SmartStop Self Storage REIT, Inc. [STSFF] Filings

10-Q 1 ck0001585389-20230630.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-55617

SmartStop Self Storage REIT, Inc.

(Exact name of Registrant as specified in its charter)

Maryland

46-1722812

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

10 Terrace Road

Ladera Ranch, California 92694

(Address of principal executive offices)

(877) 327-3485

(Registrant’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
None	None	None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 4, 2023 there were 88,574,770 outstanding shares of Class A common stock and 8,126,393 outstanding shares of Class T common stock of the registrant.

FORM 10-Q

SMARTSTOP SELF STORAGE REIT, INC.

TABLE OF CONTENTS


		Page No.
	Cautionary Note Regarding Forward-Looking Statements	3

PART I.	FINANCIAL INFORMATION	5

Item 1.	Consolidated Financial Statements:	5
	Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	6
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	7
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	8
	Consolidated Statements of Equity and Temporary Equity for the Three Months Ended March 31, 2022 and June 30, 2022 (unaudited)	9
	Consolidated Statements of Equity and Temporary Equity for the Three Months Ended March 31, 2023 and June 30, 2023 (unaudited)	11
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (unaudited)	13
	Notes to Consolidated Financial Statements (unaudited)	15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	60
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	81
Item 4.	Controls and Procedures	83

PART II.	OTHER INFORMATION	84

Item 1.	Legal Proceedings	84
Item 1A.	Risk Factors	84
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84
Item 3.	Defaults Upon Senior Securities	84
Item 4.	Mine Safety Disclosures	84
Item 5.	Other Information	84
Item 6.	Exhibits	84

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of SmartStop Self Storage REIT, Inc., other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “seek,” “continue,” or other similar words.

Any such forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate, and beliefs of, and assumptions made by, our management and involve uncertainties that could significantly affect our financial results. Such statements include, but are not limited to: (i) statements about our plans, strategies, initiatives, and prospects; and (ii) statements about our future results of operations, capital expenditures, and liquidity. Such statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated, including, without limitation:

•

Adverse changes in economic conditions in the real estate industry and in the markets in which we own and operate self storage properties;

•

Market trends in our industry, interest rates, inflation, the debt and lending markets or the general economy;

•

Failure to realize the benefits from affiliated mergers, acquisitions and other strategic transactions;

•

The current concentration of our rental income in Florida, California and the Greater Toronto Area of Canada

•

The effect of competition at our self storage properties or from other storage alternatives, which could cause rents and occupancy rates to decline;

•

The impact of our outstanding Series A Convertible Preferred Stock, which ranks senior to all common stock and grants the holder superior rights compared to common stockholders, and may have the effect of diluting our stockholders’ interests in us and discouraging a takeover or other similar transaction;

•

Impacts on our business due to certain of our officers and key personnel facing competing demands relating to their time and conflicts of interest as a result of the positions they hold with affiliated entities;

•

The impact of investments in or loans to our Managed REITs;

•

Revenue and earnings from the Managed REIT Platform;

•

Increases in property taxes;

•

The impact of and changes in national, state, and local laws and regulations including, without limitation, those governing real estate investment trusts, environmental matters, taxes, insurance, accounting guidance and other aspects of our business;

•

Impacts of changes in the Canadian Dollar/USD exchange rate, which could have a material adverse effect on our operating results;

•

The degree to which our hedging strategies may or may not protect us from interest rate volatility;

•

Risks associated with data breaches, including cybersecurity attacks or other unauthorized access or misuse of information, any of which could adversely affect our business and results;

•

Potential environmental or other liabilities;

•

Risks related to or a consequence of natural disasters or acts of violence, pandemics, terrorism, insurrection or war that affect the markets in which we operate;

•

Failure to continue to qualify as a REIT for U.S. federal income tax purposes.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the U.S. Securities and Exchange Commission (the "SEC") and are not intended to be a guarantee of our performance in future periods. We cannot guarantee the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

For further information regarding risks and uncertainties associated with our business, and important factors that could cause our actual results to vary materially from those expressed or implied in such forward-looking statements, please refer to the factors listed and described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Risk Factors” sections of the documents we file from time to time with the SEC, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, as supplemented by the risk factors included in Part II, Item 1A of this Form 10-Q, copies of which may be obtained from our website at www.investors.smartstopselfstorage.com.

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The information furnished in the accompanying unaudited consolidated balance sheets and related consolidated statements of operations, comprehensive income (loss), equity and temporary equity, and cash flows reflects all adjustments (consisting of normal and recurring adjustments) that are, in management’s opinion, necessary for a fair and consistent presentation of the aforementioned consolidated financial statements.

The accompanying consolidated financial statements should be read in conjunction with the notes to our consolidated financial statements included in this report on Form 10-Q. The accompanying consolidated financial statements should also be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. Our results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results expected for the full year.

SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	June 30, 2023 (Unaudited)			December 31, 2022
ASSETS
Real estate facilities:
Land	$	421,441,836		$	420,522,591
Buildings		1,385,188,493			1,377,311,421
Site improvements		90,678,404			89,371,633
		1,897,308,733			1,887,205,645
Accumulated depreciation		(229,494,655	)		(202,682,688	)
		1,667,814,078			1,684,522,957
Construction in process		6,754,649			4,490,926
Real estate facilities, net		1,674,568,727			1,689,013,883
Cash and cash equivalents		34,058,603			39,486,588
Restricted cash		8,572,010			6,551,803
Investments in unconsolidated real estate ventures (Note 4)		34,539,440			28,522,082
Investments in and advances to Managed REITs		35,666,042			62,371,167
Other assets, net		24,128,677			34,131,543
Intangible assets, net of accumulated amortization		11,894,555			15,553,303
Trademarks, net of accumulated amortization		15,841,176			15,911,765
Goodwill		53,643,331			53,643,331
Debt issuance costs, net of accumulated amortization		1,199,845			2,031,922
Total assets	$	1,894,112,406		$	1,947,217,387
LIABILITIES, TEMPORARY EQUITY, AND EQUITY
Debt, net	$	1,040,604,660		$	1,068,371,956
Accounts payable and accrued liabilities		40,526,407			28,151,741
Due to affiliates		412,980			409,730
Distributions payable		8,842,296			9,324,453
Deferred tax liabilities		6,162,844			6,205,620
Total liabilities		1,096,549,187			1,112,463,500
Commitments and contingencies (Note 12)
Redeemable common stock		70,599,530			76,578,073
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 June 30, 2023 and December 31, 2022, respectively, with aggregate liquidation preferences of $203,116,438 and $203,150,685 at June 30, 2023 and December 31, 2022, respectively		196,356,107			196,356,107
Equity:
SmartStop Self Storage REIT, Inc.:
Class A common stock, $0.001 par value; 350,000,000 shares authorized; 88,936,541 and 88,853,454 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		88,937			88,853
Class T common stock, $0.001 par value; 350,000,000 shares authorized; 8,113,553 and 8,085,550 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		8,113			8,085
Additional paid-in capital		894,582,863			894,283,954
Distributions		(294,916,254	)		(266,151,517	)
Accumulated deficit		(165,521,154	)		(164,524,595	)
Accumulated other comprehensive income		3,158,859			3,654,682
Total SmartStop Self Storage REIT, Inc. equity		437,401,364			467,359,462
Noncontrolling interests in our Operating Partnership		93,006,132			94,405,766
Other noncontrolling interests		200,086			54,479
Total noncontrolling interests		93,206,218			94,460,245
Total equity		530,607,582			561,819,707
Total liabilities, temporary equity and equity	$	1,894,112,406		$	1,947,217,387

See notes to consolidated financial statements.

SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenues:
Self storage rental revenue	$	51,677,815		$	46,471,360		$	102,954,713		$	89,528,232
Ancillary operating revenue		2,180,151			2,098,835			4,370,773			4,073,155
Managed REIT Platform revenue		4,320,705			2,013,134			6,597,240			3,822,230
Reimbursable costs from Managed REITs		1,411,699			1,204,919			2,802,909			2,348,492
Total revenues		59,590,370			51,788,248			116,725,635			99,772,109
Operating expenses:
Property operating expenses		16,482,843			13,637,231			33,016,295			26,742,556
Managed REIT Platform expenses		681,131			617,846			1,231,067			1,007,111
Reimbursable costs from Managed REITs		1,411,699			1,204,919			2,802,909			2,348,492
General and administrative		7,181,892			7,946,583			13,718,518			13,784,230
Depreciation		13,375,922			11,826,106			26,648,193			22,934,092
Intangible amortization expense		1,835,691			4,471,973			3,755,396			8,372,857
Acquisition expenses		11,106			285,097			42,296			702,871
Contingent earnout adjustment		—			800,000			—			1,313,821
Write-off of equity interest and preexisting relationships upon acquisition of control		—			2,049,682			—			2,049,682
Total operating expenses		40,980,284			42,839,437			81,214,674			79,255,712
Gain on equity interests upon acquisition		—			16,101,237			—			16,101,237
Income from operations		18,610,086			25,050,048			35,510,961			36,617,634
Other income (expense):
Equity in earnings (losses) from investments in JV Properties		(535,767	)		(191,109	)		(940,878	)		(424,403	)
Equity in earnings (losses) from investments in Managed REITs		(216,725	)		(167,977	)		(449,750	)		(307,384	)
Other, net		1,192,515			(264,812	)		1,943,493			(293,327	)
Interest expense		(14,904,549	)		(8,852,586	)		(29,608,446	)		(16,428,370	)
Net loss on extinguishment of debt		—			(2,393,475	)		—			(2,393,475	)
Income tax benefit (expense)		133,794			833,033			(143,426	)		511,906
Net income		4,279,354			14,013,122			6,311,954			17,282,581
Net (income) attributable to noncontrolling interests		(769,518	)		(1,758,141	)		(1,109,883	)		(2,161,963	)
Less: Distributions to preferred stockholders		(3,116,438	)		(3,116,439	)		(6,198,630	)		(6,198,631	)
Net income (loss) attributable to SmartStop Self Storage REIT, Inc. common stockholders	$	393,398		$	9,138,542		$	(996,559	)	$	8,921,987
Net income (loss) per Class A & Class T share – basic	$	0.00		$	0.10		$	(0.01	)	$	0.10
Net income (loss) per Class A & Class T share – diluted	$	0.00		$	0.10		$	(0.01	)	$	0.10
Weighted average Class A shares outstanding – basic		88,717,078			80,896,716			88,726,076			78,932,668
Weighted average Class A shares outstanding – diluted		89,153,907			81,422,623			88,726,076			79,411,284
Weighted average Class T shares outstanding – basic		8,097,928			8,085,550			8,091,773			8,078,290
Weighted average Class T shares outstanding – diluted		8,097,928			8,085,550			8,091,773			8,078,290

See notes to consolidated financial statements.

SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

SmartStop Self Storage REIT, Inc. [STSFF] Filings

SmartStop Self Storage REIT, Inc. [SSST] Filings