SmartStop Self Storage REIT, Inc. Reports First Quarter 2021 Results

admin May 19, 2021

9 13 minutes read

LADERA RANCH, Calif.–(BUSINESS WIRE)–SmartStop Self Storage REIT, Inc. (“SmartStop”), a self-managed and fully-integrated self storage company with approximately $1.7 billion of self storage assets under management, announced its overall results for the three months ended March 31, 2021.

“SmartStop posted tremendous results this quarter with same store revenue and NOI growth of 9.7% and 14.2%, respectively, both higher than all of our publicly-traded peers,” said H. Michael Schwartz, Chairman and Chief Executive Officer of SmartStop. “Our best-in-class portfolio posted record same store occupancy of 94.1% at quarter end, an increase of 540 basis points year-over-year. These performance metrics are a testament to the power of the SmartStop® Self Storage platform, the fantastic team operating this portfolio and the robust self storage operating environment. With our unprecedented level of occupancy, we are entering the busy summer rental season from a position of great strength, and are increasing asking rates while decreasing concessions, resulting in increasing net effective rental rates and total revenues. With this encouraging start to 2021, we believe the company is well positioned to grow stockholder value in 2021 and beyond.”

Three Months Ended March 31, 2021 Financial Highlights:

Total self storage-related revenues increased by approximately $4.3 million, or 16.2%, when compared to the same period in 2020.
FFO, as adjusted, increased by approximately $3.2 million, or 195%, when compared to the same period in 2020.
Same-store revenues increased by 9.7% compared to the same period in 2020.
Same-store NOI increased by 14.2% compared to the same period in 2020.
Same-store average physical occupancy increased by 4.4% to 93.1% for the three months ended March 31, 2021, compared to 88.7% during the same period in 2020.
Same-store annualized rent per occupied square foot was approximately $15.43 for the three months ended March 31, 2021, which represented an increase of approximately 3.6% when compared to the same period in 2020.
Managed REIT Platform revenue of approximately $2.3 million for the three months ended March 31, 2021, up 28.3% from the same period in 2020.

“This is an incredibly exciting time for SmartStop and our stockholders,” continued Mr. Schwartz. “In addition to our strong operating performance driving outsized internal growth, we remain active on the external growth front, acquiring a six story storage facility in Oakville, Ontario, Canada subsequent to quarter end. Including this property and the 27 operating properties acquired in the merger with Strategic Storage Trust IV, Inc. (“SST IV”) during the first quarter, SmartStop has increased its owned asset base by 25% since the beginning of 2020 to 140 owned or JV stores currently operating. In tandem with the SST IV merger, we entered into a multi-currency credit facility (the “Credit Facility”) of up to $500 million that significantly increases our access to, and lowers the cost of, our debt capital. This facility allows us to continue to execute our growth plans both in the U.S. and across the border in Canada. We believe both the merger and new credit facility are transformational for SmartStop and we are humbled by the dedication of our team members.”

Closed the All-Stock Acquisition of Strategic Storage Trust IV, Inc.

On March 17, 2021, SmartStop and SST IV closed a merger in which SST IV merged into a subsidiary of SmartStop, in an all-stock transaction with a value of approximately $375 million (including outstanding debt of SST IV assumed or repaid but excluding transaction costs) (the “Merger”). The Merger positions the combined company to achieve further economies of scale and drive incremental growth as it takes advantage of the benefits of a larger aggregate portfolio. As a result of the Merger, SmartStop acquired all of the real estate owned by SST IV, consisting of 24 wholly-owned self storage facilities located across nine states and six joint venture properties (three operating and three under development) located in the Greater Toronto Area (“GTA”) of Ontario, Canada. The total SST IV portfolio, including joint venture property estimates at completion of development, resulted in the addition of approximately 23,600 self storage units and 2.6 million net rentable square feet. At the closing of the Merger, SmartStop’s consolidated portfolio consisted of 136 wholly-owned properties and six joint venture properties with a combined gross book value of approximately $1.5 billion of self storage assets.

Closed a $500 Million Multi-Currency Credit Facility

On March 17, 2021, SmartStop announced that it entered into a multi-currency credit facility (the “Credit Facility”) of up to $500 million with a syndicate of banks led by KeyBank National Association, Wells Fargo, N.A., Citibank, N.A. and Bank of Montreal. The facility consists of a $250 million revolving credit facility (the “Revolver”) and a $250 million term loan (the “Term Loan”), and has an accordion feature permitting expansion of the Credit Facility up to $850 million, subject to certain conditions. The Revolver has a three-year term with a maturity date of March 17, 2024 and a one-year extension option. The Term Loan has a five-year term with a maturity date of March 17, 2026. Borrowings under the Credit Facility may be in either U.S. dollars or Canadian dollars at SmartStop’s election. Initial advances under the Term Loan carried interest at 195 basis points over 30-day LIBOR or 30-day CDOR, while initial advances under the Revolver carried interest at 200 basis points over 30-day LIBOR or 30-day CDOR. The Credit Facility is initially secured by a pledge of equity interests in certain of SmartStop’s property owning subsidiaries. SmartStop can elect to release the pledges upon the achievement of certain financial conditions, making the Credit Facility fully unsecured and resulting in a reduction in the applicable interest rate, among other changes.

Greater Toronto Area Property Acquisition

Subsequent to quarter end, SmartStop acquired a recently built, six-story self storage facility in Oakville, Ontario, Canada in April. The property was completed in April 2020 and was approximately 40% occupied at acquisition. The facility is located at 450 Iroquois Shore Rd in the Oakville community, one of the GTA’s most affluent suburbs. The property’s 1,075 units are 100% climate-controlled across approximately 81,500 square feet. The property offers customers a variety of amenities including state-of-the-art security systems, elevators, keypad access, a gated drive-in loading area and more. The facility is our third in Oakville, establishing SmartStop as a dominant player in the submarket. This is SmartStop’s 17th owned or managed location in the GTA, and 153rd property in North America.

Declared Distributions

On March 3, 2021, SmartStop’s board of directors declared a distribution rate for the second quarter of 2021, of approximately $0.00164 per day per share on the outstanding shares of common stock payable to both Class A and Class T stockholders. Such distributions payable to each stockholder of record during a month will be paid the following month.

SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

	March 31, 2021 (Unaudited)			December 31, 2020
ASSETS
Real estate facilities:
Land	$	392,801,173		$	335,800,354
Buildings		1,083,055,321			810,480,845
Site improvements		77,101,174			63,821,383
		1,552,957,668			1,210,102,582
Accumulated depreciation		(124,490,121	)		(115,903,045	)
		1,428,467,547			1,094,199,537
Construction in process		4,260,712			1,761,303
Real estate facilities, net		1,432,728,259			1,095,960,840
Cash and cash equivalents		30,371,284			72,705,624
Restricted cash		8,809,279			7,952,052
Investments in unconsolidated real estate ventures		17,488,416			—
Investments in and advances to Managed REITs		736,355			15,624,389
Other assets, net		15,202,719			7,734,276
Intangible assets, net of accumulated amortization		24,409,277			12,406,427
Trademarks, net of accumulated amortization		16,158,824			16,194,118
Goodwill		53,643,331			53,643,331
Debt issuance costs, net of accumulated amortization		2,481,254			—
Total assets	$	1,602,028,998		$	1,282,221,057
LIABILITIES AND EQUITY
Debt, net	$	822,490,580		$	717,952,233
Accounts payable and accrued liabilities		25,515,670			23,038,976
Due to affiliates		1,668,662			667,429
Distributions payable		7,446,393			6,650,317
Contingent earnout		19,500,000			28,600,000
Deferred tax liabilities		7,539,241			8,380,215
Total liabilities		884,160,546			785,289,170
Commitments and contingencies
Redeemable common stock		60,388,518			57,335,575
Preferred stock, $0.001 par value; 200,000,000 shares authorized:
Series A Convertible Preferred Stock, $0.001 par value; 200,000 shares authorized; 200,000 and 200,000 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively, with aggregate liquidation preferences of $203,082,192 and $202,928,620 at March 31, 2021 and December 31, 2020, respectively		196,356,107			196,356,107
Equity:
SmartStop Self Storage REIT, Inc. equity:
Class A common stock, $0.001 par value; 350,000,000 shares authorized; 76,096,756 and 52,660,402 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		76,098			52,661
Class T common stock, $0.001 par value; 350,000,000 shares authorized; 7,948,354 and 7,903,911 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		7,949			7,904
Additional paid-in capital		723,891,165			492,408,006
Distributions		(173,328,354	)		(163,953,169	)
Accumulated deficit		(155,353,544	)		(141,444,880	)
Accumulated other comprehensive loss		(2,937,741	)		(3,834,228	)
Total SmartStop Self Storage REIT, Inc. equity		392,355,573			183,236,294
Noncontrolling interests in our Operating Partnership		68,707,354			59,982,111
Other noncontrolling interests		60,900			21,800
Total noncontrolling interests		68,768,254			60,003,911
Total equity		461,123,827			243,240,205
Total liabilities and equity	$	1,602,028,998		$	1,282,221,057

SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended March 31,
	2021			2020
Revenues:
Self storage rental revenue	$	29,503,442		$	25,568,019
Ancillary operating revenue		1,557,430			1,152,843
Managed REIT Platform revenue		2,287,740			1,783,787
Reimbursable costs from Managed REITs		1,216,043			1,793,474
Total revenues		34,564,655			30,298,123
Operating expenses:
Property operating expenses		10,343,281			9,675,026
Managed REIT Platform expenses		319,890			1,174,809
Reimbursable costs from Managed REITs		1,216,043			1,793,474
General and administrative		4,752,989			3,667,947
Depreciation		8,543,927			7,716,671
Intangible amortization expense		1,259,547			3,669,631
Acquisition expenses		305,650			28,105
Contingent earnout adjustment		2,119,744			(7,200,000	)
Impairment of goodwill and intangible assets		—			36,465,732
Impairment of investments in Managed REITs		—			4,376,879
Write-off of equity interest and preexisting relationships in SST IV upon acquisition of control		8,389,573			—
Total operating expenses		37,250,644			61,368,274
Operating loss		(2,685,989	)		(31,070,151	)
Other income (expense):
Interest expense		(7,975,464	)		(8,339,303	)
Interest expense – accretion of fair market value of secured debt		31,866			32,657
Interest expense – debt issuance costs		(672,473	)		(943,483	)
Net loss on extinguishment of debt		(2,444,788	)		—
Other		1,443,382			2,576,699
Net loss		(12,303,466	)		(37,743,581	)
Net loss attributable to the noncontrolling interests in our Operating Partnership		1,476,994			5,031,652
Less: Distributions to preferred stockholders		(3,082,192	)		(2,362,022	)
Net loss attributable to SmartStop Self Storage REIT, Inc. common stockholders	$	(13,908,664	)	$	(35,073,951	)
Net loss per Class A share – basic and diluted	$	(0.22	)	$	(0.59	)
Net loss per Class T share – basic and diluted	$	(0.22	)	$	(0.59	)
Weighted average Class A shares outstanding – basic and diluted		56,398,876			51,313,351
Weighted average Class T shares outstanding – basic and diluted		7,927,821			7,726,469

SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES NON-GAAP MEASURE – COMPUTATION OF ADJUSTED FUNDS FROM OPERATIONS (Unaudited)

	Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
Net loss (attributable to common stockholders)	$	(13,908,664	)	$	(35,073,951	)
Add:
Depreciation of real estate		8,377,485			7,587,338
Depreciation and amortization of real estate and intangible assets from our Joint Ventures		34,074			—
Amortization of real estate related intangible assets		562,085			2,172,565
Deduct:
Adjustment for noncontrolling interests		(1,118,036	)		(1,297,630	)
FFO (attributable to common stockholders)		(6,053,056	)		(26,611,678	)
Other Adjustments:
Intangible amortization expense – contracts⁽¹⁾		697,462			1,497,066
Acquisition expenses⁽²⁾		305,650			28,105
Contingent earnout adjustment⁽³⁾		2,119,744			(7,200,000	)
Impairment of goodwill and intangible assets⁽⁴⁾		—			36,465,732
Impairment of investments in Managed REITs⁽⁴⁾		—			4,376,879
Write-off of equity interest and preexisting relationships in SST IV upon acquisition of control		8,389,573			—
Accretion of fair market value of secured debt⁽⁵⁾		(31,866	)		(32,657	)
Net loss on extinguishment of debt⁽⁶⁾		2,444,788			—
Foreign currency and interest rate derivative (gains) losses, net⁽⁷⁾		217,998			167,519
Adjustment of deferred tax liabilities⁽¹⁾		(1,872,866	)		(2,746,896	)
Adjustment for noncontrolling interests		(1,433,296	)		(4,319,933	)
FFO, as adjusted (attributable to common stockholders)	$	4,784,131		$	1,624,137

⁽¹⁾		These items represent the amortization, accretion, or adjustment of intangible assets or deferred tax liabilities. As these items are non-cash and not primary drivers in SmartStop’s decision-making process, FFO is adjusted for their effect to arrive at FFO, as adjusted, as a means of determining a comparable sustainable operating performance metric to other real estate companies.
⁽²⁾		In evaluating investments in real estate, SmartStop differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for publicly registered, non-traded REITs that have generally completed their acquisition activity and have other similar operating characteristics.
⁽³⁾		The contingent earnout adjustment represents the adjustment to the fair value of the Class A-2 Units issued in connection with the Self Administration Transaction. FFO is adjusted to arrive at FFO, as adjusted, as this acquisition related item is not a primary driver in SmartStop’s decision-making process and excluding this provides investors a view of SmartStop’s continuing operating portfolio performance over time.
⁽⁴⁾		The impairment charges relate to SmartStop’s goodwill, intangible assets and investments in the Managed REIT Platform acquired in the Self Administration Transaction. SmartStop believes that adjusting for such non-recurring items provides useful supplemental information because such expenses may not be reflective of on-going operations and is consistent with management’s analysis of SmartStop’s operating performance and provides for a means of determining a comparable sustainable operating performance metric.
⁽⁵⁾		This represents the difference between the stated interest rate and the estimated market interest rate on assumed notes as of the date of acquisition. Such amounts have been excluded from FFO, as adjusted, because SmartStop believes FFO, as adjusted, provides useful supplementary information by focusing on operating fundamentals, rather than events not related to our normal operations. SmartStop is responsible for managing interest rate risk and do not rely on another party to manage such risk.
⁽⁶⁾		The net loss associated with the extinguishment of debt includes prepayment penalties, the write-off of unamortized deferred financing fees, and other fees incurred. SmartStop believes that adjusting for such non-recurring items provides useful supplemental information because such losses may not be reflective of on-going transactions and operations and is consistent with management’s analysis of our operating performance.
⁽⁷⁾		This represents the mark-to-market adjustment for SmartStop’s derivative instruments not designated for hedge accounting and the ineffective portion of the change in fair value of derivatives recognized in earnings, as well as changes in foreign currency related to our foreign equity investments not classified as long term. These derivative contracts are intended to manage the Company’s exposure to interest rate and foreign currency risk which may not be reflective of SmartStop’s ongoing performance and may reflect unrealized impacts on our operating performance. Such amounts are recorded in “Other” within SmartStop’s consolidated statements of operations.

SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES

NON-GAAP MEASURE – COMPUTATION OF SAME-STORE OPERATING RESULTS

(Unaudited)

The following table sets forth operating data for SmartStop’s same-store facilities (those properties included in the consolidated results of operations since January 1, 2020) for the three months ended March 31, 2021 and 2020. SmartStop considers the following data to be meaningful as this allows for the comparison of results without the effects of acquisition, lease up, or development activity.

	Same-Store Facilities									Non Same-Store Facilities					Total
	2021			2020			% Change			2021		2020		% Change	2021			2020			% Change
Revenue ⁽¹⁾	$	27,871,895		$	25,405,035			9.7	%	$	3,188,977	$	1,315,827	N/M	$	31,060,872		$	26,720,862			16.2	%
Property operating expenses ⁽²⁾		8,817,512			8,716,694			1.2	%		1,525,769		958,332	N/M		10,343,281			9,675,026			6.9	%
Property operating income	$	19,054,383		$	16,688,341			14.2	%	$	1,663,208	$	357,495	N/M	$	20,717,591		$	17,045,836			21.5	%
Number of facilities		103			103						34		9			137			112
Rentable square feet ⁽³⁾		7,557,300			7,557,300						2,805,500		680,300			10,362,800			8,237,600
Average physical occupancy ⁽⁴⁾		93.1	%		88.7	%				N/M		N/M				92.6	%		86.3	%
Annualized rent per occupied square foot ⁽⁵⁾	$	15.43		$	14.90					N/M		N/M			$	15.21		$	14.70

N/M Not meaningful

⁽¹⁾		Revenue includes rental revenue, Tenant Programs revenue, ancillary revenue, and administrative and late fees.
⁽²⁾		Property operating expenses excludes corporate general and administrative expenses, asset management fees, interest expense, depreciation, amortization expense, and acquisition expenses, but includes property management fees if applicable. Property operating expenses for the three months ended March 31, 2020 also includes COVID-19 related costs, including specialized cleaning costs, the purchase of personal protective equipment, and bonuses to our store personnel, totaling approximately $0.4 million. On a same-store basis, COVID-19 related costs represented approximately $0.4 million of the total property operating expenses for the three months ended March 31, 2020.
⁽³⁾		Of the total rentable square feet, parking represented approximately 920,000 square feet and 678,000 square feet as of March 31, 2021 and 2020, respectively. On a same-store basis, for the same periods, parking represented approximately 678,000 square feet.
⁽⁴⁾		Determined by dividing the sum of the month-end occupied square feet for the applicable group of facilities for each applicable period by the sum of their month-end rentable square feet for the period.
⁽⁵⁾		Determined by dividing the aggregate realized rental income for each applicable period by the aggregate of the month-end occupied square feet for the period. Properties are included in the respective calculations in their first full month of operations, as appropriate. We have excluded the realized rental revenue and occupied square feet related to parking herein for the purpose of calculating annualized rent per occupied square foot.

SmartStop’s same-store revenue increased by approximately $2.5 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to both higher occupancy and higher annualized rent per occupied square foot.

The following table presents a reconciliation of net loss as presented on our consolidated statements of operations to property operating income, as stated above, for the periods indicated:

	For the Three Months Ended March 31,
	2021			2020
Net loss	$	(12,303,466	)	$	(37,743,581	)
Adjusted to exclude:
Managed REIT Platform revenue		(2,287,740	)		(1,783,787	)
Managed REIT Platform expenses		319,890			1,174,809
General and administrative		4,752,989			3,667,947
Depreciation		8,543,927			7,716,671
Intangible amortization expense		1,259,547			3,669,631
Acquisition expenses		305,650			28,105
Contingent earnout adjustment		2,119,744			(7,200,000	)
Impairment of goodwill and intangible assets		—			36,465,732
Impairment of investments in Managed REITs		—			4,376,879
Write-off of equity interest and preexisting relationships in SST IV upon acquisition of control		8,389,573			—
Interest expense		7,975,464			8,339,303
Interest expense – accretion of fair market value of secured debt		(31,866	)		(32,657	)
Interest expense – debt issuance costs		672,473			943,483
Net loss on extinguishment of debt		2,444,788			—
Other		(1,443,382	)		(2,576,699	)
Total property operating income	$	20,717,591		$	17,045,836

ADDITIONAL INFORMATION REGARDING NOI, FFO, and FFO, as Adjusted

Net Operating Income (“NOI”)

NOI is a non-GAAP measure that SmartStop defines as net income (loss), computed in accordance with GAAP, generated from properties before corporate general and administrative expenses, asset management fees, interest expense, depreciation, amortization, acquisition expenses and other non-property related expenses. SmartStop believes that NOI is useful for investors as it provides a measure of the operating performance of its operating assets because NOI excludes certain items that are not associated with the ongoing operation of the properties. Additionally, SmartStop believes that NOI (also referred to as property operating income) is a widely accepted measure of comparative operating performance in the real estate community. However, SmartStop’s use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

Funds from Operations (“FFO”) and FFO, as Adjusted

Funds from Operations

Funds from operations (“FFO”) is an industry wide metric promulgated by the National Association of Real Estate Investment Trusts, or NAREIT, which SmartStop believes to be an appropriate supplemental measure to reflect the operating performance of a REIT.

Contacts

David Corak
VP of Corporate Finance

SmartStop Self Storage REIT, Inc.

949-542-3331

[email protected]

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admin May 19, 2021

9 13 minutes read