SMA 3Q26 Earnings Call - SMARTSTOP SELF STORAGE REIT INC

Financial Performance:

• Reported strong Q3 2026 results with same-store revenue growth of 2% and same-store NOI growth of 4.9% (5.1% on a constant currency basis).
• Achieved sector-leading same-store operating margin of 68%, a 190 basis point year-over-year increase, driven by a 3.8% decrease in operating expenses.
• Fully diluted Adjusted FFO per share reached $0.51, up 9.4% year-over-year.
• Occupancy ended Q3 at 92.1%, with in-place rent per occupied square foot increasing 2.6%.
• Move-in rates declined 5.7% year-over-year as a strategic choice to maintain occupancy, yet move-in volumes rose 5.6%.
• Reduced normalized cash flow leverage to 6.0x, or 5.6x assuming full settlement of forward ATM shares.
• Canadian GTA 10-property joint venture portfolio achieved 93% occupancy and 2.8% same-store revenue growth.

Guidance and Future Outlook:

• Raised full-year 2026 guidance for the fourth consecutive time, increasing the midpoint of same-store revenue growth to 1.25%–1.75% (previously 0.75%–1.75%).
• Reduced same-store operating expense guidance range from 0%–1% to -0.25%–0.25%, resulting in a same-store NOI growth midpoint of 2.25% (up from 1.65%).
• Increased Adjusted FFO per share guidance midpoint to $2.03 (new range $2.01–$2.05) from previous $1.99–$2.05.
• Raised capital deployment guidance for 2026 to $200–$220 million (previously $190–$210 million).
• Expects dispositions of non-core assets ($75–$125 million) to close in H1 2027, with redeployment into core markets expected to be accretive to long-term FFO per share.
• Projects continued margin expansion in core MSAs with 10+ properties, targeting 250–300 basis points of year-over-year margin growth in those clusters.

Business Segments and Product Lines:

• Launched "DECA" initiative pillars: disciplined capital allocation, operational clustering, technology (SmartStop.ai), third-party management (SmartStop 3PM), managed REIT platform, and joint ventures for clustering.
• Announced $53 million investment in Strategic Storage Canada LP, a joint venture expanding Canadian presence by over 30% to 70 stores.
• Secured under contract for two on-balance sheet acquisitions totaling ~$37 million in core SMA markets (Las Vegas, Asheville).
• Rebranded third-party management division from "Argus" to "SmartStop 3PM."
• Launched a strategic asset management program to dispose of non-core assets (e.g., Nantucket properties) to fund core market clustering.
• Alberta "Five Pack" portfolio achieved full lease-up with 9.2% revenue growth and 1,700 basis points occupancy gain since acquisition.
• Managed REIT platform posted 16.3% year-over-year recurring revenue growth.

Market and Competitive Landscape:

• Operating in a favorable acquisition environment driven by owners with inflated valuations from the post-COVID era needing capital for refinancing.
• Canadian market shows resilience with low bad debt (~1% vs. US levels) and strong demand drivers including aging population and urban densification.
• GTA market facing slight headwinds from tariff-related hesitation but remains structurally attractive with high barriers to entry and significant development costs.
• Alberta markets demonstrated steadier trends than GTA, with the portfolio gaining 1,700 basis points in occupancy.
• Competition remains intense with large, regional, and smaller operators, but SmartStop maintains a strategic advantage through clustering and margin management.
• Move-out volumes remain muted year-over-year, indicating strong tenant retention despite rate increases.

Risks and Challenges:

• Currency headwinds affecting constant currency growth, though partially offset by operational efficiencies.
• Potential near-term dilution from dispositions if cap rates on sales exceed acquisition costs, though management expects long-term accretion via efficiency gains.
• Macro uncertainty regarding tariffs impacting rental decisions in specific pockets of the GTA market.
• Transition risks associated with operational changes in managed assets and new joint ventures.
• Dependence on continued expense discipline to maintain margin expansion amid potential economic shifts.

Management Commentary and Tone:

• Management expressed high confidence and optimism, describing the current market as an "amazing opportunity" to transact since the Great Recession.
• Tone was defensive yet proud regarding occupancy strategy, emphasizing that rate growth was prioritized over volume, yet revenue still accelerated.
• Leadership highlighted the structural nature of margin improvements, citing clustering benefits and payroll efficiencies as sustainable drivers.
• CEO Michael Schwartz and CFO James Berry demonstrated clear strategic alignment on the DECA framework and capital allocation discipline.
• Management reiterated commitment to 1031 exchanges for dispositions to avoid tax implications.

Analyst Questions and Answers:

• Disposition Strategy (Victor Fedev, Scotiabank): Clarified that $75–$125M in non-core sales (e.g., Nantucket) are targeted for H1 2027; expected to be accretive in the medium term via clustering efficiencies and will utilize 1031 exchanges.
• Move-in/Move-out Spread (Victor Fedev, Scotiabank): Explained the wide spread was a strategic choice to maintain >92% occupancy; concession usage has dropped 25–30% quarter-over-quarter, and move-in rates in Toronto are now rising, signaling a narrowing spread.
• Canadian Operations (Spencer Glimcher, Green Street): Confirmed Alberta portfolio performance exceeded expectations with 9.2% revenue growth; Canadian consumer remains healthy despite tariff hesitation in GTA.
• Investment Outlook 2027 (Todd Thomas, KeyBank): Noted a wave of high-quality stabilized assets coming to market due to refinancing needs; strategy remains accretive-focused, utilizing both wholesale and joint venture structures.
• Expense Backdrop (Todd Thomas, KeyBank): Confirmed expense reductions are largely structural due to clustering and SmartStop 3PM platform, though some cyclical benefits (insurance, taxes) are present.
• PSA Impact on Canada (Michael Mueller, J.P. Morgan): No immediate negative impact observed following PSA's takeover of their portfolio; confident in competitive positioning against all operators.
• Tenant Retention (Michael Mueller, J.P. Morgan): Confirmed muted move-outs in both US and Canada, with length of stay extending to 32 months overall and 26 months in GTA.

Other Key Points:

• Raised midpoint of same-store revenue, NOI, and FFO guidance for the fourth time in 2026.
• Successfully priced a $200 million CAD maple bond at 4.32% and deployed 2.4 million ADS via ATM at $32.01 average price.
• 11 of the top 15 markets achieved positive same-store NOI growth.
• Strategic focus remains on markets with 10+ properties to maximize operating efficiency and economies of scale.
• Company operates across 41 states and provinces in North America.