SmartStop Self Storage REIT, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing was signed March 27, 2020. SmartStop is a non-traded self-storage REIT; its common shares had no established public trading market.
Business context and material changes
- At year-end, the company reported 112 self-storage properties in 17 U.S. states and Ontario, with approximately 8.2 million rentable square feet and 86.7% physical occupancy. The filing identifies 111 operating facilities and a facility under development; reported property counts vary in places.
- In January 2019, the company completed its merger with Strategic Storage Growth Trust, adding a substantial portfolio that included lease-up and development properties. In June, it acquired its former sponsor’s storage advisory, asset- and property-management businesses, related joint-venture interests, and workforce, becoming self-managed and adding a Managed REIT Platform segment.
- On October 29, the company issued $150 million of Series A Convertible Preferred Stock to an Extra Space Storage subsidiary, under a commitment for up to $200 million. The preferred shares carry a 6.25% initial annual dividend, rank senior to common stock, and have conversion and redemption provisions.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $109.5 million | $80.4 million |
| Operating income | $11.6 million | $16.2 million |
| Net loss attributable to common stockholders | $24.8 million; $0.42 per share | $3.7 million; $0.06 per share |
| Cash from operating activities | $9.8 million | $18.4 million |
| Cash used in investing activities | $347.8 million | $3.2 million |
| Cash from (used in) financing activities | $392.2 million | $(12.5) million |
- Revenue growth chiefly reflected the acquired SSGT properties and the newly consolidated platform. Same-store property operating income rose 4.3%; same-store average physical occupancy was 88.7%, versus 88.5%. Same-store figures exclude acquisition and lease-up effects.
- Operating income fell despite higher revenue. Interest expense and debt issuance cost amortization increased, largely following acquisition financing; depreciation and amortization also rose. The year included a $3.9 million gain on sale of a property, an $8.0 million remeasurement gain on Tenant Programs joint ventures, and a $2.6 million debt-extinguishment loss.
- FFO attributable to common stockholders was a loss of $1.2 million, compared with $18.7 million of FFO in 2018. FFO, as adjusted, was $5.7 million, versus $19.6 million. These are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
- Year-end cash and cash equivalents were $62.3 million, with $6.3 million of restricted cash. Debt, net, was $712.7 million; total assets were $1.31 billion and total liabilities $775.8 million. Debt included $302.2 million fixed-rate and $417.5 million variable-rate debt; weighted-average interest was approximately 4.6%.
- Debt principal scheduled for 2020 was $86.2 million; $323.4 million was scheduled for 2022. A Canadian loan of approximately $85.5 million was due in October 2020, with extension options subject to conditions. The company said it was in compliance with debt covenants at year-end.
Distributions, outlook, and risks
- Common distributions were $0.60 per share for 2019, unchanged from 2018. Total distributions of $36.7 million were funded 26.6% from operating cash flow, 29.7% from financing activities, and 43.7% from DRP proceeds. The company reported that 2019 distributions were classified entirely as return of capital for tax purposes.
- The board suspended the share redemption program effective September 27, 2019, except for limited hardship circumstances. The shares are illiquid, and the DRP remains a source of distribution funding.
- No specific company-wide 2020 earnings or revenue guidance is provided. Management expected the SSGT portfolio to improve as properties lease up and stabilize, and estimated it could become accretive to adjusted FFO and cash flow over the next 24–36 months. The filing notes that lease-up properties and associated debt had diluted 2019 adjusted FFO.
- As of the filing date, management reported no significant COVID-19 impact on storage demand, but warned that the pandemic could affect occupancy, collections, ancillary and Managed REIT revenues, staffing, operations, liquidity, and results. Subsequent impacts were uncertain.
- Other key risks include the company’s net losses and accumulated deficit, reliance on external funding for distributions, elevated debt and variable-rate exposure, refinancing and maturity risk, the preferred stock’s senior claims and conversion rights, geographic concentration, competition, related-party and investment-allocation conflicts, and potential impairment of goodwill and acquired intangibles. California, Florida, Ontario, and North Carolina represented approximately 24%, 21%, 13%, and 9% of December rental income, respectively.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor was not engaged to express an opinion on internal-control effectiveness. No material legal proceedings were reported.
Important facts for investors to verify
- Reconcile the reported property counts and clarify the number of operating, development, and under-construction facilities, including the status of the Toronto property.
- Review the debt schedule, extension conditions and refinancing plan for the 2020 Canadian maturity and large 2022 maturities; assess variable-rate exposure and covenant headroom.
- Assess distribution sustainability against operating cash flow, adjusted FFO, DRP proceeds, and financing sources; confirm the preferred dividend’s priority and terms.
- Track occupancy, rental rates, operating costs, and lease-up progress at the SSGT-acquired properties, as well as the Managed REIT Platform’s revenue and profitability.
- Do not treat the $10.66 estimated share value as a traded or guaranteed realizable price: it was based on a March 31, 2019 valuation, was not audited, and depended on assumptions. Confirm the redemption suspension and any subsequent liquidity developments.
- Monitor COVID-19 effects, goodwill and intangible-asset impairment indicators, and related-party arrangements and investment-allocation practices.