8-K: SmartStop Self Storage REIT Provides Portfolio Update and Financial Review

SmartStop Self Storage REIT held a webinar to discuss its 2023 financial results and provide a portfolio update, highlighting its growth and strategic initiatives.

Summary

• SmartStop Self Storage REIT held a webinar on April 16, 2024, to review its financial results for the three and twelve months ended December 31, 2023, and to provide a portfolio update.
• The company's portfolio has grown by approximately 73% over the last four years, making it the 10th largest operator in the U.S. and the largest in the Greater Toronto Area (GTA).
• SmartStop's self-storage portfolio is focused on high-growth markets, including significant exposure to Canada and the GTA.
• The company has a multi-pronged growth strategy focused on organic and external growth, including a managed REIT platform.
• As of December 31, 2023, the company's accumulated deficit was approximately $167.3 million, and it is possible that operations may not be profitable in 2024.
• For the twelve months ended December 31, 2023, 92% of distributions were funded by cash flow from operations and 8% from the distribution reinvestment plan (DRP).
• The company's same-store occupancy was 92.3% at the end of 4Q 2023, with an average same-store year-over-year NOI growth of approximately 14.8% over the last three years.
• SmartStop's annualized same-store rent per occupied square foot was $19.94 in 4Q 2023.
• The company owns and manages 195 properties with 15.5 million square feet of space.
• SmartStop has a BBBinvestment grade rating from Kroll Bond Rating Agency since April 2022.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While SmartStop shows strong growth and strategic positioning, the financial challenges and risks temper the overall sentiment. The company's potential for future growth is positive, but the current financial situation and market risks are concerning.

Positives

• SmartStop has a strong track record of growth, significantly expanding its portfolio over the past four years.
• The company has a high-quality, diversified portfolio focused on key growth markets.
• SmartStop has a differentiated exposure to the Greater Toronto Area, a less mature market with growth potential.
• The company has a scalable, branded platform positioned to drive future growth.
• SmartStop has a multi-pronged growth strategy, including organic growth, acquisitions, and a managed REIT platform.
• The company has an experienced management team with a long history in the self-storage industry.
• SmartStop has a conservative and diversified capital structure.
• The company has a technology-driven platform that enhances customer experience and operational efficiency.
• SmartStop has a strong brand reputation and has received awards for customer service.
• The company is actively pursuing a solar initiative to reduce utility costs.

Negatives

• SmartStop had an accumulated deficit of approximately $167.3 million as of December 31, 2023.
• The company's operations may not be profitable in 2024.
• SmartStop has paid distributions from sources other than cash flows from operations, including proceeds from its public offering and DRP.
• There is no public market for shares of the company's common stock, making it difficult for stockholders to sell their shares.
• The company may only calculate the value per share annually, making it difficult to determine the net asset value of shares on an ongoing basis.
• Revenues and earnings from the Managed REITs are uncertain and subject to limitations or cancellation.
• The company faces potential conflicts of interest relating to the purchase of properties, including conflicts with the Managed REITs.
• The company may incur substantial debt, which could hinder its ability to pay distributions to stockholders.
• The Series A Preferred Shares rank senior to common stock, which could negatively impact distributions to common stockholders.
• The company may fail to qualify as a REIT, which could adversely affect operations and distributions.

Risks

• Adverse changes in economic conditions in the real estate industry and in the markets where SmartStop operates could negatively impact results.
• Market trends, interest rates, inflation, and the debt and lending markets could affect the company's performance.
• Failure to realize the benefits from affiliated mergers, acquisitions, and other strategic transactions could impact growth.
• The concentration of rental income in Florida, California, and the Greater Toronto Area could pose a risk.
• Competition from other self-storage properties or alternatives could cause rents and occupancy rates to decline.
• The impact of the outstanding Series A Convertible Preferred Stock could dilute stockholders' interests and discourage a takeover.
• Conflicts of interest among officers and key personnel due to their positions with affiliated entities could affect the company.
• Investments in or loans to Managed REITs could pose a risk.
• Increases in property taxes could impact profitability.
• Changes in laws and regulations could affect the company's business.
• Fluctuations in the Canadian Dollar/USD exchange rate could have a material adverse effect on operating results.
• Data breaches and cybersecurity attacks could adversely affect the business.
• Potential environmental or other liabilities could impact the company.
• Natural disasters, acts of violence, pandemics, terrorism, insurrection, or war could affect the markets in which the company operates.
• Failure to continue to qualify as a REIT could adversely affect the company.

Future Outlook

The company anticipates that subsequent events and developments may cause its views to change and expressly disclaims a duty to provide updates to forward-looking statements.

Management Comments

• Management has established a robust operating platform that is technology-enabled, data driven, and scalable.
• Management believes that the surveys and market research others have performed are reliable, but they have not independently verified this information.
• Management believes that NOI is useful for investors as it provides a measure of the operating performance of its operating assets.
• Management uses FFO, as adjusted, as one measure of operating performance when SmartStop formulates corporate goals and evaluates the effectiveness of its strategies.

Industry Context

The self-storage industry is highly fragmented, with a significant portion of facilities not owned by public companies, presenting opportunities for consolidation. SmartStop is positioned to capitalize on this trend with its scalable platform and growth strategy. The company's focus on the Greater Toronto Area provides a differentiated approach compared to other U.S. REITs.

Comparison to Industry Standards

• SmartStop's portfolio concentration in top markets is among the highest compared to peers.
• The company's same-store rent per square foot and ending occupancy are competitive within the industry.
• SmartStop's internal growth strategies have translated into successful long-term growth, as evidenced by its same-store revenue and NOI growth.
• The company's NOI and EBITDA margins are expanding but are still below public peers, indicating room for improvement.
• SmartStop's solar initiative is a unique approach to reducing utility costs compared to some peers.
• The company's managed REIT platform provides a differentiated access to capital compared to publicly traded REITs.

Stakeholder Impact

• Shareholders face risks due to the lack of a public market for shares and the potential for discounted sales.
• Employees may benefit from the company's growth and expansion.
• Customers may experience improved service through the company's technology-driven platform.
• Suppliers and creditors may be impacted by the company's financial performance and debt levels.

Next Steps

• The company will continue to focus on organic and external growth.
• SmartStop will leverage its technology-enabled platform to drive rental rates and occupancy.
• The company will expand its ancillary revenues within existing assets.
• SmartStop will continue to pursue acquisitions on its balance sheet and through its managed REITs.
• The company will explore accretive development opportunities within its Canadian joint ventures.
• SmartStop will continue to grow its third-party management platform.
• The company will continue to implement its solar initiative to reduce utility costs.

Key Dates

Keywords

self storage, REIT, real estate, acquisitions, portfolio, occupancy, NOI, Canada, Toronto, managed REIT, growth, distributions