Smartstop Self Storage REIT Inc (SMA) Q3 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and to SmartStop Self Storage REIT's Third Quarter 26 Earnings Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to David Steven Corak, Senior Vice President of Corporate Finance and Strategy. David, please go ahead.

Thank you, operator. Before we begin, I would like to remind everyone that certain statements made during today's call including statements about our future plans, prospects, and expectations may be considered forward looking within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act. These forward looking statements are subject to numerous risks and uncertainties as described in our filings with the Securities and Exchange Commission and these risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward looking statements in our earnings release that we issued last night along with the comments on this call, made only as of today. The company assumes no obligation to update any forward looking statements whether as a result of new information, future events, or otherwise. In addition, we will also refer to certain non-GAAP financial measures. Information regarding our use of these measures and reconciliation of these measures to GAAP measures can be found in earnings release and supplemental disclosure that we issued last night and are available for download on our website at investors.smartstopselfstorage.com. In addition to myself, today, we have H. Michael Schwartz, founder, chairman, and CEO, as well as James R. Barry, our CFO. Now I will turn it over to Michael.

Thank you, David, and thank you for joining us today for our third quarter earnings call. SmartStop Self Storage REIT had a strong quarterly results. And we further reinforced our vision by executing on the pillars of our long term strategy for shareholder value creation, through the DECA initiative, which we introduced in July. Let me first touch on our results for the third quarter. We posted strong same store revenue growth of 2%, and operating expense decrease of 3.8% and sector leading NOI growth of 4.9%. Even with a modest currency headwind on a constant currency basis, same store NOI grew 5.1%. Operationally, 11 of our top 15 markets achieved positive same store NOI growth. Our strong focus on expense control led to 190 basis points year over year growth in our same store operating margins, This is our third quarter in a row of improved margins, and the highest 3Q operating margin since 2023. This operational performance coupled with overall efficiency resulted in an FFO as adjusted per share of 51¢ up approximately 9.4% year over year. With these results and good momentum into the fourth quarter, we once again raised the midpoint of our same store revenue as well as our same store NOI guidance, the fourth time this year. Lastly, we raised the midpoint of our FFO as adjusted per share guidance. The DECA initiative, our multiyear strategic framework, that stands for disciplined execution, compounding appreciation through 6 defined pillars for outside long term value creation. As a brief reminder, the 6 pillars comprise disciplined capital allocation as an NAV creation engine, operational focus through clustering and margin expansion, investment in technology led by SmartStop.ai, leveraging third party management to achieve capital light scaling, our managed REIT platform, and targeting joint ventures that advance our clustering strategy by acquiring operating assets at scale. With this clear strategic focus, we are confident in our ability to create value through relative outperformance, margin expansion, and outsized FFO per share growth, all of which we have demonstrated with our 3Q results and announcements. To that end, on the transaction side, we announced an estimated $53 million investment in Strategic Storage Canada LP a Canadian growth oriented acquisition joint venture which expands our Canadian operating presence by over 30% to 70 stores. A new programmatic investment partnership with an institutional sponsor who is an accomplished developer in The US. Our preferred and mezzanine investments carry blended in place yields in the mid teens, and will also receive property management, rights of first offers, and a pipeline of future deals for investment and acquisitions from the sponsor's platform. During the quarter, we deployed approximately $32.3 million of bridge capital the majority of which was to this sponsor. We also announced that we are under contract to acquire 2 on balance sheet acquisitions for approximately $37 million, both in core SMA markets. From a funding standpoint, we priced 200 million CAD Maplebond at 4.32%, and approximately 2.4 million forward shares through our ATM program at an average price of $32.01. On the third party management side, we officially rebranded Argus to SmartStop 3PM. Lastly, we announced an asset management program aimed at the disposition of properties in select noncore markets to redeploy capital into core markets to further reinforce our efficiencies and clustering. On the performance side, our sector leading same store NOI growth of point 9% was driven by our strong revenue management and growing expense efficiencies as we scale. This led to same store operating margins of 68%, up 190 basis points year over year. We also posted year over year NOI growth of 4.9% on a constant currency basis in our 10 GTA smart centers joint venture properties. Our managed REIT platform posted 16.3% year over year growth of recurring revenues. The stellar performance paired with a busy quarter on the transaction front actually led to a reduction of normalized cash flow leverage to 6x or 5.6x assuming the full settlement of our Ford ATM shares. The DECA initiative was full swing in the third quarter, and we are excited about what lies ahead for our company. Now I will turn it over to James.

Thank you, Michael. Starting with our operating performance, our same store pool posted year over year revenue growth, of 2% with a 3.8% decrease in operating expenses. Leading to an NOI increase of 4.9% with quarter ending occupancy of 92.1% and in place rent per occupied square foot up 2.6%. On a constant currency basis, same store revenue grew 2.1%, and NOI grew 5.1%. We were very pleased with our operating expenses with a year over year same store decrease of 3.8% in the quarter as the benefits of scale continue to manifest themselves in margin expansion. We saw a decrease in property taxes, property insurance, repairs and maintenance, and utilities in the quarter. Our move in rates per square foot were down 5.7% on average for the quarter year over year. As we prioritize occupancy. Strategy was successful as our occupancy was only down about 30 basis points month over month from August to September and our move ins were up 5.6% year over year for the quarter. In October, we gained occupancy from the end of September at 92.2%, as of the end of that month. The results of all of this that for the third quarter of 26, we posted fully diluted FFO as adjusted per share in unit of 51¢, up approximately 9.4% from $0.47 in the third quarter of 25. Turning to guidance. At the end of September, we adjusted our full year 2026 guidance upward to reflect year to date results well as the impact of announced transactions. The highlights of those adjustments were a raise in the same store revenue, same store NOI, and FFO as adjusted per share ranges. Last night, we once again adjusted our full year guidance. We raised our same store revenue guidance from a range of 0.75% to 1.75% up to a range of 1.25% to 1.75%. Additionally, we reduced our overall operating expense growth range from 0% to 1% down to a range of negative 25 basis points to positive 25 basis points. This results in an increase of our NOI growth midpoint from 1.65% up to 2.25%. We are now expecting capital deployment of $200 million to $220 million compared to our prior range of $190 million to $210 million and notably above our initial guidance range at the beginning of the year of $45 million to $65 million Lastly, we are adjusting our FFO as adjusted per share guidance range. From a range of $1.99 to $2.05 up to a range of $2.01 to $2.05. Increasing the midpoint to $2.03 primarily driven by stronger same store performance. As Michael said, we have a clear plan to continue executing on our growth strategy to drive value for shareholders. The results are beginning to demonstrate the potential of the DECA initiative. And with that, operator, we will open it up to questions.

We will now begin the question-and-answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Viktor Fediv with Scotiabank. Viktor, please go ahead.

Afternoon, and thank you for taking my question. So my question is about your disposition plan. So you plan around $75 million to $125 million of non core sales beginning in early 27. So how advanced is the process, and do you expect the sales to be actually initially dilutive to 2027 FFO per share? And how quickly it can proceed to be redeployed and probably some details on yield spreads as well would be helpful.

Great. Thanks, Viktor. This is Michael. You know, our strategic asset management program plays into the DECC initiative. In terms of, you know, the scale and clustering. This is all about clustering. In MSAs where we have 10 properties or more, we have been very clear our operating margins improved by over 300 basis points. We lack scale and do not see a path to scale, we would rather recycle that capital into core markets where we can grow you know, our clusters and efficiencies. So we have initially targeted $75 million to $125 million. We expect those to close in the first half of 27. There could be more after that, but this is kind of our initial plan. We have several properties being marketed right now. You know, 1 that I would point out would be there. We have 2 properties on the island of Nantucket. that is a tough market to scale since there is probably not 10 properties on the island. So those fit the bill, I think, quite well. Now with that, with pricing expectations, David?

Yeah. Hey, Viktor. it is Corak. So in terms of, you know, the pricing and how I think about accretion dilution, we expect the cap rates on these deals that we are buying to be fairly similar to the ones that we are selling. Remember, this is not a strategy that is divesting sort of the bottom of the barrel of the portfolio as you see in a lot of the you know, asset management programs out there in REIT land. You know, some of the markets like Nantucket, like Michael mentioned, are actually fairly low cap rate markets. So for a pure sort of NOI for NOI standpoint, I do not think there is ton of, you know, accretion or dilution. But when you factor in the potential efficiencies here, right, I probably lean more towards the accretion in the short to medium term. And just to say that these will all be 31 exchanges, so there will not be any, you know, tax implications. And then lastly, just something to think about. You know, we are we are hoping that on potentially some of these dispositions, we could actually retain management of some of the assets. So that could lend itself again to the accretion side.

Got it. that is helpful. And then as a follow-up on moving rates, trajectory. So currently, your moving in versus move out spread is 1 of the widest within the public peers. So is your strategy still focusing on occupancy for example, in October and then now in the beginning of November? And do you see that spread between move in, move out being narrower in 2027 as move in rates are going up?

Yeah. Hey, Viktor. I will allow me to give you a little bit of color on the strategy that happened in the third quarter. Then I will kind of transition on how that plays into October and steer clear of point 2027, but maybe a little bit of thoughts into there. So to your point, our strategy, you know, this quarter, was representative of what we said on the call, you know, 3 months ago. That we were going to drive rate while at 92 plus percent occupancy during the busy season. And then coming out of the busy season, we wanted to maintain a good base of that occupancy heading into the slower months. And that is basically what 3Q looked like. Right? You can see it in the move in volumes during the quarter. Move ins were up 5.6% year over year. And occupancy was down only 30 bps from August to September. that is a much shallower seasonal stepdown than typical. We ended the quarter at 92.1%, which is actually at. With where we were in July. And, obviously, that. None of that came at the expense of revenue. Right? Rents were up 2.6%. And same store revenue actually accelerated, from 3Q, Into 3Q from 2Q. The web rates were down 3.5 percent for the quarter, but we used significantly less concessions. And going into the fourth quarter, the current run rate on concessions is even less We are down 25 or 30% year over year, and that is a meaningful number. The reality is that we have several levers to drive occupancy. Right? We found that customers have had a better response to rate than some of the other levers that we utilize. So we are using less concessions. We have not pulled on the marketing levers, hard as we could have. Every customer that we move in there is a rate that we can grow. Over a length of stay that continues to elongate. We are now at 32 months, and 36% of our tenants stay for over 24 months. Our revenue management system flexes between rate and occupancy, wherever it sees a better return, and 2Q leans on rate and 3Q leans towards occupancy. it is the same playbook. it is just to maximize NOI. Our strategy was very much the same in October. Right? Our occupancy in October was actually up 10 basis points from the end of September at 92.2%. that is. Yep. Does not happen quite often. For reference, again, higher than some of our occupancies during the busy season. Our concessions were down, you know, as I mentioned, 25, 30% . Quarter to date in the fourth quarter, but our move in rates continue to be down as well. Right? High single digits, low double digits. However, towards the end of October, we actually started to see a benefit from both move in rates and concessions. So we shifted the strategies in certain markets namely Toronto, where our web rates today are actually higher, than they were last year, in the mid single digit range. So in terms of that spread, you know, I think we are going to start seeing some compression, but it is. You know, it. The strategy in the, the third quarter and into October would not reflect that. Right? We are just pulling different levers. Thank you.

Thanks, Roger.

Your next question comes from the line of Spenser Glimcher with Green Street. Spenser, please go ahead.

Yeah. Wayne just a follow-up on some of your comments, David, a second ago around some of what you are seeing from an operational standpoint in the GTA. Just curious, have has the Alberta 5 pack. I mean, has that performed in line with your expectations in terms of, like, the lease-up? And have there been any surprises there?

You know, actually, this is Michael. it is actually exceeded our expectations. So let me just kind of step back and kind of give you kind of the overview from the Canadian operating environment. Our same store pool in Canada consists of 13 properties. And so same store revenue in this pool was slightly positive on a constant currency basis in the third quarter, which was an acceleration from the second quarter, which was down 1%. that is a little bit bigger acceleration in the third quarter than our U. S. Portfolio. Our occupancy in the GTA is 92.6 it is up 10 basis points year over year. For the full year, we do continue to expect the GTA to run modestly below the U.S. portfolio, primarily a function of tougher 2025 comps. The GTA did deliver 2.7% same store revenue growth last year, and that was about 100 basis points ahead of the U.S. Now the revenue growth in our GTA portfolio has been, and we have kind of emphasized 3x the U.S. Over the past, 36 months. In concert with that, you know, our 10 property joint ventures has a high occupancy of 93%, 2.8% year over year revenue growth. Our ECRIs within the GTA have been in the low 20s and with consistent attrition levels. And the length of stay has been approximately 26 months year over year. So the other aspect is kind of the question you asked was with respect to kind of the other Canadian markets other than the GTA. Our wholly owned Alberta portfolio has gained about 1.7 thousand basis points of occupancy since we have acquired it in August of last year. And in the third quarter, it posted year over year revenue growth of about 9.2%. In concert with that, if you take a look at our entire 29 owned properties within SMA, it posted revenue growth of 8.5% year over year with the occupancy of 92.3%. And so we continue to see strong lease up in our recently opened managed assets in Montreal. And our late stage lease up assets in Vancouver. So, overall, the Canadian consumer remains healthy. I mean, bad debt is less than half of US levels. it is about 1%, which is incredibly low. The macro uncertainty tied to tariffs, you know, has caused probably some hesitation in rental decisions. In certain pocket books, I think, in the GTA. But it is interesting. Other markets like Alberta have been showing much steadier trends. And so I wanna also emphasize that the structural demand drivers you know, remain the same, and, an aging downsizing population that home sizes, you know, continued urban densification. And so our GTA portfolio is truly an irreplaceable real estate given the barriers to entry, are significant, the cost to develop development charges, and we now stand at 41 properties that are owned and managed in the GTA.

Yeah. Michael, if I can just add to that as well. In addition to the performance we have seen in the Alberta 5, which, as a reminder, was acquired at about 75% occupancy about a year ago in August, We have seen the full lease up of that particular portfolio, which, as Michael mentioned, above our expectations. But, again, with some of our other announcements and our other transactions, we are adding to the clusters in those particular markets. In Alberta, most notably in Calgary, which is gonna really help with the efficiencies in the economies of scale there as well.

Yeah. Okay. Thank you so much for that color. that is it for me.

Thank you, Spenser. Thank you.

Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Todd, please go ahead.

Yeah. Hi. Thanks. In terms of the investment outlook and thinking about 2027 a little bit, there is been quite a bit of volatility in the equity markets and capital markets more broadly, but just curious how you are thinking about the outlook for investments just given the recent improvement in your cost of capital. Can you speak about whether that changes the outlook as we think about 2027? And does the composition of capital deployment change at all toward, you know, wholly owned acquisitions versus joint ventures and structured investments at the margin?

Yes. that is a great question. I think from a just let me discuss the acquisition environment. We continue to believe this is pretty amazing, I think, opportunity to transact in the storage market since the Great Recession. And I think it is been primarily driven by a lot of developments and acquisitions that were either built on COVID numbers or bought on COVID numbers. And so as storage has kind of settled down and kind of bottomed and started to kind of move forward, some of these owners are kind of over their skis, and they may need to contribute additional cap to their properties for refinancing and some of them, they are. it is resulting in a wave of high-quality mark assets coming to the market. And so we are seeing a lot of opportunities on the stabilized front, both in the U.S. and Canada. We do think from a pricing perspective, are some, maybe, properties that are probably a little high. But overall, you know, off market deals have been pretty attractive, and we have kind of announced 2 of them. Recently, you know, 1 in Las Vegas and 1 in Asheville. Look. We are not going to just chase volume or size you know, for its own sake. I mean, everything has to be accretive, you know, on a per share bar. And we like to emphasize that, you know, a $300 million transaction would move our market cap by 10%, and that is you know, effectively meaningful growth, for us. With respect to that, that kind of folds into the strategic investment that we made in strategic storage Canada. That investment is a prime example of the opportunities that we are seeing in Canada. We have a growth oriented acquisition joint venture, which expanded our overall presence in Canada by 30% . It hits on 3 of our DECA pillars targeting joint ventures, that advance clustering, acquiring operating assets, scale, third party management, and disciplined capital allocation. And so this lets us deal with our, you know, Canadian platform without fully burdening, you know, our balance sheet, but it also as James has discussed, it adds a meaningful presence in Calgary. Now we have 9, stores in Calgary. And we have done that in kind of a derisked manner. And so this also creates a really nice pipeline, of growth in Canada, which is certainly a big, you know, target for us. Now having said that, look, it is great to see that our recent stock performance for SmartStop in the sector. We think it reflects the momentum that we are seeing in our business. Our balance sheet is in a good place. We continue to stay disciplined in how we allocate capital. And as we have done today, we will evaluate the right source of capital against the opportunities that we see to create long term value for our shareholders.

Okay. that is helpful. And then shifting over to operating expenses, you know, down again this year, roughly 2% lower year to date. How should we think about the expense backdrop heading into 2027? I guess, how much of this year is improved is sort of structural or sustainable, and/or should we expect some normalization in expense growth? Next year against tougher comps?

Yes, Todd. Thanks. it is certainly the pertinent question based on the expense decrease that we saw in the third quarter, which we are very pleased with. And again, just as we mentioned in our opening remarks, it is the third consecutive quarter of year over year margin expansion for us, and it widened. It actually got larger sequentially from the second quarter. This is the highest third quarter operating margin we have had since 2023. And we think a big portion of that is structural. Right? And as we mentioned, over our lifetime as a public company, MSAs where we have 10 or more properties, we see roughly 300 basis points of margin improvement. Right? And that really, we saw more of those markets fall into that category once we had the SmartStop 3PM platform. It hits more of those markets, most notably Denver. So markets like Miami, Denver, Chicago, we are seeing 250 to 300 basis points year over year margin expansion, on a year to date basis. Yep. Some of the expense, print that we have seen thus far this quarter and year to date is cyclical. So we had stronger property insurance, renewals in terms of a softer property insurance market. We have seen some property tax benefits as well. But the things like payroll efficiencies are real and are gonna continue to benefit us as we move forward and continue the clustering through, whether it be acquisitions, joint ventures, third party management, all of the above really help with that story. And then just echo again, as we mentioned in. On 1 of the previous questions, that is another part of that strategic asset management program. By migrating away from noncore markets, we are going to continue to reinforce those efficiencies.

Okay. Thank you.

Thanks, Todd.

Your last question comes from the line of Michael Mueller with JPMorgan. Michael, please go ahead.

Thanks. Out of curiosity, do you have any expectations about the broader Canadian operating environment changing really in any way once PSA takes over operation for the portfolio that it bought.

A great question. To date, you know, we have not experienced you know, any notable difference in, the operating environment thus far. So, you know, it is it is it is, it is hard to say. But, you know, as I have said on previous calls, you know, I think the good news is, you know, we compete with, a lot of larger operators and regional operators smaller operators on a daily basis in The US and markets that like, you know, markets like Las Vegas and some other markets that have a lot of exposure from companies like that. And, you know, we feel pretty comfortable that, you know, we will be able to, compete at a at a pretty high level.

Got it. Okay. And maybe just 1 other quick 1. When you look at the relatively, muted move outs compared to your move in volumes, Is that dynamic in the GTA similar to what you are seeing more broadly in The U. S?

Yeah. This is James. I will just jump in and say, yeah, we are seeing more limited vacates overall and more muted. I think we saw elevated vacates through most of 2025. what is been notable is in terms of our ECRI strategy, which has been consistent, right, over the course of this year, both in The US and in Canada, really not seen any sort of a material change in customer attrition as it relates to ECRIs. And that even accounts for LA County as those as those ECRI restrictions faded at the end of the second quarter, we actually saw less attrition than we expected. And that those customers stayed longer. And we are seeing it in our overall customer length of stay is lengthening, over the course of 2026. that is both in The US and in Canada.

Yeah. And just to give you some numbers, Mike, our move outs were actually down year over year in our GTA portfolio.

Okay. that is helpful. Thank you.

Thanks, Mike.

There are no further questions at this time. I will now turn the call back to Michael Schwartz for closing remarks.

Thank you, operator, and thanks for your time and interest in SmartStop Self Storage, the smarter way to store. I would also like to thank our SmartStop team members in 41 states and provinces across North America. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.