Business context and reporting period
SmartStop Self Storage REIT, Inc. is a self-managed self-storage REIT. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022. At quarter-end, the company owned 153 facilities across 19 U.S. states and the Greater Toronto Area, with approximately 102,877 units, 11.8 million rentable square feet, and 94.8% physical occupancy. It also held 50% interests in 10 Canadian real-estate ventures.
On June 1, 2022, the company completed its merger with SSGT II, adding 10 wholly owned facilities and interests in three Canadian ventures. Consideration included approximately 11.5 million Class A shares and $76.3 million cash; the transaction generated a $16.1 million gain on the remeasurement of a preexisting equity interest.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $51.8 million, up 22.6% from $42.3 million | $99.8 million, up 29.9% from $76.8 million |
| Net income (loss) | $14.0 million, versus a $1.3 million loss | $17.3 million, versus a $13.6 million loss |
| Net income (loss) attributable to common stockholders | $9.1 million, versus a $3.9 million loss; $0.10 per share versus $(0.05) | $8.9 million, versus a $17.8 million loss; $0.10 per share versus $(0.24) |
| FFO attributable to common stockholders (non-GAAP) | $9.4 million, versus $8.4 million | $22.4 million, versus $2.4 million |
| FFO, as adjusted, attributable to common stockholders (non-GAAP) | $15.0 million, versus $8.5 million | $29.1 million, versus $13.2 million |
Quarterly same-store revenue rose 14.1% and same-store net operating income (NOI) rose 20.3%; for the six-month period, same-store revenue increased 16.2% and NOI increased 22.9%. Six-month total self-storage revenue increased 31% on the company’s segment basis, reflecting same-store growth and acquired properties. Same-store occupancy was 95.5% for the quarter and 95.3% for the six months; annualized rent per occupied square foot was $18.47 and $18.12, respectively.
Cash provided by operations was $41.3 million for the six months, compared with $21.6 million in 2021. Investing activities used $146.0 million, mainly for the SSGT II merger and property purchases; financing activities provided $113.7 million. Cash and cash equivalents were $45.9 million at June 30, with $7.4 million of restricted cash.
Debt, net of discounts and issuance costs, was $1.023 billion, compared with $873.9 million at December 31, 2021. Reported debt comprised approximately $444.0 million fixed-rate and $583.8 million variable-rate debt; weighted-average interest rate was approximately 3.7%. The company had drawn $321.2 million of its $450 million revolver and all $250 million of its term loan. It reported compliance with debt covenants. A 100-basis-point increase in variable rates was estimated to reduce annual earnings and cash flow by approximately $4.3 million.
Total assets were $1.926 billion and total equity was $576.7 million at June 30, 2022. The $203.1 million liquidation preference of Series A convertible preferred stock carries an initial 6.25% annual dividend rate. Six-month cash distributions totaled $35.0 million across common stockholders, operating partnership unitholders and preferred stockholders; the company reported that these distributions were funded by operating cash flow. Common-stock cash distributions were $20.2 million, compared with common-stockholder FFO of $22.4 million.
Material changes versus the prior comparable period
- Revenue and operating results benefited from higher same-store rents and the expanded portfolio, including the June SSGT II merger. The company cautioned that recent growth and same-store comparisons are expected to normalize.
- The merger contributed $16.1 million of gain on preexisting equity interests; the quarter also included $2.0 million of write-offs of SSGT II advisory and property-management intangibles.
- General and administrative expense increased; it included approximately $1.4 million of costs related to an S-11 registration statement and a potential common-stock offering.
- The company issued $150 million of 4.53% senior notes due 2032, paid off the approximately $40.9 million SST IV TCF loan, and defeased the Midland North Carolina CMBS loan. The latter defeasance and related write-offs contributed to a $2.4 million debt-extinguishment loss.
- Shares outstanding increased, including approximately 11.5 million Class A shares issued in the SSGT II merger. The company’s share redemption program and distribution reinvestment plan were suspended in March 2022; the DRP suspension took effect April 15.
Outlook, risks and unusual items
No formal full-year financial guidance is provided in the supplied filing text. Management expects revenue to benefit from lease-up and acquired properties, but also expects growth to moderate as comparisons normalize. It anticipates lower Managed REIT Platform fees and reimbursements following the SSGT II merger. Management noted inflation, higher interest rates, tighter financial conditions and slower home-price appreciation could weaken demand, raise borrowing costs and constrain acquisition economics. Self-storage supply, competition, labor and operating costs, and the effects of COVID-19 or other economic disruptions are also risks.
Liquidity depends on operating cash flow, existing cash and borrowing capacity; prolonged weakness in debt or equity markets could affect longer-term liquidity. A substantial portion of variable-rate debt exposes results to rate increases. Principal payments are concentrated in 2024 and 2026, with scheduled amounts of approximately $336.5 million and $341.9 million, respectively. The company also had potential further funding obligations under mezzanine loans to Managed REITs: up to $38.2 million for SST VI at June 30 (reduced to $31.0 million after a July draw), and up to $8.0 million for SSGT III after its August initial funding. These are related-party arrangements and warrant attention alongside disclosed management conflicts.
Common-stock redemptions and reinvestment in shares remain suspended; requests received during 2022 were not honored pending possible board action. The board declared July and August 2022 distributions at approximately $0.00164 per share per day. Management stated that actual results may differ materially from forward-looking statements, and the reported interim results are not necessarily indicative of full-year results. No legal proceedings were reported; management said it knew of no ordinary-course proceeding likely to have a material adverse effect.
Important facts for investors to verify
- How much of the reported earnings improvement reflects recurring property operations versus the $16.1 million merger-related gain and other excluded or unusual items; review the company’s FFO and FFO, as adjusted, reconciliations.
- Current borrowing availability, covenant headroom, variable-rate exposure and refinancing plans for the 2024 and 2026 maturities; confirm the effect of interest-rate hedges and subsequent rate changes.
- Whether distributions remain supported by recurring cash generation, considering preferred dividends, capital spending, debt service and the company’s historical distribution funding disclosures.
- The status of the suspended DRP and redemption program, including unfulfilled redemption requests and any board decision to resume either program.
- Integration and operating performance of acquired facilities, including occupancy, rent growth and whether same-store growth moderates as management expects.
- Actual funding and repayment terms for the SST VI and SSGT III mezzanine loans, and any additional liquidity commitments or related-party transactions.