-leading webcams are noticeably worse than an iPhone 7. This makes sense: six weeks of Apple’s R&D spend tops Logitech’s annual gross revenue.”

  1. Place your camera at eye level

A video call will never quite be the same as a face-to-face conversation, but bringing your camera up to eye level is a good place to start. That can involve putting your laptop on a stand or pile of books, mounting a webcam to the top of your display screen, or even using a tripod to get the perfect position.

Jeff points out, “If the camera is looking down on you, you’ll appear minimized in the frame; if it’s looking up, you’re inviting people to focus on your chin, neck, or nostrils. Most important, positioning the camera off your eye level is a distraction. Look them in the eye, even if they’re miles or continents away.

Lockdown 2.0 – Here's how to be the best-looking person in the virtual room 2

Low camera placement from a MacBook

  1. Make the most of natural lighting

Be aware of the lighting in the room and move yourself to face natural lighting if you can. Positioning the camera so any natural light is behind you takes the light away from your face, which can make it harder to see and read expressions on a call.

Jeff Carlson’s top tip: “If the light from outside is too harsh, diffuse it and create softer shadows by tacking up a white sheet or a stand-alone diffuser over the window.” 

Lockdown 2.0 – Here's how to be the best-looking person in the virtual room 3Lockdown 2.0 – Here's how to be the best-looking person in the virtual room 4

Backlit against a window Facing natural light

  1. Use supplementary lighting like ring lights

The downside to natural lighting is that you’re at the mercy of the elements: if it’s too bright you’ll have the sun in your eyes, if it’s too dark you won’t be well lit.

Jeff recommends adding supplementary lighting if you’re looking to really enhance your video calls. After all, it looks like remote working will be carrying on for quite some time.

“The light can be just as easy as a household or inexpensive work light. Angle the light so it’s bouncing off a wall or the ceiling, depending on your work area, which, again, diffuses the light and makes it more flattering.

Or, for a little money, use a softbox or a shoot-through umbrella with daylight bulbs (5500K temperature), or if space is tight, LED panels. Larger lights are better for distributing illumination– don’t be afraid to get them in close to you. Placement depends on the look you’re going after; start by positioning one at a 45-degree angle in front and to the side of you, which lights most of your face while retaining nice shadow detail.” 

In some cases, a ring light may work best. LEDs are arranged in a circle, with space in the middle to put the camera’s lens and get direct illumination from the direction of the camera.

  1. Centre yourself in the frame

Make sure you’re getting the right angle and that you’re using the frame effectively.

“You should aim for people to see your head and part of your torso, not all the space between your hair and the ceiling. Leave a little space above your head so it’s not cut off, but not enough that someone’s eyes are going to drift there.”

  1. Be mindful of your backdrop

It’s not always easy to get the quiet space needed for video calls when working from home, but try as best you can to remove anything too distracting from your background.

“Get rid of clutter or anything that’s distracting or unprofessional, because you can bet that will be the second thing the viewers notice after they see you. (The Twitter account @RateMySkypeRoom is an amusing ongoing commentary on the environments people on television are connecting from.)”

A busy background as seen by a webcam

  1. Make the most of virtual backgrounds

If you’re really struggling with finding a background that looks professional, try using a virtual background.

Jeff suggests: “Some apps can identify your presence in the scene and create a live mask that enables you to use an entirely different image to cover the background. While it’s a fun feature, the quality of the masking is still rudimentary, even with a green screen background that makes this sort of keying more accurate.”

  1. Be aware of your audio settings

Our laptop webcams, cameras, and mobile phones all include microphones, but if it’s at all possible, use a separate microphone instead.

“That can be an inexpensive lavalier mic, a USB microphone, or a set of iPhone earbuds. You can also get wireless lavalier models if you’re moving around during a call, such as presenting at a whiteboard in the camera’s field of view.

The idea is to get the microphone closer to your mouth so it’s recording what you say, not other sounds or echoes in the room. If you type during meetings, mount the mic on an arm instead of resting it on the same surface as your keyboard.”

  1. Be wary of video app add-ons

Video apps like Zoom include a ‘Touch up your appearance’ option in the Video settings. This applies a skin-smoothing filter to your face, but more often than not, the end result looks artificially blurry instead of smooth.

“Zoom also includes settings for suppressing persistent and intermittent background noise, and echo cancellation. They’re all set to Auto by default, but you can choose how aggressive or not the feature is.”

  1. Be the best looking person in the virtual room

What’s important to remember about video calls at this point in time is that most people are new to what is, really, personal broadcasting. That means you can easily get an edge, just by adopting a few suggestions in this article. When your video and audio quality improves, people will take notice.

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Bringing finance into the 21st Century – How COVID and collaboration are catalysing digital transformation

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Bringing finance into the 21st Century – How COVID and collaboration are catalysing digital transformation 5

By Keith Phillips, CEO of TISATech

If just six or seven months ago someone had told you that in a matter of weeks people around the world would be locked down in their homes, trying to navigate modern work systems from a prehistoric laptop, bickering with family over who’s hogging the Wi-Fi, migrating online to manage all financial services digitally, all while washing their hands every five minutes in fear of a global pandemic… You’d think they had lost their mind. But this very quickly became the reality for huge swathes of the world and we’re about to go through that all over again as the UK government has asked that those who can work from home should.

Unsurprisingly, statistics show that lockdown restrictions introduced by the UK government in March, led to a sharp increase in people adopting digital services. Banks encouraged its customers to log onto online banking, as they limited (and eventually halted) services at branches. This forced many customers online as their primary means of managing personal finances for the first time.

If anyone had doubts before, the Covid-19 pandemic proved to us the importance of well-functioning, effective digital financial services platforms, for both financial institutions and the people using them.

But with this sudden mass online migration, it’s become clear that traditional banks have struggled to keep up with servicing clients virtually. Legacy banking systems have always stilted the digitisation of financial services, but the pandemic thrust this issue into the limelight. Fintech firms, which focus intently on digital and mobile services, knew it was only a matter of time before financial institutions’ reliance was to increase at an unprecedented rate.

For years, fintechs have been called upon by traditional players to find solutions to problems borne from those clunky legacy systems, like manual completion of account changes and money transfers. Now it is the demand for these services to be online coupled with the need for financial services firms to cut costs, since Covid-19 hit the economy.

Covid-19 has catalysed the urgent need to bring digital transformation to a wider pool of financial services businesses. Customers now have even higher expectations of larger institutions, demanding that they keep up with what the younger and more nimble challengers have to offer. Industry leaders realise that they must transform their businesses as soon as possible, by streamlining and digitising operations to compete and, ultimately, improve services for their customers.

The race for digital acceleration began far before the recent pandemic – in fact, following the 2008 financial crisis is likely more accurate. Since the credit crunch, there has been a wave of new fintech firms, full of young, bright techies looking to be the next big thing. Fintechs have marketed themselves hard at big conferences and expos or by hosting ‘hackathons’, trying to prove themselves as the fastest, most innovative or the most vital to the future of the industry.

However, even during this period where accelerating innovation in online financial services and legacy systems is crucial, the conditions brought about by the pandemic have not been conducive to this much-needed transformation.

The second issue, which again was clear far before the pandemic, is that fact that no matter how nimble or clever the fintechs’ solutions are, it is still hard to implement the solutions seamlessly, as the sector is highly fragmented with banks using extremely outdated systems populated with vast amounts of data.

With the significance of the pandemic becoming more and more clear, and the need for better digital products and services becoming more crucial to financial services firms and consumers by the day, the industry has finally come together to provide a solution.

The TISAtech project was launched last month by The Investing and Saving Alliance (TISA), a membership organisation in the UK with more than 200 leading financial institutions as members. TISA asked The Disruption House, a specialist benchmarking and data analytics business, to create a clearing house platform for the industry to help it more effectively integrate new financial technology. The project aims to enhance products and services while reducing friction and ultimately lowering costs which are passed on to the customers.

With nearly 4,000 fintechs from around the world participating, it will be the world’s largest marketplace dedicated to Open Finance, Savings, and Investment.

Not only will it provide a ‘matchmaking’ service between financial institutions an fintechs, it will also host a sandbox environment. Financial institutions can pose real problems with real data and the fintechs are given the space to race to the bottom – to find the most constructive, cost-effective solution.

Yes, there are other marketplaces, but they all seem to struggle to achieve a return on investment. There is a genuine need for the ‘Trivago’ of financial technology – a one stop shop, run by an independent body, which can do more than just matchmaking. It needs to go above and beyond to encompass the sandboxing, assessments, profiling of fintechs to separate the wheat from the chaff, and provide a space for true collaboration.

The pandemic has taught us that we are more effective if we work together. We need mass support and collaboration to find solutions to problems. Businesses and industries are no different. If fintechs and financial institutions can work together, there is a real chance that we can start to lessen the economic hit for many businesses and consumers by lowering costs and streamlining better services and products. And even if it is just making it that little bit easier to manage personal finances from home when fighting with your children for the Wi-Fi, we are making a difference.

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What to Know Before You Expand Across Borders

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What to Know Before You Expand Across Borders 6

By Sean King, Director of International Tax at McGuire Sponsel

The American retail giant, Target Corporation, has a market cap of $64 billion and access to seemingly limitless resources and advisors. So, when the company engaged in its first global expansion, how could anything possibly go wrong?

Less than two years after opening its first Canadian store in 2013, Target shut down all133 Canadian locations and terminated more than 17,000 Canadian employees.

Expansion of an operation to another country can create unique challenges that may impact the financial viability of the entire enterprise. If Target Corporation can colossally fail in its expansion to Canada, how might Mom ‘N’ Pop LLC fare when expanding into Switzerland, Singapore, or Australia?

Successful global expansion requires an understanding of multilayered taxes, regulatory hurdles, employment laws, and cultural nuances. Fortunately, with the right guidance, global expansion can be both possible and profitable for businesses of any size.

Permanent establishment

Any company with global ambitions must first consider whether the company’s expansion outside of the U.S. will give rise to a taxable presence in the local country. In the cross-border context, a “permanent establishment” can be created in a local country when the enterprise reaches a certain level of activity, which is problematic because it exposes the U.S. multinational to taxation in the foreign country.

Foreign entity incorporation

To avoid permanent establishment risk, many U.S. multinationals choose to operate overseas through a formal corporate subsidiary, which reduces the company’s foreign income tax exposure, though it may result in an additional level of foreign income tax on the subsidiary’s earnings. In most jurisdictions, multinationals can operate their business in the foreign country as a branch, a pass through (e.g., partnership,) or a corporation.

As a branch, the U.S. multinational does not create a subsidiary in the foreign country. It holds assets, employees, and bank accounts under its own name. With a pass through, the U.S. multinational creates a separate entity in the foreign country that is treated as a partnership under the tax law of the foreign country but not necessarily as a partnership under U.S. tax law.

U.S. multinationals can also create corporate subsidiaries in the foreign country treated as corporations under the tax law of both the foreign country and the U.S., with possibly two levels of income taxation in the foreign country plus U.S. income taxation of earnings repatriated to the U.S. as dividends.

Check-the-box planning

Under U.S. entity classification rules, certain types of entities can “check the box” to elect their classification to be taxed as a corporation with two levels of tax, a partnership with pass-through taxation, or even be disregarded for U.S. federal income tax purposes. The check the box election allows U.S. multinationals to engage in more effective global tax planning.

Toll charges, transfer pricing and treaties

When establishing a foreign corporate subsidiary, the U.S. multinational will likely need to transfer certain assets to the new entity to make it fully operational. However, in many cases, the U.S. multinational cannot perform the transfer without recognizing taxable income. In the international context, the IRS imposes certain outbound “toll charges” on the transfer of appreciated property to a foreign entity, which are usually provided for in IRC Section 367 and subject to various exceptions and nuances.

Instead, the U.S. multinational may prefer to license intellectual property to the foreign subsidiary for a fee rather than transfer the property outright. However, licensing requires the company and foreign subsidiary to adhere to transfer pricing rules, as dictated by IRC Section 482. The U.S. multinational and the foreign subsidiary must interact in an arms-length manner regarding pricing and economic terms. Furthermore, any such arrangement may attract withholding taxes when royalties are paid across a border.

Are you GILTI?

Certain U.S. multinationals opt to focus on deferring the income recognition at the U.S. level. In doing so, they simply leave overseas profits overseas and delay repatriating any of the earnings to the U.S.

Despite the general merits of this form of planning, U.S. multinationals will be subject to certain IRS anti-deferral mechanisms, commonly known as “Subpart F” and GILTI. Essentially, U.S. shareholders of certain foreign corporations are forced to recognize their pro rata share of certain types of income generated by these foreign entities at the time the income is earned instead of waiting until the foreign entity formally repatriates the income to the U.S.

The end goal

Essentially, all effective international tax planning boils down to treasury management. Effective and early tax planning can properly allow a company to better achieve its initial goal: profitability.

If global expansion is on the horizon for your company, consult a licensed professional for advice concerning your specific situation.

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