SMA 3Q26 Earnings Call - SMARTSTOP SELF STORAGE REIT INC

Financial Performance:

• Same-store revenue growth of 2% (2.1% on constant currency).
• Same-store NOI growth of 4.9% (5.1% on constant currency), driven by 3.8% year-over-year operating expense reduction.
• Same-store operating margins increased 190 basis points year-over-year to 68%, marking the highest Q3 margin since 2023.
• Fully diluted Adjusted FFO per share reached $0.51, a 9.4% increase year-over-year from $0.47.
• Sector-wide occupancy held at 92.1% at quarter-end, with occupancy increasing 10 basis points to 92.2% in October.
• Normalized cash flow leverage reduced to 6.0x (5.6x assuming full settlement of forward ATM shares).
• In-place rent per occupied square foot increased 2.6% year-over-year.
• Move-in rates per square foot decreased 5.7% on average as the company prioritized occupancy, while move-in volumes rose 5.6% year-over-year.
• Managed REIT platform generated 16.3% year-over-year growth in recurring revenues.

Guidance and Future Outlook:

• Raised full-year 2026 same-store revenue guidance midpoint to 1.25%–1.75% (previously 0.75%–1.75%).
• Adjusted full-year 2026 operating expense guidance to a range of -25 to +25 basis points (previously 0% to 1% growth).
• Increased full-year 2026 NOI growth midpoint to 2.25% (previously 1.65%).
• Raised full-year 2026 Adjusted FFO per share guidance range to $2.01–$2.15, with a midpoint of $2.03 (previously $1.99–$2.05).
• Elevated capital deployment guidance to $200–$220 million for 2026, a significant increase from the initial $45–$65 million.
• Anticipates dispositions of $75–$125 million in non-core assets to close in the first half of 2027, with potential for future sales.
• Expects transaction activity to remain strong in 2027 due to a wave of distressed sellers and favorable off-market opportunities.

Business Segments and Product Lines:

• Launched the "DECA" strategic initiative focusing on disciplined execution, clustering, technology (SmartStop.ai), third-party management (SmartStop 3PM), and joint ventures.
• Acquired a 30% stake in Strategic Storage Canada LP via a joint venture, expanding Canadian presence to 70 stores; $53M total investment with mid-teens blended yields.
• Under contract to acquire two on-balance sheet assets in core SMA markets for approximately $37 million.
• Rebranded third-party management division to "SmartStop 3PM."
• Launched a strategic asset management program to dispose of properties in non-core markets (e.g., Nantucket) to redeploy capital into high-density clusters (10+ properties per MSA).
• The "Alberta 5" portfolio acquired last August is now fully leased, posting 9.2% revenue growth in Q3.
• The GTA joint venture (10 properties) posted 2.8% year-over-year revenue growth and 93% occupancy.
• SmartCenter (managed REIT platform) and other owned properties showed strong lease-up momentum in Montreal and Vancouver.

Market and Competitive Landscape:

• Canadian market remains healthy with bad debt at ~1% (half of U.S. levels); demand driven by aging population and urban densification.
• GTA occupancy reached 92.6%, slightly below U.S. levels due to tougher 2025 comparables, but revenue growth has been triple the U.S. rate over the past 36 months.
• Alberta portfolio outperformed expectations with 1,700 basis points of occupancy gain since acquisition and steady lease-up trends.
• Management views the current storage investment environment as one of the most attractive since the Great Recession, citing a wave of sellers needing capital for refinancing.
• Company remains confident in competing against larger operators and regional players in both U.S. and Canadian markets.

Risks and Challenges:

• Currency headwinds impacting reported results (mitigated by constant currency analysis).
• Macroeconomic uncertainty regarding tariffs causing some hesitation in rental decisions in specific GTA pockets.
• Cyclical factors influencing expense reductions (e.g., softer property insurance renewals) may normalize in future periods.
• Potential dilution in 2027 FFO per share during the transition period of non-core asset dispositions, though expected to become accretive short-to-medium term.
• Competition from new entrants or large operators (e.g., PSA) in the Canadian market post-takeover.

Management Commentary and Tone:

• Tone was highly confident, emphasizing "sector-leading" performance and successful execution of the DECA initiative.
• Management highlighted the structural nature of expense efficiencies gained through clustering and the SmartStop 3PM platform.
• CEO emphasized a disciplined capital allocation strategy, rejecting volume-chasing in favor of accretive, per-share growth.
• CFO and CEO reinforced that the company has "several levers" to optimize NOI, prioritizing rate increases over concessions as the market shifts.
• Strategic focus remains on achieving clustering in MSAs with 10+ properties to maximize operational synergies.

Analyst Questions and Answers:

• Dispositions (Victor Fedev): Management clarified that non-core sales will likely be 1031 exchanges to avoid tax implications and expects the strategy to be accretive due to efficiency gains, not just cap rate spreads.
• Move-in Rates (Victor Fedev): Confirmed the Q3 strategy of lowering move-in rates to hold occupancy during the busy season is shifting; concessions are down 25-30% YoY, and move-in rates are beginning to increase in key markets like Toronto.
• Canadian Performance (Spencer Glimcher): Confirmed Alberta portfolio exceeded expectations (9.2% revenue growth) and that the GTA remains a structural growth engine despite tariff-related hesitation.
• 2027 Investment Outlook (Todd Thomas): Noted a "wave" of high-quality assets coming to market due to post-pandemic pricing corrections; company plans to deploy capital in both U.S. and Canada via joint ventures and on-balance sheet deals.
• Expense Structure (Todd Thomas): Attributed ~300 basis point margin improvements to structural clustering (10+ properties) and payroll efficiencies, though some cyclical benefits (insurance, taxes) are noted.
• PSA Impact & Attrition (Michael Mueller): Stated no observable negative impact from PSA taking over operations in Canada; noted limited move-outs and lengthening tenant stay (32 months avg) despite ECRI restrictions lifting in LA.

Other Key Points:

• Issued $200 million CAD maple bonds at a 4.32% coupon.
• Sold 2.4 million shares via ATM program at an average price of $32.01.
• Deployed approximately $32.3 million in bridge capital during the quarter, primarily to the new institutional sponsor partner.
• Occupancy in the managed REIT portfolio is up 16.3% YoY in recurring revenue.
• The company has 41 properties owned and managed in the Greater Toronto Area (GTA), highlighting its significant scale in that specific high-barrier market.