SmartStop Self Storage REIT, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The company is a self-managed self-storage REIT with properties in the United States and Canada and a fee-generating Managed REIT Platform. Its common shares had no established public trading market.
Business context and operating performance
At year-end, SmartStop owned 139 self-storage properties with approximately 91,860 units and 10.6 million rentable square feet, plus 50% interests in six Canadian joint ventures. It managed 17 properties for other REITs. The March 2021 all-stock SST IV merger added 24 facilities and the joint-venture interests.
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Total revenue | $168.8 million | $124.0 million | Up 36.1% |
| Self-storage revenue | $158.2 million | $110.2 million | Up 43.6%; includes acquisition growth and same-store gains |
| Same-store revenue | $121.9 million | $103.8 million | Up 17.4% |
| Same-store NOI | $86.2 million | $69.2 million | Up 24.5% |
| Total self-storage NOI | $110.0 million | $71.9 million | Up 53.1% |
| Year-end physical occupancy | 94.9% | Not clearly provided on a comparable portfolio basis | Same-store average occupancy was 95.1% in 2021 versus 90.6% in 2020 |
| Annualized rent per occupied square foot, same-store | $16.51 | $14.81 | Up approximately 11.5% |
| GAAP net loss | $19.6 million | $51.2 million | Improved; loss attributable to common stockholders was $29.4 million versus $54.4 million |
| FFO attributable to common stockholders | $16.5 million | $(22.3) million | Non-GAAP measure |
| FFO, as adjusted | $38.0 million | $10.9 million | Non-GAAP measure |
Cash flow, debt and liquidity
- Cash from operating activities was $58.8 million, up from $26.8 million. Investing activities used $120.2 million, mainly reflecting the SST IV merger and acquisitions; financing activities provided $25.7 million. Cash, cash equivalents and restricted cash totaled $44.7 million at year-end, including $37.3 million unrestricted cash.
- Net debt was approximately $873.9 million, compared with $718.0 million in 2020. It included $340.7 million fixed-rate and $536.8 million variable-rate debt; weighted-average interest rate was approximately 3.02% before interest-rate hedging effects. The company reported compliance with debt covenants.
- The KeyBank credit facility was expanded to $700 million in October 2021: $450 million revolving capacity and a $250 million term loan. At year-end, approximately $233 million was drawn on the revolver and all $250 million of the term loan was drawn.
- Scheduled principal payments total $877.5 million, including approximately $293.0 million due in 2024 and $341.9 million in 2026. A 100-basis-point increase in variable rates was estimated to reduce annual earnings and cash flow by approximately $5.1 million, net of derivatives.
- Distributions declared to common stockholders remained $0.15 per share each quarter in 2020 and 2021. For 2021, the company reported $64.1 million in total distributions across common and preferred holders and operating-partnership unitholders, including reinvested distributions. It stated that 91.6% of this total was sourced from operating cash flow and 8.4% from the distribution reinvestment plan. Approximately $36.7 million of 2021 distributions were classified as return of capital for tax purposes.
Material changes and unusual items
- The SST IV merger closed March 17, 2021; SmartStop issued approximately 23.1 million Class A shares. The merger and additional properties materially increased the portfolio and debt.
- Property operating expenses rose to $48.1 million from $38.3 million, but declined as a share of self-storage revenue to 30.4% from 34.8%. General and administrative expense increased to $23.3 million from $16.5 million.
- Managed REIT Platform revenue fell to $6.3 million from $8.0 million, principally because SmartStop acquired SST IV and ceased earning fees from it. The company also recorded a $12.6 million contingent earnout expense and an $8.4 million write-off of SST IV interests and pre-existing relationships. These were partly offset in comparisons by $36.5 million of goodwill and intangible impairment and $4.4 million of Managed REIT investment impairment recorded in 2020, with none in 2021.
- Interest expense and fair-value debt accretion were approximately $31.7 million, down modestly year over year; the company also recorded a $2.4 million net loss on debt extinguishment in 2021.
Outlook, risks and contingencies
The filing gives no quantified 2022 earnings or revenue guidance. Management described self-storage demand, occupancy and pricing as strong through 2021, supported by housing activity and remote work. It expected moderate new supply and continued rent growth, while anticipating higher employee, insurance and property-tax costs, partly offset by technology-driven efficiencies. It cautioned that inflation, interest rates, economic weakness and COVID-19 developments could affect results.
- On March 7, 2022, after year-end, the board suspended both the distribution reinvestment plan and the share redemption program. Distributions beginning with March 2022 were to be paid in cash; redemption requests would remain unprocessed unless the program resumed.
- The $15.08 estimated value per share was based on a June 30, 2021 valuation and is not audited, a GAAP fair value, a liquidation value or a promise of realizable proceeds. The shares remain unlisted and illiquid.
- SmartStop had $200 million of Series A convertible preferred stock outstanding, with a 6.25% initial annual dividend rate, senior distribution and liquidation rights, and potential conversion into common shares. The rate can step up after the fifth anniversary if not redeemed.
- A merger agreement to acquire SSGT II was signed in February 2022, with closing expected in the second quarter of 2022, subject to conditions and SSGT II stockholder approval. The proposed consideration is 0.9118 Class A shares per SSGT II share.
- Key risks include variable-rate debt and refinancing concentration, geographic and self-storage-industry concentration, Canadian-dollar exposure, related-party and Managed REIT conflicts, REIT qualification, and the limited liquidity of shares. The company reported no legal proceedings expected to have a material adverse effect. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not express an opinion on internal control.
Most important facts for investors to verify
- Reconcile the reported $64.1 million of total distributions—including operating-partnership and reinvested amounts—with common-stockholder cash distributions and operating cash flow; assess whether distributions are sustainable after the DRP suspension.
- Review debt maturities, covenant headroom, revolver availability and sensitivity to higher rates, particularly the 2024 and 2026 maturities and the $5.1 million estimated annual impact of a 100-basis-point rate increase.
- Assess the assumptions behind the $15.08 estimated NAV, including property capitalization rates, preferred-stock conversion treatment, and the difference between estimated NAV and realizable share value.
- Confirm the status, consideration, costs and integration impact of the proposed SSGT II merger and evaluate its effect on leverage, dilution and Managed REIT fee revenue.
- Track same-store rent growth and occupancy against rising payroll, insurance and property-tax costs; distinguish acquisition-driven growth from ongoing portfolio performance.