SmartStop Self Storage REIT, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The consolidated financial statements are unaudited. SmartStop owned 140 self-storage facilities across 18 U.S. states and the Greater Toronto Area, totaling approximately 92,765 units and 10.7 million rentable square feet; average physical occupancy was 94.7%. It also managed 19 properties for its Managed REITs.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $48.0 million | $34.6 million |
| Income (loss) from operations | $11.6 million | ($2.7 million) |
| Consolidated net income (loss) | $3.3 million | ($12.3 million) |
| Net loss attributable to common stockholders | ($0.2 million); $0.00 per share, rounded | ($13.9 million); ($0.22) per share |
| Net cash provided by operating activities | $15.6 million | $4.7 million |
| FFO, as adjusted, attributable to common stockholders | $14.1 million | $4.8 million |
- Self-storage revenue was $45.0 million, up approximately 45%. Same-store revenue grew 18.4% to $33.3 million and same-store NOI grew 25.7% to $23.6 million. Same-store revenue gains reflected higher rent per occupied square foot and increased occupancy.
- Property operating expenses were $13.1 million, or 29.1% of self-storage revenue, compared with $10.3 million, or 33.3%, a year earlier. Total depreciation and amortization was $15.0 million.
- Interest expense was $7.6 million, down from $8.6 million. The filing attributes the decrease mainly to lower year-over-year rates, partly offset by higher average debt.
- At March 31, cash and cash equivalents were $36.2 million and restricted cash was $7.3 million. Total assets were $1.63 billion; debt, net of issuance costs, was $892.6 million, versus $873.9 million at year-end 2021. The company reported compliance with debt covenants.
- Debt included approximately $340.1 million fixed-rate and $556.0 million variable-rate borrowings. Management estimated a 100-basis-point increase in variable rates would increase annual interest costs by approximately $5.4 million. The $700 million KeyBank facility included a fully drawn $250 million term loan and a $450 million revolver, of which approximately $252.2 million was drawn at quarter-end.
- Common, preferred and Operating Partnership distributions paid during the quarter totaled $17.2 million, including $3.2 million to preferred stockholders. The filing states that 91% of total distributions were sourced from operating cash flow and 9% from DRP proceeds. FFO and FFO, as adjusted, are non-GAAP measures and are not equivalent to cash available for distributions.
Material changes and transactions
- Revenue and operating results benefited from the SST IV merger completed in March 2021, which added 24 facilities; Q1 2022 included full-quarter results for 139 facilities versus 112 in Q1 2021. The comparison also reflects the prior-year $8.4 million write-off related to the merger and $2.4 million loss on debt extinguishment.
- SmartStop acquired one Illinois facility in February 2022 for approximately $19 million, funded by a revolver draw. After quarter-end it acquired a Sacramento facility for approximately $25.8 million.
- A proposed merger with SSGT II was pending. Under the agreement, SSGT II shares would convert into SmartStop Class A shares at a stated 0.9118 exchange ratio, subject to SSGT II stockholder approval and other conditions. Management expected closing in Q2 2022; completion was not assured.
- After quarter-end, SmartStop issued $75 million of 4.53% senior notes due 2032, with a second $75 million closing planned for May 25, 2022. Proceeds repaid the approximately $40.9 million SST IV TCF loan and reduced revolver borrowings. The notes’ rate may increase by 75 basis points if the specified leverage test is exceeded. The credit facility was also amended to transition floating-rate borrowings from LIBOR to SOFR.
Outlook, risks and unusual items
- The filing gives no specific company-level financial guidance. Management said self-storage demand had recovered to or above normalized levels, and Q1 occupancy was the highest first-quarter level in company history. It expects results to vary with same-store performance, acquisitions, lease-up, supply and broader economic conditions.
- On March 7, 2022, the board suspended the share redemption program immediately and the distribution reinvestment plan effective April 15. Redemption requests will not be processed unless the board resumes the program; distributions beginning with March 2022 declarations are to be paid in cash rather than reinvested.
- Management cited inflation, economic weakness, interest-rate and foreign-exchange movements, COVID-19 developments, and competition as risks. The company was also migrating to a newly developed property-management platform; implementation problems could disrupt operations or financial reporting.
- Liquidity obligations include potential funding of up to $7.5 million in SSGT II preferred units and up to $38.2 million under the SST VI mezzanine loan. The company also had acquisition agreements that might not close and could result in forfeited earnest money or transaction costs.
- Series A preferred stock carried a 6.25% initial dividend rate and an approximately $203.1 million liquidation preference at quarter-end. The rate may step up if the preferred shares are not redeemed by the specified dates.
Important facts for investors to verify
- Whether the SSGT II merger closed, its final consideration and financing, and its effect on fees, ownership, and operating results.
- Progress on the $150 million note placement, revolver repayment, debt maturities, covenant headroom, and exposure to rising variable rates.
- Whether the board resumes the DRP or share redemption program, and the cash impact of distributions paid entirely in cash.
- Same-store rent and occupancy trends, property expense growth, and the operational and reporting effects of the property-management platform migration.
- Coverage of common and preferred distributions by recurring cash flow; the filing cautions that FFO measures do not establish cash available for distributions.