SmartStop Self Storage REIT, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Although the request references Q4 2022, this is an annual filing; most reported financial results cover the full year, not Q4 alone.
Business context
SmartStop is a self-managed self-storage REIT operating in the United States and Canada, with a fee-generating Managed REIT Platform. At year-end, its wholly owned portfolio comprised 153 properties, approximately 103,000 units and 11.8 million rentable square feet. It also held 50% interests in ten Canadian joint ventures. The June 2022 SSGT II merger added ten wholly owned facilities and interests in three joint ventures.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Total revenue | $212.6 million | $168.8 million |
| Self-storage revenue | $200.2 million | $158.2 million |
| Consolidated net income (loss) | $21.7 million | $(19.6) million |
| Net income (loss) attributable to common stockholders | $6.3 million | $(29.4) million |
| Cash provided by operating activities | $87.9 million | $58.8 million |
| Net operating income (NOI) | $134.3 million | $103.5 million |
| FFO attributable to common stockholders, as adjusted | $57.5 million | $38.0 million |
- Self-storage revenue rose 26.6%; same-store revenue increased 12.9% and same-store NOI rose 16.5%. Same-store average physical occupancy eased to 94.6% from 95.1%, while annualized rent per occupied square foot increased 14.2% to $18.79.
- Property operating expenses increased 21.4% to $58.4 million, slower than self-storage revenue growth. Same-store NOI margin was approximately 71.3% in 2022, versus 69.1% in 2021.
- Interest expense increased to $41.5 million from $33.4 million, reflecting higher variable rates and higher average debt. The company reported $1.068 billion of net debt at year-end, including $442.8 million fixed-rate and $630.2 million variable-rate debt; cash and cash equivalents were $39.5 million.
- Cash used in investing was $205.2 million, primarily for acquisitions and mezzanine lending; financing provided $120.1 million. A 100-basis-point increase in variable rates was estimated to reduce annual earnings and cash flows by approximately $2.8 million, net of derivatives.
- Cash distributions totaled $74.4 million in 2022, reported as fully funded by operating cash flow. Common distributions were $54.6 million including reinvested distributions; approximately 51.3% of common distributions were classified as return of capital for tax purposes. FFO and adjusted FFO are non-GAAP measures, not substitutes for cash flow or GAAP results.
Material changes, outlook and risks
- The SSGT II merger closed June 1, 2022. Consideration was approximately $261.2 million, including $168.8 million in stock and $76.3 million in cash. A $16.1 million gain from revaluing a pre-existing interest contributed to reported income; the transaction also ended SSGT II management agreements and their associated fees.
- SmartStop issued $150 million of 4.53% senior notes due in 2032 and amended its credit facility to transition floating-rate borrowings from LIBOR to SOFR. The $700 million facility had approximately $618.2 million drawn at year-end. Principal maturities include $382.9 million in 2024 and $341.9 million in 2026. The filing reports covenant compliance at year-end.
- Management expects healthy sector fundamentals and continued rent growth, but notes that occupancy and growth are normalizing. It anticipates elevated 2023 same-store expense growth, including employee costs, insurance and property taxes, partly offset by technology and solar efficiencies. No specific company earnings or revenue guidance is provided.
- The board suspended both the distribution reinvestment plan and share redemption program in March 2022. Redemption requests received in 2022 were not honored. There is no established public trading market, and the company is not required to pursue a liquidity event. The board’s $15.21 estimated NAV per share is based on September 30, 2022 valuations, is unaudited, and is not a guaranteed sale or trading price.
- Key risks include significant debt and variable-rate exposure, refinancing and covenant risk, inflation and rising expenses, geographic concentration (Florida and California represented 23.0% and 20.1% of December rental income), Canadian-dollar movements, acquisition integration, and dependence on affiliated Managed REITs. The $200 million Series A preferred stock ranks senior to common stock, pays a 6.25% initial annual dividend, and has conversion and other protective rights.
- Three U.S. property acquisitions totaling approximately $51.2 million were under contract but had not closed at year-end. Subsequent to year-end, the company made a $15 million preferred investment in SST VI OP; SSGT III repaid its $17.5 million outstanding mezzanine-loan principal in January 2023.
Most important facts for investors to verify
- Review the full debt schedule and refinancing plans for the large 2024 and 2026 maturities, facility availability, borrowing-base constraints and any subsequent covenant developments.
- Assess how much reported 2022 income and FFO improvement reflects recurring operations versus the $16.1 million merger-related gain and other adjustments.
- Compare distributions with recurring operating cash flow and adjusted FFO, and confirm the implications of the DRP and redemption-program suspensions.
- Examine the assumptions and sensitivity behind the $15.21 estimated NAV; it is not a public-market price or liquidation-value guarantee.
- Track same-store rent, occupancy and expense trends, especially property taxes, insurance, labor costs and variable-rate interest exposure.