S-11/A: SmartStop Self Storage REIT Files Amendment for Proposed Public Offering

SmartStop Self Storage REIT updates its registration statement for a common stock offering, aiming for NYSE listing under the symbol SMST.

Summary

• SmartStop Self Storage REIT, an internally-managed REIT, has filed an amendment to its registration statement for a proposed public offering of its common stock.
• The company intends to list its common stock on the NYSE under the ticker symbol SMST.
• The document outlines details regarding the company's operations, financial condition, capital structure, and the terms of the offering.
• SmartStop is a premier owner and operator of self-storage facilities in the United States and Canada.
• As of September 30, 2023, SmartStop owned or managed 192 operating stores across 22 states and Canada, comprising approximately 135,000 units and 15.3 million net rentable square feet.
• The company's strategy includes organic growth, external acquisitions, and management of REIT platforms.
• The document also discusses various risk factors associated with investing in the company's common stock, including those related to the self-storage industry, real estate investments, debt financing, and federal income tax considerations.

Sentiment

Score: 7

Explanation: The document presents a balanced view of the company, highlighting both its strengths and risks. The company's growth strategy and experienced management team are positive indicators, while the competitive landscape and potential economic downturns pose challenges. The sentiment is cautiously optimistic.

Positives

• The company has a high-quality and diversified self-storage portfolio.
• The company has key growth markets and sub-markets with strong demographics.
• The company has differentiated exposure to the Greater Toronto Area.
• The company has an institutional quality, technology-enabled, data-driven operations focused on customer service.
• The company has a scalable platform and asset base to drive significant growth.
• The company has proven acquisition execution in the self-storage space.
• The company has a differentiated capital allocation capability through Managed REIT platform providing additional revenues and potential acquisition pipeline.
• The company has an investment grade balance sheet well positioned for expansion.
• The company has an experienced and aligned management team with extensive operating expertise.

Negatives

• The company has historically incurred net losses and has an accumulated deficit.
• The company faces significant competition in the self-storage industry.
• The company may be unable to promptly re-let units within its facilities at satisfactory rental rates.
• The company is susceptible to the effects of adverse macro-economic events that can result in higher unemployment, shrinking demand for products, large-scale business failures, and tight credit markets, such as inflation, rising interest rates, or labor shortages.
• The company is party to loans that are subject to variable interest rates. The rise in overall interest rates has increased the company's variable rate borrowing costs and its overall cost of capital, resulting in an increase in net interest expense, which may limit the company's ability to make accretive acquisitions of self storage properties, negatively impact the company's profitability, and affect the company's ability to comply with certain financial covenants.
• The company's future results may suffer as a result of the effect of recent affiliated mergers, acquisitions and other strategic transactions.
• The company's revenue and earnings from the Managed REIT platform are uncertain.

Risks

• The company's future results may suffer as a result of the effect of recent affiliated mergers, acquisitions and other strategic transactions.
• Certain of the company's officers and key personnel will face competing demands relating to their time and will face conflicts of interest related to the positions they hold with affiliated entities, which could cause the company's business to suffer.
• Revenue and earnings from the Managed REIT platform are uncertain.
• Because the company is focused on the self storage industry, its rental revenues will be significantly influenced by demand for self storage space generally, and a decrease in such demand would likely have a greater adverse effect on its rental revenues than if it owned a more diversified real estate portfolio.
• The company may be unable to promptly re-let units within its facilities at satisfactory rental rates.
• A high concentration of the company's properties in a particular geographic area would magnify the effects of downturns in that geographic area.
• The company's real estate assets may decline in value and be subject to significant impairment losses, which may reduce its net income.
• The company's inability to sell a property when it desires to do so could adversely impact its business and financial condition, and its inability to sell its properties at a price equal to, or greater than, the price for which it purchased such properties may lead to a decrease in the value of its assets.
• The company's joint venture investments could be adversely affected by its lack of sole decision-making authority.
• Property taxes and insurance premiums may increase, which would adversely affect the company's net operating income and cash available for distributions.
• Changes in the Canadian Dollar/USD exchange rate could have a material adverse effect on the company's operating results and value of the investment of its stockholders.
• The company has incurred and intends to continue to incur, mortgage indebtedness and other borrowings, which may increase its business risks.
• The company is party to loans that are subject to variable interest rates. The rise in overall interest rates has increased the company's variable rate borrowing costs and its overall cost of capital, resulting in an increase in net interest expense, which may limit the company's ability to make accretive acquisitions of self storage properties, negatively impact its profitability, and affect its ability to comply with certain financial covenants.
• If the company or the other parties to its loans or secured notes payable, as applicable, breach covenants thereunder, such loan or loans or secured notes payable could be deemed in default, which could accelerate its repayment date and materially adversely affect the value of its stockholders investment in it.
• Failure to continue to qualify as a REIT would adversely affect the company's operations and its ability to continue to pay distributions at its current level as it will incur additional tax liabilities.
• If any of the company's partnerships fails to maintain its status as a partnership for federal income tax purposes, its income would be subject to taxation and its REIT status would be terminated.
• The estimated net asset value per share, or Estimated Per Share NAV, of the company's common stock is based on a number of assumptions that may not be accurate or complete and may not reflect the price at which shares of its common stock will trade when listed on a national securities exchange or the price a third party would pay to acquire it.
• The market price and trading volume of shares of the company's common stock may be volatile.
• Because the company has a large number of stockholders and shares of its common stock have not been listed on a national securities exchange prior to this offering, there may be significant pent-up demand to sell shares of its common stock. Significant sales of shares of its common stock, or the perception that significant sales of such shares could occur, may cause the price of shares of its common stock to decline significantly.
• The company may be unable to raise additional capital needed to grow its business.
• The company has no operating history as a publicly traded company and may not be able to successfully operate as a publicly traded company.

Future Outlook

The company expects self storage revenues to increase in future periods as its lease-up or newly acquired properties increase occupancy and/or rates, and to otherwise primarily fluctuate based on the performance of its same-store pool, which will be influenced by the overall economic environment and increases in self storage supply, amongst other things.

Industry Context

The self storage industry is highly fragmented, with owners and operators ranging from individual property owners to blue chip institutional investors and large, publicly traded REITs.

Comparison to Industry Standards

• The adjusted gross margin percentage of the company's same-store portfolio were 70.1% for the quarter ended September 30, 2023, 410 basis points below that of the average of the U.S. Listed Self Storage REITs.
• The company's three year average same-store revenue growth was 12.2%, or approximately 110 bps higher than the U.S. Publicly Listed REITs over the same time period.
• The average owned portfolio of the U.S. Listed Self Storage REITs is approximately 1,800 facilities, encompassing over 129 million net rentable square feet as of September 30, 2023, compared to the company's 161 owned self storage facilities, encompassing 12.5 million net rentable square feet.

Related Party Transactions

• The document discusses various related party transactions, including agreements with SAM, the Former Dealer Manager, and the Managed REITs.
• These transactions may present conflicts of interest, but the company has adopted policies designed to eliminate or minimize such conflicts.

Stakeholder Impact

• The offering will provide liquidity to existing stockholders.
• The company's growth strategy aims to deliver attractive risk-adjusted returns to stockholders.
• The company's commitment to corporate responsibility benefits employees, customers, and communities.

Next Steps

• The company intends to list its common stock on the NYSE under the ticker symbol SMST.
• The company will use the net proceeds from the offering to redeem 100% of its issued and outstanding Series A Preferred Stock, pay down existing debt under its revolving credit facility, fund external growth with property acquisitions, and fund other general corporate uses.

Key Dates

Keywords

self storage, REIT, public offering, real estate, acquisitions, Managed REITs, Canada, Toronto, financials, investments, properties