美國
證券交易委員會
華盛頓特區20549
形式
截至季度
從 到
委員會文件號：
（註冊人章程中規定的確切名稱）
（州或其他司法管轄區 成立或組織） |
(IRS僱主 識別號） |
（主要行政辦公室地址）
(
（註冊人電話號碼）
不適用
（以前的名稱、以前的地址和以前的財年，如果自上次報告以來發生了變化）
根據該法第12（b）條登記的證券：
每個班級的標題 |
交易符號 |
註冊的每個交易所的名稱 |
沒有一 |
沒有一 |
沒有一 |
通過勾選標記標明註冊人是否（1）在過去12個月內（或在註冊人被要求提交此類報告的較短期限內）提交了1934年證券交易法第13或15（d）條要求提交的所有報告，並且（2）在過去90天內是否已遵守此類提交要求。
通過勾選標記檢查註冊人是否已在過去12個月內（或在註冊人被要求提交此類文件的較短期限內）以電子方式提交了根據S-t法規第405條（本章第232.405條）要求提交的所有交互數據文件。
通過複選標記來確定註冊人是大型加速申報人、加速申報人、非加速申報人、小型報告公司還是新興成長型公司。請參閱《交易法》第120條第2條中「大型加速申報人」、「加速申報人」、「小型報告公司」和「新興成長型公司」的定義。
大型加速文件夾 |
☐ |
|
加速編報公司 |
☐ |
☒ |
|
小型上市公司 |
||
|
|
|
新興成長型公司 |
如果是新興成長型公司，請通過勾選標記表明註冊人是否選擇不利用延長的過渡期來遵守根據《交易法》第13（a）條規定的任何新的或修訂的財務會計準則。 ☐
通過勾選標記檢查註冊人是否是空殼公司（定義見《交易法》第120條第2款）。 是的 沒有
截至2024年11月4日，已有
10-Q表
SMARTSTOP SELF SELF SEARCH REIT，Inc.
目錄
|
|
|
頁面 |
|
|
3 |
|
|
|
|
|
第一部分. |
|
5 |
|
|
|
|
|
項目1. |
|
5 |
|
|
|
6 |
|
|
|
7 |
|
|
|
8 |
|
|
|
9 |
|
|
|
11 |
|
|
|
13 |
|
|
|
15 |
|
項目2. |
|
63 |
|
項目3. |
|
84 |
|
項目4. |
|
85 |
|
|
|
|
|
第二部分. |
|
86 |
|
|
|
|
|
項目1. |
|
86 |
|
項目1A. |
|
86 |
|
項目2. |
|
86 |
|
項目3. |
|
86 |
|
項目4. |
|
86 |
|
項目5. |
|
86 |
|
項目6. |
|
86 |
2
有關預防性注釋 前瞻性陳述
SmartStop Self Storing REIT，Inc.的本表格10-Q中包含的某些聲明，除歷史事實外，可被視為經修訂的1933年證券法（「證券法」）第27 A條和經修訂的1934年證券交易法（「交易法」）第21 E條含義內的前瞻性陳述。我們打算將所有此類前瞻性陳述納入《證券法》第27 A條和《交易法》第21 E條（如適用）中所載的前瞻性陳述的適用安全港條款。此類前瞻性陳述通常可以通過我們使用前瞻性術語來識別，例如「可能」、「將」、「預期」、「意圖」、「預期」、「估計」、「相信」、「尋求」、「繼續」或其他類似詞語。
任何此類前瞻性陳述均基於對我們運營所在行業和市場的當前預期、估計和預測，以及我們管理層的信念和假設，並涉及可能嚴重影響我們財務業績的不確定性。此類陳述包括但不限於：（i）有關我們的計劃、戰略、舉措和前景的陳述;以及（ii）有關我們未來運營業績、資本支出和流動性的陳述。此類陳述受到已知和未知的風險和不確定性的影響，這可能導致實際結果與預測或預期存在重大差異，包括但不限於：
3
請讀者不要過度依賴這些前瞻性陳述，這些陳述僅限於本報告向美國證券交易委員會（「SEC」）提交之日，無意作爲我們未來業績的保證。我們無法保證本表格10-Q中包含的任何此類前瞻性陳述的準確性，並且我們不打算公開更新或修改任何前瞻性陳述，無論是由於新信息、未來事件還是其他原因。
有關與我們業務相關的風險和不確定性的更多信息，以及可能導致我們的實際結果與此類前瞻性陳述中表達或暗示的結果存在重大差異的重要因素，請參閱「管理層對財務狀況和經營業績的討論和分析」以及「風險因素」中列出和描述的因素我們不時向SEC提交的文件部分，包括但不限於我們向SEC提交的截至2023年12月31日年度10-k表格年度報告，並由本表格10-Q第二部分第1A項中包含的風險因素進行補充，其副本可從我們的網站www.investors.smartstopselfstorage.com獲取。
4
第一部分融資AL信息
項目1.綜合財務AL聲明（未經審計）
隨附的未經審計綜合資產負債表和相關綜合經營報表、全面收益（損失）、股權和臨時股權以及現金流量中提供的信息反映了管理層認爲公平一致地列報上述綜合財務報表所需的所有調整（包括正常調整和經常性調整）。
隨附的合併財務報表應與本報告中包含的合併財務報表附註一起閱讀，表格10-Q。隨附的合併財務報表還應與截至2023年12月31日年度10-k表格年度報告中包含的合併財務報表及其註釋一起閱讀。我們截至2024年9月30日的三個月和九個月的經營業績不一定表明全年的預期經營業績。
5
SMARTSTOP SELF SELF SEARCH REIT，Inc.和子公司
整合的基礎設施噴槍牀單
(金額以千爲單位，不包括每股和每股數據)
|
|
9月30日， |
|
|
12月31日， |
|
||
資產 |
|
|
|
|
|
|
||
房地產設施： |
|
|
|
|
|
|
||
土地 |
|
$ |
|
|
$ |
|
||
建築 |
|
|
|
|
|
|
||
網站改進 |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
累計折舊 |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
在建工程 |
|
|
|
|
|
|
||
房地產設施，淨值 |
|
|
|
|
|
|
||
現金及現金等價物 |
|
|
|
|
|
|
||
受限現金 |
|
|
|
|
|
|
||
對未合併房地產企業的投資（注4） |
|
|
|
|
|
|
||
管理型房地產投資信託基金的投資和預付款 |
|
|
|
|
|
|
||
遞延稅項資產 |
|
|
|
|
|
|
||
其他資產，淨額 |
|
|
|
|
|
|
||
無形資產，累計攤銷淨額 |
|
|
|
|
|
|
||
商標，扣除累計攤銷 |
|
|
|
|
|
|
||
商譽 |
|
|
|
|
|
|
||
債務發行成本，扣除累計攤銷 |
|
|
|
|
|
|
||
總資產 |
|
$ |
|
|
$ |
|
||
負債、臨時權益和權益 |
|
|
|
|
|
|
||
債務，淨額 |
|
$ |
|
|
$ |
|
||
應付賬款和應計負債 |
|
|
|
|
|
|
||
由於附屬公司 |
|
|
|
|
|
|
||
應付分配 |
|
|
|
|
|
|
||
遞延稅項負債 |
|
|
|
|
|
|
||
總負債 |
|
|
|
|
|
|
||
*(注12) |
|
|
|
|
|
|
||
可贖回普通股 |
|
|
|
|
|
|
||
優先股，$ |
|
|
|
|
|
|
||
A系列可轉換優先股，$ |
|
|
|
|
|
|
||
股本： |
|
|
|
|
|
|
||
SmartStop自助存儲房地產投資信託公司： |
|
|
|
|
|
|
||
A類普通股，$ |
|
|
|
|
|
|
||
t類普通股，美元 |
|
|
|
|
|
|
||
額外實收資本 |
|
|
|
|
|
|
||
分配 |
|
|
( |
) |
|
|
( |
) |
累計赤字 |
|
|
( |
) |
|
|
( |
) |
累計其他綜合收益 |
|
|
( |
) |
|
|
|
|
Total SmartStop自助存儲房地產投資信託公司股權 |
|
|
|
|
|
|
||
我們運營合作伙伴的非控股權益 |
|
|
|
|
|
|
||
其他非控股權益 |
|
|
|
|
|
|
||
非控股權益總額 |
|
|
|
|
|
|
||
權益總額 |
|
|
|
|
|
|
||
負債、臨時股權和股權總額 |
|
$ |
|
|
$ |
|
||
See notes to consolidated financial statements.
6
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except share and per share data)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Self storage rental revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Ancillary operating revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Managed REIT Platform revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reimbursable costs from Managed REITs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Managed REIT Platform expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reimbursable costs from Managed REITs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Intangible amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity in earnings (losses) from |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Equity in earnings (losses) from |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loss on debt extinguishment |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Income tax (expense) benefit |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net (income) loss attributable to |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Less: Distributions to preferred stockholders |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net (loss) income attributable to |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net (loss) income per Class A & Class T share – |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net (loss) income per Class A & Class T share – |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average Class A shares outstanding – |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average Class T shares outstanding – |
|
|
|
|
|
|
|
|
|
|
|
|
||||
See notes to consolidated financial statements.
7
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Amounts in thousands)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation adjustment |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Foreign currency hedge contract gains (losses) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Interest rate swap and cap contract losses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Comprehensive income attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive (income) loss attributable to |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Comprehensive income (loss) attributable to |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
See notes to consolidated financial statements.
8
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY AND TEMPORARY EQUITY
(Unaudited)
(Amounts in thousands, except share and per share data)
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
|
|
Class A |
|
|
Class T |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
Number |
|
|
Common |
|
|
Number |
|
|
Common |
|
|
Additional |
|
|
Distributions |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|
Noncontrolling |
|
|
Total |
|
|
Preferred |
|
|
Redeemable |
|
|||||||||||||
Balance as of June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Changes to redeemable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
Issuance of noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Redemptions of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of restricted stock, |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Distributions ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Distributions to noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Distributions to other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Issuance of shares for |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||||
Equity based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Net loss attributable to |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Net loss attributable to the |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Net income attributable to other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Foreign currency hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Interest rate hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Balance as of September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
See notes to consolidated financial statements.
9
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
|
|
Class A |
|
|
Class T |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
Number |
|
|
Common |
|
|
Number |
|
|
Common |
|
|
Additional |
|
|
Distributions |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|
Noncontrolling |
|
|
Total |
|
|
Preferred |
|
|
Redeemable |
|
|||||||||||||
Balance as of June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||
Changes to redeemable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
Redemptions of common stock |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Forfeitures of restricted stock |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Distributions ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Distributions to noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Distributions to other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Issuance of shares for |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||||
Equity based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Net income attributable to |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Net income attributable to the |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Net income attributable to other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Foreign currency hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Interest rate hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Balance as of September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||
See notes to consolidated financial statements.
10
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
|
|
Class A |
|
|
Class T |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
Number |
|
|
Common |
|
|
Number |
|
|
Common |
|
|
Additional |
|
|
Distributions |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|
Noncontrolling |
|
|
Total |
|
|
Preferred |
|
|
Redeemable |
|
|||||||||||||
Balance as of December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Tax withholding (net settlement) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Changes to redeemable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
Issuance of noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Redemptions of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of restricted stock, |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|||
Distributions ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Distributions to noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Distributions to other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Issuance of shares for |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||||
Equity based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Net loss attributable to |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Net loss attributable to the |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Net income attributable to other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
- |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Foreign currency hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Interest rate hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Balance as of September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
See notes to consolidated financial statements.
11
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
|
|
Class A |
|
|
Class T |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
Number |
|
|
Common |
|
|
Number |
|
|
Common |
|
|
Additional |
|
|
Distributions |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|
Noncontrolling |
|
|
Total |
|
|
Preferred |
|
|
Redeemable |
|
|||||||||||||
Balance as of December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||
Offering Costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Tax withholding (net settlement) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Changes to redeemable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
Redemptions of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of restricted stock, |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Distributions ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Distributions to noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Distributions to other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Issuance of shares for |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||||
Equity based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Net loss attributable to |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Net income attributable to the |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Net income attributable to other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Foreign currency hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Interest rate hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Balance as of September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||
See notes to consolidated financial statements.
12
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
|
|
Nine Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Change in deferred tax assets and liabilities |
|
|
|
|
|
( |
) |
|
Accretion of fair market value adjustment of debt |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Loss on extinguishment of debt |
|
|
|
|
|
|
||
Equity based compensation expense |
|
|
|
|
|
|
||
Non-cash adjustment from equity method investments in joint ventures |
|
|
|
|
|
|
||
Non-cash adjustment from equity method investments in Managed REITs |
|
|
|
|
|
|
||
Accretion of financing fee revenues |
|
|
( |
) |
|
|
( |
) |
Unrealized foreign currency and derivative (gains) losses |
|
|
|
|
|
( |
) |
|
Issuance of noncontrolling interest in SST VI Advisor |
|
|
|
|
|
|
||
Non-cash adjustments for sponsor funding reduction |
|
|
|
|
|
|
||
Increase (decrease) in cash from changes in assets and liabilities: |
|
|
|
|
|
|
||
Other assets, net |
|
|
|
|
|
|
||
Accounts payable and accrued liabilities |
|
|
|
|
|
|
||
Managed REITs receivables |
|
|
( |
) |
|
|
( |
) |
Due to affiliates |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchase of real estate |
|
|
( |
) |
|
|
( |
) |
Additions to real estate and construction in process |
|
|
( |
) |
|
|
( |
) |
Insurance proceeds on insured property damage |
|
|
|
|
|
|
||
Investments in unconsolidated joint ventures, net |
|
|
( |
) |
|
|
( |
) |
Deposits on acquisition of real estate |
|
|
( |
) |
|
|
( |
) |
Capital distributions from Managed REITs |
|
|
|
|
|
|
||
SSGT III loan funding |
|
|
|
|
|
( |
) |
|
SSGT III loan repayment |
|
|
|
|
|
|
||
SSGT III Bridge loan funding |
|
|
( |
) |
|
|
|
|
SSGT III Bridge loan repayment |
|
|
|
|
|
|
||
SST VI Mezzanine loan funding |
|
|
|
|
|
( |
) |
|
SST VI Mezzanine loan repayment |
|
|
|
|
|
|
||
SST VI promissory note funding |
|
|
( |
) |
|
|
( |
) |
SST VI preferred equity investment |
|
|
|
|
|
( |
) |
|
SST VI preferred equity investment redemption |
|
|
|
|
|
|
||
Purchase of SST VI Subordinated Class C Units |
|
|
( |
) |
|
|
|
|
Settlement of foreign currency hedges |
|
|
|
|
|
|
||
Purchase of other assets |
|
|
( |
) |
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
Gross proceeds from issuance of non-credit facility debt |
|
|
|
|
|
|
||
Repayment of non-credit facility debt |
|
|
( |
) |
|
|
( |
) |
Scheduled principal payments on non-credit facility debt |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of credit facility debt |
|
|
|
|
|
|
||
Repayment of credit facility debt |
|
|
( |
) |
|
|
( |
) |
Debt issuance costs |
|
|
( |
) |
|
|
|
|
Offering costs |
|
|
( |
) |
|
|
( |
) |
Redemption of common stock |
|
|
( |
) |
|
|
( |
) |
Restricted stock withholding for payroll taxes |
|
|
( |
) |
|
|
( |
) |
Distributions paid to preferred stockholders |
|
|
( |
) |
|
|
( |
) |
Distributions paid to common stockholders |
|
|
( |
) |
|
|
( |
) |
Distributions paid to noncontrolling interests in our OP |
|
|
( |
) |
|
|
( |
) |
Distributions paid to other noncontrolling interests |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
Impact of foreign exchange rate changes on cash and restricted cash |
|
|
( |
) |
|
|
( |
) |
Change in cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents, and restricted cash beginning of year |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash end of year |
|
$ |
|
|
$ |
|
||
13
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
(Amounts in thousands)
Supplemental disclosures and non-cash transactions: |
|
|
|
|
|
|
||
Cash paid for interest, net of capitalized interest |
|
$ |
|
|
$ |
|
||
Cash paid for income taxes |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of noncash activities: |
|
|
|
|
|
|
||
Deposits applied to the purchase of real estate |
|
$ |
|
|
$ |
|
||
Redemption of common stock included in accounts payable |
|
$ |
|
|
$ |
|
||
Distributions payable |
|
$ |
|
|
$ |
|
||
Real estate and construction in process included in accounts payable |
|
$ |
|
|
$ |
|
||
Issuance of shares pursuant to distribution reinvestment plan |
|
$ |
|
|
$ |
|
||
Earnest deposits on acquisitions assigned to the Managed REITs, |
|
$ |
|
|
$ |
|
||
See notes to consolidated financial statements.
14
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Note 1. Organization
SmartStop Self Storage REIT, Inc., a Maryland corporation (the “Company”), is a self-managed and fully-integrated self storage real estate investment trust (“REIT”), formed on
We acquire and own self storage facilities; we also operate self storage facilities owned by us as well as those owned by the entities sponsored by us. As of September 30, 2024, we wholly-owned
As discussed herein, we, through our subsidiaries, currently serve as the sponsor of Strategic Storage Trust VI, Inc., a publicly-registered non-traded REIT (“SST VI”), and Strategic Storage Growth Trust III, Inc., a private REIT (“SSGT III” and together with SST VI and any future sponsored REITs, the “Managed REITs”). We also served as the sponsor of Strategic Storage Trust IV, Inc., a public non-traded REIT (“SST IV”), through March 17, 2021, and Strategic Storage Growth Trust II, Inc., a private REIT (“SSGT II”), through June 1, 2022, the dates on which we closed on the mergers of SST IV (the “SST IV Merger”) and SSGT II (the “SSGT II Merger”), respectively, as defined in Note 3 – Real Estate Facilities. Prior to March 17, 2021 and June 1, 2022, SST IV and SSGT II, respectively, were also included in the “Managed REITs.”
We operate the properties owned by the Managed REITs, which together with one other self storage property we manage, as of September 30, 2024, represented
SmartStop OP, L.P. (the “Operating Partnership”) owns, directly or indirectly through one or more subsidiaries, all of the self storage properties that we own. As of September 30, 2024, we owned approximately
In November 2016, we filed a Registration Statement on Form S-3 with the SEC, which registered $
As of September 30, 2024, we had sold approximately
15
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC.
Principles of Consolidation
Our financial statements, and the financial statements of our Operating Partnership, including its wholly-owned subsidiaries, are consolidated in the accompanying consolidated financial statements. The portion of these entities not wholly-owned by us is presented as noncontrolling interests. All intercompany accounts and transactions have been eliminated in consolidation.
Consolidation Considerations
Current accounting guidance provides a framework for identifying a variable interest entity (“VIE”) and determining when a company should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements. In general, a VIE is an entity or other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. Generally, a VIE should be consolidated if a party with an ownership, contractual, or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and noncontrolling interest at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest.
Our Operating Partnership is deemed to be a VIE and is consolidated by us as we are currently the primary beneficiary. Our sole significant asset is our investment in our Operating Partnership; as a result, substantially all of our assets and liabilities represent those assets and liabilities of our Operating Partnership and its wholly-owned subsidiaries.
Pacific Oak Holding Group, LLC, the parent company of Pacific Oak Capital Markets, LLC, the dealer manager for the public offering of SST VI, is a
As of September 30, 2024 and December 31, 2023, we were not a party to any other material contracts or interests that would be deemed variable interests in VIEs other than our joint ventures with SmartCentres, our Nantucket Joint Venture (as defined below), and our equity investments in the Managed REIT's, which are all accounted for under the equity method of accounting (see Note 4 – Investments in Unconsolidated Real Estate Ventures and Note 10 – Related Party Transactions for additional information), and our joint venture programs through which we offer our tenant insurance, tenant protection plans or similar programs (the “Tenant Protection Programs”) with SST VI, SSGT III, and SSGT II (through June 1, 2022) which are consolidated.
Equity Investments
16
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Investments in and Advances to Managed REITs
As of September 30, 2024 and December 31, 2023, we had both equity and debt investments in the Managed REITs; such amounts are included in Investments in and advances to Managed REITs within our consolidated balance sheets. We account for the equity investments using the equity method of accounting as we have the ability to exercise significant influence, but not control, over the Managed REITs’ operating and financial policies through our advisory and property management agreements with the respective Managed REITs.
We record the interest and related financing fees on our debt investments on the accrual basis and such income was previously included in Other, net, within our consolidated statements of operations. Such income has been reclassified to Interest income within the consolidated statements of operations included herein. While we do make loans periodically, we do not consider that to be part of our primary operating activity, and therefore do not report income from loans as operating income.
See Note 10 – Related Party Transactions for additional information.
Noncontrolling Interests in Consolidated Entities
We account for the noncontrolling interests in our Operating Partnership and the noncontrolling interests in SST VI Advisor and our Tenant Protection Programs joint ventures with SST VI, SSGT III, and SSGT II (prior to the SSGT II Merger on June 1, 2022) in accordance with the related accounting guidance.
Use of Estimates
Cash and Cash Equivalents
We consider all short-term, highly liquid investments that are readily convertible to cash with a maturity of three months or less at the time of purchase to be cash equivalents.
We may maintain cash and cash equivalents in financial institutions in excess of insured limits. In an effort to mitigate this risk, we only invest in or through major financial institutions.
Restricted Cash
17
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Real Estate Purchase Price Allocation and Treatment of Acquisition Costs
We account for asset acquisitions in accordance with GAAP which requires that we allocate the purchase price of a property to the tangible and intangible assets acquired and the liabilities assumed based on their relative fair values as of the date of acquisition. This guidance requires us to make significant estimates and assumptions, including fair value estimates, which requires the use of significant unobservable inputs as of the acquisition date. We engage independent third-party valuation specialists to assist in the determination of significant estimates and market-based assumptions used in the valuation models.
The value of the tangible assets, consisting of land and buildings, is determined as if vacant. Substantially all of the leases in place at acquired properties are at market rates, as the majority of the leases are month-to-month contracts. We also consider whether in-place, market leases represent an intangible asset. We recorded approximately $
Allocation of purchase price to acquisitions of portfolios of facilities are allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates which take into account the relative size, age, and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available.
Acquisitions that do not meet the definition of a business, as defined under current GAAP, are accounted for as asset acquisitions. During the nine months ended September 30, 2024 and 2023, our property acquisitions did not meet the definition of a business. To date, our acquisitions have generally not met the definition of a business because substantially all of the fair value was concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets) and because the acquisitions did not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. As a result, once an acquisition is deemed probable, acquisition related transaction costs are capitalized rather than expensed.
During the three months ended September 30, 2024 and 2023, we expensed approximately $
During the nine months ended September 30, 2024 and 2023, we expensed approximately $
Management monitors events and changes in circumstances that could indicate that the carrying amounts of our real property assets may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of the assets may not be recoverable, we will assess the recoverability of the assets by determining whether the carrying value of the real property assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, we will adjust the value of the real property assets to the fair value and recognize an impairment loss. For the nine months ended September 30, 2023,
Casualty Insurance Recoveries
In the event of a wind storm, flood, fire or other such event causing property damage, we estimate the carrying value of the damaged property and record a corresponding casualty loss. If we determine that an insurance recovery is probable, we record such estimated recovery as a receivable up to the amount of the casualty loss. Any amount of insurance recovery for such loss in excess of the amount of the casualty loss recorded is considered a gain contingency and is recognized when the claim is fully settled.
Goodwill Valuation
We initially recorded goodwill as a result of the Self Administration Transaction (as defined in Note 10 – Related Party Transactions), which occurred in 2019. Goodwill is recorded as the difference, if any, between the aggregate consideration
18
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
paid for an acquisition and the fair value of the net tangible assets and other intangible assets acquired. Goodwill is allocated to various reporting units, as applicable, and is not amortized. We perform an annual qualitative impairment assessment as of December 31 for goodwill; between annual tests we evaluate the recoverability of goodwill whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be fully recoverable. If circumstances indicate the carrying amount may not be fully recoverable, we perform a quantitative analysis to compare the fair value of each reporting unit to its respective carrying amount. If the carrying amount of goodwill exceeds its fair value, an impairment charge will be recognized.
Trademarks
In connection with the Self Administration Transaction, we recorded the fair value associated with the
Trademarks are based on the value of our brands. Trademarks are valued using the relief from royalty method, which presumes that without ownership of such trademarks, we would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, we avoid any such payments and record the related intangible fair value of our ownership of the brand name.
As of September 30, 2024 and December 31, 2023, $
Revenue Recognition
Self Storage Operations
Management believes that all of our leases are operating leases. Rental income is recognized in accordance with the terms of the leases, which generally are month-to-month. Revenues from any long-term operating leases are recognized on a straight-line basis over the term of the lease. The excess of rents received over amounts contractually due pursuant to the underlying leases is included in accounts payable and accrued liabilities in our consolidated balance sheets, and contractually due but unpaid rent is included in other assets.
In accordance with ASC 842, we review the collectability of lease payments on an ongoing basis. We consider collectability indicators when analyzing accounts receivable and historical bad debt levels, including current economic trends, all of which assist in evaluating the probability of outstanding and future rental income collections.
Additionally, we earn ancillary revenue from fees we receive related to providing tenant insurance or tenant protection plans to customers at our properties through our Tenant Protection Programs, and to a lesser extent, through the sale of various moving and packing supplies such as locks and boxes. We recognize such revenue in the Ancillary operating revenue line within our consolidated statements of operations as the services are performed and as the goods or services are delivered.
19
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Managed REIT Platform
We earn property management and asset management revenue, pursuant to the respective property management and advisory agreement contracts, in connection with providing services to the Managed REITs. We have determined under ASC 606 – Revenue from Contracts with Customers (“ASC 606”), that the performance obligation for the property management services and asset management services are satisfied as the services are rendered. While we are compensated for our services on a monthly basis, these services represent a series of distinct daily services in accordance with ASC 606. Such revenue is recorded in the Managed REIT Platform revenue line within our consolidated statements of operations.
The Managed REITs’ advisory agreements also provide for reimbursement to us of our direct and indirect costs of providing administrative and management services to the Managed REITs. These reimbursements include costs incurred in relation to organization and offering services provided to the Managed REITs and the reimbursement of salaries, bonuses, and other expenses related to benefits paid to our employees while performing services for the Managed REITs. The Managed REITs’ property management agreements also provide reimbursement to us for the property manager’s costs of managing the properties. Reimbursable costs include wages and salaries and other expenses that arise in operating, managing and maintaining the Managed REITs’ properties.
Under ASC 606, direct reimbursement of such costs does not represent a separate performance obligation from our obligation to perform property management and asset management services. The reimbursement income is considered variable consideration, and is recognized as the costs are incurred, subject to limitations on the Managed REIT Platform’s ability to incur offering costs or limitations imposed by the advisory agreements. We have elected to separately record such revenue in the Reimbursable costs from Managed REITs line within our consolidated statements of operations.
Additionally, we earn revenue in connection with our Tenant Protection Programs joint ventures with our Managed REITs. We also earn development and construction management revenue from services we provide in connection with the project design, coordination and oversight of development and certain capital improvement projects undertaken by the Managed REITs. We recognize such revenue in the Managed REIT Platform revenue line within our consolidated statements of operations as the services are performed or delivered. See Note 10 – Related Party Transactions, for additional information regarding revenue generated from our Managed REIT Platform.
Sponsor Funding Agreement
On November 1, 2023, SmartStop REIT Advisors, LLC, a subsidiary of our Operating Partnership, entered into a sponsor funding agreement (the “Sponsor Funding Agreement”) with SST VI and Strategic Storage Operating Partnership VI, L.P. (“SST VI OP”) in connection with certain changes to the public offering of SST VI (see Note 10 – Related Party Transactions for additional information).
Pursuant to the Sponsor Funding Agreement, SmartStop, through a wholly-owned subsidiary, is required to fund the payment of the front-end sales load for the sale of SST VI’s class Y and class Z shares sold in its offering. In exchange, SmartStop receives a number of series C convertible units (“Series C Units”) in SST VI OP calculated as the dollar amount of such funding divided by the then-current offering price, which was $
In accordance with ASC 606, the amount by which our funding exceeds the fair value of the Series C Units received is accounted for as a payment to a customer and is therefore recorded as a reduction to the transaction price for the services we provide to such customer. Each payment is initially included in the Other assets line-item in our consolidated balance sheet and subsequently recorded as a reduction of Managed REIT Platform revenues ratably over the remaining estimated life of our management contracts with SST VI.
20
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Balance as of December 31, 2022 |
|
$ |
|
|
Amounts incurred |
|
|
|
|
Recorded sponsor funding reduction |
|
|
( |
) |
Balance as of December 31, 2023 |
|
$ |
|
|
Amounts incurred |
|
$ |
|
|
Recorded sponsor funding reduction |
|
|
( |
) |
Balance as of September 30, 2024 |
|
$ |
|
Allowance for Doubtful Accounts
Tenant accounts receivable is reported net of an allowance for doubtful accounts. Management records this general allowance estimate based upon a review of the current status of accounts receivable. It is reasonably possible that management’s estimate of the allowance will change in the future. As of September 30, 2024 and December 31, 2023, approximately $
Advertising Costs
Advertising costs are expensed in the period in which the cost is incurred and are included in property operating expenses and general and administrative lines within our consolidated statements of operations, depending on the nature of the expense.
We incurred advertising costs of approximately $
We incurred advertising costs of approximately $
Real Estate Facilities
Depreciation of Real Property Assets
Our management is required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives.
Depreciation of our real property assets is charged to expense on a straight-line basis over the estimated useful lives
as follows:
Description |
|
Standard Depreciable Life |
Land |
|
|
Buildings |
|
|
Site Improvements |
|
21
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Depreciation of Personal Property Assets
Intangible Assets
We have allocated a portion of our real estate purchase price to in-place lease intangibles, which amortize on a straight-line basis over the estimated future benefit period. Additionally, we have other contract related intangible assets. As of September 30, 2024, the gross amount of the intangible assets was approximately $
The total estimated future amortization expense related to intangible assets for the years ending December 31, 2024, 2025, 2026, 2027, 2028, and thereafter is approximately $
We evaluate whether any triggering events or changes in circumstances have occurred subsequent to our annual impairment test that would indicate an impairment condition may exist. If any change in circumstance or triggering event occurs, and results in a significant impact to our revenue and profitability projections, or any significant assumption in our valuations methods is adversely impacted, the impact could result in an impairment charge in the future.
Debt Issuance Costs
The net carrying value of costs incurred in connection with obtaining non revolving debt are presented on the balance sheet as a deduction from debt; amounts incurred related to obtaining revolving debt are included in the debt issuance costs line on our consolidated balance sheet. See Note 5 – Debt for additional information. Debt issuance costs are amortized using the effective interest method.
As of September 30, 2024 the gross amount of debt issuance costs related to our revolving credit facility totaled approximately $
Foreign Currency Translation
For non-U.S. functional currency operations, assets and liabilities are translated to U.S. dollars at current exchange rates, as of the reporting date. Revenues and expenses are translated at the average rates for the period. All adjustments related to amounts classified as long term net investments are recorded in accumulated other comprehensive income (loss) as a separate component of equity. Transactions denominated in a currency other than the functional currency of the related operation are recorded at rates of exchange in effect at the date of the transaction. Changes in not classified as long term are recorded in other income (expense) and represented a gain of approximately $
22
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Redeemable Common Stock
We adopted a share redemption program (“SRP”) that enables stockholders to sell their shares to us in limited circumstances.
We have evaluated the terms of our SRP, and we classify amounts that are redeemable under the SRP as redeemable common stock in the accompanying consolidated balance sheets. The maximum amount of redeemable shares under our SRP is limited to the net proceeds from the distribution reinvestment plan. However, accounting guidance states that determinable amounts that can become redeemable should be presented as redeemable when such amount is known. Therefore, the net proceeds from the distribution reinvestment plan are considered to be temporary equity and are presented as redeemable common stock in the accompanying consolidated balance sheets.
In addition, current accounting guidance requires, among other things, that financial instruments that represent a mandatory obligation of us to repurchase shares be classified as liabilities and reported at settlement value. When we determine we have a mandatory obligation to repurchase shares under the SRP, we reclassify such obligations from temporary equity to a liability based upon their respective settlement values.
Accounting for Equity Awards
We issue equity based awards in two forms: (1) restricted stock awards consisting of shares of our common stock and (2) long-term incentive plan units of our Operating Partnership (“LTIP Units”), both of which may be issued subject to either time based vesting criteria or performance based vesting criteria restrictions. For time based awards granted which contain a graded vesting schedule, compensation cost is recognized as an expense on a straight-line basis over the requisite service period as if the award was, in substance, a single award. For performance based awards, compensation cost is recognized over the requisite service period if and when we determine the performance condition is probable of being achieved. We record the cost of such equity based awards based on the grant date fair value, and have elected to record forfeitures as they occur.
Employee Benefit Plan
Fair Value Measurements
Under GAAP, we are required to measure certain financial instruments at fair value on a recurring basis. In addition, we are required to measure other financial instruments and balances at fair value on a non-recurring basis. Fair value is defined by the accounting standard for fair value measurements and disclosures as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels. The following summarizes the three levels of inputs and hierarchy of fair value we use when measuring fair value:
23
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level that is significant to the fair value measurement in its entirety.
The accounting guidance for fair value measurements and disclosures provides a framework for measuring fair value and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In determining fair value, we will utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment will be necessary to interpret Level 2 and 3 inputs in determining fair value of our financial and non-financial assets and liabilities. Accordingly, there can be no assurance that the fair values we will present will be indicative of amounts that may ultimately be realized upon sale or other disposition of these assets.
Financial and non-financial assets and liabilities measured at fair value on a non-recurring basis in our consolidated financial statements consist of real estate and related liabilities assumed related to our acquisitions along with the assets and liabilities described in Note 3 – Real Estate Facilities. The fair values of these assets and liabilities were determined as of the acquisition dates using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) market approach, which considers comparable sales activity. Additionally, certain such assets and liabilities are required to be fair valued periodically or valued pursuant to ongoing fair value requirements and impairment analyses and have been valued subsequently utilizing the same techniques noted above. In general, we consider multiple valuation techniques when measuring fair values. However, in certain circumstances, a single valuation technique may be appropriate. All of the fair values of the assets and liabilities as of the acquisition dates were derived using Level 3 inputs.
The Series C Units (categorized within Level 3 of the fair value hierarchy) acquired in connection with the Sponsor Funding Agreement are measured at fair value at the time of acquisition, and are accounted for using the equity method of accounting as described in Note 10 – Related Party Transactions. The fair value of these units were determined upon purchase using a valuation model which considered the following key assumptions: the projected distribution rate of SST VI, implied share price volatility, risk free interest rate, current estimated net asset value, and the estimated effective life of the Series C Units.
The carrying amounts of cash and cash equivalents, restricted cash, other assets, accounts payable and accrued liabilities, distributions payable and amounts due to affiliates approximate fair value (categorized within Level 1 of the fair value hierarchy).
The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The fair value of our fixed and variable rate debt was estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities (categorized within Level 2 of the fair value hierarchy). The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. As of September 30, 2024 and December 31, 2023, we believe the fair value of our variable rate debt was reasonably estimated at their notional amounts as there have been minimal changes to the fixed spread portion of interest rates for similar loans observed in the market, and as the variable portion of our interest rates fluctuate with the associated market indices. The table below summarizes the carrying amounts and fair values of our fixed rate debt which are not carried at fair value as of September 30, 2024 and December 31, 2023 (in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
||||
Fixed Rate Secured Debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
During the nine months ended September 30, 2024 and 2023, we held interest rate cash flow hedges and foreign currency net investment hedges to hedge our interest rate and foreign currency exposure (See Notes 5 – Debt and 7 – Derivative Instruments). The fair value analyses of these instruments reflect the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities, as applicable. The fair value of interest rate swap and cap agreements are determined using
24
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
widely accepted valuation techniques, including discounted cash flow analyses on the expected cash flows of the instruments. Our fair values of our net investment hedges are based primarily on the change in the spot rate at the end of the period as compared with the strike price at inception.
To comply with GAAP, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of derivative contracts for the effect of non-performance risk, we consider the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although we had determined that the majority of the inputs used to value our derivatives were within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilized Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparties. However, through September 30, 2024, we had assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy.
The table below presents the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
|
|
Fair Value Measurements at September 30, 2024 |
|
|||||||||
Description |
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|
Significant unobservable Inputs |
|
|||
Other assets - interest rate derivatives |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Accounts payable and accrued |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Accounts payable and accrued |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
Fair Value Measurements at December 31, 2023 |
|
|||||||||
Description |
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|
Significant unobservable Inputs |
|
|||
Other assets - interest rate derivatives |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Accounts payable and accrued |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Derivative Instruments and Hedging Activities
We record all derivatives on our balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we elect not to apply hedge accounting.
For derivatives designated as net investment hedges, the effective portion of changes in the fair value of the derivatives are reported in accumulated other comprehensive income (loss). The ineffective portion of the change in fair value of the
25
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Income Taxes
We made an election to be taxed as a Real Estate Investment Trust (“REIT”), under Sections 856 through 860 of the Code, commencing with our taxable year ended December 31, 2014. To qualify as a REIT, we must continue to meet certain organizational and operational requirements, including a requirement to distribute at least
For income tax purposes, distributions to common stockholders are characterized as ordinary dividends, capital gain dividends, or as nontaxable distributions. To the extent that we make a distribution in excess of our current or accumulated earnings and profits, the distribution will be a non-taxable return of capital, reducing the tax basis in each U.S. stockholder’s shares, and the amount of each distribution in excess of a U.S. stockholder’s tax basis in its shares will be taxable as gain realized from the sale of its shares.
As a REIT, we generally will not be subject to U.S. federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to U.S. federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for four years following the year during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for U.S. federal income tax purposes.
Even if we continue to qualify for taxation as a REIT, we may be subject to certain state, local, and foreign taxes on our income and property, and federal income and excise taxes on our undistributed income.
We filed an election to treat our primary taxable REIT subsidiary (“TRS”) as a taxable REIT subsidiary effective January 1, 2014. In general, our TRS performs additional services for our customers and provides the advisory and property management services to the Managed REITs and otherwise generally engages in non-real estate related business. The TRS is subject to corporate federal and state income tax.
We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes a change in our judgment about expected future tax consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes a change in our judgment about the realizability of the related deferred tax asset, is included in the tax provision when such changes occur.
Uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment. Under ASC Topic 740, tax positions are evaluated for recognition using a more–likely–than–not threshold, and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred. As of September 30, 2024 and December 31, 2023, the Company had no uncertain tax positions. Income taxes payable are classified within accounts payable and accrued liabilities in the consolidated balance sheets. The tax years 2020-2023 remain open to examination by the major taxing jurisdictions to which we are subject.
26
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Concentration
Segment Reporting
Our business is composed of
Convertible Preferred Stock
We classify our Series A Convertible Preferred Stock (as defined in Note 6 – Preferred Equity) on our consolidated balance sheets using the guidance in ASC 480-10-S99. Our Series A Convertible Preferred Stock can be redeemed by us on or after the fifth anniversary of its issuance (October 29, 2024), or if certain events occur, such as the listing of our common stock on a national securities exchange, a change in control, or if a redemption would be required to maintain our REIT status. Additionally, if we do not maintain our REIT status the holder can require redemption. As the shares are contingently redeemable, and under certain circumstances not solely within our control, we have classified our Series A Convertible Preferred Stock as temporary equity.
We have analyzed whether the conversion features in our Series A Convertible Preferred Stock should be bifurcated under the guidance in ASC 815-10 and have determined that bifurcation is not necessary.
Per Share Data
Basic earnings per share attributable to our common stockholders for all periods presented are computed by dividing net income (loss) attributable to our common stockholders by the weighted average number of common shares outstanding during the period, excluding unvested restricted stock.
Diluted earnings per share is computed by including the dilutive effect of the conversion of all potential common stock equivalents (which includes unvested restricted stock, Series A Convertible Preferred Stock, Class A and Class A-1 OP Units, and unvested LTIP Units) and accordingly, as applicable, adjusting net income to add back any changes in earnings that reduce earnings per common share in the period associated with the potential common stock equivalents.
27
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The computation of earnings per common share is as follows for the periods presented (amounts presented in thousands, except share and per share data):
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Net (income) loss attributable to |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net income (loss) attributable to |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Less: Distributions to preferred |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Less: Distributions to participating |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net (loss) income attributable to |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net (loss) income attributable to |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Average number of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested LTIP Units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested restricted stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Average number of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The following table presents the weighted average Series A Convertible Preferred Stock, Class A and Class A-1 OP Units, unvested LTIP Units, and unvested restricted stock awards, that were excluded from the computation of diluted earnings per share above as their effect would have been antidilutive for the respective periods, and was calculated using the two-class, treasury stock or if-converted method, as applicable:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
Equivalent Shares |
|
|
Equivalent Shares |
|
|
Equivalent Shares |
|
|
Equivalent Shares |
|
||||
Series A Convertible Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class A and Class A-1 OP Units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested LTIP Units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested restricted stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
28
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Recently Issued Accounting Guidance
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280).” The guidance in ASU 2023-07 was issued to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendment becomes effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Other than the required incremental disclosures, we do not expect it to have a material impact on our consolidated financial statements and related disclosures. We expect to adopt this ASU for the annual report on Form 10-K for the year ending December 31, 2024.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740).” The guidance in ASU 2023-09 was issued to provide investors with information to better assess how an entity’s operations and related tax risks, tax planning and operational opportunities affect its tax rate and prospects for future cash flows. The amendment becomes effective for fiscal years beginning after December 15, 2024. We are currently evaluating the impact upon adoption of the new standard on our consolidated financial statements and related disclosures.
In March 2024, the FASB issued ASU 2024-01, “Compensation–Stock Compensation (Topic 718).” ASU 2024-01 adds illustrative guidance in ASC 718 and was issued to reduce complexity in determining whether a profits interest award is subject to the guidance in Topic 718, and to reduce existing diversity in practice. ASU 2024-01 clarifies how to determine whether profits interest and similar awards should be accounted for as a share-based payment arrangement under ASC 718, or as a cash bonus or profit-sharing arrangement under ASC 710 or other guidance, and applies to all reporting entities that account for profits interest awards as compensation to employees or non-employees. The amendment becomes effective for fiscal years beginning after December 15, 2024, including interim periods within those annual periods, with early adoption permitted. The amendments should be applied either retrospectively to all prior periods presented in the financial statements, or prospectively to profits interest and similar awards granted or modified on or after the adoption date. We are currently assessing the impact upon adoption of the new standard on our consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses (Topic 220).” The guidance in ASU 2024-03 was issued to provide investors with more disaggregated information about an entity’s expenses. The amendment becomes effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. We are currently evaluating the impact upon adoption of the new standard on our consolidated financial statements and related disclosures.
Note 3. Real Estate
Real estate |
|
|
|
|
Balance at December 31, 2023 |
|
$ |
|
|
Impact of foreign exchange rate |
|
|
( |
) |
Improvements and additions |
|
|
|
|
Casualty loss (1) |
|
|
( |
) |
Acquisitions |
|
|
|
|
Balance at September 30, 2024 |
|
$ |
|
|
Accumulated depreciation |
|
|
|
|
Balance at December 31, 2023 |
|
$ |
( |
) |
Casualty loss (1) |
|
|
|
|
Depreciation expense |
|
|
( |
) |
Impact of foreign exchange rate |
|
|
|
|
Balance at September 30, 2024 |
|
$ |
( |
) |
29
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
(1) Hurricane Helene caused record flooding in late September 2024 in Asheville, North Carolina. One of our
SSGT II Merger
On June 1, 2022, we closed on our merger with SSGT II (the “SSGT II Merger”). On such date, (the “SSGT II Merger Date”), we acquired all of the real estate owned by SSGT II, consisting primarily of (i)
SST IV Merger
On March 17, 2021, we closed on our merger with SST IV (the “SST IV Merger”). On such date, (the “SST IV Merger Date”), we acquired all of the real estate owned by SST IV, consisting primarily of (i)
Self Storage Facility Acquisitions
On April 10, 2024, we purchased a self storage facility located in Colorado Springs, Colorado (the "Colorado Springs II Property"). The purchase price for the Colorado Springs II Property was approximately $
On July 16, 2024, we purchased a self storage facility located in Spartanburg, South Carolina (the "Spartanburg Property"). The purchase price for the Spartanburg Property was approximately $
On September 24, 2024, we purchased a self storage facility located in Miami, Florida (the "Miami Property"). The purchase price for the Miami Property was approximately $
The following table summarizes our purchase price allocation for our acquisitions during the nine months ended September 30, 2024 (in thousands):
Acquisition |
|
Acquisition |
|
Real Estate |
|
|
Intangibles |
|
|
Total(1) |
|
|
2024 |
|
|
2024 |
|
|
|||||
Colorado Springs II |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
Spartanburg |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Miami |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||
30
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
(1)
(2)
(3)
Potential Acquisitions
As of November 13, 2024, we, through our wholly-owned subsidiaries were party to four purchase and sale agreements with unaffiliated third parties for the acquisition of self storage facilities located in the United States and Canada. The total purchase price for these properties is approximately $
We may assign some or all of the above purchase and sale agreements to one or more of our Managed REITs.
31
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Note 4. Investments in Unconsolidated Real Estate Ventures
Nantucket Joint Venture
On July 18, 2024, we entered into a joint venture arrangement with an unaffiliated third party to develop a self storage property in Nantucket, Massachusetts (the "Nantucket Joint Venture"). On such date we agreed to purchase a minority ownership in the property of approximately
SmartCentres Joint Ventures
As a result of the SST IV Merger, we acquired
On May 25, 2022, we, as
On January 12, 2023, we as
These joint venture agreements are with a subsidiary of SmartCentres, an unaffiliated third party, to acquire, develop, and operate self storage facilities.
For the three months ended September 30, 2024 and 2023, we recorded net aggregate loss of approximately $
For the nine months ended September 30, 2024 and 2023, we recorded net aggregate loss of approximately $
The following table summarizes our
JV Property |
|
Date Real Estate Venture Became Operational |
|
|
Carrying Value |
|
|
Carrying Value |
|
||
Dupont (1)(6) |
|
|
|
$ |
|
|
$ |
|
|||
East York (2)(6) |
|
|
|
|
|
|
|
|
|||
Brampton (2)(6) |
|
|
|
|
|
|
|
|
|||
Vaughan (2)(6) |
|
|
|
|
|
|
|
|
|||
Oshawa (2)(6) |
|
|
|
|
|
|
|
|
|||
Scarborough (2)(5) |
|
|
|
|
|
|
|
|
|||
Aurora (1)(5) |
|
|
|
|
|
|
|
|
|||
Kingspoint (2)(5) |
|
|
|
|
|
|
|
|
|||
Whitby (4) |
|
|
|
|
|
|
|
|
|||
Markham (1)(7) |
|
|
|
|
|
|
|
|
|||
Regent (3) |
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
$ |
|
|
$ |
|
||
32
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
RBC JV Term Loan II
On July 17, 2024, three of our joint ventures with SmartCentres closed on a $
We and SmartCentres each serve as a full recourse guarantor with respect to
The net proceeds from the RBC JV Term Loan II, in combination with cash on hand were used to fully repay the allocated loan amounts of approximately $
As of September 30, 2024, there was approximately $
RBC JV Term Loan
On November 3, 2023, five of our joint ventures with SmartCentres closed on a $
We and SmartCentres each serve as a full recourse guarantor with respect to
33
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
which we and SmartCentres have each agreed to indemnify the other party with respect to any claims arising from a breach or default of the other party pursuant to the RBC JV Term Loan or the Separate Credit Facilities.
The majority of net proceeds from the RBC JV Term Loan were used to fully repay the allocated loan amounts of approximately $
As of September 30, 2024, $
SmartCentres Financings
In connection with the SST IV Merger, we, through our acquisition of the Oshawa, East York, Brampton, Vaughan, and Scarborough joint venture partnerships, also became party to a master mortgage commitment agreement (the “MMCA I”) with SmartCentres Storage Finance LP (the “SmartCentres Lender”) (the “SmartCentres Loan I”). The SmartCentres Lender is an affiliate of SmartCentres. On August 18, 2021, the Kingspoint Property was added to the MMCA I, increasing the available capacity.
On June 1, 2022, in connection with the SSGT II Merger, we assumed another loan with the SmartCentres Lender. SSGT II had previously entered into a master mortgage commitment agreement on April 30, 2021, which was subsequently modified on October 22, 2021 (the “MMCA II”), with the SmartCentres Lender in the amount of up to approximately $
The SmartCentres Loan I and SmartCentres Loan II have an accordion feature such that borrowings pursuant thereto may be increased up to approximately $
The SmartCentres Financings were amended on May 13, 2024, extending the maturity date to May 11, 2026, among other changes. Monthly interest payments initially increase the outstanding principal balance. Upon a JV Property generating sufficient net cash flow, the SmartCentres Financings provide for the commencement of quarterly payments of interest. The borrowings advanced pursuant to the SmartCentres Financings may be prepaid without penalty, subject to certain conditions set forth in the MMCA I and MMCA II.
The SmartCentres Financings contain customary affirmative and negative covenants, agreements, representations, warranties and borrowing conditions (including a loan to value ratio of no greater than
On July 17, 2024, three of our joint ventures with SmartCentres closed on a $
Interest on the SmartCentres Financings is a variable annual rate equal to the aggregate of: (i) the BA Equivalent Rate, plus: (ii) a margin based on the External Credit Rating, plus (iii) a margin under the Senior Credit Facility, each as defined and described further in the MMCA I and MMCA II. As of September 30, 2024, the total interest rate was approximately
As of September 30, 2024, approximately $
34
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
million USD was outstanding on the SmartCentres Financings. The proceeds of the SmartCentres Financings have been and will generally be used to finance the acquisition, development, and construction of the JV Properties.
Note 5. Debt
Our debt is summarized as follows (in thousands):
Loan |
|
September 30, |
|
|
December 31, |
|
|
Interest |
|
|
Maturity |
|||
KeyBank Bridge Loan |
|
$ |
|
|
$ |
|
|
|
% |
|
||||
KeyBank CMBS Loan(1) |
|
|
|
|
|
|
|
|
% |
|
||||
Ladera Office Loan |
|
|
|
|
|
|
|
|
% |
|
||||
2024 Credit Facility |
|
|
|
|
|
|
|
|
% |
|
||||
2027 NBC Loan (6) (7) |
|
|
|
|
|
|
|
|
% |
|
||||
KeyBank Florida CMBS Loan(2) |
|
|
|
|
|
|
|
|
% |
|
||||
2028 Canadian Term Loan (6)(8) |
|
|
|
|
|
|
|
|
% |
|
||||
CMBS Loan(3) |
|
|
|
|
|
|
|
|
% |
|
||||
SST IV CMBS Loan (4) |
|
|
|
|
|
|
|
|
% |
|
||||
2032 Private Placement Notes (5) |
|
|
|
|
|
|
|
|
% |
|
||||
Credit Facility Term Loan - USD |
|
|
|
|
|
|
|
|
|
|
|
|||
Credit Facility Revolver - USD |
|
|
|
|
|
|
|
|
|
|
|
|||
Discount on secured debt, net |
|
|
|
|
|
( |
) |
|
|
|
|
|
||
Debt issuance costs, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
Total debt |
|
$ |
|
|
$ |
|
|
|
|
|
|
|||
35
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The weighted average interest rate on our consolidated debt, excluding the impact of our interest rate hedging activities, as of September 30, 2024 was approximately
KeyBank Bridge Loan
On July 31, 2024, we entered into a bridge loan with KeyBank for up to $
The KeyBank Bridge Loan was completed in connection with SSGT III's acquisition of
The KeyBank Bridge Loan incurs interest based on adjusted daily simple SOFR plus
2024 Credit Facility
On February 22, 2024, we through our Operating Partnership (the “Borrower”), entered into an amended and restated revolving credit facility with KeyBank, National Association, as administrative agent and collateral agent, certain others listed as joint book runners, joint lead arrangers, syndication agents and documentation agents, and certain other lenders party thereto, (the "2024 Credit Facility"). The 2024 Credit Facility replaced the Credit Facility (defined below) the Company entered into on March 17, 2021, and has a maturity date of February 22, 2027.
The aggregate commitment of the 2024 Credit Facility is $
36
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The maturity date of the 2024 Credit Facility is
Amounts borrowed under the 2024 Credit Facility bear interest based on the type of borrowing (either Base Rate Loans, Daily Simple SOFR Loans, Term SOFR Loans or CORRA Loans, each as defined in the 2024 Credit Facility). Base Rate Loans bear interest at the lesser of (x) the Base Rate (as defined in the 2024 Credit Facility) plus the applicable rate, or (y) the maximum rate. Daily Simple SOFR Loans bear interest at the lesser of (a) Adjusted Daily Simple SOFR (as defined in the 2024 Credit Facility) plus the applicable rate, or (b) the maximum rate. Term SOFR Loans bear interest at the lesser of (a) Term SOFR (as defined in the 2024 Credit Facility) for the interest period in effect plus the applicable rate, or (b) the maximum rate. CORRA Loans bear interest at the lesser of (a) Adjusted Daily Simple CORRA (as defined in the 2024 Credit Facility) plus the applicable rate, or (b) the maximum rate. The corresponding applicable rate varies between (i) prior to a Security Interest Termination Event (defined below),
As of September 30, 2024, borrowings under the 2024 Credit Facility only bore interest based on Daily Simple SOFR. The rate spread above Daily Simple SOFR at which the 2024 Credit Facility incurs interest is subject to increase based on the consolidated leverage ratio. There are five leverage tiers under the 2024 Credit Facility, with the highest tier limited to a maximum leverage of
The 2024 Credit Facility is fully recourse, jointly and severally, to us, the Borrower, and certain of our subsidiaries (the “Subsidiary Guarantors”). In connection with the 2024 Credit Facility, we, the Borrower and the Subsidiary Guarantors executed guarantees in favor of the lenders. It is an event of default under the 2024 Credit Facility if (a) there is a payment default by us, the Borrower or any Subsidiary Guarantor under any recourse debt for borrowed money, (b) there is a payment default by us or any of its subsidiaries under any non-recourse debt of at least $
The 2024 Credit Facility is initially secured by a pledge of equity interests in the Subsidiary Guarantors. However, upon the achievement of certain security interest termination conditions, the pledges shall be released and the 2024 Credit Facility shall become unsecured (the “Security Interest Termination Event”). The Security Interest Termination Event occurs at the Borrower’s election, once the Borrower satisfies all of the following security interest termination conditions: (i) a fixed charge coverage ratio of no less than
The 2024 Credit Facility contains certain customary representations and warranties, affirmative, negative and financial covenants, borrowing conditions, and events of default. In particular, the financial covenants imposed on us include: a maximum leverage ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, certain limits on both secured debt and secured recourse debt, certain payout ratios of dividends paid to adjusted funds from operations, limits on unhedged variable rate debt, and minimum liquidity. If an event of default occurs and continues, the Borrower is subject to
37
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
certain actions by the administrative agent, including, without limitation, the acceleration of repayment of all amounts outstanding under the 2024 Credit Facility.
Subsequent to the initial draw on the 2024 Credit Facility, during the three months ended September 30, 2024, we borrowed an additional $
Subsequent to the initial draw on the 2024 Credit Facility, during the nine months ended September 30, 2024, we borrowed an additional $
During the nine months ended September 30, 2024, the Colorado Springs II Property was added to the borrowing base of the 2024 Credit Facility.
As of September 30, 2024,
2027 NBC Loan
On March 7, 2024, we, through five of our wholly-owned Canadian subsidiaries (the “2027 NBC Loan Borrowers”), entered into a loan with National Bank of Canada (“NBC”) as administrative agent, National Bank Financial as lead arranger and sole bookrunner, and certain other lenders party thereto (the “2027 NBC Loan”). On such date, we drew the maximum aggregate borrowing of $
Previously, four of the Secured NBC Properties were included in the borrowing base of the 2024 Credit Facility, and the other property was unencumbered. The net proceeds from the 2027 NBC Loan were used to pay down the 2024 Credit Facility by approximately $
The 2027 NBC Loan has a maturity date of March 7, 2027, which may be extended for additional one-year periods in the discretion of the lenders. The 2027 NBC Loan carries a variable interest rate based on either the Canadian Overnight Repo Rate Average (“CORRA”) or the Canadian Prime Rate. As of September 30, 2024, borrowings under the 2027 NBC Loan were subject to interest at the CORRA rate, plus a CORRA adjustment of approximately
On March 12, 2024, we entered into an interest rate swap agreement based on CORRA with NBC whereby, inclusive of the swap we fixed the interest rate on the NBC loan at
2032 Private Placement Notes
On April 19, 2022, we as guarantor, and our Operating Partnership as issuer, entered into a note purchase agreement (the “Note Purchase Agreement”) which provides for the private placement of $
38
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Interest payable on the Notes was originally subject to a prospective 75 basis points increase, if, as of March 31, 2023, the ratio of total indebtedness to EBITDA (the “Total Leverage Ratio”) of the Company and its subsidiaries, on a consolidated basis, was greater than
As of March 31, 2023, such Total Leverage Ratio Event occurred, and our 2032 Private Placement Notes began accruing interest at a rate of
We are permitted to prepay at any time all, or from time to time, any part of the Notes in amounts not less than
The Note Purchase Agreement contains certain customary representations and warranties, affirmative, negative and financial covenants, and events of default that were substantially similar to the previously existing Credit Facility (defined below). The 2032 Private Placement Notes were issued on a pari passu basis with the previously existing Credit Facility, and are pari passu with the 2024 Credit Facility. As such, the Company and certain of its subsidiaries (the “Subsidiary Guarantors”) fully and unconditionally guarantee the Operating Partnership’s obligations under the 2032 Private Placement Notes. The 2032 Private Placement Notes were initially secured by a pledge of equity interests in the Subsidiary Guarantors on similar terms as the previously existing Credit Facility.
On April 26, 2024, we amended the Note Purchase Agreement dated April 19, 2022 (the “NPA Amendment”). The primary purpose of the NPA Amendment was to make certain conforming changes between the Note Purchase Agreement and our recently amended and restated revolving credit facility, the 2024 Credit Facility. In particular, the NPA Amendment conformed certain of the definitions related to the financial tests that we are required to maintain, as well as certain of the property pool covenants we are required to satisfy, in the Note Purchase Agreement during the term thereof to those in the 2024 Credit Facility.
Credit Facility
On March 17, 2021, we, through our Operating Partnership (the “Borrower”), entered into a credit facility with KeyBank, National Association, as administrative agent, KeyBanc Capital Markets, Inc., Wells Fargo Securities, Citibank, N.A., and BMO Capital Markets, Corp., as joint book runners and joint lead arrangers, and certain other lenders party thereto (the “Credit Facility”).
The initial aggregate amount of the Credit Facility was $
On October 7, 2021, the Borrower and lenders who were party to the Credit Facility amended the Credit Facility to increase the commitment on the Credit Facility by $
The Credit Facility was repaid in full on February 22, 2024 in connection with the establishment of the 2024 Credit Facility.
39
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The following table presents the future principal payments required on outstanding debt as of September 30, 2024 (in thousands):
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 and thereafter |
|
|
|
|
Total payments |
|
|
|
|
Debt issuance costs, net |
|
|
( |
) |
Total |
|
$ |
|
Note 6. Preferred Equity
Series A Convertible Preferred Stock
On October 29, 2019 (the “Commitment Date”), we entered into a preferred stock purchase agreement (the “Purchase Agreement”) with Extra Space Storage LP (the “Investor”), a subsidiary of Extra Space Storage Inc. (NYSE: EXR), pursuant to which the Investor committed to purchase up to $
The shares of Series A Convertible Preferred Stock rank senior to all other shares of our capital stock, including our common stock, with respect to rights to receive dividends and to participate in distributions or payments upon any voluntary or involuntary liquidation, dissolution or winding up of the Company. Dividends payable on each share of Series A Convertible Preferred Stock were initially equal to a rate of
40
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The holders of Series A Convertible Preferred Stock are not entitled to vote on any matter submitted to a vote of our stockholders, except that in the event that the dividend for the Series A Convertible Preferred Stock has not been paid for at least four quarters (whether or not consecutive), the holders of Series A Convertible Preferred Stock have the right to vote together with our stockholders on any matter submitted to a vote of our stockholders, upon which the holders of the Series A Convertible Preferred Stock and holders of common stock shall vote together as a single class. The number of votes applicable to a share of Series A Convertible Preferred Stock will be equal to the number of shares of common stock a share of Series A Convertible Preferred Stock could have been converted into as of the record date set for purposes of such stockholder vote.
As of September 30, 2024, there were
Note 7. Derivative Instruments
Interest Rate Derivatives
Our objectives in using interest rate derivatives are to add stability to our earnings (losses) and to manage our exposure to interest rate movements. To accomplish this objective, we have used interest rate swaps and caps as part of our interest rate risk management strategy.
For interest rate derivatives designated and qualified as a hedge for GAAP purposes, the change in the fair value of the effective portion of the derivative is recorded in accumulated other comprehensive income (loss) (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in AOCI related to such derivatives will be reclassified to interest expense as interest payments are made on our variable rate debt. In addition, we classify cash flows from qualifying cash flow hedging relationships in the same category as the cash flows from the hedged items in our consolidated statements of cash flows. We do not use interest rate derivatives for trading or speculative purposes.
Interest rate derivatives not designated as hedges for GAAP are not speculative and are used to manage our exposure to interest rate movements and other identified risks but we have elected not to apply hedge accounting. Changes in the fair value of interest rate derivatives not designated in hedging relationships are recorded in other income (expense) within our consolidated statements of operations.
Foreign Currency Hedges
Our objectives in using foreign currency derivatives are to add stability to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar and to manage our exposure to exchange rate movements. To accomplish this objective, we have used foreign currency forwards and foreign currency options as part of our exchange rate risk
41
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
management strategy. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into the forward contract and holding it to maturity, we are locked into a future currency exchange rate in an amount equal to and for the term of the forward contract. A foreign currency option contract is a commitment by the seller of the option to deliver, solely at the option of the buyer, a certain amount of currency at a certain price on a specific date.
For derivatives designated as net investment hedges for GAAP purposes, the changes in the fair value of the derivatives are reported in accumulated other comprehensive income. Amounts are reclassified out of accumulated other comprehensive income (loss) into earnings when the hedged net investment is either sold or substantially liquidated. The change in the value of the designated portion of our settled and unsettled foreign currency hedges is recorded net in foreign currency hedge contract gain (loss) in our consolidated statements of comprehensive income (loss) in the related period.
The change in the value of the portion of our settled and unsettled foreign currency hedges that are not designated for hedge accounting for GAAP is recorded in other income (expense) within our consolidated statements of operations and represented a loss of approximately $
On April 12, 2021, we entered into an approximately $
On October 12, 2022, we entered into a new $
In connection with the 2027 NBC Loan borrowing, on March 12, 2024, we entered into a CORRA Swap with NBC with an initial notional amount of CAD $
On May 1, 2024, to hedge our exposure to potentially rising interest rates, we entered into three SOFR interest rate caps for a total of approximately $
42
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The following table summarizes the terms of our derivative financial instruments as of September 30, 2024 (in thousands):
|
|
Notional |
|
|
Strike |
|
|
Effective Date or |
|
Maturity Date |
||
Interest Rate Derivatives: |
|
|
|
|
|
|
|
|
|
|
||
SOFR Cap |
|
$ |
|
|
|
% |
|
|
||||
SOFR Cap |
|
$ |
|
|
|
% |
|
|
||||
SOFR Cap |
|
$ |
|
|
|
% |
|
|
||||
SOFR Cap (1) |
|
$ |
|
|
|
% |
|
|
||||
SOFR Cap (1) |
|
$ |
|
|
|
% |
|
|
||||
SOFR Cap (2) |
|
$ |
|
|
|
% |
|
|
||||
CORRA Swap (3) |
|
$ |
|
|
|
% |
|
|
||||
Foreign Currency Forwards: |
|
|
|
|
|
|
|
|
|
|
||
Denominated in CAD (3) |
|
$ |
|
|
|
|
|
|
||||
The following table summarizes the terms of our derivative financial instruments as of December 31, 2023 (in thousands):
|
|
Notional |
|
|
Strike |
|
|
Effective Date or |
|
Maturity Date |
||
Interest Rate Derivatives: |
|
|
|
|
|
|
|
|
|
|
||
SOFR Cap |
|
$ |
|
|
|
% |
|
|
||||
SOFR Cap |
|
$ |
|
|
|
% |
|
|
||||
SOFR Cap |
|
$ |
|
|
|
% |
|
|
||||
SOFR Cap |
|
$ |
|
|
|
% |
|
|
||||
Foreign Currency Forwards: |
|
|
|
|
|
|
|
|
|
|
||
Denominated in CAD (1) |
|
$ |
|
|
|
|
|
|
||||
Denominated in CAD (1) |
|
$ |
|
|
|
|
|
|
||||
The following table presents a gross presentation of the fair value of our derivative financial instruments as well as their classification on our consolidated balance sheets as of September 30, 2024 and December 31, 2023 (in thousands):
|
|
Asset/Liability Derivatives |
|
|||||
|
|
Fair Value |
|
|||||
Balance Sheet Location |
|
September 30, |
|
|
December 31, |
|
||
Interest Rate Derivatives |
|
|
|
|
|
|
||
Other assets |
|
$ |
|
|
$ |
|
||
Accounts payable and accrued liabilities (1) |
|
$ |
|
|
$ |
|
||
Foreign Currency Hedges |
|
|
|
|
|
|
||
Accounts payable and accrued liabilities |
|
$ |
|
|
$ |
|
||
(1)
43
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The following tables presents the effect of our derivative financial instruments designated for hedge accounting on our consolidated statements of operations for the periods presented (in thousands):
|
Gain (loss) recognized in OCI |
|
|
Location of amounts reclassified from OCI into income |
|
Gain (loss) reclassified from |
|
||||||||||
Type |
2024 |
|
|
2023 |
|
|
|
|
2024 |
|
|
2023 |
|
||||
Interest Rate Swaps |
$ |
( |
) |
|
$ |
— |
|
|
Interest expense |
|
$ |
|
|
$ |
|
||
Interest Rate Caps |
|
( |
) |
|
|
|
|
Interest expense |
|
|
|
|
|
|
|||
Foreign Currency Forwards |
|
( |
) |
|
|
|
|
N/A |
|
|
— |
|
|
|
— |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
$ |
|
|
$ |
|
|||
|
Gain (loss) recognized in OCI |
|
|
Location of amounts reclassified from OCI into income |
|
Gain (loss) reclassified from |
|
||||||||||
Type |
2024 |
|
|
2023 |
|
|
|
|
2024 |
|
|
2023 |
|
||||
Interest Rate Swaps |
$ |
( |
) |
|
$ |
— |
|
|
Interest expense |
|
$ |
|
|
$ |
|
||
Interest Rate Caps |
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
||||
Foreign Currency Forwards |
|
|
|
|
|
|
N/A |
|
|
— |
|
|
|
— |
|
||
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
||||
Based on the forward rates in effect as of September 30, 2024, we estimate that approximately $
our qualifying cash flow hedges will be reclassified to increase interest expense during the next 12 months.
Note 8. Income Taxes
As a REIT, we generally will not be subject to U.S. federal income tax on taxable income that we distribute to our stockholders. However, certain of our consolidated subsidiaries are taxable REIT subsidiaries, which are subject to federal, state and foreign income taxes. We have filed an election to treat our primary TRS as a taxable REIT subsidiary effective January 1, 2014. In general, our TRS performs additional services for our customers and provides the advisory and property management services to the Managed REITs and otherwise generally engages in non-real estate related business. The TRS is subject to corporate U.S. federal and state income tax. Additionally, we own and operate a number of self storage properties located throughout Canada, the income of which is generally subject to income taxes under the laws of Canada.
44
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The following is a summary of our income tax expense (benefit) for the three and nine months ended September 30, 2024 and 2023 (in thousands):
|
|
For the three months ended September 30, 2024 |
|
|||||||||||||
|
|
Federal |
|
|
State |
|
|
Canadian |
|
|
Total |
|
||||
Current |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total income tax expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
For the three months ended September 30, 2023 |
|
|||||||||||||
|
|
Federal |
|
|
State |
|
|
Canadian |
|
|
Total |
|
||||
Current |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deferred |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total income tax expense (benefit) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
For the nine months ended September 30, 2024 |
|
|||||||||||||
|
|
Federal |
|
|
State |
|
|
Canadian |
|
|
Total |
|
||||
Current |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total income tax expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
For the nine months ended September 30, 2023 |
|
|||||||||||||
|
|
Federal |
|
|
State |
|
|
Canadian |
|
|
Total |
|
||||
Current |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deferred |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total income tax expense (benefit) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
45
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The major sources of temporary differences that give rise to the deferred tax effects are shown below (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Intangible contract assets |
|
$ |
( |
) |
|
$ |
( |
) |
Canadian real estate |
|
|
( |
) |
|
|
( |
) |
Total deferred tax liability |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Solar related tax assets |
|
|
|
|
|
|
||
Canadian real estate and non-capital losses |
|
|
|
|
|
|
||
Total deferred tax assets |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Net deferred tax liabilities |
|
$ |
( |
) |
|
$ |
( |
) |
Note 9. Segment Disclosures
We operate in
Management evaluates performance based upon property net operating income (“NOI”). For our self storage operations, NOI is defined as leasing and related revenues, less property level operating expenses. NOI for the Company’s Managed REIT Platform business represents Managed REIT Platform revenues less Managed REIT Platform expenses.
46
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The following tables summarize information for the reportable segments for the periods presented (in thousands):
|
|
Three Months Ended September 30, 2024 |
|
|||||||||||||
|
|
|
|
|
Managed REIT |
|
|
Corporate |
|
|
|
|
||||
|
|
Self Storage |
|
|
Platform |
|
|
and Other |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Self storage rental revenue |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Ancillary operating revenue |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform revenue |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total revenues |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Intangible amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Acquisition expenses |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) from operations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity in earnings (losses) from |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Equity in earnings (losses) from |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other, net |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Interest expense |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Income tax (expense) benefit |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||
|
|
|
|
|
Managed REIT |
|
|
Corporate |
|
|
|
|
||||
|
|
Self Storage |
|
|
Platform |
|
|
and Other |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Self storage rental revenue |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Ancillary operating revenue |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform revenue |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total revenues |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Intangible amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Acquisition expenses |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) from operations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other income (expense): |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Equity in earnings (losses) from |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Equity in earnings (losses) from |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other, net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Interest income |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Interest expense |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Income tax (expense) benefit |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
47
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
|
|
Nine Months Ended September 30, 2024 |
|
|||||||||||||
|
|
|
|
|
Managed REIT |
|
|
Corporate |
|
|
|
|
||||
|
|
Self Storage |
|
|
Platform |
|
|
and Other |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Self storage rental revenue |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Ancillary operating revenue |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform revenue |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total revenues |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Intangible amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Acquisition expenses |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) from operations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity in earnings (losses) from |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Equity in earnings (losses) from |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other, net |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Loss on debt extinguishment |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Income tax (expense) benefit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||
|
|
|
|
|
Managed REIT |
|
|
Corporate |
|
|
|
|
||||
|
|
Self Storage |
|
|
Platform |
|
|
and Other |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Self storage rental revenue |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Ancillary operating revenue |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform revenue |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total revenues |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Intangible amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Acquisition expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) from operations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity in earnings (losses) from |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Equity in earnings (losses) from |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other, net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Interest income |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Interest expense |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Income tax (expense) benefit |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
48
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The following table summarizes our total assets by segment (in thousands):
Segments |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Self Storage(1) |
|
$ |
|
|
$ |
|
||
Managed REIT Platform(2) |
|
|
|
|
|
|
||
Corporate and Other |
|
|
|
|
|
|
||
Total assets(3) |
|
$ |
|
|
$ |
|
||
(1)
(2)
(3)
As of September 30, 2024 and December 31, 2023, approximately $
As of September 30, 2024 and December 31, 2023, approximately $
Note 10. Related Party Transactions
Self Administration Transaction
On June 28, 2019, we, our Operating Partnership and our TRS entered into a series of transactions, agreements, and amendments to our existing agreements and arrangements with our then-sponsor, SAM, and SmartStop OP Holdings, LLC (“SS OP Holdings”), a subsidiary of SAM, pursuant to which, effective June 28, 2019, we acquired the self storage advisory, asset management and property management businesses and certain joint venture interests of SAM, along with certain other assets of SAM (collectively, the “Self Administration Transaction”).
As a result of the Self Administration Transaction, we became self-managed and succeeded to the advisory, asset management and property management businesses and certain joint ventures previously in place for us, SST IV (until the SST IV Merger Date), and SSGT II (until the SSGT II Merger Date), and we acquired the internal capability to originate, structure and manage additional future self storage investment products which would be sponsored by SmartStop REIT Advisors, LLC (“SRA”), our indirect subsidiary. The transfer agent agreement described below was not impacted by the Self Administration Transaction.
Our Chief Executive Officer, who is also the Chairman of our board of directors, holds ownership interests in and is an officer of SAM, and other affiliated entities. Our Chief Executive Officer also previously indirectly held an ownership interest in our former dealer manager. Previously, certain of our executive officers and another member of our board of directors held ownership interests in and/or were officers of SAM, and other affiliated entities. Accordingly, any agreements or transactions we have entered into with such entities may present a conflict of interest. None of SAM and its affiliates or
49
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
our directors or executive officers receive any compensation, fees or reimbursements from our Managed REITs, other than with respect to fees and reimbursements in accordance with the Administrative Services Agreement and the transfer agent agreement, or as otherwise described in this section.
Former Transfer Agent Agreement
SAM owns
Fees paid to our Transfer Agent included a fixed quarterly fee, one-time account setup fees, monthly open account fees and fees for investor inquiries. In addition, we reimbursed our Transfer Agent for all reasonable expenses or other charges incurred by it in connection with the provision of its services to us, and we paid our Transfer Agent fees for any additional services that we requested from time to time, in accordance with its rates then in effect.
Effective as of April 29, 2024, we transitioned to a new transfer agent, SS&C GIDS, Inc. In connection with such transfer, we simultaneously terminated the transfer agent agreement with Strategic Transfer Agent Services, LLC. In lieu of a termination fee and in recognition of the additional cost and expenses incurred by our former transfer agent in connection with the transition, we paid a transition fee of $
Pursuant to the terms of the agreements described above, the following table summarizes related party costs incurred and paid by us for the year ended December 31, 2023 and the nine months ended September 30, 2024, as well as any related amounts payable as of December 31, 2023 and September 30, 2024 (in thousands):
|
|
Year Ended December 31, 2023 |
|
|
Nine Months Ended September 30, 2024 |
|
||||||||||||||||||
|
|
Incurred |
|
|
Paid |
|
|
Payable |
|
|
Incurred |
|
|
Paid |
|
|
Payable |
|
||||||
Expensed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Transfer Agent fees |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Acquisition of Self Storage Platform from SAM and Other Transactions
As a result of the Self Administration Transaction, we acquired the self storage sponsorship platform of SAM. Accordingly, the advisor and property manager entities of SST IV and SSGT II became our indirect subsidiaries, and we became entitled to receive various fees and expense reimbursements under the terms of the SST IV and SSGT II advisory and property management agreements as described below. In addition, we now also own the advisor and property manager entities of SST VI and SSGT III and are entitled to receive various fees and expense reimbursements under the terms of the SST VI and SSGT III advisory and property management agreements as described below.
Advisory Agreement Fees
Our indirect subsidiaries, the SST VI Advisor, and the SSGT III Advisor are or were entitled to receive various fees and expense reimbursements under the terms of the SST VI, and SSGT III advisory agreements.
50
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
SST VI Advisory Agreement
The SST VI Advisor provides acquisition and advisory services to SST VI pursuant to an advisory agreement (the “SST VI Advisory Agreement”). In connection with the SST VI private placement offering, SST VI was required to reimburse the SST VI Advisor for organization and offering costs from the SST VI private offering pursuant to the SST VI private offering advisory agreement.
Pursuant to the SST VI Advisory Agreement, the SST VI Advisor receives acquisition fees equal to
A subsidiary of our Operating Partnership may also be potentially entitled to a subordinated distribution through its ownership of a special limited partnership in SST VI OP if SST VI (1) lists its shares of common stock on a national exchange, (2) terminates the SST VI Advisory Agreement, (3) liquidates its portfolio, or (4) merges with another entity or enters into an Extraordinary Transaction, as defined in SST VI OP's limited partnership agreement.
The SST VI Advisory Agreement provides for reimbursement of the SST VI Advisor’s direct and indirect costs of providing administrative and management services to SST VI. Beginning four fiscal quarters after commencement of SST VI's public offering, which was declared effective March 17, 2022, the SST VI Advisor was required to pay or reimburse SST VI the amount by which SST VI’s aggregate annual operating expenses, as defined, exceed the greater of 2% of SST VI’s average invested assets or 25% of SST VI’s net income, as defined, unless a majority of SST VI’s independent directors determine that such excess expenses were justified based on unusual and non-recurring factors.
Pacific Oak Holding Group, LLC, is a
Separately, we through one of our subsidiaries agreed to pay SST VI’s dealer manager an amount equal to
SSGT III Advisory Agreement
The SSGT III Advisor provides acquisition and advisory services to SSGT III pursuant to an advisory agreement (the “SSGT III Advisory Agreement”). In connection with the SSGT III private placement offering, which became effective on May 18, 2022, SSGT III is required to reimburse the SSGT III Advisor for organization and offering costs from the SSGT III private offering pursuant to the SSGT III Advisory Agreement.
Pursuant to the SSGT III Advisory Agreement, the SSGT III Advisor will receive acquisition fees equal to
51
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
A subsidiary of our Operating Partnership may also be potentially entitled to various subordinated distributions through its ownership of a special limited partnership in SSGT III’s operating partnership agreement if SSGT III (1) lists its shares of common stock on a national exchange, (2) terminates the SSGT III Advisory Agreement, (3) liquidates its portfolio, or (4) merges with another entity or enters into an Extraordinary Transaction, as defined in the SSGT III operating partnership agreement.
Managed REIT Property Management Agreements
Our indirect subsidiaries, SS Growth Property Management II, LLC, Strategic Storage Property Management VI, LLC, and SS Growth Property Management III, LLC, (collectively the “Managed REITs Property Managers”), are or were entitled to receive fees for their services in managing the properties wholly or partially owned by the Managed REITs pursuant to property management agreements entered into between the owner of the property and the applicable Managed REIT’s Property Manager.
The Managed REITs’ Property Managers will receive a property management fee equal to
The SST VI and SSGT III property managers are or were entitled to a construction management fee equal to
Effective June 1, 2022, in connection with the SSGT II Merger, the SSGT II property management contracts were terminated. As a result of us acquiring SSGT II and terminating such contracts, we recorded a write-off of approximately $
In connection with the Self Administration Transaction, we previously recorded a deferred tax liability, which was the result of the difference between the GAAP carrying value of the SSGT II property management contract and the carrying value for tax purposes. As we reduced the GAAP carrying value of such intangible asset, we adjusted the value of our deferred tax liability on a pro-rata basis, reducing the deferred tax liability by approximately $
52
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Summary of Fees and Revenue Related to the Managed REITs
Pursuant to the terms of the various agreements described above for the Managed REITs, the following summarizes the related party fees for the three and nine months ended September 30, 2024 and 2023 (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
Managed REIT Platform Revenues |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Asset Management Fees: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SST VI |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
SSGT III |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property Management Fees: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SST VI |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SSGT III |
|
|
|
|
|
|
|
|
|
|
|
|
||||
JV Properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tenant Protection Program Fees: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SST VI |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SSGT III |
|
|
|
|
|
|
|
|
|
|
|
|
||||
JV Properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition Fees: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SST VI |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SSGT III |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Managed REIT Fees(1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Managed REIT Platform Fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sponsor funding reduction (2) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Total Managed REIT Platform Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
We offer tenant insurance or tenant protection programs to customers at our Managed REITs' properties pursuant to which we, as the property manager and majority owner of the Tenant Protection Program joint ventures, are entitled to substantially all of the net revenue attributable to the sale of such tenant programs.
In order to protect our interest in receiving these revenues in light of the fact that the Managed REITs control the properties, we and the Managed REITs transferred our respective rights in such arrangements to a joint venture entity owned
53
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Reimbursable costs from Managed REITs includes reimbursement of SST IV (until the SST IV Merger Date), SSGT II (until the SSGT II Merger Date), SST VI and SSGT III's Advisors’ certain direct and indirect costs of providing administrative and management services to the Managed REITs. Additionally, reimbursable costs includes reimbursement pursuant to the property management agreements for reimbursement of certain costs of managing the Managed REITs’ properties, including wages and salaries and other expenses of employees engaged in operating, managing and maintaining such properties.
As of September 30, 2024 and December 31, 2023 we had receivables due from the Managed REITs totaling approximately $
Investments in and advances to SST VI OP
Equity Investments
On March 10, 2021, SmartStop OP made an investment of $
For the three and nine months ended September 30, 2024 we recorded a loss related to our equity interest in SST VI OP of approximately $
For the three and nine months ended September 30, 2023 we recorded a loss related to our equity interest, excluding our preferred investment discussed below, in SST VI OP of approximately $
On January 30, 2023, a subsidiary of SmartStop made a preferred investment of
Sponsor Funding Agreement
On November 1, 2023, SRA, a subsidiary of our Operating Partnership, entered into a Sponsor Funding Agreement with SST VI and SST VI OP, in connection with certain changes to the public offering of SST VI.
Pursuant to the Sponsor Funding Agreement, SRA, as sponsor of the SST VI offering, has agreed to fund the payment of (i) the upfront
In consideration for SRA providing the funding for the front-end sales load and the cash to cover the dilution from the stock dividends described above, SST VI OP will issue a number of Series C Units to SRA equal to the dollar amount of such funding divided by the then-current offering price for the Class Y shares and Class Z shares sold in the SST VI offering, which was initially $
54
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
On August 7, 2024, SST VI declared an estimated net asset value per share of $
On November 1, 2023, SRA entered into Amendment No. 3 to the Second Amended and Restated Limited Partnership Agreement of SST VI OP with SST VI and SST VI OP containing, among other things, the terms of the Series C Units. The Series C Units shall initially have no distribution, liquidation, voting, or other rights to participate in SST VI OP unless and until such Series C Units are converted into class A units of SST VI OP. The Series C Units shall automatically convert into class A units on a one-to-one basis upon SST VI’s disclosure of an estimated net asset value per share equal to at least $
Through September 30, 2024, we have incurred approximately $
As of September 30, 2024, the maximum remaining commitment of SRA pursuant to the Sponsor Funding Agreement is approximately $
Debt Investments
On December 30, 2021, in connection with SST VI's acquisition of
The SST VI Mezzanine Loan was amended on December 20, 2022, such amendment increased the principal borrowing amount from a maximum of $
On June 13, 2023 SmartStop OP entered into a promissory note agreement with SST VI OP ( the “SST VI Note”), where SST VI OP borrowed $
As of September 30, 2024, SST VI OP had $
55
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
The following table summarizes the carrying value of our investments in and advances to SST VI as of September 30, 2024 and December 31, 2023 (in thousands):
|
|
|
|
|
|
|
||
Receivables: |
|
As of |
|
|
As of |
|
||
Receivables and advances due |
|
$ |
|
|
$ |
|
||
Debt: |
|
|
|
|
|
|
||
SST VI Note |
|
|
|
|
|
|
||
Equity: |
|
|
|
|
|
|
||
SST VI OP Units and |
|
|
|
|
|
|
||
SST VI Class C Subordinated Units |
|
|
|
|
|
|
||
Total investments in and advances |
|
$ |
|
|
$ |
|
||
Investments in and advances to SSGT III OP
Equity Investments
On August 29, 2022, SmartStop OP made an investment of $
For the three and nine months ended September 30, 2024, we recorded a loss related to our equity interest in SSGT III OP of approximately $
For the three and nine months ended September 30, 2023, we recorded a loss related to our equity interest in SSGT III OP of approximately $
Debt Investments
On August 9, 2022, in connection with SSGT III's acquisition of two self storage facilities, our Operating Partnership entered into a mezzanine loan agreement with a wholly-owned subsidiary of SSGT III, for up to $
The SSGT III Mezzanine Loan was amended on December 20, 2022, such amendment increased the principal borrowing amount from up to $
56
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
On May 2, 2024, SSGT III paid down the remaining $
On July 31, 2024, our Operating Partnership provided a bridge loan to an indirect wholly-owned subsidiary of SSGT III for $
As of September 30, 2024, SSGT III and its subsidiaries had repaid approximately $
The following table summarizes the carrying value of our investments in and advances to SSGT III OP as of September 30, 2024 and December 31, 2023 (in thousands):
|
|
|
|
|
|
|
||
Receivables: |
|
As of |
|
|
As of |
|
||
Receivables and advances due |
|
$ |
|
|
$ |
|
||
Debt: |
|
|
|
|
|
|
||
SSGT III Bridge Loan |
|
|
|
|
|
|
||
SSGT III Mezzanine Loan(1) |
|
|
|
|
|
|
||
Equity: |
|
|
|
|
|
|
||
SSGT III OP Units and |
|
|
|
|
|
|
||
Total investments in and advances |
|
$ |
|
|
$ |
|
||
(1)
Administrative Services Agreement
On June 28, 2019, we along with our Operating Partnership, our TRS and SmartStop Storage Advisors, LLC (collectively, the “Company Parties”) entered into an Administrative Services Agreement with SAM (the “Administrative Services Agreement”), which, as amended, requires that the Company Parties will be reimbursed for providing certain operational and administrative services to SAM which may include, without limitation, accounting and financial support, IT support, HR support, advisory services and operations support, and administrative support and other miscellaneous reimbursements as set forth in the Administrative Services Agreement and SAM will be reimbursed for providing certain operational and administrative services to the Company Parties which may include, without limitation, due diligence support, marketing, fulfillment and offering support, events support, insurance support, and administrative and facilities support. SAM and the Company Parties will reimburse one another based on the actual costs of providing their respective services. Additionally, SAM paid the Company Parties an allocation of rent and overhead for the portion of the Ladera Office that it occupied until October 2022, at which time SAM relocated to a separate office. Such agreement had an initial term of three years, with automatic one-year renewals, and is subject to certain adjustments as defined in the agreement.
For the three and nine months ended September 30, 2024, we incurred reimbursements payable to SAM under the Administrative Services Agreement of approximately $
57
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
For the three and nine months ended September 30, 2023, we incurred reimbursements payable to SAM under the Administrative Services Agreement of approximately $
We recorded reimbursements from SAM of approximately $
We recorded reimbursements from SAM of approximately $
As of September 30, 2024 and December 31, 2023, a payable of approximately $
Note 11. Equity Based Compensation
Prior to June 15, 2022, we issued equity based compensation pursuant to the Company’s Employee and Director Long-Term Incentive Plan (the “Prior Plan”). On June 15, 2022, our stockholders approved the 2022 Long-Term Incentive Plan (the “Plan”) and we no longer issue equity under the Prior Plan. Pursuant to the Plan, we are able to issue various forms of equity based compensation. Through September 30, 2024, we have generally issued equity based awards in two forms: (1) restricted stock awards consisting of shares of our common stock and (2) long-term incentive plan units of our Operating Partnership (“LTIP Units”).
The fair value of restricted stock is determined on the grant date based on an estimated value per share. The estimated fair value of our restricted stock was determined with the assistance of third party valuation specialists primarily based on an income approach to value our properties as well as the Managed REIT Platform, less the estimated fair value of our debt and other liabilities. The key assumptions used in estimating the fair value of our restricted stock were projected annual net operating income, projected growth rates, discount rates, capitalization rates and an illiquidity discount. The fair value of LTIP Units were further adjusted by applying an additional discount as the LTIP Units are not initially economically equivalent to our restricted stock. For performance based awards, a fair value was determined for each performance ranking scenario, with stock compensation expense recorded using the fair value of the scenario determined to be probable of achievement as of the end of the respective period.
Time Based Awards
We have granted various time based awards, which generally vest ratably over either , , or
With respect to grants of time based LTIP Units, distributions accrue based on the effective date of each grant, and are payable as distributions are paid on our Class A Shares without regard to whether the underlying awards have vested. With respect to time based restricted stock issued to our board of directors, distributions accrue as of the effective date of each grant and are payable as distributions are paid on our Class A Shares without regard to whether the underlying awards have vested. With respect to all other existing time based restricted stock, distributions accrue on non-vested shares granted and are paid when the underlying restricted shares vest.
Holders of time based LTIP Units receive allocations of profits and losses with respect to the LTIP Units as of the effective date, distributions from the effective date in an amount equivalent to the distributions declared and paid on our Class A Shares, and the same voting rights as holders of common units, voting as a class with each LTIP Unit holder having one vote per LTIP Unit held. Prior to vesting, time based LTIP Units generally may not be transferred, other than by laws of descent and distribution.
The following table summarizes the activity related to our time based awards:
58
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
|
|
Restricted Stock |
|
|
LTIP Units |
|
||||||||||
Time Based Award Grants |
|
Shares |
|
|
Weighted-Average |
|
|
Units |
|
|
Weighted-Average |
|
||||
Unvested at December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Unvested at December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Unvested at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Performance Based Awards
With respect to performance based awards, the number of shares of restricted stock granted as of the grant date equaled
Recipients of performance based restricted stock accrue distributions during the performance period, and such distributions will only be payable on the date that any such shares of restricted stock vest, based upon the performance level attained.
The following table summarizes our activity related to our performance based awards:
|
|
Restricted Stock |
|
|
LTIP Units |
|
||||||||||
Performance Based Award Grants |
|
Shares |
|
|
Weighted-Average |
|
|
Units |
|
|
Weighted-Average |
|
||||
Unvested at December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
(1) |
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unvested at December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Vested |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Unvested at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
59
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
Holders of performance based restricted stock
Holders of performance based LTIP Units have the same voting rights as holders of common units, voting as a class with each LTIP Unit holder having
LTIP Units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes. The profits interests’ characteristics of the LTIP Units mean that initially they will not be treated as economically equivalent in value to a common unit and the issuance of LTIP Units will not be a taxable event to the Operating Partnership or the recipient. If and when certain events occur pursuant to applicable tax regulations and in accordance with the Operating Partnership Agreement, LTIP Units may become economically equivalent to common units of limited partnership interest of our Operating Partnership on a one-for-one basis.
As of September 30, 2024,
We recorded approximately $
As of September 30, 2024, there was approximately $
As of December 31, 2023, there was approximately $
In March 2024, an aggregate of
Note 12. Commitments and Contingencies
Distribution Reinvestment Plan
We have adopted an amended and restated distribution reinvestment plan (our “DRP”) that allows both our Class A and Class T stockholders to have distributions otherwise distributable to them invested in additional Class A Shares and Class T Shares, respectively. Under our DRP, the board of directors may amend, modify, suspend or terminate our plan for any reason upon
As of September 30, 2024, we had sold approximately
60
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
approximately
Share Redemption Program
As described in “Note 2 – Summary of Significant Accounting Policies – Redeemable Common Stock,” we have an SRP. Please refer to that section for additional details. Pursuant to the SRP, we may redeem the shares of stock presented for redemption for cash to the extent that such requests comply with the below terms of our SRP and we have sufficient funds available to fund such redemption. All redemption requests received, and not withdrawn, on or prior to the last day of the applicable quarter are processed on the last business day of the month following the end of the quarter in which the redemption requests were received.
Our board of directors may amend, suspend or terminate the SRP with
On August 20, 2020, our board of directors amended the terms of the SRP to revise the redemption price per share for all redemptions under the SRP to be equal to the most recently published estimated net asset value per share of the applicable share class (the “SRP Amendment”). Prior to the SRP Amendment, the redemption amount was the lesser of the amount the stockholders paid for their shares or the price per share in the current offering. On January 15, 2024, we declared a new estimated net asset value per share and the redemption price under our SRP immediately changed to $
There are several limitations in addition to those noted above on our ability to redeem shares under the SRP including, but not limited to:
During the nine months ended September 30, 2024, approximately
During the year ended December 31, 2023, approximately
Please see the section below titled “Suspension and Partial Resumption of DRP and SRP” for additional information.
Suspension and Partial Resumption of DRP and SRP
In connection with a review of liquidity alternatives by the board of directors, on March 7, 2022, the board of directors approved the full suspension of our DRP and SRP. However, on March 16, 2023, the DRP was fully reinstated and the SRP was partially reinstated to allow for redemptions solely sought in connection with a stockholder’s death, “qualifying disability” (as that term is defined in the SRP), confinement to a long-term care facility, or other exigent circumstances. All other redemptions remain suspended at this time.
61
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
On May 1, 2024, our board of directors adopted a limitation to our SRP such that any redemption request made under the SRP in connection with a stockholder’s death must be made within one year of the date of such death in order to be honored by us. This limitation took effect on June 1, 2024.
Operating Partnership Redemption Rights
Generally, the limited partners of our Operating Partnership have the right to cause our Operating Partnership to redeem their limited partnership units for cash equal to the value of an equivalent number of our shares, or, at our option, we may purchase their limited partnership units by issuing
Additionally, the Class A-1 Units issued in connection with the Self Administration Transaction are subject to the general restrictions on transfer contained in the Operating Partnership Agreement. The Class A-1 Units are otherwise entitled to all rights and duties of the Class A limited partnership units in the Operating Partnership, including cash distributions and the allocation of any profits or losses in the Operating Partnership.
Other Contingencies and Commitments
We have severance arrangements which cover certain members of our management team; these provide for severance payments upon certain events, including after a change of control.
See Note 10 – Related Party Transactions related to our debt investments in the Managed REITs and our Sponsor Funding Agreement with SST VI for more information about our contingent obligations under these agreements.
As of September 30, 2024, pursuant to various contractual relationships, we are required to make other payments in the amounts of approximately $
From time to time, we are party to legal, regulatory and other proceedings that arise in the ordinary course of our business. In accordance with applicable accounting guidance, management accrues an estimated liability when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. For such proceedings, we are not aware of any for which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition.
Note 13. Declaration of Distributions
On September 27, 2024, our board of directors declared a distribution rate for the month of October 2024 of approximately $
On October 25, 2024, our board of directors declared a distribution rate for the month of November 2024 of approximately $
Note 14. Subsequent Events
There are no significant events which have occurred subsequent to September 30, 2024, other than the subsequent events discussed elsewhere in the notes to the financial statements.
62
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial data contained elsewhere in this report. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with our consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I.
Overview
We are a self-managed and fully-integrated self storage real estate investment trust (“REIT”). Our year end is December 31. As used in this report, “we,” “us,” “our,” and “Company” refer to SmartStop Self Storage REIT, Inc. and each of our subsidiaries.
We focus on the acquisition, ownership, and operation of self storage properties located primarily within the top 100 metropolitan statistical areas, or MSAs, throughout the United States and Canada. Based on the Inside Self Storage Top-Operators List ranking for 2024, and after accounting for recent market transactions, we are the 10th largest owner and operator of self storage properties in the United States based on number of properties, units, and rentable square footage. As of September 30, 2024, our wholly-owned portfolio consisted of 157 operating self storage properties diversified across 19 states and Canada comprising approximately 106,300 units and 12.2 million net rentable square feet. Additionally, we owned a 50% equity interest in eleven unconsolidated real estate ventures located in Canada, which included ten operating self storage properties. Further, through our Managed REIT Platform (as defined below), we serve as the sponsor of Strategic Storage Trust VI, Inc., a publicly-registered non-traded REIT (“SST VI”), and Strategic Storage Growth Trust III, Inc., a private REIT (“SSGT III” and together with SST VI and any future sponsored REITs, the “Managed REITs”), and manage one additional self storage property, all of which pay us fees to manage these programs and manage their 35 operating self storage properties (as of September 30, 2024).
Our primary business model is focused on owning and operating high quality self storage properties in high growth markets in the United States and Canada. We finance our portfolio through a diverse capital strategy which includes cash generated from operations, borrowings under our syndicated revolving line of credit, secured debt financing, equity offerings and joint ventures. Our business model is designed to maximize cash flow available for distribution to our stockholders and to achieve sustainable long-term growth in cash flow in order to maximize long-term stockholder value at acceptable levels of risk. We execute our organic growth strategy by pursuing revenue-optimizing and expense-minimizing opportunities in the operations of our existing portfolio. We execute our external growth strategy by developing, redeveloping, acquiring and managing self storage facilities in the United States and Canada both internally and through our Managed REITs, and we look to acquire properties that are physically stabilized, recently developed, in various stages of lease up or at certificate of occupancy. We seek to acquire undermanaged facilities that are not operated by institutional operators, where we can implement our proprietary management and technology to maximize net operating income.
As discussed herein, we, through our subsidiaries, currently serve as the sponsor of SST VI and SSGT III. We also served as the sponsor of Strategic Storage Trust IV, Inc., a public non-traded REIT (“SST IV”), through March 17, 2021, and Strategic Storage Growth Trust II, Inc., a private REIT (“SSGT II”), through June 1, 2022. Prior to March 17, 2021 and June 1, 2022, SST IV and SSGT II, respectively, were also included in the “Managed REITs.” We operate the properties owned by the Managed REITs, which together with one other self storage property we manage consist of, as of September 30, 2024, 35 operating properties and approximately 27,500 units and approximately 3.0 million rentable square feet. In addition, we have the internal capability to originate, structure and manage additional self storage investment programs (the “Managed REIT Platform”) which would be sponsored by SmartStop REIT Advisors, LLC (“SRA”), our indirect subsidiary. We generate asset management fees, property management fees, acquisition fees, and other fees and also receive substantially all of the tenant protection program revenue earned by our Managed REITs. For the property management and advisory services that we provide, we are reimbursed for certain expenses that otherwise helps to offset our net operating expense burden.
63
As of September 30, 2024, our wholly-owned operating self storage portfolio was comprised as follows:
State |
|
No. of |
|
|
Units(1) |
|
|
Sq. Ft. |
|
|
% of Total |
|
|
Physical |
|
|
Rental |
|
||||||
Alabama |
|
|
1 |
|
|
|
1,090 |
|
|
|
163,300 |
|
|
|
1.3 |
% |
|
|
90.8 |
% |
|
|
0.7 |
% |
Arizona |
|
|
4 |
|
|
|
3,130 |
|
|
|
329,100 |
|
|
|
2.7 |
% |
|
|
93.0 |
% |
|
|
2.5 |
% |
California |
|
|
30 |
|
|
|
19,985 |
|
|
|
2,108,400 |
|
|
|
17.2 |
% |
|
|
91.3 |
% |
|
|
20.3 |
% |
Colorado |
|
|
9 |
|
|
|
5,130 |
|
|
|
596,100 |
|
|
|
4.9 |
% |
|
|
88.9 |
% |
|
|
3.9 |
% |
Florida |
|
|
27 |
|
|
|
20,920 |
|
|
|
2,462,700 |
|
|
|
20.1 |
% |
|
|
92.8 |
% |
|
|
22.1 |
% |
Illinois |
|
|
6 |
|
|
|
3,785 |
|
|
|
432,450 |
|
|
|
3.5 |
% |
|
|
91.5 |
% |
|
|
3.0 |
% |
Indiana |
|
|
2 |
|
|
|
1,030 |
|
|
|
112,700 |
|
|
|
0.9 |
% |
|
|
93.5 |
% |
|
|
0.6 |
% |
Massachusetts |
|
|
1 |
|
|
|
840 |
|
|
|
93,200 |
|
|
|
0.8 |
% |
|
|
91.1 |
% |
|
|
1.9 |
% |
Maryland |
|
|
2 |
|
|
|
1,610 |
|
|
|
169,500 |
|
|
|
1.4 |
% |
|
|
93.4 |
% |
|
|
1.3 |
% |
Michigan |
|
|
4 |
|
|
|
2,220 |
|
|
|
266,100 |
|
|
|
2.2 |
% |
|
|
93.3 |
% |
|
|
1.8 |
% |
New Jersey |
|
|
2 |
|
|
|
2,350 |
|
|
|
205,100 |
|
|
|
1.7 |
% |
|
|
89.2 |
% |
|
|
1.7 |
% |
Nevada |
|
|
9 |
|
|
|
7,160 |
|
|
|
865,000 |
|
|
|
7.1 |
% |
|
|
93.9 |
% |
|
|
6.6 |
% |
North Carolina |
|
|
19 |
|
|
|
9,190 |
|
|
|
1,210,400 |
|
|
|
9.9 |
% |
|
|
93.1 |
% |
|
|
8.3 |
% |
Ohio |
|
|
5 |
|
|
|
2,360 |
|
|
|
263,100 |
|
|
|
2.2 |
% |
|
|
93.1 |
% |
|
|
1.5 |
% |
South Carolina |
|
|
4 |
|
|
|
2,890 |
|
|
|
355,800 |
|
|
|
2.9 |
% |
|
|
90.8 |
% |
|
|
1.7 |
% |
Texas |
|
|
12 |
|
|
|
6,960 |
|
|
|
919,300 |
|
|
|
7.6 |
% |
|
|
92.9 |
% |
|
|
7.0 |
% |
Virginia |
|
|
1 |
|
|
|
830 |
|
|
|
71,100 |
|
|
|
0.6 |
% |
|
|
88.9 |
% |
|
|
0.9 |
% |
Washington |
|
|
5 |
|
|
|
3,430 |
|
|
|
390,550 |
|
|
|
3.2 |
% |
|
|
92.8 |
% |
|
|
3.4 |
% |
Wisconsin |
|
|
1 |
|
|
|
780 |
|
|
|
83,400 |
|
|
|
0.7 |
% |
|
|
90.9 |
% |
|
|
0.5 |
% |
Ontario, Canada |
|
|
13 |
|
|
|
10,610 |
|
|
|
1,110,700 |
|
|
|
9.1 |
% |
|
|
92.3 |
% |
|
|
10.3 |
% |
Total |
|
|
157 |
|
|
|
106,300 |
|
|
|
12,208,000 |
|
|
|
100 |
% |
|
|
92.2 |
% |
|
|
100 |
% |
Additionally, we own our office located at 10 Terrace Rd, Ladera Ranch, California (the “Ladera Office”) which houses our corporate headquarters.
64
Critical Accounting Policies and Estimates
We have established accounting policies which conform to generally accepted accounting principles (“GAAP”). Preparing financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Following is a discussion of the estimates and assumptions used in setting accounting policies that we consider critical in the presentation of our consolidated financial statements. Many estimates and assumptions involved in the application of GAAP may have a material impact on our financial condition or operating performance, or on the comparability of such information to amounts reported for other periods, because of the subjectivity and judgment required to account for highly uncertain items or the susceptibility of such items to change. These estimates and assumptions affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities at the dates of the financial statements and our reported amounts of revenue and expenses during the period covered by this report. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied or different amounts of assets, liabilities, revenues and expenses would have been recorded, thus resulting in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements. Additionally, other companies may use different estimates and assumptions that may impact the comparability of our financial condition and results of operations to those companies.
We believe that our critical accounting policies include the following: real estate acquisition valuation; the evaluation of whether any of our long-lived assets have been impaired; the valuation of goodwill and related impairment considerations, the valuation of our trademarks and related impairment considerations, the determination of the useful lives of our long-lived assets; and the evaluation of the consolidation of our interests in joint ventures. The following discussion of these policies supplements, but does not supplant the description of our significant accounting policies, as contained in Note 2 – Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements contained in this report, and is intended to present our analysis of the uncertainties involved in arriving upon and applying each policy.
Real Estate Acquisition Valuation
We account for asset acquisitions in accordance with GAAP which requires that we allocate the purchase price of a property to the tangible and intangible assets acquired and the liabilities assumed based on their relative fair values. This guidance requires us to make significant estimates and assumptions, including fair value estimates, which requires the use of significant unobservable inputs as of the acquisition date.
The value of the tangible assets, consisting of land and buildings is determined as if vacant. Because we believe that substantially all of the leases in place at properties we will acquire will be at market rates, as the majority of the leases are month-to-month contracts, we do not expect to allocate any portion of the purchase prices to above or below market leases. We also consider whether in-place, market leases represent an intangible asset. Acquisitions of portfolios of facilities are allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates which take into account the relative size, age, and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available.
Our allocations of purchase prices are based on certain significant estimates and assumptions, variations in such estimates and assumptions could result in a materially different presentation of the consolidated financial statements or materially different amounts being reported in the consolidated financial statements.
Real Property Assets Valuation
We evaluate our real property assets for impairment based on events and changes in circumstances that may arise in the future and that may impact the carrying amounts of such assets. When indicators of potential impairment are present, we will assess the recoverability of the particular asset by determining whether the carrying value of the asset will be recovered, through an evaluation of the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. This evaluation is based on a number of estimates and assumptions, such as, but not limited to, comparative sales, estimated cash flow, and other similar valuation techniques. Based on this evaluation, if the expected undiscounted future cash flows do not exceed the carrying value, we will adjust the value of the real property asset and recognize an impairment loss. Our evaluation of the impairment of real property assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as the amount of impairment loss, if any, recognized may vary based on the estimates and assumptions we use.
65
Intangible Assets Valuation
In connection with the acquisition of the self storage advisory, asset management and property management businesses and certain joint venture interests of Strategic Asset Management I, LLC (f/k/a SmartStop Asset Management, LLC), our former sponsor (“SAM”), along with certain other assets of SAM (collectively, the “Self Administration Transaction”), we allocated a portion of the consideration to the contracts that we acquired related to the Managed REITs and the customer relationships related to our tenant insurance, tenant protection plans or similar programs (the “Tenant Protection Programs”). For these intangibles, we are amortizing such amounts on a straight-line basis over the estimated benefit period of the contracts and customer relationships. We evaluate these intangible assets for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable. In such an event, an impairment charge is recognized and the intangible asset is marked down to its fair value.
Goodwill Valuation
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible assets and other intangible assets acquired. Goodwill is allocated to various reporting units, as applicable, and is not amortized. We perform an annual qualitative impairment assessment as of December 31 for goodwill; between annual tests we evaluate the recoverability of goodwill whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be fully recoverable. If circumstances indicate the carrying amount may not be fully recoverable, we perform a quantitative impairment test of goodwill to compare the fair value of each reporting unit to its respective carrying amount. If the carrying amount of goodwill exceeds its fair value, an impairment charge will be recognized. No impairment charges were recognized during the nine months ended September 30, 2024 and 2023.
Trademarks Valuation
Trademarks are based on the value of our brands. Trademarks are valued using the relief from royalty method, which presumes that without ownership of such trademarks, we would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, we avoid any such payments and record the related intangible value of our ownership of the brand name.
We qualitatively evaluate whether any triggering events or changes in circumstances have occurred subsequent to our annual impairment test that would indicate an impairment condition may exist. If any change in circumstance or triggering event occurs, and results in a significant impact to our revenue and profitability projections, or any significant assumption in our valuation methods is adversely impacted, the impact could result in a material impairment charge in the future.
Estimated Useful Lives of Real Property Assets
We assess the useful lives of the assets underlying our properties based upon a subjective determination of the period of future benefit for each asset. We record depreciation expense with respect to these assets based upon the estimated useful lives we determine. Our determinations of the useful lives of the assets could result in a materially different presentation of the consolidated financial statements or materially different amounts being reported in the financial statements, as such determinations, and the corresponding amount of depreciation expense, may vary dramatically based on the estimates and assumptions we use.
Consolidation Considerations
Current accounting guidance provides a framework for identifying a variable interest entity (“VIE”) and determining when a company should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements. In general, a VIE is an entity or other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. Generally, a VIE should be consolidated if a party with an ownership, contractual, or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and noncontrolling interest at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest.
66
We evaluate the consolidation of our investments in VIE's in accordance with relevant accounting guidance. This evaluation requires us to determine whether we have a controlling interest in a VIE through a means other than voting rights, and, if so, such VIE may be required to be consolidated in our financial statements. Our evaluation of our VIE's under such accounting guidance could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as the VIE's included in our consolidated financial statements may vary based on the estimates and assumptions we use.
REIT Qualification
We made an election under Section 856(c) of the Code to be taxed as a REIT under the Code, commencing with the taxable year ended December 31, 2014. By qualifying as a REIT for federal income tax purposes, we generally will not be subject to U.S. federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and could have a material adverse impact on our financial condition and results of operations. However, we believe that we are organized and operate in a manner that will enable us to continue to qualify for treatment as a REIT for federal income tax purposes, and we intend to continue to operate as to remain qualified as a REIT for federal income tax purposes.
Current Market and Economic Conditions
Our rental revenue and operating results depend significantly on the demand for self storage space. Since the beginning of the COVID-19 pandemic in late March 2020, the broader shift of people working from home, elevated migration patterns and strength in the housing market helped drive growth in self storage demand, which generally contributed to our results since the onset of COVID-19, and through calendar year 2022. In addition to the sector's numerous historical demand drivers, one demand driver that developed and has continued as a result of the COVID-19 pandemic is the trend towards working from home, or a hybrid work environment. While the work from home environment remains elevated over pre-COVID-19 pandemic levels, this trend began to wane in 2023, which we believe led to elevated move-outs. As a result, occupancy, same-store growth and overall results began normalizing.
Further, the broader economy has been experiencing elevated levels of inflation, higher interest rates, tightening monetary and fiscal policies and a slowdown in home sales and population mobility. This could result in less discretionary spending, weakening consumer balance sheets and reduced demand for self storage. Additionally, a prolonged period of elevated inflation and/or higher interest rates could result in a further contraction of self storage demand. However, demand for the self storage sector is dynamic with drivers that function in a multitude of economic environments, both cyclically and counter-cyclically. Demand for self storage tends to be needs-based, with numerous factors that lead customers to renting and maintaining storage units. Additionally, the broader interest rate and inflationary environment has moderated since the beginning of 2024. These factors could lead to increasing levels of population mobility, specifically amongst single family home buyers and sellers, which could increase demand for self storage. Certain property operating expenses have experienced elevated pressures to date, namely property insurance, property taxes and payroll have seen above average increases, primarily due to inflation and natural disasters. As a result, we have experienced a year-over-year decrease in gross margins for the year ended December 31, 2023 and the first three quarters of 2024.
In 2022, the Federal Reserve began increasing its targeted range for the federal funds rate, leading to increased interest rates. This approach to monetary policy was mirrored by other central banks across the world, to similar effect. We currently have fixed or capped interest rates of varying durations for the majority of our loans, either directly or indirectly through our use of interest rate hedges. The rise in overall interest rates has caused an increase in our variable rate borrowing costs and our overall cost of capital, resulting in an increase in net interest expense. Capitalization rates on acquisitions did not increase at the same magnitude as interest rates increased in 2022 and 2023, which limited our ability make accretive acquisitions of self storage properties. However, with anticipation of the Federal Reserve lowering its target range for the federal funds rate, interest rates across the curve began to decrease in the first half of 2024. In September of 2024, the Federal Reserve lowered its targeted range for the federal funds rate by 50 basis points. In November 2024, the Federal Reserve lowered its targeted range for the federal funds rate by an additional 25 basis points.
Recent Hurricane Activity
Hurricane Helene caused record flooding in late September 2024 in Asheville, North Carolina. Before, during and after the storm, we prioritized the safety and security of our employees, customers and properties. For all 14 of our wholly-owned properties in the Asheville area, except for one, the impact was generally limited to wind, wind-blown debris and downed trees and branches, with minimal damage sustained. These properties were temporarily closed, but resumed operations shortly after the storm.
67
We sustained significant damage at one of our properties which was severely flooded. As a result of the flooding and related damage, we recorded a net casualty loss related to the flooded property of approximately $4.6 million during the three and nine months ended September 30, 2024, to write-off the carrying value. We expect to rebuild and therefore we believe it is probable that we will receive insurance proceeds to offset the casualty loss and have recorded a receivable related to our pending insurance claims. Consequently the casualty loss was completely offset in our consolidated statements of operations by such recovery. Any amount of insurance recovery related to the property damage in excess of the casualty loss incurred is considered a gain contingency, and will be recognized upon final settlement of the claims. Additionally, we accrued $0.5 million related to other losses, which was included in Property operating expenses in our consolidated statements of operations.
Since Hurricane Helene passed, we have worked towards quickly re-opening our properties, except the flooded Asheville property, to normal operating conditions, with our efforts focused on debris cleanup and removal and other more minor repairs.
Subsequent to September 30, 2024, Hurricane Milton also made landfall in Florida and the majority of our Florida properties were temporarily closed but resumed operations shortly after the storm. Damages were generally minor and limited to wind, downed fences, wind-blown debris and downed trees and branches.
Results of Operations
Overview
We derive revenues principally from: (i) rents received from our self storage tenant leases; (ii) fees generated from our Managed REITs; (iii) our Tenant Protection Programs; and (iv) sales of packing and storage-related supplies at our storage facilities. Therefore, our operating results depend significantly on our ability to retain our existing tenants and lease our available self storage units to new tenants, while maintaining and, where possible, increasing the prices for our self storage units.
Competition in the market areas in which we operate is significant and affects the occupancy levels, rental rates, rental revenues and operating expenses of our facilities. Development of any new self storage facilities would intensify competition of self storage operators in markets in which we operate.
As of September 30, 2024 and 2023, we wholly-owned 157 and 153 operating self storage facilities, respectively. Our operating results for the three months ended September 30, 2024 included full quarter results for 155 self storage facilities. Our operating results for the three months ended September 30, 2023 included full quarter results for 153 self storage facilities. Operating results in future periods will depend on the results of operations of these properties and of the real estate properties that we may acquire in the future.
Comparison of the three months ended September 30, 2024 and 2023
Total Self Storage Revenues
Total self storage related revenues for the three months ended September 30, 2024 and 2023 were approximately $55.4 million and $54.8 million, respectively. The increase in total self storage revenues of approximately $0.6 million, or approximately 1.1%, is primarily attributable to an increase in non same-store revenues of approximately $0.6 million, largely as a result of three property acquisitions during 2024.
We expect self storage revenues to primarily fluctuate based on the performance of our same-store pool, which will be influenced by the overall economic environment and increases in self storage supply, amongst other things.
Managed REIT Platform Revenues
Managed REIT Platform revenues for the three months ended September 30, 2024 and 2023 were approximately $2.9 million and $2.5 million, respectively. The increase in Managed REIT Platform revenues of approximately $0.4 million is primarily attributable to increased property management fees of approximately $0.2 million and increased Tenant Protection Program fees at our Managed REITs' properties of approximately $0.1 million as compared to the same period in the prior year. Such increases in Managed REIT Platform revenues were partially offset as compared to the prior year by the effect of sponsor funding reductions recorded to revenue only in the current year.
We expect Managed REIT Platform Revenue to fluctuate commensurate with our Managed REITs' increase in operations and assets under management, as well as additional reductions recorded to such revenue in connection with the
68
Sponsor Funding Agreement as SST VI continues to sell shares in its public offering and such reductions increase commensurately.
Reimbursable Costs from Managed REITs
Reimbursable costs from Managed REITs for the three months ended September 30, 2024 and 2023 were approximately $1.9 million and $1.4 million, respectively. Such revenues consist of costs incurred by us as we provide property management and advisory services to the Managed REITs, which are reimbursed by the Managed REITs, pursuant to our related contracts with the Managed REITs. The increase in reimbursable costs from Managed REITs is primarily related to the growth in the Managed REITs' assets under management. We expect reimbursable costs from Managed REITs to increase in future periods as a result of additional acquisitions by our Managed REITs. We further expect reimbursable costs from Managed REITs to generally fluctuate commensurate with our Managed REITs' increase in operations as we receive reimbursement for providing such services.
Property Operating Expenses
Property operating expenses for the three months ended September 30, 2024 and 2023 were approximately $18.2 million (or 33% of self storage revenue) and $16.3 million (or 30% of self storage revenue), respectively. Property operating expenses include the costs to operate our facilities including compensation related expenses, utilities, insurance, real estate taxes, and property related marketing. The increase in property operating expenses of approximately $1.9 million is largely attributable to increased property operating expenses of approximately $1.0 million related to our non same-store properties and the balance related to increased property insurance costs, payroll costs, repairs and maintenance expenses, and advertising expenses on our same-store properties. We expect property operating expenses to fluctuate commensurate with inflationary pressures and any future acquisitions.
Managed REIT Platform Expenses
Managed REIT Platform expenses for the three months ended September 30, 2024 and 2023 were approximately $1.1 million and $1.3 million, respectively. Such expenses primarily consisted of expenses related to non-reimbursable costs associated with the operation of the Managed REIT Platform incurred directly and indirectly through the Administrative Services Agreement (as discussed in Note 10 – Related Party Transactions, of the notes to consolidated financial statements contained in this report). We expect Managed REIT Platform expenses to fluctuate in future periods commensurate with our level of activity related to the Managed REITs.
Reimbursable Costs from Managed REITs
Reimbursable costs from Managed REITs for the three months ended September 30, 2024 and 2023 were approximately $1.9 million and $1.4 million, respectively. Such expenses consist of costs incurred by us as we provide property management and advisory services to the Managed REITs, which are reimbursed by the Managed REITs, pursuant to our related contracts with the Managed REITs. The increase in reimbursable costs from Managed REITs is primarily related to the growth in the Managed REITs' assets under management. We expect reimbursable costs from the Managed REITs to fluctuate commensurate with our Managed REITs' increase in operations as we receive reimbursement for providing such services.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2024 and 2023 were approximately $7.2 million and $6.3 million, respectively. Such expenses consist primarily of compensation related costs, marketing related costs, legal expenses, accounting expenses, transfer agent fees, directors and officers’ insurance expense and board of directors related costs. The increase in general and administrative expenses was primarily attributable to increased legal expenses, marketing related expenses, and compensation related costs incurred during the three months ended September 30, 2024. We expect general and administrative expenses to decrease as a percentage of total revenues over time.
69
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the three months ended September 30, 2024 and 2023 were approximately $14.1 million and $15.2 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of our in place lease intangible assets resulting from our self storage acquisitions and amortization of certain intangible assets acquired in the Self Administration Transaction. The decrease in depreciation and amortization expense is primarily attributable to the intangible amortization expense related to our in place lease intangible assets recorded in connection with the SSGT II Merger which became fully amortized in November 2023.
Acquisition Expenses
Acquisition expenses for the three months ended September 30, 2024 and 2023 were approximately $38,000 and $76,000, respectively. These acquisition expenses were incurred prior to acquisitions becoming probable in accordance with our capitalization policy.
Equity in earnings (losses) from investments in joint ventures
Losses from our equity method investments in our joint ventures for the three months ended September 30, 2024 and 2023 were approximately $0.4 million and $0.3 million, respectively. Losses from our equity method investments in our joint ventures consists of our allocation of earnings and losses from our joint ventures with SmartCentres.
Equity in earnings (losses) from investments in Managed REITs
Losses from our equity method investments in the Managed REITs for the three months ended September 30, 2024 and 2023 were approximately $0.2 million and $0.4 million, respectively. Losses from our equity method investments in the Managed REITs consists primarily of our allocation of earnings and losses from our investments in SST VI and SSGT III.
Other, Net
Other, net for the three months ended September 30, 2024 and 2023 was approximately $2.0 million and $0.3 million of expense, respectively. Other, net consists primarily of certain state tax expenses, foreign currency fluctuations, changes in value related to our foreign currency and interest rate hedges not designated for hedge accounting, and other miscellaneous items. The unfavorable variance of approximately $1.7 million is primarily due to unfavorable fair value adjustments associated with our SOFR interest rate hedges not designated for hedge accounting during the three months ended September 30, 2024.
Interest Income
Interest Income for the three months ended September 30, 2024 and 2023 was approximately $1.0 million and $0.7 million, respectively. Interest income includes interest income on loans to the Managed REITs, accretion of financing fee revenues associated with such loans, and interest earned on cash held at financial institutions. We expect interest income from the Managed REITs to fluctuate commensurate with their borrowings, as well as changes to benchmark interest rates on such borrowings.
Interest Expense
Interest expense for the three months ended September 30, 2024 and 2023 was approximately $19.1 million and $15.9 million, respectively. Interest expense includes interest expense on our debt, accretion of fair market value adjustments of our debt, amortization of debt issuance costs, and the impact of our interest rate derivatives designated for hedge accounting. The increase of approximately $3.2 million as compared to the same period in the prior year is primarily attributable to increased borrowings, increases to our net effective interest rates, as well as increased amortization of debt issuance costs of approximately $0.5 million primarily due to increased debt issuance costs associated with the 2024 Credit Facility. The increase in net effective interest rates as compared to the same period in the prior year is attributable to a beneficial interest rate hedge which capped SOFR at 2.0% for $125 million of our debt during the three months ended September 30, 2023, which expired on June 28, 2024 and did not provide any benefit during the three months ended September 30, 2024. We expect interest expense to fluctuate in future periods commensurate with our future debt levels and fluctuations in interest rates.
70
Income Tax (Expense) Benefit
Income tax (expense) benefit for the three months ended September 30, 2024 and 2023 was approximately $0.4 million of expense and $1.1 million of benefit, respectively. Income tax consists primarily of state, federal, and Canadian income tax. The change is primarily due to the release of a valuation allowance during the three months ended September 30, 2023 on certain of our deferred tax assets related to our non-capital losses at some of our Canadian properties, resulting in a net income tax benefit for such period. We expect our income tax expense to increase in future periods primarily related to our operations in Canada.
Same-Store Facility Results - three months ended September 30, 2024 and 2023
We consider the data below to be meaningful as this allows for the comparison of results without the effects of acquisition, lease up, or development activity. The following table sets forth operating data for our same-store facilities (stabilized and comparable properties that have been included in the consolidated results of operations since January 1, 2023, excluding five other properties) for the three months ended September 30, 2024 and 2023 (in thousands unless otherwise noted).
|
|
Same-Store Facilities |
|
|
Non Same-Store Facilities |
|
Total |
|
||||||||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
% |
|
|
2024 |
|
|
2023 |
|
|
% |
|
2024 |
|
|
2023 |
|
|
% |
|
||||||||
Revenue (1) |
|
$ |
51,078 |
|
|
$ |
51,283 |
|
|
|
(0.4 |
)% |
|
$ |
2,125 |
|
|
$ |
1,488 |
|
|
N/M |
|
$ |
53,203 |
|
|
$ |
52,771 |
|
|
|
0.8 |
% |
Property |
|
|
16,528 |
|
|
|
15,546 |
|
|
|
6.3 |
% |
|
|
1,111 |
|
|
|
655 |
|
|
N/M |
|
|
17,639 |
|
|
|
16,201 |
|
|
|
8.9 |
% |
Net operating |
|
$ |
34,550 |
|
|
$ |
35,737 |
|
|
|
(3.3 |
)% |
|
$ |
1,014 |
|
|
$ |
833 |
|
|
N/M |
|
$ |
35,564 |
|
|
$ |
36,570 |
|
|
|
(2.8 |
)% |
Number of |
|
|
148 |
|
|
|
148 |
|
|
|
|
|
|
9 |
|
|
|
6 |
|
|
|
|
|
157 |
|
|
|
154 |
|
|
|
|
||
Rentable |
|
|
11,403,300 |
|
|
|
11,404,485 |
|
|
|
|
|
|
804,700 |
|
|
|
486,700 |
|
|
|
|
|
12,208,000 |
|
|
|
11,891,185 |
|
|
|
|
||
Average |
|
|
92.4 |
% |
|
|
93.1 |
% |
|
|
(0.7 |
)% |
|
|
84.7 |
% |
|
NM |
|
|
NM |
|
|
92.0 |
% |
|
|
92.9 |
% |
|
|
(0.9 |
)% |
|
Annualized |
|
$ |
20.25 |
|
|
$ |
20.14 |
|
|
|
0.5 |
% |
|
$ |
15.56 |
|
|
NM |
|
|
NM |
|
$ |
20.01 |
|
|
$ |
20.08 |
|
|
|
(0.4 |
)% |
|
N/M Not meaningful
Our same-store revenue decreased by approximately $0.2 million, or approximately 0.4%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to an approximately 0.7% decrease in average occupancy, partially offset by an approximately 0.5% increase in annualized rent per occupied square foot. The increase in property operating expenses is primarily attributable to increased property insurance costs, payroll costs, repairs and maintenance expenses, and advertising expenses.
71
The following table presents a reconciliation of net income (loss) as presented on our consolidated statements of operations to net operating income, as stated above, for the periods indicated (in thousands):
|
|
For the Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net (loss) income |
|
$ |
(3,392 |
) |
|
$ |
2,979 |
|
Adjusted to exclude: |
|
|
|
|
|
|
||
Tenant Protection Program revenue(1) |
|
|
(2,175 |
) |
|
|
(1,987 |
) |
Tenant Protection Program |
|
|
610 |
|
|
|
117 |
|
Managed REIT Platform revenue |
|
|
(2,923 |
) |
|
|
(2,518 |
) |
Managed REIT Platform expenses |
|
|
1,053 |
|
|
|
1,307 |
|
General and administrative |
|
|
7,210 |
|
|
|
6,277 |
|
Depreciation |
|
|
13,836 |
|
|
|
13,427 |
|
Intangible amortization expense |
|
|
215 |
|
|
|
1,732 |
|
Acquisition expenses |
|
|
38 |
|
|
|
76 |
|
Equity in (earnings) losses from |
|
|
380 |
|
|
|
274 |
|
Equity in (earnings) losses from |
|
|
248 |
|
|
|
444 |
|
Other, net |
|
|
1,981 |
|
|
|
266 |
|
Interest income |
|
|
(1,023 |
) |
|
|
(699 |
) |
Interest expense |
|
|
19,102 |
|
|
|
15,925 |
|
Income tax expense (benefit) |
|
|
404 |
|
|
|
(1,050 |
) |
Total net operating income |
|
$ |
35,564 |
|
|
$ |
36,570 |
|
(1) Included within ancillary operating revenue within our consolidated statements of operations, approximately $2.0 million and $1.9 million of Tenant Protection Program revenue was earned at same store facilities during the three months ended September 30, 2024 and 2023, respectively, with the remaining approximately $0.1 million and $0.1 million earned at non same-store facilities during the three months ended September 30, 2024 and 2023, respectively.
Comparison of the nine months ended September 30, 2024 and 2023
Total Self Storage Revenues
Total self storage related revenues for the nine months ended September 30, 2024 and 2023 were approximately $163.0 million and $162.1 million, respectively. The increase in total self storage revenues of approximately $0.9 million, or approximately 0.6%, is primarily attributable to an increase in non same-store revenues of approximately $1.0 million, largely as a result of three property acquisitions during the nine months ended September 30, 2024.
We expect self storage revenues to primarily fluctuate based on the performance of our same-store pool, which will be influenced by the overall economic environment and increases in self storage supply, amongst other things.
Managed REIT Platform Revenues
Managed REIT Platform revenues for the nine months ended September 30, 2024 and 2023 were approximately $8.3 million and $9.1 million, respectively. The decrease in Managed REIT Platform revenues of approximately $0.8 million is primarily attributable to decreased acquisition fees as compared to the same period in the prior year. We earned approximately $1.9 million in acquisition fees from SST VI in June 2023 as a result of a multi-property portfolio acquisition. Managed REIT Platform revenues were also reduced as compared to the prior year to a lesser extent by the effect of sponsor funding reductions recorded to revenue only in the current year. Such decreases in Managed REIT Platform revenues were partially offset by increased Tenant Protection Program fees, property management and asset management fees as a result of increased assets under management.
We expect Managed REIT Platform Revenue to fluctuate commensurate with our Managed REITs' increase in operations and assets under management, as well as additional reductions recorded to such revenue in connection with the
72
Sponsor Funding Agreement as SST VI continues to sell shares in its public offering and such reductions increase commensurately.
Reimbursable Costs from Managed REITs
Reimbursable costs from Managed REITs for the nine months ended September 30, 2024 and 2023 were approximately $5.0 million and $4.2 million, respectively. Such revenues consist of costs incurred by us as we provide property management and advisory services to the Managed REITs, which are reimbursed by the Managed REITs, pursuant to our related contracts with the Managed REITs. The increase in reimbursable costs from Managed REITs is primarily related to the growth in the Managed REITs' assets under management. We expect reimbursable costs from Managed REITs to increase in future periods as a result of additional acquisitions by our Managed REITs. We further expect reimbursable costs from Managed REITs to generally fluctuate commensurate with our Managed REITs' increase in operations as we receive reimbursement for providing such services.
Property Operating Expenses
Property operating expenses for the nine months ended September 30, 2024 and 2023 were approximately $53.3 million (or 33% of self storage revenue) and $49.3 million (or 30% of self storage revenue), respectively. Property operating expenses include the costs to operate our facilities including compensation related expenses, utilities, insurance, real estate taxes, and property related marketing. The increase in property operating expenses of approximately $4.0 million is largely attributable to increased property operating expenses of approximately $1.5 million related to our non same-store properties and the balance related to increased insurance costs, payroll costs, repairs and maintenance expenses, and advertising expenses on our same-store properties. We expect property operating expenses to fluctuate commensurate with inflationary pressures and any future acquisitions.
Managed REIT Platform Expenses
Managed REIT Platform expenses for the nine months ended September 30, 2024 and 2023 were approximately $2.6 million and $2.5 million, respectively. Such expenses primarily consisted of expenses related to non-reimbursable costs associated with the operation of the Managed REIT Platform incurred directly and indirectly through the Administrative Services Agreement (as discussed in Note 10 – Related Party Transactions, of the notes to consolidated financial statements contained in this report). The increase in Managed REIT Platform Expenses is primarily related to growth in the Managed REITs' assets under management. We expect Managed REIT Platform expenses to fluctuate in future periods commensurate with our level of activity related to the Managed REITs.
Reimbursable Costs from Managed REITs
Reimbursable costs from Managed REITs for the nine months ended September 30, 2024 and 2023 were approximately $5.0 million and $4.2 million, respectively. Such expenses consist of costs incurred by us as we provide property management and advisory services to the Managed REITs, which are reimbursed by the Managed REITs, pursuant to our related contracts with the Managed REITs. The increase in reimbursable costs from Managed REITs is primarily related to the growth in the Managed REITs' assets under management. We expect reimbursable costs from the Managed REITs to fluctuate commensurate with our Managed REITs' increase in operations as we receive reimbursement for providing such services.
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2024 and 2023 were approximately $22.4 million and $20.0 million, respectively. Such expenses consist primarily of compensation related costs, marketing related costs, legal expenses, accounting expenses, transfer agent fees, directors and officers’ insurance expense and board of directors related costs. During the nine months ended September 30, 2024 and 2023, we recorded expenses of approximately $0.3 million and none, respectively, related to our filing of an amendment to our registration statement on Form S-11 and related costs in pursuit of a potential offering of our common stock. The remaining increase in general and administrative expenses was primarily attributable to increased legal expenses, marketing related expenses, and compensation related costs incurred during the nine months ended September 30, 2024. We expect general and administrative expenses to decrease as a percentage of total revenues over time.
73
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the nine months ended September 30, 2024 and 2023 were approximately $41.5 million and $45.6 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of our in place lease intangible assets resulting from our self storage acquisitions and amortization of certain intangible assets acquired in the Self Administration Transaction. The decrease in depreciation and amortization expense is primarily attributable to the intangible amortization expense related to our in place lease intangible assets recorded in connection with the SSGT II Merger which became fully amortized in November 2023.
Acquisition Expenses
Acquisition expenses for the nine months ended September 30, 2024 and 2023 were approximately $121,000 and $118,000, respectively. These acquisition expenses were incurred prior to acquisitions becoming probable in accordance with our capitalization policy.
Equity in earnings (losses) from investments in joint ventures
Losses from our equity method investments in our joint ventures for the nine months ended September 30, 2024 and 2023 were approximately $1.1 million and $1.2 million, respectively. Losses from our equity method investments in our joint ventures consists of our allocation of earnings and losses from our joint ventures with SmartCentres.
Equity in earnings (losses) from investments in Managed REITs
Losses from our equity method investments in the Managed REITs for the nine months ended September 30, 2024 and 2023 were approximately $1.0 million and $0.9 million, respectively. Losses from our equity method investments in the Managed REITs consists primarily of our allocation of earnings and losses from our investments in SST VI and SSGT III.
Other, Net
Other, net for the nine months ended September 30, 2024 and 2023 was approximately $2.9 million and $0.2 million of expense, respectively. Other, net consists primarily of certain state tax expenses, foreign currency fluctuations, changes in value related to our foreign currency and interest rate hedges not designated for hedge accounting, and other miscellaneous items. The unfavorable variance of approximately $2.7 million is primarily due to unfavorable fair value adjustments associated with our SOFR interest rate hedges not designated for hedge accounting during the nine months ended September 30, 2024.
Interest Income
Interest Income for the nine months ended September 30, 2024 and 2023 was approximately $2.4 million and $2.5 million, respectively. Interest income includes interest income on loans to the Managed REITs, accretion of financing fee revenues associated with such loans, and interest earned on cash held at financial institutions. We expect interest income from the Managed REITs to fluctuate commensurate with their borrowings, as well as changes to benchmark interest rates on such borrowings.
Interest Expense
Interest expense for the nine months ended September 30, 2024 and 2023 was approximately $52.9 million and $45.5 million, respectively. Interest expense includes interest expense on our debt, accretion of fair market value adjustments of our debt, amortization of debt issuance costs, and the impact of our interest rate derivatives designated for hedge accounting. The increase of approximately $7.4 million as compared to the same period in the prior year is primarily attributable to increased borrowings, increases to our net effective interest rates, as well as increased amortization of debt issuance costs of approximately $0.9 million primarily due to increased debt issuance costs associated with the 2024 Credit Facility. The increase in net effective interest rates as compared to the same period in the prior year is attributable to two beneficial interest rate hedges which capped SOFR at 1.75% and 2.0% for $125 million of our debt, each, which expired on June 30, 2023 and June 28, 2024, respectively. We expect interest expense to fluctuate in future periods commensurate with our future debt levels and fluctuations in net effective interest rates.
74
Loss on Debt Extinguishment
Loss on debt extinguishment for the nine months ended September 30, 2024 and 2023 was approximately $0.5 million, and none, respectively. Loss on debt extinguishment for the nine months ended September 30, 2024 was related to certain unamortized debt issuance costs associated with the 2021 Credit Facility which were expensed in connection with the execution of the new 2024 Credit Facility. Please see Note 5 – Debt, of the notes to consolidated financial statements contained in this report for additional information.
Income Tax (Expense) Benefit
Income tax (expense) benefit for the nine months ended September 30, 2024 and 2023 was approximately $1.1 million of expense and $0.9 million of benefit, respectively. Income tax consists primarily of state, federal, and Canadian income tax. The change is primarily due to the release of a valuation allowance during the nine months ended September 30, 2023 on certain of our deferred tax assets related to our non-capital losses at some of our Canadian properties, resulting in a net income tax benefit for such period. We expect our income tax expense to increase in future periods primarily related to our operations in Canada.
Same-Store Facility Results - nine months ended September 30, 2024 and 2023
We consider the data below to be meaningful as this allows for the comparison of results without the effects of acquisition, lease up, or development activity. The following table sets forth operating data for our same-store facilities (stabilized and comparable properties that have been included in the consolidated results of operations since January 1, 2023, excluding five other properties) for the nine months ended September 30, 2024 and 2023 (in thousands unless otherwise noted).
|
|
Same-Store Facilities |
|
|
Non Same-Store Facilities |
|
Total |
|
||||||||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
% |
|
|
2024 |
|
|
2023 |
|
|
% |
|
2024 |
|
|
2023 |
|
|
% |
|
||||||||
Revenue (1) |
|
$ |
151,489 |
|
|
$ |
151,882 |
|
|
|
(0.3 |
)% |
|
$ |
5,383 |
|
|
$ |
4,375 |
|
|
N/M |
|
$ |
156,872 |
|
|
$ |
156,257 |
|
|
|
0.4 |
% |
Property operating |
|
|
49,427 |
|
|
|
47,080 |
|
|
|
5.0 |
% |
|
|
3,041 |
|
|
|
2,020 |
|
|
N/M |
|
|
52,468 |
|
|
|
49,100 |
|
|
|
6.9 |
% |
Net operating |
|
$ |
102,062 |
|
|
$ |
104,802 |
|
|
|
(2.6 |
)% |
|
$ |
2,342 |
|
|
$ |
2,355 |
|
|
N/M |
|
$ |
104,404 |
|
|
$ |
107,157 |
|
|
|
(2.6 |
)% |
Number of |
|
|
148 |
|
|
|
148 |
|
|
|
|
|
|
9 |
|
|
|
6 |
|
|
|
|
|
157 |
|
|
|
154 |
|
|
|
|
||
Rentable square |
|
|
11,403,300 |
|
|
|
11,404,485 |
|
|
|
|
|
|
804,700 |
|
|
|
486,700 |
|
|
|
|
|
12,208,000 |
|
|
|
11,891,185 |
|
|
|
|
||
Average physical |
|
|
92.4 |
% |
|
|
93.1 |
% |
|
|
(0.7 |
)% |
|
|
83.1 |
% |
|
NM |
|
|
NM |
|
|
91.8 |
% |
|
|
92.8 |
% |
|
|
(1.0 |
)% |
|
Annualized rent |
|
$ |
19.96 |
|
|
$ |
19.86 |
|
|
|
0.5 |
% |
|
$ |
15.25 |
|
|
NM |
|
|
NM |
|
$ |
19.72 |
|
|
$ |
19.82 |
|
|
|
(0.5 |
)% |
|
N/M Not meaningful
75
Our same-store revenue decreased by approximately $0.4 million, or approximately 0.3%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to an approximately 0.7% decrease in average occupancy, partially offset by an approximately 0.5% increase in annualized rent per occupied square foot. The increase in property operating expenses is primarily attributable to increased property insurance costs, payroll costs, repairs and maintenance expenses, and advertising expenses.
The following table presents a reconciliation of net income (loss) as presented on our consolidated statements of operations to net operating income, as stated above, for the periods indicated (in thousands):
|
|
For the Nine Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net (loss) income |
|
$ |
(5,735 |
) |
|
$ |
9,291 |
|
Adjusted to exclude: |
|
|
|
|
|
|
||
Tenant Protection Program revenue(1) |
|
|
(6,152 |
) |
|
|
(5,826 |
) |
Tenant Protection Program |
|
|
867 |
|
|
|
233 |
|
Managed REIT Platform revenue |
|
|
(8,328 |
) |
|
|
(9,115 |
) |
Managed REIT Platform expenses |
|
|
2,552 |
|
|
|
2,538 |
|
General and administrative |
|
|
22,449 |
|
|
|
19,996 |
|
Depreciation |
|
|
41,057 |
|
|
|
40,075 |
|
Intangible amortization expense |
|
|
461 |
|
|
|
5,487 |
|
Acquisition expenses |
|
|
121 |
|
|
|
118 |
|
Equity in (earnings) losses from |
|
|
1,068 |
|
|
|
1,215 |
|
Equity in (earnings) losses from |
|
|
957 |
|
|
|
894 |
|
Other, net |
|
|
2,949 |
|
|
|
161 |
|
Interest income |
|
|
(2,375 |
) |
|
|
(2,537 |
) |
Interest expense |
|
|
52,949 |
|
|
|
45,534 |
|
Loss on debt extinguishment |
|
|
471 |
|
|
|
— |
|
Income tax (expense) benefit |
|
|
1,093 |
|
|
|
(907 |
) |
Total net operating income |
|
$ |
104,404 |
|
|
$ |
107,157 |
|
(1) Included within ancillary operating revenue within our consolidated statements of operations, approximately $5.8 million and $5.6 million of Tenant Protection Program revenue was earned at same store facilities during the nine months ended September 30, 2024 and 2023, respectively, with the remaining approximately $0.3 million and $0.3 million earned at non same-store facilities during the nine months ended September 30, 2024 and 2023, respectively.
76
Non-GAAP Financial Measures
Funds from Operations
Funds from operations (“FFO”), is a non-GAAP financial metric promulgated by the National Association of Real Estate Investment Trusts (NAREIT) that we believe is an appropriate supplemental measure to reflect our operating performance. We define FFO consistent with the standards established by the White Paper on FFO approved by the board of governors of NAREIT, or the White Paper. The White Paper defines FFO as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and real estate related asset impairment write downs, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Additionally, gains and losses from change in control are excluded from the determination of FFO. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. Our FFO calculation complies with NAREIT’s policy described above.
FFO, as Adjusted
We use FFO, as adjusted, as an additional non-GAAP financial measure to evaluate our operating performance. FFO, as adjusted, provides investors with supplemental performance information that is consistent with the performance models and analysis used by management. In addition, FFO, as adjusted, is a measure used among our peer group, which includes publicly traded REITs. Further, we believe FFO, as adjusted, is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies.
In determining FFO, as adjusted, we make further adjustments to the NAREIT computation of FFO to exclude the effects of non-real estate related asset impairments and intangible amortization, acquisition related costs, other write-offs incurred in connection with acquisitions, contingent earnout expenses, accretion of fair value of debt adjustments, amortization of debt issuance costs, gains or losses from extinguishment of debt, adjustments of deferred tax assets and liabilities, realized and unrealized gains/losses on foreign exchange transactions, gains/losses on foreign exchange and interest rate derivatives not designated for hedge accounting, and other select non-recurring income or expense items which we believe are not indicative of our overall long-term operating performance. We exclude these items from GAAP net income (loss) to arrive at FFO, as adjusted, as they are not the primary drivers in our decision-making process and excluding these items provides investors a view of our continuing operating portfolio performance over time, which in any respective period may experience fluctuations in such acquisition, merger or other similar activities that are not of a long-term operating performance nature. FFO, as adjusted, also reflects adjustments for unconsolidated partnerships and jointly owned investments. We use FFO, as adjusted, as one measure of our operating performance when we formulate corporate goals and evaluate the effectiveness of our strategies.
Presentation of FFO and FFO, as adjusted, is intended to provide useful information to investors as they compare the operating performance of different REITs. However, not all REITs calculate FFO and FFO, as adjusted, the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and FFO, as adjusted, are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and FFO, as adjusted, should be reviewed in conjunction with other measurements as an indication of our performance.
77
The following is a reconciliation of net income (loss) (attributable to common stockholders), which is the most directly comparable GAAP financial measure, to FFO and FFO, as adjusted (attributable to common stockholders), and FFO and FFO, as adjusted (attributable to common stockholders and OP unit holders) for each of the periods presented below (in thousands):
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
||||
Net (loss) income |
|
$ |
(6,220 |
) |
|
$ |
(636 |
) |
|
$ |
(14,688 |
) |
|
$ |
(1,632 |
) |
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation of real estate |
|
|
13,526 |
|
|
|
13,164 |
|
|
|
40,189 |
|
|
|
39,331 |
|
Amortization of real estate related intangible assets |
|
|
178 |
|
|
|
1,659 |
|
|
|
278 |
|
|
|
5,268 |
|
Depreciation and amortization of real estate and |
|
|
719 |
|
|
|
649 |
|
|
|
1,914 |
|
|
|
1,748 |
|
Deduct: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjustment for noncontrolling interests |
|
|
(1,739 |
) |
|
|
(1,812 |
) |
|
|
(5,086 |
) |
|
|
(5,411 |
) |
FFO (attributable to common stockholders) |
|
$ |
6,464 |
|
|
$ |
13,024 |
|
|
$ |
22,607 |
|
|
$ |
39,304 |
|
Other Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Intangible amortization expense - contracts (2) |
|
|
37 |
|
|
|
73 |
|
|
|
183 |
|
|
|
219 |
|
Acquisition expenses (3) |
|
|
38 |
|
|
|
76 |
|
|
|
121 |
|
|
|
118 |
|
Acquisition expenses and foreign currency |
|
|
(27 |
) |
|
|
(27 |
) |
|
|
42 |
|
|
|
94 |
|
Accretion of fair market value of secured debt |
|
|
— |
|
|
|
3 |
|
|
|
80 |
|
|
|
10 |
|
Foreign currency and interest rate derivative |
|
|
1,671 |
|
|
|
96 |
|
|
|
2,308 |
|
|
|
(227 |
) |
Offering related expenses (5) |
|
|
— |
|
|
|
— |
|
|
|
330 |
|
|
|
— |
|
Adjustment of deferred tax assets and liabilities (2) |
|
|
282 |
|
|
|
(1,342 |
) |
|
|
602 |
|
|
|
(1,527 |
) |
Sponsor funding reduction (6) |
|
|
218 |
|
|
|
— |
|
|
|
598 |
|
|
|
— |
|
Amortization of debt issuance costs (2) |
|
|
1,202 |
|
|
|
662 |
|
|
|
2,975 |
|
|
|
2,026 |
|
Net loss on extinguishment of debt (7) |
|
|
— |
|
|
|
— |
|
|
|
471 |
|
|
|
— |
|
Loss due to hurricane (8) |
|
|
500 |
|
|
|
— |
|
|
|
500 |
|
|
|
— |
|
Adjustment for noncontrolling interests |
|
|
(473 |
) |
|
|
54 |
|
|
|
(987 |
) |
|
|
(82 |
) |
FFO, as adjusted (attributable to common |
|
$ |
9,912 |
|
|
$ |
12,619 |
|
|
$ |
29,830 |
|
|
$ |
39,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
FFO (attributable to common stockholders) |
|
$ |
6,464 |
|
|
$ |
13,024 |
|
|
$ |
22,607 |
|
|
$ |
39,304 |
|
Net (loss) income attributable to the noncontrolling |
|
|
(422 |
) |
|
|
360 |
|
|
|
(729 |
) |
|
|
1,097 |
|
Adjustment for noncontrolling interests |
|
|
1,739 |
|
|
|
1,812 |
|
|
|
5,086 |
|
|
|
5,411 |
|
FFO (attributable to common stockholders and |
|
$ |
7,781 |
|
|
$ |
15,196 |
|
|
$ |
26,964 |
|
|
$ |
45,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
FFO, as adjusted (attributable to common stockholders) |
|
$ |
9,912 |
|
|
$ |
12,619 |
|
|
$ |
29,830 |
|
|
$ |
39,935 |
|
Net (loss) income attributable to the noncontrolling |
|
|
(422 |
) |
|
|
360 |
|
|
|
(729 |
) |
|
|
1,097 |
|
Adjustment for noncontrolling interests |
|
|
2,212 |
|
|
|
1,758 |
|
|
|
6,073 |
|
|
|
5,493 |
|
FFO, as adjusted (attributable to common |
|
$ |
11,702 |
|
|
$ |
14,737 |
|
|
$ |
35,174 |
|
|
$ |
46,525 |
|
(1) This represents the portion of the above stated adjustments in the calculations of FFO and FFO, as adjusted, that are attributable to our noncontrolling interests in our Operating Partnership.
78
(2) These items represent the amortization, accretion, or adjustment of intangible assets, debt issuance costs, or deferred tax assets and liabilities.
(3) This represents acquisition expenses associated with investments in real estate that were incurred prior to the acquisitions becoming probable and therefore not capitalized in accordance with our capitalization policy.
(4) This represents the mark-to-market adjustment for our 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.
(5) Such costs relate to our filing of a registration statement on Form S-11 and our pursuit of a potential offering of our common stock. As this item is non-recurring and not a primary driver in our decision-making process, FFO is adjusted for its effect to arrive at FFO, as adjusted, as a means of determining a comparable sustainable operating performance metric.
(6) Pursuant to the Sponsor Funding Agreement, SmartStop funds certain costs of SST VI's share sales, and in return
receives Series C Units in Strategic Storage Operating Partnership VI, L.P. The excess of the funding over the value of the Series C Units received is accounted for as a reduction of Managed REIT Platform revenues from SST VI over the remaining estimated term of the management contracts with SST VI. See Note 2 – Summary of Significant Accounting Policies to the Consolidated Financial Statements. FFO is adjusted for its effect to arrive at FFO, as adjusted, as a means of determining a comparable sustainable operating performance metric.
(7) The net loss associated with the extinguishment of debt includes prepayment penalties, defeasance costs, the write-off of unamortized deferred financing fees, and other fees incurred.
(8) Such losses related to Hurricane Helene, which occurred in September 2024.
(9) Our calculation of FFO, as adjusted was modified beginning in the period ended March 31, 2024, to add back the amortization of debt issuance costs. Accordingly, the prior periods have been presented here based on the current calculation, which differs from what was previously reported for such periods. This modification was made to reflect what management believes is a more appropriate calculation in light of recently completed debt refinancings.
FFO, as adjusted declined compared to the same period in the prior year primarily as a result of the effects of increased interest expense on net income, and to a lesser extent, a reduction in property net operating income.
Cash Flows
A comparison of cash flows for operating, investing and financing activities for the nine months ended September 30, 2024 and 2023 is as follows (in thousands):
|
|
Nine Months Ended |
|
|
|
|
||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Change |
|
|||
Net cash flow provided by (used in): |
|
|
|
|
|
|
|
|
|
|||
Operating activities |
|
$ |
53,422 |
|
|
$ |
68,713 |
|
|
$ |
(15,291 |
) |
Investing activities |
|
$ |
(80,301 |
) |
|
$ |
3,488 |
|
|
$ |
(83,789 |
) |
Financing activities |
|
$ |
19,112 |
|
|
$ |
(74,212 |
) |
|
$ |
93,324 |
|
Cash flows provided by operating activities for the nine months ended September 30, 2024 and 2023 were approximately $53.4 million and $68.7 million, respectively, a decrease of approximately $15.3 million. The decrease in cash provided by our operating activities is primarily the result of a decrease of approximately $9.7 million in net income when excluding the impact of non-cash items and unfavorable changes in working capital of approximately $5.6 million as compared to the same period in the prior year. The change in net income was primarily as a result of increased property operating expenses and interest expense. The change in working capital was primarily a result of an increase in Managed REIT receivables, and an increase in accounts payable and accrued liabilities.
79
Cash flows used in investing activities for the nine months ended September 30, 2024 were approximately $80.3 million and cash flows provided by investing activities for the nine months ended September 30, 2023 were approximately $3.5 million, respectively, a change of approximately $83.8 million. The net increase in cash used in investing activities primarily relates to a net change of approximately $41.5 million in cash flows related to our debt investments in the Managed REITs and a net change of approximately $38.7 million in cash flows related to acquisitions and additions to real estate during the nine months ended September 30, 2024 as compared to the same period in the prior year.
Cash flows provided by financing activities for the nine months ended September 30, 2024 were approximately $19.1 million, and cash flows used by financing activities for the nine months ended September 30, 2023 were approximately $74.2 million, respectively, a change of approximately $93.3 million. The change in cash used in financing activities is primarily attributable to net debt proceeds, inclusive of debt issuance costs, received of approximately $83.6 million during the nine months ended September 30, 2024, as compared to net debt cash outflows of approximately $14.0 million during the nine months ended September 30, 2023.
Liquidity and Capital Resources
Short-Term Liquidity and Capital Resources
Our liquidity needs consist primarily of our property operating expenses, general and administrative expenses, Managed REIT Platform expenses, debt service payments, capital expenditures, property acquisitions, property developments and improvements, investments in our Managed REITs, required payments pursuant to our Sponsor Funding Agreement, and distributions to our Series A Convertible Preferred stockholder, limited partners in our Operating Partnership, and our stockholders, as necessary to maintain our REIT qualification. We generally expect that we will meet our short-term liquidity requirements from the combination of existing cash balances and net cash provided from property operations and the Managed REIT Platform and further supported by our 2024 Credit Facility. Alternatively, we may issue additional secured or unsecured financing from banks or other lenders, or we may enter into various other forms of financing.
In April 2022, we received our initial investment grade credit rating of BBB- from Kroll Bond Rating Agency, Inc. In accordance with the Note Purchase Agreement, we intend to maintain a credit rating on an annual basis. This rating was reaffirmed by Kroll in April 2024.
Our 2024 Credit Facility contains a borrowing base requirement, which is impacted by treasury yields. Increases to treasury yields could negatively impact our borrowing base calculation and limit our ability to borrow pursuant to the 2024 Credit Facility. Volatility in the debt and equity markets and continued and/or further impact of rising treasury yields, interest rates, inflation and other economic events will depend on future developments, which are highly uncertain. Such events may have an impact on our current liquidity in the short-term. If such events were to occur in the short-term we would expect to take certain steps, including but not limited to refinancing certain of our current loans, and adding additional properties onto our 2024 Credit Facility, each of which we expect would increase our borrowing availability. Moreover, continued uncertainty or deterioration in the debt and equity markets, or continued increases in treasury yields and interest rates, over an extended period of time, could also potentially impact our liquidity over the long-term. If such events were to occur in the long-term, we would expect to take other additional steps, including but not limited to other sources of capital such as proceeds from secured or unsecured financings from banks or other lenders, issuance of equity instruments, and additional public or private offerings.
Distribution Policy and Distributions
Preferred Stock Dividends
The shares of Series A Convertible Preferred Stock rank senior to all other shares of our capital stock, including our common stock, with respect to rights to receive dividends and to participate in distributions or payments upon any voluntary or involuntary liquidation, dissolution or winding up of the Company. Dividends payable on each share of Series A Convertible Preferred Stock accrue daily but are payable quarterly in arrears. Such dividends accrued at a rate equal to 6.25% per annum until October 29, 2024, and accrued at a rate of 7.0% per annum thereafter. The Series A Convertible Preferred Stock was not redeemed on or prior to the fifth anniversary date of the Initial Closing (October 29, 2024). As such, the dividend rate will continue to increase at an additional 0.75% per annum each year thereafter to a maximum of 9.0% per annum until the tenth anniversary of the Initial Closing, at which time the dividend rate shall increase 0.75% per annum each year thereafter until the Series A Convertible Preferred Stock is either converted or repurchased in full.
80
Common Stock Distributions
On September 27, 2024, our board of directors declared a distribution rate for the month of October 2024 of approximately $0.0508 per share on the outstanding shares of common stock payable to Class A and Class T stockholders of record of such shares as shown on our books at the close of business on October 31, 2024. Such distributions payable to each stockholder of record will be paid the following month.
On October 25, 2024, our board of directors declared a distribution rate for the month of November 2024 of approximately $0.0492 per share on the outstanding shares of common stock payable to Class A and Class T stockholders of record of such shares as shown on our books at the close of business on November 30, 2024. Such distributions payable to each stockholder of record will be paid the following month.
Background and History of Common Stock Distributions
Since substantially all of our operations are performed indirectly through our Operating Partnership, our ability to pay distributions depends in large part on our Operating Partnership’s ability to pay distributions to its partners, including to us. In the event we do not have enough cash from operations to fund cash distributions, we may borrow, issue additional securities or sell assets in order to fund the distributions. The terms of the Series A Convertible Preferred Stock place certain restrictions on our ability to pay distributions to our common stockholders. In general, we are prohibited from paying distributions to our common stockholders other than regular cash dividends on a basis consistent with past practice and dividends payable in shares of common stock in connection with an initial listing of such shares. Accordingly, we are presently only permitted to pay cash distributions, which may be reinvested in stock pursuant to our DRP, unless otherwise approved by the holder of the Series A Convertible Preferred Stock. Absent the foregoing restrictions, our charter allows our board of directors to authorize payments to stockholders in cash or other assets of the Company or in stock, including in stock of one class payable to holders of stock of another class.
We may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from debt or other financing sources.
Distributions are paid to our common stockholders based on the record date selected by our board of directors. Such distributions are based on monthly declaration. We expect to continue to regularly pay distributions unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Distributions are authorized at the discretion of our board of directors, which are directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Code. Absent the restrictions noted above, our board of directors may increase, decrease or eliminate the distribution rate that is being paid on our common stock at any time. Distributions are made on all classes of our common stock at the same time. The funds that are available for distribution may be affected by a number of factors, including the following:
81
The following shows our distributions paid and the sources of such distributions for the respective periods presented (in thousands):
|
|
Nine Months |
|
|
|
|
|
Nine Months |
|
|
|
|
||||
Distributions paid in cash — common stockholders |
|
$ |
26,684 |
|
|
|
|
|
$ |
31,895 |
|
|
|
|
||
Distributions paid in cash — noncontrolling interests |
|
|
6,854 |
|
|
|
|
|
|
6,736 |
|
|
|
|
||
Distributions paid in cash — preferred stockholders |
|
|
9,367 |
|
|
|
|
|
|
9,349 |
|
|
|
|
||
Distributions reinvested |
|
|
16,979 |
|
|
|
|
|
|
11,875 |
|
|
|
|
||
Total distributions |
|
$ |
59,884 |
|
|
|
|
|
$ |
59,855 |
|
|
|
|
||
Source of distributions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash flows provided by operations |
|
$ |
53,422 |
|
|
|
89 |
% |
|
$ |
59,855 |
|
|
|
100 |
% |
Cash on hand |
|
|
— |
|
|
|
0 |
% |
|
|
— |
|
|
|
0 |
% |
Offering proceeds from distribution |
|
|
6,462 |
|
|
|
11 |
% |
|
|
— |
|
|
|
0 |
% |
Total sources |
|
$ |
59,884 |
|
|
|
100 |
% |
|
$ |
59,855 |
|
|
|
100 |
% |
From our inception through September 30, 2024, we paid cumulative distributions of approximately $460.1 million, of which approximately $362.3 million were paid to common stockholders, as compared to cumulative FFO (attributable to common stockholders) of approximately $142.5 million.
For the nine months ended September 30, 2024, we paid distributions of approximately $59.9 million, of which approximately $43.7 million were paid to common stockholders, as compared to FFO (attributable to common stockholders) of approximately $22.6 million.
For the nine months ended September 30, 2023, we paid distributions of approximately $59.9 million, of which approximately $43.8 million were paid to common stockholders, as compared to FFO (attributable to common stockholders) of approximately $39.3 million.
The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.
We must distribute to our stockholders at least 90% of our taxable income each year in order to meet the requirements for being treated as a REIT under the Code. Our directors may authorize distributions in excess of this percentage as they deem appropriate. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period, but may be made in anticipation of cash flow that we expect to receive during a later period and may be made in advance of actual receipt of funds in an attempt to make distributions relatively uniform. To allow for such differences in timing between the receipt of income and the payment of expenses, and the effect of required debt payments, among other things, we could be required to borrow funds from third parties on a short-term basis, issue new securities, or sell assets to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. We are not prohibited from undertaking such activities by our charter, bylaws or investment policies, and we may use an unlimited amount from any source to pay our distributions. These methods of obtaining funding could affect future distributions by increasing operating costs and decreasing available cash, which could reduce the value of our stockholders’ investment in our shares. In addition, such distributions may constitute a return of investors’ capital.
We may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from available funds or from debt financing and pursuant to our distribution reinvestment plan. The payment of distributions from sources other than cash flows from operations may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.
Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flows from operations. However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our investments in the current real estate and financial environment and the types and mix of investments in our portfolio. As a result, future distributions declared and paid may exceed cash flow from operations.
82
Indebtedness
As of September 30, 2024, our net debt was approximately $1,180 million, which included approximately $519 million in fixed rate debt and approximately $664 million in variable rate debt, less approximately $3.3 million in net debt issuance costs. See Note 5 – Debt, of the Notes to the Consolidated Financial Statements for more information about our indebtedness.
As of September 30, 2024, approximately $70.0 million CAD or approximately $51.8 million in USD, was outstanding on the RBC JV Term Loan, approximately $46.0 million CAD or approximately $34.0 million in USD, was outstanding on the RBC JV Term Loan II, and approximately $17.3 million CAD or approximately $12.8 million in USD was outstanding on the SmartCentres Financing. See Note 4 – Investments in Unconsolidated Real Estate Ventures, of the Notes to the Consolidated Financial Statements contained in this report for additional information.
Long-Term Liquidity and Capital Resources
On a long-term basis, our principal demands for funds will be for our property operating expenses, general and administrative expenses, Managed REIT Platform expenses, debt service payments, capital expenditures, property acquisitions, investments in our Managed REITs, required payments pursuant to the Sponsor Funding Agreement, and distributions to our Series A Convertible Preferred stockholder, limited partners in our Operating Partnership, and our stockholders, as necessary to maintain our REIT qualification.
Long-term potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, issuance of equity instruments, undistributed funds from operations, and additional public or private offerings. To the extent we are not able to secure requisite financing in the form of a credit facility or other debt, we will be dependent upon proceeds from the issuance of equity securities and cash flows from operating activities in order to meet our long-term liquidity requirements and to fund our distributions.
Our material cash requirements from contractual and other obligations primarily relate to our debt obligations. The expected timing of those outstanding principal payments are shown in the table below. The information in this section should be read in conjunction with Note 5 – Debt, and Note 12 – Commitments and Contingencies, of the Notes to the Consolidated Financial Statements contained within this report.
The following table presents the future principal payments required on outstanding debt as of September 30, 2024 (in thousands):
2024 |
|
$ |
915 |
|
2025 |
|
|
8,948 |
|
2026 |
|
|
94,333 |
|
2027 |
|
|
706,122 |
|
2028 |
|
|
78,431 |
|
2029 and thereafter |
|
|
294,500 |
|
Total payments |
|
$ |
1,183,249 |
|
As of September 30, 2024, pursuant to various contractual relationships, we are required to make other payments in the amounts of approximately $3.0 million, $11.2 million, $4.2 million, and $3.9 million during the years ending December 31, 2024, 2025, 2026, and 2027, respectively.
Through September 30, 2024, we have incurred approximately $8.7 million in connection with the Sponsor Funding Agreement, representing approximately 928,000 subordinated units. During the three and nine months ended September 30, 2024 we incurred approximately $0.6 million and $1.8 million, respectively, of which approximately $0.2 million was accrued as a payable pursuant to the Sponsor Funding Agreement.
As of September 30, 2024, the maximum remaining commitment of SRA pursuant to the Sponsor Funding Agreement is approximately $61.9 million if SST VI were to sell the maximum amount under its current offering of $1.0 billion.
See Note 10 – Related Party Transactions, of the Notes to the Consolidated Financial Statements for more information about our obligations under these agreements.
For cash requirements related to potential acquisitions currently under contract, please see Note 3 – Real Estate Facilities and Note 4 – Investments in Unconsolidated Real Estate Ventures of the Notes to the Consolidated Financial Statements.
83
Subsequent Events
Please see Note 14 – Subsequent Events of the Notes to the Consolidated Financial Statements contained in this report.
Seasonality
We believe that we will experience minor seasonal fluctuations in the occupancy levels of our facilities, which we believe will be slightly higher over the summer months due to increased moving activity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk and to a lesser extent, foreign currency risk. We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund acquisition, expansion, and financing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes.
As of September 30, 2024, our net debt was approximately $1,180 million, which included approximately $519 million in fixed rate debt and approximately $664 million in variable rate debt, less approximately $3.3 million in net debt issuance costs. See Note 5 – Debt, of the Notes to the Consolidated Financial Statements for more information about our indebtedness.
As of December 31, 2023, our net debt was approximately $1,087 million, which included approximately $523 million in fixed rate debt, approximately $569 million in variable rate debt and approximately $0.1 million in net debt discount, and approximately $4.3 million in net debt issuance costs. Our debt instruments were entered into for other than trading purposes.
Changes in interest rates have different impacts on the fixed and variable debt. A change in interest rates on fixed rate debt impacts its fair value but has no impact on interest incurred or cash flows. A change in interest rates on variable debt could impact the interest incurred and cash flows and its fair value. If the underlying rate of the related index on our variable rate debt were to increase by 100 basis points, the increase in interest as of September 30, 2024, net of our interest rate derivatives, would decrease future earnings and cash flows by approximately $2.6 million annually.
Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.
The following table summarizes annual debt maturities and average interest rates, excluding the impact of our interest rate hedges, on our outstanding debt as of September 30, 2024 (in thousands):
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
Thereafter |
|
|
Total |
|
|||||||
Fixed rate debt |
|
$ |
703 |
|
|
$ |
2,985 |
|
|
$ |
93,286 |
|
|
$ |
49,566 |
|
|
$ |
78,431 |
|
|
$ |
294,500 |
|
|
$ |
519,471 |
|
Average interest |
|
|
4.96 |
% |
|
|
4.96 |
% |
|
|
5.05 |
% |
|
|
5.23 |
% |
|
|
5.23 |
% |
|
|
5.14 |
% |
|
|
|
|
Variable rate debt |
|
$ |
212 |
|
|
$ |
5,963 |
|
|
$ |
1,047 |
|
|
$ |
656,556 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
663,778 |
|
Average interest |
|
|
6.91 |
% |
|
|
6.90 |
% |
|
|
6.90 |
% |
|
|
6.90 |
% |
|
|
— |
|
|
|
— |
|
|
|
|
|
(1) Interest expense for fixed rate debt was calculated based upon the contractual rate and the interest expense on variable rate debt was calculated based on the rate in effect on September 30, 2024, excluding the impact of interest rate derivatives. (See Note 5 – Debt for additional information.) Debt denominated in foreign currency has been converted based on the rate in effect as of September 30, 2024.
Currently, our only foreign exchange rate risk comes from our Canadian properties and CAD. Our existing foreign currency hedges mitigate most of our foreign currency exposure of our net CAD denominated investments; however, we generate all of our revenues and expend essentially all of our operating expenses and third party CAD-denominated debt
84
service costs related to our Canadian Properties in CAD. As a result of fluctuations in currency exchange, our cash flows and results of operations could be affected.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
85
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
For the Month Ended |
|
Total Number of |
|
|
Average Price |
|
|
Total Number of |
|
|
Maximum Number |
|
|
||||
July 31, 2024 |
|
|
566,051 |
|
|
$ |
15.25 |
|
|
|
566,051 |
|
|
|
3,447,775 |
|
(1) |
August 31, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
3,447,775 |
|
(1) |
September 30, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
3,447,775 |
|
(1) |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
The exhibits required to be filed with this report are set forth on the Exhibit Index hereto and incorporated by reference herein.
86
EXHIBIT INDEX
The following exhibits are included in this report on Form 10-Q for the period ended September 30, 2024 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No. |
|
Description |
|
|
|
2.1 |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
3.4 |
|
|
|
|
|
3.5 |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
101* |
|
The following SmartStop Self Storage REIT, Inc. financial information for the three and nine months ended September 30, 2024 formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss) (iv) Consolidated Statements of Equity and Temporary Equity, (v) Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
104* |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 has been formatted in Inline XBRL. |
* Filed herewith.
Certain instruments defining rights of holders of long-term debt of the company and its consolidated subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Upon request, the company agrees to furnish to the SEC copies of such instruments.
87
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
SMARTSTOP SELF STORAGE REIT, INC. (Registrant) |
|
|
|
|
Dated: November 13, 2024 |
By: |
/s/ James R. Barry |
|
|
James R. Barry |
|
|
Chief Financial Officer and Treasurer (Principal Financial Officer) |
88