SMA 3Q26 Earnings Call - SMARTSTOP SELF STORAGE REIT INC

Explicit Guidance:

• Full Year 2026 Same-Store Revenue: Raised midpoint range from 1.25%–1.75% (up from 0.75%–1.75%).
• Full Year 2026 Same-Store NOI: Midpoint increased from 1.65% to 2.25% growth.
• Full Year 2026 Operating Expenses: Range adjusted from 0%–1% growth to a new range of -0.25% to +0.25% (expecting slight decrease).
• Full Year 2026 FFO as Adjusted per Share: Range raised from $1.99–$2.05 to $2.01–$2.05; midpoint increased to $2.03 (driven by same-store performance).
• Full Year 2026 Capital Deployment: Expected range increased to $200–$220 million (vs. prior $190–$210 million and initial $45–$65 million).
• 2027 Capital Allocation: Anticipates $75–$125 million in non-core asset dispositions to occur in the first half of 2027.

Business-Segment Outlook:

• GTA (Canada): Expected to run modestly below U.S. portfolio in 2026 due to tougher 2025 comps; however, revenue growth over past 36 months has been 3x U.S. rate. Occupancy at 92.6% (up 10 bps YoY).
• Alberta Portfolio: Recently fully leased (acquired at 75% occupancy); posted 9.2% YoY revenue growth in Q3. Expectations remain strong for continued lease-up and economies of scale, particularly in Calgary.
• Joint Ventures (GTA): 10-property JV posting 93% occupancy and 2.8% YoY revenue growth; ECRIs in low 20s with ~26-month average length of stay.
• Managed REIT Platform: Recurring revenue growth of 16.3% YoY; rebranded as SmartStop 3PM.
• Non-Core Markets: Strategic program targeting disposition of assets in markets lacking scale (e.g., Nantucket) to redeploy capital into core MSAs where the firm has 10+ properties.

Market and Competitive Outlook:

• Acquisition Environment: Management views current market conditions as a "pretty amazing" opportunity for transactions since the Great Recession, citing a wave of stabilized, high-quality assets from owners needing capital for refinancing or post-COVID debt restructuring.
• Pricing & Supply: Off-market deals remain attractive; some stabilized properties may be priced high. Focus remains on accretive transactions that meaningfully move market cap (e.g., ~$300M transaction = ~10% market cap growth).
• Move-in/Move-out Dynamics: Strategy shifted from aggressive occupancy protection to rate growth; move-in rates expected to rise in 2027, narrowing the current spread. Move-outs remain muted with limited attrition even as ECRI restrictions faded; length of stay increasing across U.S. and Canada.
• Competition: Confident in competitive positioning against larger, regional, and smaller operators in markets with significant exposure to competitors like PSA.

Macro / Industry Outlook:

• Canadian Macro: Structural demand drivers (aging population, downsizing, urban densification) remain intact. Bad debt levels are ~1% (less than half of U.S. levels), indicating a healthy consumer base.
• Tariffs/Headwinds: Tariff uncertainty caused slight hesitation in rental decisions in the GTA, but Alberta markets show steadier trends.
• Operational Expenses: Expectations for expense normalization or modest growth in 2027 against tougher comps, though structural margin expansion (300 bps improvement in clusters with 10+ assets) remains a key driver.
• Currency: Modest currency headwinds noted; constant currency basis showed stronger growth (Same-store revenue +2.1%, NOI +5.1%).

Strategic Initiatives:

• DECA Initiative: Multi-year framework (Disciplined Execution, Compounding Appreciation) driving value through six pillars, including clustering, margin expansion, technology (SmartStop.ai), third-party management (SmartStop 3PM), and joint ventures.
• Canadian Expansion: Strategic investment in Strategic Storage Canada LP ($53M) expands presence by >30% to 70 stores; includes institutional partnership with preferred/mezzanine yields in mid-teens and pipeline access.
• Joint Ventures & M&A: Under contract for $37M in two on-balance sheet acquisitions in core SMA markets. Active 3PM platform aims to achieve capital-light scaling.
• Asset Management: Disposition of non-core properties planned to start early 2027; transactions expected to be 1031 exchanges (no tax implications) with potential to retain management of sold assets for accretion.

Risks and Headwinds to Outlook:

• Execution Risk: Actual results may differ materially from forward-looking statements due to risks described in SEC filings.
• Macroeconomic Sensitivity: Tariff uncertainty and broader economic conditions may impact rental decisions and consumer spending.
• Market Pricing: Potential for some acquired properties to be priced high, affecting immediate accretion.
• Seasonality: Seasonal step-down in occupancy typically occurs post-busy season, though Q3 results showed a shallower decline than typical.
• Regulatory/External: Changes in local regulations or tax laws could impact the 1031 exchange strategy or operating costs.

Management Tone on the Future:

• Confidence: High confidence in value creation through relative outperformance, margin expansion, and FFO growth, citing three consecutive quarters of improved margins.
• Strategic Clarity: Clear emphasis on "clustering" in MSAs with 10+ properties as the primary engine for efficiency; willingness to trade scale for efficiency in non-core markets.
• Balance Sheet: Described balance sheet as being in a "good place" with reduced normalized leverage (5.6x-6.0x); disciplined capital allocation remains a priority.
• Guidance History: Raised FFO, revenue, and NOI guidance four times in 2026; current guidance reflects strong momentum and transaction impact.

Miscellaneous:

• Funding: Priced $200M CAD maple bond at 4.32%; deployed $32.3M bridge capital, primarily to the Canadian JV partner.
• Operational Metrics: Q3 2026 occupancy 92.1% (flat to July 2026); move-in rates down 5.7% QoQ but down only 25-30% in concessions YoY; average length of stay at 32 months.