10-Q: SmartStop Self Storage REIT Reports Mixed Q2 2024 Results: Revenue Stable, Net Loss Reported
Sentiment:
Quarterly Report
SmartStop Self Storage REIT's Q2 2024 results show stable revenue but a net loss, impacted by increased expenses and changes in fair value adjustments.
Worse than expectedThe company reported a net loss of $705,000 for the three months ended June 30, 2024, compared to a net income of $4.3 million for the same period in 2023.Managed REIT Platform revenues decreased to $2.7 million from $4.3 million in the prior year.Same-store revenue decreased 0.2% for the six months ended June 30, 2024.
Summary
- SmartStop Self Storage REIT reported a net loss of $705,000 for the three months ended June 30, 2024, compared to a net income of $4.3 million for the same period in 2023.
- Total self-storage revenues increased by 2.1% to $55.0 million.
- Managed REIT Platform revenues decreased to $2.7 million from $4.3 million in the prior year.
- Property operating expenses increased to $17.7 million.
- For the six months ended June 30, 2024, the company reported a net loss of $2.3 million compared to a net income of $6.3 million in 2023.
- Same-store revenue increased 1.3% for the three months ended June 30, 2024, but decreased 0.2% for the six months ended June 30, 2024.
- The company acquired a self-storage facility in Colorado Springs for approximately $10.5 million in April 2024.
- The company's board declared a distribution rate of approximately $0.0508 per share for July and August 2024.
- As of August 9, 2024, there were 88,257,265 outstanding shares of Class A common stock and 8,118,881 outstanding shares of Class T common stock.
Sentiment
Score: 5
Explanation: The report presents mixed results, with some positive aspects like revenue growth in self-storage, but also negative aspects like a net loss and declining Managed REIT Platform revenues. The outlook is cautious due to economic uncertainties and increased competition.
Positives
- Total self-storage revenues increased by 2.1% for the three months ended June 30, 2024.
- Same-store revenue increased 1.3% for the three months ended June 30, 2024.
- The company successfully amended its revolving credit facility, increasing the commitment to $650 million.
- The company acquired a self-storage facility in Colorado Springs for approximately $10.5 million in April 2024.
Negatives
- The company reported a net loss of $705,000 for the three months ended June 30, 2024, compared to a net income of $4.3 million for the same period in 2023.
- Managed REIT Platform revenues decreased to $2.7 million from $4.3 million in the prior year.
- Property operating expenses increased to $17.7 million.
- Same-store revenue decreased 0.2% for the six months ended June 30, 2024.
- The company's FFO, as adjusted, declined compared to the same period in the prior year.
Risks
- The company's rental revenue and operating results depend significantly on the demand for self-storage space.
- The broader economy has been experiencing elevated levels of inflation, higher interest rates, tightening monetary and fiscal policies and a slowdown in home sales.
- Certain property operating expenses have experienced elevated pressures to date, namely property insurance, property taxes and payroll have seen above average increases, primarily due to inflation and natural disasters.
- Capitalization rates on acquisitions have not increased at the same magnitude as interest rates.
- The company may not be able to pay distributions from its cash flows from operations, in which case distributions may be paid in part from debt or other financing sources.
Future Outlook
The company expects self storage revenues to fluctuate based on the performance of its same-store pool, influenced by the overall economic environment and increases in self storage supply. Managed REIT Platform Revenue is expected to fluctuate commensurate with the Managed REITs' increase in operations and assets under management, as well as reductions to such revenue in connection with the Sponsor Funding Agreement as SST VI continues to sell shares in its public offering.
Industry Context
The report highlights the normalization of self-storage demand after the COVID-19 pandemic surge, aligning with broader industry trends. The company's performance is being impacted by increased competition and economic factors such as inflation and rising interest rates, which are affecting the entire REIT sector.
Comparison to Industry Standards
- The report does not provide specific comparisons to industry benchmarks or competitors.
- However, it mentions that the company is the 10th largest owner and operator of self storage properties in the United States based on number of properties, units, and rentable square footage, according to Inside Self Storage Top-Operators List ranking for 2023.
- The report also mentions that the company's performance is being impacted by increased competition and economic factors such as inflation and rising interest rates, which are affecting the entire REIT sector.
Legal Proceedings
- In connection with a fire that occurred at one of our properties, a neighboring property was also damaged.
- In December 2023, we, along with our insurance carrier, received a subrogation demand letter from an attorney representing the insurance company for the neighboring property owner for approximately $8.3 million alleging that we were responsible for their damages.
- We intend to vigorously defend this matter.
- We believe we have adequate insurance coverage for this matter.
Related Party Transactions
- The report details various related party transactions, including fees and reimbursements related to the Managed REIT Platform, investments in and advances to Managed REITs, and the Administrative Services Agreement with SAM.
Stakeholder Impact
- The company's performance impacts shareholders through distributions and stock value.
- Employees are affected by the company's financial stability and growth prospects.
- Customers are impacted by the quality and availability of self-storage services.
- Suppliers and creditors are affected by the company's ability to meet its financial obligations.
Next Steps
- The company intends to continue to operate as to remain qualified as a REIT for federal income tax purposes.
- The company intends to maintain a credit rating on an annual basis.
- The company intends to vigorously defend the subrogation demand letter from an attorney representing the insurance company for the neighboring property owner for approximately $8.3 million alleging that we were responsible for their damages.
Key Dates
| Date | Description |
|---|---|
| January 8, 2013 | SmartStop Self Storage REIT, Inc. formed. |
| January 2014 | Commencement of initial public offering. |
| December 31, 2014 | Election to be taxed as a REIT, commencing with this taxable year. |
| November 2016 | Filing of Registration Statement on Form S-3 with the SEC. |
| January 2017 | Termination of initial public offering. |
| June 28, 2019 | Effective date of Self Administration Transaction. |
| October 29, 2019 | Execution of preferred stock purchase agreement with Extra Space Storage LP. |
| March 17, 2021 | Closing of merger with Strategic Storage Trust IV, Inc. (SST IV Merger). |
| April 12, 2021 | Entered into an approximately $125.9 million CAD currency forward with a settlement date of April 12, 2023. |
| October 7, 2021 | Amendment of Credit Facility to increase the commitment by $200 million. |
| December 30, 2021 | Entered into a mezzanine loan agreement with a wholly-owned subsidiary of SST VI OP for up to $45 million (the SST VI Mezzanine Loan). |
| March 1, 2022 | Pacific Oak Holding Group, LLC, became a 10 % non-voting member of Strategic Storage Advisor VI, LLC. |
| April 19, 2022 | Entered into a note purchase agreement for $150 million of 4.53 % Senior Notes due April 19, 2032 (the 2032 Private Placement Notes). |
| May 25, 2022 | Second closing of the 2032 Private Placement Notes. |
| June 1, 2022 | Closing of merger with Strategic Storage Growth Trust II, Inc. (SSGT II Merger). |
| June 15, 2022 | Stockholders approved the 2022 Long-Term Incentive Plan (the Plan). |
| August 9, 2022 | Entered into a mezzanine loan agreement with a wholly-owned subsidiary of SSGT III, for up to $50.0 million (the SSGT III Mezzanine Loan). |
| August 29, 2022 | SmartStop OP made an investment of $5.0 million in SS Growth Operating Partnership III, L.P. |
| October 12, 2022 | Entered into a new $137.7 million CAD currency forward with a settlement date of October 12, 2023. |
| December 20, 2022 | Amendment of the SST VI Mezzanine Loan, increasing the principal borrowing amount from a maximum of $45 million to $55 million. |
| January 30, 2023 | A subsidiary of SmartStop made a preferred investment of 600,000 Series A Cumulative Redeemable Preferred units of limited partnership interest in SST VI OP for an aggregate of $15 million. |
| March 16, 2023 | The DRP was fully reinstated and the SRP was partially reinstated. |
| May 2, 2023 | SST VI fully repaid the outstanding principal, plus all applicable accrued interest due on the SST VI Mezzanine Loan as of such date for a total amount of approximately $51.7 million. |
| June 13, 2023 | SmartStop OP entered into a promissory note agreement with SST VI OP ( the SST VI Note), where SST VI OP borrowed $15.0 million. |
| November 1, 2023 | SRA, a subsidiary of our Operating Partnership, entered into a Sponsor Funding Agreement with SST VI and SST VI OP. |
| November 3, 2023 | Five of our joint ventures with SmartCentres closed on a $70 million CAD term loan (the RBC JV Term Loan) with Royal Bank of Canada (RBC). |
| January 15, 2024 | Board approved an Estimated Per Share Net Asset Value (NAV) of our common stock of $15.25 for our Class A Shares and Class T Shares based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding on a fully diluted basis, calculated as of September 30, 2023. |
| February 22, 2024 | Entered into an amended and restated revolving credit facility with KeyBank, National Association (the 2024 Credit Facility). |
| March 7, 2024 | Entered into a loan with National Bank of Canada (NBC) as administrative agent (the 2027 NBC Loan). |
| April 10, 2024 | Purchased a self storage facility located in Colorado Springs, Colorado (the Colorado Springs II Property). |
| April 29, 2024 | Transitioned to a new transfer agent, SS&C GIDS, Inc. |
| May 1, 2024 | Board of directors adopted a limitation to our SRP such that any redemption request made under the SRP in connection with a stockholders death must be made within one year of the date of such death in order to be honored by us. |
| May 14, 2024 | Filed a new Registration Statement on Form S-3 with the SEC which registered up to an additional 4,500,000 Class A Shares and 500,000 Class T Shares under our distribution reinvestment plan (our DRP Offering). |
| June 1, 2024 | Limitation to our SRP such that any redemption request made under the SRP in connection with a stockholders death must be made within one year of the date of such death in order to be honored by us took effect. |
| June 26, 2024 | Board of directors declared a distribution rate for the month of July 2024 of approximately $0.0508 per share on the outstanding shares of common stock payable to Class A and Class T stockholders of record of such shares as shown on our books at the close of business on July 31, 2024. |
| June 28, 2024 | The SST VI Note was amended to expand the borrowing capacity up to $25.0 million and extend the maturity date from December 31, 2024 to December 31, 2025. |
| July 16, 2024 | Purchased a self storage facility located in Spartanburg, South Carolina (the Spartanburg Property). |
| July 17, 2024 | Three of our joint ventures with SmartCentres closed on a $46.0 million CAD term loan (the RBC JV Term Loan II) with RBC. |
| July 18, 2024 | Entered into a joint venture arrangement with an unaffiliated third party to develop a self storage property in Nantucket, Massachusetts. |
| July 26, 2024 | Board of directors declared a distribution rate for the month of August 2024 of approximately $0.0508 per share on the outstanding shares of common stock payable to Class A and Class T stockholders of record of such shares as shown on our books at the close of business on August 31, 2024. |
| July 31, 2024 | Entered into a bridge loan with KeyBank for up to $45.0 million (the KeyBank Bridge Loan) which matures on July 31, 2025. |
| August 7, 2024 | SST VI declared an estimated net asset value per share of $10.00. |
| August 9, 2024 | As of this date, there were 88,257,265 outstanding shares of Class A common stock and 8,118,881 outstanding shares of Class T common stock of the registrant. |
Keywords
self storage, REIT, revenue, net income, FFO, acquisitions, Managed REIT Platform, occupancy, distributions, debt, interest rates
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