SmartStop Self Storage REIT, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited consolidated results. SmartStop is a self-managed REIT operating self-storage properties in the U.S. and Canada and also manages a platform for affiliated non-traded REITs. At quarter-end, it wholly owned 154 facilities (about 104,000 units and 11.9 million rentable square feet), with 91.8% physical occupancy, and held interests in 11 Canadian joint ventures.
Financial performance and position
- Revenue: Total revenue was $57.0 million, broadly flat from $57.1 million a year earlier. Self-storage rental revenue declined to $50.5 million from $51.3 million; Managed REIT Platform revenue rose to $2.7 million from $2.3 million.
- Operating results: Income from operations was $16.0 million versus $16.9 million. Net loss was $1.6 million, compared with net income of $2.0 million; net loss attributable to common stockholders was $4.6 million, or $0.05 per share, versus a $1.4 million loss, or $0.02 per share.
- Same-store performance: Same-store revenue fell 1.7%; property operating expenses increased 3.5%; and NOI declined 4.1% to $33.0 million. Average same-store occupancy decreased to 92.5% from 92.9%, while annualized rent per occupied square foot declined 0.9%.
- FFO: NAREIT FFO attributable to common stockholders was $7.5 million, down from $12.2 million. Management’s adjusted FFO was $9.4 million versus $13.4 million. These are non-GAAP measures and are not equivalent to cash available for distributions.
- Cash flow and liquidity: Operating cash flow was $14.4 million, down from $15.9 million. Investing activities used $0.6 million, versus $20.9 million used in Q1 2023; financing activities used $20.7 million. Cash and cash equivalents were $39.2 million, with restricted cash of $6.9 million, at quarter-end.
- Debt: Debt, net, was $1.093 billion, versus $1.087 billion at year-end 2023. The company reported approximately $521 million of fixed-rate and $576 million of variable-rate debt before debt discounts and issuance costs; the weighted-average rate, excluding hedging effects, was about 6.1%. A 100-basis-point increase in variable rates was estimated to reduce annual earnings and cash flow by about $2.5 million, net of derivatives.
- Revolver: The new $650 million 2024 Credit Facility matures in February 2027, with a one-year extension option. About $521 million was drawn at quarter-end; borrowing-base calculations limited additional availability to approximately $58.4 million. The company reported compliance with debt covenants.
- Distributions: Q1 distributions totaled $20.1 million, including $3.2 million to preferred stockholders. The company reported that 72% of distributions were funded by operating cash flow and 28% by DRP proceeds. Common distributions paid exceeded common-stockholder FFO. Preferred stock dividends accrue at 6.25% annually and may step up beginning October 29, 2024 if the preferred shares have not been redeemed.
Changes, outlook, and risks
- Same-store revenue and NOI weakened as rent per occupied square foot and occupancy fell, while property expenses rose—particularly compensation, insurance, and repairs and maintenance. Management cited inflationary cost pressures and normalization of demand after unusually strong pandemic-era conditions.
- Interest expense increased to $16.6 million from $14.7 million, primarily due to higher rates on variable-rate debt. A $0.5 million debt-extinguishment loss reflected unamortized financing costs from the refinancing into the 2024 Credit Facility.
- Management expects self-storage performance to remain sensitive to demand, competition, occupancy, rental rates, inflation, property taxes, insurance costs, and interest rates. It noted that reduced home sales and higher rates could weaken storage demand and that elevated rates may constrain acquisitions and covenant capacity. No numerical full-year guidance was provided.
- The share redemption program remains partially suspended: redemptions are generally limited to specified hardship circumstances, subject to funding and other limits. The DRP was reinstated. There is no public trading market for the shares, and the filing cautions distributions may come from sources other than operating cash flow.
- A neighboring property owner’s insurer made an approximately $8.3 million subrogation demand related to a fire at one of SmartStop’s properties. The company intends to defend the claim and believes insurance coverage is adequate; the outcome is uncertain.
- After quarter-end, SmartStop acquired a Colorado facility for approximately $10.5 million using revolver proceeds, purchased interest-rate caps for approximately $8.2 million, and amended the SmartCentres financings to extend their maturity to May 2026. Two additional property purchase agreements totaling approximately $23.8 million were pending as of May 13, 2024; completion is not assured.
- The filing identifies potential conflicts involving affiliated entities and related-party transactions, including the Managed REIT sponsorship and funding arrangements. The company also has foreign-exchange exposure through its Canadian operations, partly hedged.
Most important facts for investors to verify
- Whether same-store rent, occupancy, expense growth, and NOI stabilize or continue to weaken.
- Debt refinancing and liquidity needs, especially the 2027 maturity concentration and the revolver’s borrowing-base availability and covenant headroom.
- Whether distributions remain supported by operating cash flow, given Q1 distributions exceeded common-stockholder FFO and included DRP funding.
- The scope and practical availability of share redemptions, and the absence of a public trading market.
- The preferred stock’s redemption or conversion path and potential dividend-rate increases after October 2024.
- Developments in the fire-related claim, pending acquisitions, Canadian currency exposure, and obligations under the SST VI sponsor funding agreement.