10-Q: SmartStop Self Storage REIT Reports Q1 2024 Results: Revenue Slightly Down, Focus Remains on Managed REIT Platform
Sentiment:
Quarterly Report
SmartStop Self Storage REIT's Q1 2024 results show a slight decrease in revenue compared to Q1 2023, with a continued emphasis on its Managed REIT Platform.
Worse than expectedNet loss attributable to common stockholders increased compared to the same period last year.Total self-storage revenues decreased, primarily due to a decrease in same-store revenues.FFO, as adjusted, declined compared to the same period in the prior year.
Summary
- SmartStop Self Storage REIT reported a net loss attributable to common stockholders of $4.6 million for Q1 2024, compared to a net loss of $1.4 million for Q1 2023.
- Total self-storage revenues decreased by 1.5% to $52.7 million, primarily due to a decrease in same-store revenues.
- Managed REIT Platform revenues increased to $2.7 million, driven by higher asset management and property management fees.
- Property operating expenses increased to $17.4 million, representing 33% of self-storage revenue.
- General and administrative expenses rose to $7.4 million, influenced by legal and professional fees.
- The company's FFO, as adjusted, attributable to common stockholders was $9.4 million, compared to $13.4 million in the prior year.
- As of March 31, 2024, the wholly-owned portfolio consisted of 154 operating self-storage properties with approximately 104,000 units and 11.9 million net rentable square feet.
- The average physical occupancy for the same-store facilities was 92.5%.
Sentiment
Score: 5
Explanation: The document presents a mixed picture. While the Managed REIT Platform shows growth, the overall financial results indicate a decline in profitability and revenue in the core self-storage business. The outlook is cautious, acknowledging economic challenges.
Positives
- Managed REIT Platform revenues increased, indicating growth in that segment.
- The company continues to operate a large portfolio of self-storage facilities.
- The company maintains a high average physical occupancy across its same-store facilities.
Negatives
- Net loss attributable to common stockholders increased compared to the same period last year.
- Total self-storage revenues decreased, primarily due to a decrease in same-store revenues.
- Property operating expenses increased, impacting profitability.
- FFO, as adjusted, declined compared to the same period in the prior year.
Risks
- The company's performance is subject to market risks, including interest rate and foreign currency fluctuations.
- The company's ability to make accretive acquisitions may be limited by rising interest rates and capitalization rates.
- The company's performance is dependent on maintaining REIT qualification.
- The company is subject to competition in the self-storage market.
- The company is subject to risks associated with the Managed REIT Platform, including litigation and conflicts of interest.
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 self-storage industry has seen increased demand due to factors like remote work and housing market strength, but normalization is expected as these trends wane. The broader economy's inflation and interest rate environment pose challenges to discretionary spending and self-storage demand.
Comparison to Industry Standards
- The document mentions that SmartStop 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.
- Extra Space Storage Inc. (NYSE: EXR) is mentioned as the parent company of Extra Space Storage LP, the Investor in SmartStop's Series A Convertible Preferred Stock.
- The document references a peer group of publicly traded self storage REITs for performance-based equity grants, suggesting a benchmark against industry competitors.
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 document details numerous related party transactions, including fees and reimbursements related to the Managed REIT Platform, investments in and advances to Managed REITs, and an Administrative Services Agreement with SAM.
Stakeholder Impact
- The decrease in net income and FFO could negatively impact shareholder returns.
- The company's ability to pay distributions may be affected by its financial performance and debt obligations.
- The company's employees are affected by equity-based compensation plans and potential changes in management.
Key Dates
| Date | Description |
|---|---|
| January 8, 2013 | SmartStop Self Storage REIT, Inc. formed. |
| January 2014 | Commencement of initial public offering. |
| January 1, 2014 | Election to treat primary taxable REIT subsidiary (TRS) as a taxable REIT subsidiary effective. |
| December 31, 2014 | Commencement of election to be taxed as a Real Estate Investment Trust (REIT). |
| November 2016 | Filing with the SEC a Registration Statement on Form S-3, which registered up to an additional $100.9 million in shares under our distribution reinvestment plan (our DRP Offering). |
| January 2017 | Termination of initial public offering. |
| June 28, 2019 | Effective date of the Self Administration Transaction. |
| October 29, 2019 | Entered into a preferred stock purchase agreement with Extra Space Storage LP. |
| March 17, 2021 | Closed on merger with Strategic Storage Trust IV (SST IV). |
| April 12, 2021 | Entered into an approximately $125.9 million CAD currency forward with a settlement date of April 12, 2023. |
| December 30, 2021 | SmartStop OP 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). |
| April 19, 2022 | Entered into a note purchase agreement for the private placement of $150 million of 4.53% Senior Notes due April 19, 2032. |
| May 18, 2022 | SSGT III private placement offering became effective. |
| June 1, 2022 | Closed on merger with Strategic Storage Growth Trust II (SSGT II). |
| August 9, 2022 | Operating Partnership 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). |
| October 12, 2022 | Entered into a new $137.7 million CAD currency forward with a settlement date of October 12, 2023. |
| January 12, 2023 | Purchased a parcel of land in Whitby, Ontario, (the North Whitby Property), that we and SmartCentres are developing into a self storage facility in the future. |
| 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 to allow for redemptions solely sought in connection with a stockholders death, qualifying disability (as that term is defined in the SRP), confinement to a long-term care facility, or other exigent circumstances. |
| May 2, 2023 | SST VI fully redeemed SmartStop's preferred investment of 600,000 Series A Cumulative Redeemable Preferred units of limited partnership interest in SST VI OP, and repaid accrued distributions due as of the date of redemption for a total amount of approximately $15.1 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 SmartStop OP entered into a Sponsor Funding Agreement with SST VI and SST VI OP, in connection with certain changes to the public offering of SST VI. |
| November 3, 2023 | 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, as administrative agent and collateral agent (the 2024 Credit Facility). |
| March 7, 2024 | Entered into a loan with National Bank of Canada (NBC) as administrative agent (the 2027 NBC Loan). |
| March 12, 2024 | Entered into a CORRA Swap with NBC with a notional amount of CAD $75,000,000 at a rate of 3.926 % for the initial duration of the 2027 NBC Loan, maturing on March 7, 2027. |
| March 28, 2024 | Board declared a distribution rate for the month of April 2024 of approximately $0.0492 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 April 30, 2024. |
| April 10, 2024 | Purchased a self storage facility located in Colorado Springs, Colorado (the Colorado Springs II Property). |
| April 19, 2024 | Board declared a distribution rate for the month of May 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 May 31, 2024. |
| April 26, 2024 | Amended the Note Purchase Agreement dated April 19, 2022 (the NPA Amendment). |
| May 1, 2024 | Board adopted a limitation to our SRP such that any redemption request made under the SRP in connection with a stockholders death be made within one year of the date of such death in order to be honored by us. |
| May 1, 2024 | Purchased three SOFR interest rate caps for a total of approximately $8.2 million. |
| May 2, 2024 | SSGT III paid down the remaining $1.0 million outstanding on the SSGT III Mezzanine Loan. |
Keywords
self storage, REIT, Managed REIT Platform, financial results, occupancy, revenue, FFO, net operating income, acquisitions, real estate
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