SmartStop Self Storage REIT, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter report. The company is a self-managed self-storage REIT with no established public trading market for its shares.
Business context and financial performance
At year-end, SmartStop wholly owned 154 operating properties across 19 U.S. states and Canada, with approximately 103,667 units and 11.9 million rentable square feet. It also held 50% interests in 11 Canadian real estate ventures and sponsored two Managed REITs, whose portfolio included 32 operating properties managed by SmartStop.
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Total revenue | $233.0 million | $212.6 million | Up 9.6% |
| Self-storage-related revenue | $215.3 million | $200.2 million | Up 7.6%; higher rent per occupied square foot and a full year of 2022 acquisitions contributed |
| Managed REIT Platform revenue | $11.9 million | $7.8 million | Higher asset-management, property-management and tenant-protection fees |
| Net income | $11.6 million | $21.7 million | Down; 2022 included a $16.1 million gain on an equity interest acquired in the SSGT II merger |
| Net income (loss) attributable to common stockholders | $(2.7) million | $6.3 million | After $12.5 million of preferred distributions in each year |
| FFO, as adjusted, attributable to common stockholders | $49.5 million | $57.5 million | Down 13.8%, primarily due to higher interest expense |
| Cash from operating activities | $73.2 million | $87.9 million | Down $14.7 million |
| Property-level NOI | $142.2 million | $134.3 million | Up 5.9% |
Same-store revenue grew 4.1% and same-store NOI grew 3.1%. Average same-store physical occupancy declined to 92.9% from 94.6%, while annualized rent per occupied square foot increased 6.2% to $20.04. Property operating expenses rose 11.9% overall, including higher compensation, insurance and property taxes.
Debt, liquidity and distributions
- Year-end consolidated debt, net, was $1.087 billion, compared with $1.068 billion a year earlier; approximately $523.1 million was fixed-rate and $568.7 million variable-rate. Weighted-average interest was approximately 6.1%, excluding hedging effects.
- Interest expense increased to $61.8 million from $41.5 million. Management estimates a 100-basis-point increase in variable rates would reduce annual earnings and cash flow by approximately $2.2 million, net of derivatives.
- Cash and cash equivalents were $45.1 million, with another $8.3 million restricted. At December 31, 2023, approximately $87.2 million was available to draw under the prior revolver, subject to borrowing-base calculations.
- Scheduled principal payments at year-end included $321.4 million in 2024. Subsequent to year-end, the company refinanced its credit facility with a $650 million facility maturing in 2027 and drew $576 million; it also entered into a $75 million CAD term loan in March 2024, fixed at 6.42% for its initial three-year term through a swap.
- Total 2023 distributions were approximately $79.6 million, versus $73.2 million of operating cash flow. The filing reports that 92% of distributions were sourced from operating cash flow and 8% from DRP proceeds. Approximately 70.9% of common-stockholder distributions were characterized as return of capital for tax purposes.
- The Series A Convertible Preferred Stock carries a 6.25% annual distribution rate, ranks senior to common stock and has an aggregate liquidation preference of approximately $203.2 million. Its rate is scheduled to increase after October 29, 2024 if it has not been redeemed.
Material changes, outlook and risks
- Self-storage rental demand and pricing growth moderated in 2023 as pandemic-era demand waned, tenants moved out and higher mortgage rates reduced population mobility. Management expects the sector to continue absorbing recent supply, with only moderate new supply growth through 2025, but says demand may remain closer to historical averages than pandemic-era levels.
- Management expects 2024 same-store expense growth from payroll, insurance and property taxes, partly offset by technology and solar-related efficiencies. No numerical earnings or revenue guidance is provided.
- The DRP was reinstated in March 2023, but the share redemption program remains suspended except for requests tied to death, qualifying disability, long-term-care confinement or other exigent circumstances. There is no established public market, and a liquidity event is not assured.
- The board set estimated NAV at $15.25 per Class A and Class T share in January 2024, based on valuations as of September 30, 2023, versus $15.21 the prior year. The filing cautions that this unaudited estimate is not a realizable sale price or exchange-traded value.
- Geographic exposure is concentrated: approximately 23% of 2023 rental income came from Florida, 20% from California and 10% from the Greater Toronto Area. Canadian operations also expose the company to foreign-exchange risk.
- SmartStop’s sponsor-funding agreement may require up to approximately $70 million to fund SST VI offering costs, in addition to a $6.6 million reimbursement already paid. The investment’s conversion and return are uncertain.
- A neighboring property’s insurer made an approximately $8.3 million subrogation demand related to a fire. SmartStop intends to defend the matter and believes it has adequate insurance coverage. The company reported no legal proceedings reasonably likely to have a material adverse effect.
- The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at year-end.
Important facts for investors to verify
- How operating cash flow, recurring capital needs and refinancing costs compare with distributions, given that 2023 distributions exceeded operating cash flow and substantial distributions were classified as return of capital.
- The company’s post-refinancing debt balance, borrowing availability, covenant headroom and ability to address maturities, especially following the 2024 credit-facility and Canadian-loan transactions.
- Whether the occupancy decline and higher property expenses continue, and how same-store revenue and NOI perform as pandemic-era comparisons roll off.
- The status and potential funding requirements of the SST VI sponsor-funding commitment, and the recoverability of loans and other investments in Managed REITs.
- The assumptions supporting the $15.25 estimated NAV, including property capitalization rates; the estimate is not a market quotation or guaranteed redemption value.
- The outcome, insurance coverage and any financial exposure associated with the $8.3 million fire-related demand.