SmartStop Self Storage REIT, Inc. Reports 2020 Third Quarter Results and Highlights

LADERA RANCH, Calif., Nov. 17, 2020 /PRNewswire/ -- SmartStop Self Storage REIT, Inc. ("SmartStop"), a self-managed and fully-integrated self storage company with approximately $1.7 billion of self storage assets under management, announced its overall results for the three and nine months ended September 30, 2020.

"SmartStop's strong third quarter same-store results show the impact of continuous investments in our brand and technology, putting us at the top of our public peer group this quarter," said H. Michael Schwartz, Executive Chairman of SmartStop. "In addition to our robust operating performance in the third quarter, we were able to execute on strategic initiatives to drive further growth and scalability, including the announced merger agreement with Strategic Storage Trust IV and exercising our option to secure $50 million in further funding from Extra Space."

Third Quarter 2020 Highlights:

• Total self storage-related revenues increased by approximately $1.3 million, or 4.8%, when compared to the same period in 2019.
• FFO, as adjusted, increased by approximately $1.8 million, or 104%, when compared to the same period in 2019.
• Same-store revenues increased by 3.3% compared to the same period in 2019, primarily due to higher occupancy, combined with higher annualized revenue per occupied square foot.
• Same-store NOI increased by 4.7% compared to the same period in 2019, primarily attributable to improved property operating margins.
• Same-store average physical occupancy increased by 190 basis points to 91.7% for the three months ended September 30, 2020, compared to 89.8% during the same period in 2019.
• Same-store annualized revenue per occupied square foot was approximately $16.03 for the third quarter of 2020, which represented an increase of approximately 1.1% when compared to the same period in 2019.
• Managed REIT Platform revenue increased by approximately $0.9 million, or 72%, when compared to the same period in 2019.

Nine Months Ended September 30, 2020 Highlights:

• Total self storage-related revenues increased by approximately $4.3 million, or 5.7%, when compared to the same period in 2019.
• FFO, as adjusted, increased by approximately $2.7 million, or 75%, when compared to the same period in 2019.
• Same-store revenues increased by 2.2% compared to the same period in 2019.
• Same-store NOI increased by 7.0% compared to the same period in 2019, primarily attributable to cost savings associated with the Self Administration Transaction on June 28, 2019.
• Same-store average physical occupancy increased by 120 basis points to 90.0% for the nine months ended September 30, 2020, compared to 88.8% during the same period in 2019.
• Same-store annualized revenue per occupied square foot was approximately $16.01 for the nine months ended September 30, 2020, which represented an increase of approximately 0.7% when compared to the same period in 2019.
• Managed REIT Platform revenue of approximately $5.7 million for the nine months ended September 30, 2020, up significantly from $1.2 million during the same period in 2019.

"The current operating environment reinforces the resilient nature of our portfolio and the emphasis on customer service that SmartStop provides," said Michael McClure, Chief Executive Officer of SmartStop. "We remain humbled by the dedication of our SmartStop team members in this current environment, who have continued working together and executing so diligently on behalf of our customers and stockholders."

Announced All-Stock Acquisition of Strategic Storage Trust IV, Inc.

On November 10th, 2020, SmartStop announced the execution of a definitive merger agreement with Strategic Storage Trust IV, Inc. ("SST IV"), to be completed as an all-stock transaction. Per the merger agreement, SmartStop will acquire all of the real estate owned by SST IV, consisting of 24 wholly-owned self storage facilities located across 9 states and 5 joint venture properties in various stages of development located in the Greater Toronto Area of Ontario, Canada. The total SST IV portfolio, including the estimated joint venture property data on a fully-developed basis, represents approximately 22,500 self storage units and 2.6 million net rentable square feet. Upon completion of the merger, SST IV will merge into a newly-formed subsidiary of SmartStop, creating a company with a combined portfolio of 136 wholly-owned self storage properties with a combined gross book value of approximately $1.5 billion.  

The pending acquisition of SST IV is subject to customary closing conditions, including approval from SST IV's stockholders. The transaction is expected to close during the first half of 2021.

Issuance of Series A Preferred Stock

On October 26, 2020, SmartStop exercised its option to issue an additional 50,000 shares of Series A Preferred Stock to Extra Space Storage LP, a subsidiary of Extra Space Storage Inc. (NYSE: EXR), pursuant to a preferred stock purchase agreement between SmartStop and Extra Space Storage LP announced in October of 2019. The proceeds from the $50 million issuance  are expected to be used to pay down existing debt, finance self storage acquisitions, and for working capital or other general corporate purposes.

COVID-19 Pandemic Update

SmartStop continues to operate its stores with safety and social distancing procedures in place, including the use of masks and plastic dividers. Additionally, SmartStop's corporate headquarters and dedicated call center continue to meet the needs of the business while working remotely.

Many of the factors that slowed revenue growth in the second quarter improved throughout the third quarter, along with increased self storage demand, resulting in revenue returning to more normalized levels. SmartStop's rental activity during the third quarter was strong, existing customer rate increases resumed in most markets, customer collections remained relatively consistent, and asking rates to new customers continued to improve on a year-over-year basis.

Below is a summary of the business indicators, drivers, and metrics which were impacted by the COVID-19 pandemic for the third quarter of 2020 as compared to the second quarter 2020:

• Resumed existing customer rate increases on a modified basis beginning July 2020 and through the third quarter 2020, as compared to no rate increases for SmartStop's existing customers during second quarter 2020;
• A reduction in late fees during third quarter 2020 of approximately 17% on a same-store basis as compared to third quarter 2019, an improvement from second quarter 2020, in which same-store late fees declined 35% year-over-year;
• Same-store move-ins increased approximately 8% during third quarter 2020 as compared to third quarter 2019, an improvement from the decline of approximately 5% year-over-year during the second quarter 2020;
• Same-store move outs declined approximately 5% during third quarter 2020 as compared to third quarter 2019, as compared to the decline of approximately 12% year-over-year for the second quarter 2020;
• Same-store asking rates for new customers increased during the third quarter 2020 as compared to third quarter 2019, after a year-over-year decline during the second quarter 2020;
• Percentage of rents billed and collected within the same month, remained consistent on year-over-year basis at approximately 96% during the third and second quarters of 2020.

Investment in Managed REIT

On September 21, 2020, SmartStop invested approximately $6.5 million in preferred units of Strategic Storage Growth Trust II, Inc.'s operating partnership ("SSGT II Preferred Units"). On October 29, 2020 and November 4, 2020, SmartStop invested an additional approximately $13 million and $13 million, respectively, in SSGT II Preferred Units, bringing SmartStop's total investment to approximately $32.5 million. On November 12, 2020, approximately $19 million of SmartStop's SSGT II Preferred Units were redeemed, reducing SmartStop's investment to $13.5 million.

Declared Distributions

On September 25, 2020, SmartStop's board of directors declared a distribution rate for the fourth quarter of 2020, of approximately $0.00164 per day per share on the outstanding shares of common stock payable to both Class A and Class T stockholders. Such distributions payable to each stockholder of record during a month will be paid the following month.

Partial Reinstatement of Share Redemption Program

On August 20, 2020, SmartStop's board of directors partially reinstated its Share Redemption Program ("SRP"), for redemptions requested in connection with a stockholder's death, qualifying disability, or confinement to a long-term care facility. The board further determined to revise the redemption price per share for all redemptions under the SRP to the most recently-published estimated net asset value per share.

Non-cash Items Included in Net Loss:

Provided below is additional information related to selected non-cash items included in net loss above, which may be helpful in assessing SmartStop's operating results:

• Interest expense - debt issuance costs of approximately $1.0 million and $1.1 million, respectively, were recognized for the three months ended September 30, 2020 and 2019. Interest expense - debt issuance costs of approximately $2.8 million and $3.0 million, respectively, were recognized for the nine months ended September 30, 2020 and 2019.

SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NON-GAAP MEASURE – COMPUTATION OF SAME-STORE OPERATING RESULTS
(Unaudited)

The following table sets forth operating data for SmartStop's same-store facilities (those properties included in the consolidated results of operations since July 1, 2019, excluding 10 lease-up properties SmartStop owned as of July 1, 2019) for the three months ended September 30, 2020 and 2019. SmartStop considers the following data to be meaningful as this allows for the comparison of results without the effects of acquisition, lease up, or development activity.

SmartStop's same-store revenue increased by approximately $0.8 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to higher occupancy combined with higher annualized revenue per occupied square foot.

SmartStop's same-store property operating expenses increased by approximately $0.1 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to increased property taxes and repairs and maintenance.

The following table presents a reconciliation of net loss as presented on SmartStop's consolidated statements of operations to property operating income, as stated above, for the periods indicated:

The following table sets forth operating data for SmartStop's same-store facilities (those properties included in the consolidated results of operations since January 1, 2019) for the nine months ended September 30, 2020 and 2019. SmartStop considers the following data to be meaningful as this allows for the comparison of results without the effects of acquisition, lease up, or development activity.

SmartStop's same-store revenue increased by approximately $1.3 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to higher occupancy and higher annualized revenue per occupied square foot, combined with an increase in revenues attributable to incremental Tenant Program revenues as a result of the Self Administration Transaction. Revenue growth was negatively impacted by the COVID-19 pandemic and the resulting waived late fees, and the suspension of existing customer rate increases during the second quarter of 2020.

SmartStop's same-store property operating expenses decreased by approximately $1.4 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to the elimination of property management fees effective June 28, 2019, partially offset by an increase in compensation expense as a result of the Self Administration Transaction, increased advertising expenses, and COVID-19 related costs.

The following table presents a reconciliation of net loss as presented on SmartStop's consolidated statements of operations to property operating income, as stated above, for the periods indicated:

ADDITIONAL INFORMATION REGARDING NOI, FFO, and MFFO

Net Operating Income ("NOI")

NOI is a non-GAAP measure that SmartStop defines as net income (loss), computed in accordance with GAAP, generated from properties before corporate general and administrative expenses, asset management fees, interest expense, depreciation, amortization, acquisition expenses and other non-property related expenses. SmartStop believes that NOI is useful for investors as it provides a measure of the operating performance of its operating assets because NOI excludes certain items that are not associated with the ongoing operation of the properties. Additionally, SmartStop believes that NOI (also referred to as property operating income) is a widely accepted measure of comparative operating performance in the real estate community. However, SmartStop's use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

Funds from Operations ("FFO") and FFO, as Adjusted

Funds from Operations

Funds from operations ("FFO") is an industry wide metric promulgated by the National Association of Real Estate Investment Trusts, or NAREIT, which SmartStop believes to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure.

SmartStop defines FFO, a non-GAAP measure, 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 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. SmartStop's FFO calculation complies with NAREIT's policy described above.

FFO, as Adjusted

SmartStop uses FFO, as adjusted, as an additional non-GAAP financial measure to evaluate its operating performance. SmartStop previously used Modified Funds from Operations ("MFFO") (as defined by the Institute for Portfolio Alternatives) as a non-GAAP measure of operating performance. Management replaced the MFFO measure with FFO, as adjusted, because 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 SmartStop's peer group, which includes publicly traded REITs. Further, SmartStop believes FFO, as adjusted, is useful in comparing the sustainability of its operating performance with the sustainability of the operating performance of other real estate companies.

In determining FFO, as adjusted, SmartStop makes further adjustments to the NAREIT computation of FFO to exclude the effects of non-real estate related intangible amortization, acquisition related costs, contingent earnout expenses, accretion of fair value of debt adjustments, gains or losses from extinguishment of debt, accretion of deferred tax liabilities, realized and unrealized gains/losses on foreign exchange transactions, and gains/losses on foreign exchange and interest rate derivatives not designated for hedge accounting, which SmartStop believes are not indicative of the Company's overall long-term operating performance. SmartStop excludes these items from GAAP net income to arrive at FFO, as adjusted, as they are not the primary drivers in its decision-making process and excluding these items provides investors a view of its continuing operating portfolio performance over time and makes its results more comparable period to period and to other REITs, 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. SmartStop uses FFO, as adjusted, as one measure of operating performance when SmartStop formulates corporate goals and evaluate the effectiveness of its 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, although it should be noted that 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) or income (loss) from continuing operations as an indication of SmartStop's performance, as an alternative to cash flows from operations, which is an indication of liquidity, or indicative of funds available to fund SmartStop's cash needs including SmartStop's ability to make distributions to its stockholders. FFO and FFO, as adjusted, should not be considered as an alternative to net income (determined in accordance with GAAP) and should be reviewed in conjunction with other measurements as an indication of SmartStop's performance.

Neither the SEC, NAREIT, nor any other regulatory body has passed judgment on the acceptability of the adjustments that SmartStop uses to calculate FFO or FFO, as adjusted. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the publicly registered, non-traded REIT industry and SmartStop would have to adjust its calculation and characterization of FFO or FFO, as adjusted.

About SmartStop Self Storage REIT, Inc. ("SmartStop"):

SmartStop is a self-managed REIT with a fully integrated operations team of approximately 390 self storage professionals focused on growing the SmartStop® Self Storage brand. SmartStop, through its indirect subsidiary SmartStop REIT Advisors, LLC, also sponsors other self storage programs, including Strategic Storage Trust IV, Inc., a public non-traded REIT, and other private programs. SmartStop is the tenth-largest self storage company in the U.S., with approximately $1.7 billion of real estate assets under management, including an owned and managed portfolio of 148 properties in 19 states and Toronto, Canada and comprising approximately 99,000 units and 11.2 million rentable square feet. Additional information regarding SmartStop is available at www.smartstopselfstorage.com.

Certain of the matters discussed in this communication constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "estimate," "believe," "continue," or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements.

All forward-looking statements speak only as of the date hereof and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. Such forward-looking statements include, but are not limited to, statements about the expected effects and benefits of the SST IV merger, the SSGT merger, the self administration transaction and the Series A Preferred equity investment, including anticipated future financial and operating results and synergies, as well as all other statements in this press release, other than historical facts. There are several factors which could cause actual plans and results to differ materially from those expressed or implied in forward-looking statements, including, without limitation, the following: (i)  risks related to disruption of management's attention from SmartStop's ongoing business operations due to the SST IV merger, the self administration transaction, or other business matters; (ii) significant transaction costs, including financing costs, and unknown liabilities; (iii) failure to realize the expected benefits and synergies of either of the SST IV merger, the SSGT merger or the self administration transaction in the expected timeframes or at all; (iv) costs or difficulties related to the integration of acquired self storage facilities and operations, including facilities acquired through the SST IV merger, the SSGT merger and operations acquired through the self administration transaction; (v) changes in the political and economic climate, economic conditions and fiscal imbalances in the United States, and other major developments, including wars, natural disasters, epidemics and pandemics, including the outbreak of novel coronavirus (COVID-19), military actions, and terrorist attacks; (vi) changes in tax and other laws and regulations; or (vii) difficulties in SmartStop's ability to attract and retain qualified personnel and management.

Actual results may differ materially from those indicated by such forward-looking statements. In addition, the forward-looking statements represent SmartStop's views as of the date on which such statements were made. SmartStop anticipates that subsequent events and developments may cause its views to change. These forward-looking statements should not be relied upon as representing SmartStop's views as of any date subsequent to the date hereof. Additional factors that may affect the business or financial results of SmartStop are described in the risk factors included in SmartStop's filings with the SEC, including SmartStop's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which factors are incorporated herein by reference, all of which are filed with the SEC and available at www.sec.gov. SmartStop expressly disclaims a duty to provide updates to forward-looking statements, whether as a result of new information, future events or other occurrences.

Media Contact:
Mark Barbalato
FTI Consulting
212-850-5707
[email protected]

SOURCE SmartStop Self Storage REIT, Inc.

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