SmartStop Self Storage REIT, Inc. ($SMA)

Greetings, and welcome to SmartStop Self Storage Q1 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] I would now like to turn the conference over to David Corak, Senior Vice President of Corporate Finance and Strategy. Thank you. You may now begin.

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 statements 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, are 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 a reconciliation of these measures to GAAP measures can be found in our 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 Barry, our CFO. Now, I'll turn it over to Michael.

Thank you, David, and thank you for joining us today for our first quarter earnings call. I'll start with a few highlights of our first quarter results. We posted strong same-store revenue growth of 1.5%, NOI growth of 2% and maintained average occupancy of 92.5%, while facing our toughest quarterly comp of the year. Operationally, we posted very strong results despite recent geopolitical news. With that said, 10 of our top 15 markets posted positive same-store NOI growth and good expense control led to a 30 basis point growth in our same-store operating margins. Likewise, other areas of our business outperformed expectations. We reported FFO as adjusted per share of $0.49, up 19.3% year-over-year. In February, we completed the recast of our $500 million syndicated bank facility at an all-in cost of about 30 basis points below the previous facility. Additionally, we acquired a parcel of land in Canada that we intend to develop into Class A storage in our SmartCentres joint venture. Lastly, in March, we entered into a strategic joint venture with AXCS Capital focused on providing bridge capital to self-storage sponsors across the United States. In terms of guidance, we are now narrowing our same-store revenue growth from a range of negative 0.5% to 2% to a range of negative 0.25% to 1.75%. Additionally, we're reducing our overall OpEx growth range from 2% to 4% to 1.75% to 3.75%. The result is an increase of our NOI growth midpoint from a negative 40 basis points to a negative 25 basis points. Additionally, we are narrowing our FFO as adjusted per share of $1.93 to $2.05 to $1.94 to $2.04. Turning to operations. January and February were strong months for us, slightly above our initial expectations. In March, we saw a pullback in demand that directly coincided with the geopolitical news. This played through from the second week of March until about the second week of April when things really started to turn for the better. Demand has returned, and it appears rental season is upon us. We are still very early in the year. And in the self-storage business, rental season can end up impacting annual results. That said, we are certainly encouraged going into the rental season. With that, I'll turn it over to James to discuss the quarter.

Thank you, Michael. Starting with our operating performance. Our same-store pool posted year-over-year revenue growth of 1.5%, with operating expense growth of 60 basis points, leading to an NOI increase of 2% with quarter ending occupancy of 92.3%. While we did increase promotional utilization during the quarter, we were able to hold a solid average occupancy level of 92.5% with limited increases in marketing spend in the first quarter. Our achieved move-in rates per square foot were down 7% on average, while our move-in rates per unit were actually up 2% year-over-year during the quarter. As we moved into April, we grew our occupancy, ending April at 92.6%, only down 45 basis points year-over-year and notably up 30 basis points from the end of March. We were pleased with our operating expenses as well with year-over-year growth of only 60 basis points in the same-store pool. This expense control led to an increase in our same-store margins of 30 basis points, the first year-over-year margin increase since 2023. We experienced a tailwind from FX during the quarter for the first time in a long time. Our 13 Canadian same-store assets posted same-store revenue growth of 4.1% and negative 50 basis points on a constant currency basis. These results were in line with our expectations as the GTA had a 7% constant currency revenue comp in the first quarter of 2025, far and away our toughest comp of the year. In terms of our Asheville portfolio, our occupancy gap has narrowed dramatically since December, averaging down 260 basis points year-over-year in the first quarter. And as of the end of April, we are only down 130 basis points year-over-year at 92.2% occupancy. That's notably up 220 basis points from the end of December 2025. On the external growth front, we acquired one parcel of land in Toronto within our SmartCentres joint venture that we intend to develop into Class A storage. Turning to our third-party management platform. We ended the quarter with 227 properties under management, in line with our expectations. The result of all of this is that for the first quarter of 2026, we posted fully diluted FFO as adjusted per share and unit of $0.49. Lastly, turning to the balance sheet. During the quarter, we completed the recast of our $500 million syndicated bank facility, as Michael mentioned earlier. That facility matures in February 2030 and has a 1-year extension option. And the credit agreement has built-in language that would allow for a further pricing step down upon reaching an investment-grade rating from S&P or Moody's Rating Services. At quarter end, our Canadian FX exposure is fully hedged naturally from a cash flow standpoint and 94% of our outstanding debt was fixed as of quarter end. SmartStop's balance sheet is positioned to access a wide variety of attractive capital sources, both in terms of debt and equity to execute on future growth opportunities. And with that, operator, we will open it up to questions.

[Operator Instructions] Our first question comes from the line of Todd Thomas with KeyBanc Capital Markets.

I appreciate some of the details on April. I was wondering if you could just provide a little bit more detail on the move-in rent trends that you saw in April and how the promotional activity trended?

Todd, it's Corak. So as James mentioned, at the end of April, our occupancy was at 92.6%, down 50 bps year-over-year. Our move-in rates on a unit basis were up about 1% year-over-year in April, while the move-in rents on a per square foot basis were down about 6.5% on a year-over-year basis. April ended up being a pretty good month overall, even with a sort of a slower start. We had a record number of web reservations, over 10,000 for April. Our call center broke an all-time high for rentals, which was kind of up 25% over last year with a really nice low abandonment rate, something that we take a lot of pride in. The team has done a really good job of managing receivables, which is just a really good overall practice, but also creates more unit availability for rental season, which is a nice positive for us. So I think we are really encouraged as we're getting into rental season here. Michael, do you want to talk a little bit about Canada?

Yes, absolutely. Thank you, David. From a Canadian perspective, on a constant currency basis, the same-store revenue was down about 50 basis points in Q1. The comp that we had for 1Q 2025 was 7%. So we had a much tougher comp than in the U.S. However, that's still 6.5% growth over a 2-year period. And so I think in this environment, we think that's an excellent result. If you look at our joint venture properties that would meet our same-store definition, they actually did even better, at around 10% year-over-year revenue growth on a constant currency basis. At the end of April, our GTA same-store occupancy was 93.1%. That was flat year-over-year, but slightly higher than the States. And meanwhile, our in-place rates were actually up 1.5% year-over-year in April. So our outlook for the full year in our GTA portfolio, it will perform slightly better than our U.S. portfolio in 2026, even with the tougher comps.

Okay. And in the quarter, can you speak to the increase in vacate activity that you experienced? What was that attributable to? Was there anything notable that occurred on the move-out side during the period?

Yes, Todd, this is James. I'll jump in. And just say, first of all, there's a couple of things going on with the increase in vacates. First and foremost, we were coming off a tougher comp. Q1 of '25 was down year-over-year in vacates. And so there is a cycling of that comp. In addition, as we mentioned in some -- in our prepared remarks, we did see an uptick in vacates really starting at the beginning of March with some of the geopolitical uncertainty and some consumer decisions. That's abated since the first 2 weeks of March, but that's what's driving the first quarter increase in vacates.

Your next question comes from the line of Viktor Fediv with Scotiabank.

I have a question on Argus Professional Storage Management platform. So you have full quarter Q1 now. So how has the operational integration gone? And were you able to identify potential synergies for SMA as a whole? And then what is the expected timing for those?

Yes. I'll jump in first. This is James. On the expense side and integrations. And clearly, it's been 6 months since the close. And we've been doing a lot of processes in terms of migrating employees over into the SmartStop platform. In addition, as it relates to the first quarter results and our expenses there, there's a lot of seasonal effect, right? We had multiple conferences that all take place in the first quarter, including our owners conference, which we talked about on our last earnings call. That doesn't happen over the course of -- over the next couple of quarters. That's an annual event. And so we would expect the margins to increase from here. And I think it's still going to take a handful of quarters and even into 2027 before we start to really see the operating margin synergies, although we're starting to see them in smaller pockets such as Denver, where we've quadrupled our overall store count between SmartStop Managed, SmartStop Legacy as well as the private label properties under the Argus platform.

Got it. And just a follow-up on. Go ahead, sorry.

This is Michael. I was going to jump in there and just say that I think the integration has been going well. There's been a significant amount of technology upgrade for our third-party owners, which has been incredibly positive. We actually have signed up our first Canadian property in the Greater Toronto area. And we have a nice pipeline of existing private label owners who now see the power of SmartStop Self Storage with respect to the top of the funnel. And so, those properties that we ported over, those owners are incredibly successful. Some of them are generating more leads than they ever have on a private label basis. And so we think over the next 12 months, we will start to see a strong migration from our private label platform to either the legacy or the full-blown SmartStop platform. And so, we're really, I think, pretty excited about the integration, the people and the ability to keep growing this in the future.

And I have a follow-up on move-out trends. I appreciate the details on move-in side in terms of the sizes of units that are involved there. And can you provide some additional details on move-outs in terms of what sizes were more heavily impacted in Q1?

Yes. When we look at the move-outs in terms of the average size, it's really in line with our portfolio average. What's unique is that the move-ins we're renting more of the larger units, but the move-outs are not matching that same disconnect, right, on a year-over-year basis. It's pretty consistent on a year -- move-outs Q1 '26 versus Q1 '25 in terms of the size of the units.

Your next question comes from the line of Eric Luebchow with Wells Fargo.

Maybe you could talk a little bit just about the acquisition environment. I know you're a little more restricted in what you can do wholly-owned on balance sheet this year, but maybe update us on the discussions around an institutional JV partnership and how those conversations are trending.

Okay. I'll jump in here. Well, let me just start by saying that I've been doing this a very long time. And from an acquisition perspective, I think this is one of the, I think, single greatest opportunities to transact in self-storage since the Great Recession on a risk-adjusted basis. You have a lot of markets that have readjusted from a rate perspective, down 25%, 35%. And so we think that there's a really nice recovery of acquiring at really solid cap rates with either management upside and/or rate upside. There's a lot of groups out there that acquired at very aggressive cap rates in 2021, '22 and probably half of ' 23 at 4%. They had short-term debt and some of them had bridge loans, and they've had to extend those loans. And so now you're facing an environment where they're no longer willing -- these lenders are willing to extend and pretend. And so this is a result of creating a really nice wave of high-quality properties that are coming to sale, because the owners are currently out of options. And so we're seeing a lot of attractive opportunities on the stabilized front in the U.S. and also Canada. The deals that we've closed, I think, are great examples of this. And I think we are continually encouraged about the current pipeline deal flow out there. There are some larger portfolios out there, but there's also enough onesies and twosies. And so I just want to emphasize that a lot to us may not be a lot to others. And so for every $300 million that we can acquire, it increases our market cap by approximately 10%. And so as you guys are probably well aware that we acquired about $370 million in 2025, about $0.5 billion since 2024. And that's meaningful, I think, growth for us. and it's enough for us to move the needle. And so -- and it obviously benefits our size. And so we are still seeing a healthy amount of aggregate opportunity. So I think from that perspective, we feel pretty good. The second part of your question was?

Yes, just around institutional JV and how those discussions are coming along.

So those discussions are having as we speak, and I think they're coming along nicely. Obviously, as you know, we have a very solid institutional joint venture with SmartCentres on the development of self-storage in Canada. And obviously, we're looking to kind of expand that for existing either lease-up or stabilized properties. And so we're out there trying to find the right partner. But as you can imagine, we currently have a lot that we are doing on a daily basis. And so, we're going to take our time to find the right capital partner that -- for the long term.

Great. And just one follow-up on the shaping of same-store revenue growth this year. I know you have some tough comps in Asheville, although it sounds like you've gotten a lot of that occupancy back, some hurricane comps in markets like Tampa and then the L.A. rent restrictions. So maybe kind of putting it all together, you could kind of talk about the shaping of same-store revenue growth in the next couple of quarters that's embedded in your guide and some of the call-outs on those items.

Yes. Thanks for the question, Eric. It's Corak. So when you look at the comps last year, obviously, the first quarter was our toughest comp at 3.2%. The comps are significantly easier in the second quarter and third quarter and then gets a little bit harder in the fourth quarter. So just on that alone, one would think that second and third quarter will probably be our best quarters of revenue growth year-over-year. But obviously, that's not exactly what the guidance would imply at this point on the midpoint. The other 2 things that are impacting the cadence of same-store revenue growth are, as you pointed out, Asheville and the ECRI restrictions in L.A. Obviously, in Asheville, we were coming off of a really strong year, right? And we lapped that comp. And so as you get into the first quarter, we were still positive in terms of rates, but negative in terms of occupancy. However, as you get into the second quarter, that rate -- the rates will turn negative on a year-over-year basis and will continue to be negative through the second and third quarter, again, on a year-over-year basis. And then the comp gets a lot easier in the fourth quarter as you sort of lap that. The other element is, of course, on the L.A. restrictions. We are not assuming that the restrictions will be lifted for 2026. So there's a compounding effect that happens there where the second quarter, the impact is worse than the first quarter and then the third quarter from the fourth quarter and so on. So those are the other kinds of things that are impacting the shape of the curve overall. So Asheville is in an interesting spot. Michael, do you want to talk a little bit about where Asheville stands today?

Yes, absolutely. Obviously, in the fourth quarter, we talked about Asheville. And I think as we position and where we're at today, Asheville was our best-performing market in 2025. We had 6% same-store revenue growth year-over-year. And so we are obviously facing some tough occupancy comps in 2026, but the year-over-year occupancy gap has narrowed dramatically. And I think James discussed this a little bit. Since December, our average is down only 260 basis points year-over-year. And in the first quarter, our occupancy was at 91.6%. And so at the end of April, we were only down 130 basis points, and we're settling in at 92.2%. That's a great position to be in as we move into the busy season. And so that's notably up 200 basis points from the end of December and generally in line with the rest of our U.S. portfolio, which is positioned nicely also. And so this is a fairly traditional cadence of occupancy for a natural disaster of this kind, and we are now at a post natural disaster stabilized occupancy level. And so overall, we still expect Asheville to be a relative underperformer in 2026, specifically through the end of the third quarter. But that being said, the portfolio is performing slightly better than expected through April. And so I think that says a lot about our technology, our process. We were able to capture that upside with respect to occupancy and rate. And then as occupancy pulled back, we were able to refill that funnel, stabilize the physical occupancy and get it prepared for the busy season.

Your next question comes from the line of Mike Mueller with JPMorgan.

So I have 2 questions. I guess on the first one, I apologize if I missed this, but can you talk about the move-in rate expectations for the balance of the year compared to, I think it was about 6.5% down you said in April. And then just from a higher-level perspective, how should we be thinking about the bridge loan program? How it fits into the business? Can it be a needle mover going forward, et cetera?

Mike, so I'll give you kind of the operating assumptions. We went over these slightly last quarter, but I'll review them. They really haven't changed. So from a move-in rent standpoint, obviously, we have a handful of markets, some markets that have already turned positive this year. Other supply markets still sort of negative. But our assumption is that by the end of rental season, so call it, end of August, September, we'll on the whole be largely back to a neutral kind of inflection point. If we don't get back there, right, it doesn't have a material impact on the rest of the year, but we'll have some impact on, obviously, the third and fourth quarter. From an occupancy standpoint, we are modeling kind of fairly flat to slightly positive relative to 2025 with the exception of Asheville, obviously. But for the rest of the portfolio, think about sort of fairly flat to maybe slightly positive. ECRIs, we're modeling at or better than levels in 2025, which is basically what we've been doing, given the strength and the health of the existing customer, the exception, of course, being the California wildfire impacted properties, which we assume are going to be impacted for the full year. And I'll remind you, our length of stay is actually up year-over-year, which is a trend that us and some of our peers are seeing, which is really good from that perspective. And then on the supply front, we're obviously, like everyone else, assuming that the supply impact decreases throughout the year. In terms of your second question, Mike, on AXCS and the bridge lending. So let me give a little bit of background on the relationship and then talk about sort of the pipeline and how we're looking at deals and what we're looking at. So AXCS is a portfolio company of Conversant Capital. For some background, they run an institutional commercial real estate finance platform. Michael and the principal of AXCS have a very long-standing relationship. So this is not something that was just sort of thrown together overnight. This was well thought out for a long time. So AXCS, their role in this relationship will help us source structure and service bridge loan investments, et cetera, and they will be a 5% participant in the JV's investments. The partnership for us, gives us the horsepower to grow our bridge lending business efficiently without burdening our G&A essentially, right? We're really excited at this, right? We're excited at the potential of the partnership and sort of the synergistic relationship that the program will have on third-party management and our overall external growth trajectory. When you think about the pipeline overall, it's very strong. We're very pleased with it in where it stands today. We're actively looking at over $100 million of deals with average yields of 10% to 14%. Obviously, just like an acquisition pipeline, we're not going to close on those $100 million deals, but our pipeline is filled with really strong deals in markets that we like with sponsors that we generally like. We're typically looking at some sort of mezz or pref position on a deal that already has senior debt on it or is in market with senior debt. We would also do sort of the A-note, B-note approach, but the pipeline is really dictating the former strategy. The pipeline is a mix of recaps, acquisition financing, development deals. And though I'll note our -- we're particularly selective on any new development deals. So a ton of potential on this front, obviously, working off of a very small denominator. We really like the risk-adjusted returns on a lot of these deals that we're going after, but are certainly sensitive to the quality of the property, the quality of the sponsor, the impact on our leverage and then obviously, the overall quality of our earnings.

And I would just add that also it's opening up additional third-party property management assignments.

Your next question comes from the line of Mason Guell with Baird.

On the expense side, what drove some of the favorable expense growth? And then kind of what is driving the higher expected growth for the remainder of the year kind of compared to the first quarter?

Yes, I'll jump in there. In terms of the first quarter and some of the favorable comps there is we had a good number on our property tax line item, which is obviously our single largest expense line item. That came in at a pretty nominal level. We also had, as we've talked about on the insurance front, we have not only realized the benefits of a strong general liability renewal that took place in November of 2025, and that's carrying forward for a full year. In addition, we also had a very strong property renewal that took place at the beginning of April. So it's not in our Q1 numbers, but it is part of that -- and the main reason behind our OpEx guide down is those savings on that property insurance renewal. Part of the offset and part of the reason we were still positive is we had some weather-related expenses, both in utilities and R&M. And our payroll is at a nominal level, call it, in the low- to mid-single digits. I'll also note that advertising was up about, call it, 1.9% for the quarter on a year-over-year basis, but that's a lever that we want to potentially be strategic with in terms of the trade-off, in terms of getting new rentals between concessions, pricing and marketing. That's something we want to keep that flexibility on. So that's the overall shape of the OpEx, but we felt really good about that property insurance renewal and that allowed us to reduce the OpEx guide.

Great. And then can you talk about what drove the higher managed REIT EBITDA guide and how that segment has been performing?

Yes. I'll also jump in there. And so overall, the recurring revenues from that overall portfolio in the managed REIT platform, as a reminder, those assets are largely unstabilized, right? And so they grew at an outsized pace relative to, for example, our same-store portfolio growth rate. And so those revenues came in higher than our expectations. And cumulatively, we're talking about an annualized run rate in the first quarter on revenues in the managed REIT platform of just over $16 million on an annualized basis, right? So that's a really powerful base of recurring revenues for SmartStop.

There are no further questions at this time. I would now like to pass the call over to Michael Schwartz, Chairman and CEO, for closing remarks. Please go ahead.

Thank you. It's been a solid first quarter for us, and I want to thank you for your time and interest in SmartStop Self Storage, the smarter way to store. Have a great day.

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