SmartStop Self Storage REIT, Inc. 2026 Q2 Earnings Call

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. 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. I'll turn it over to Michael.

Thank you, David. Thank you for joining us today for our second quarter earnings call. SmartStop Self Storage had a strong quarter of results, and we further reinforced our vision by communicating our long-term strategy for shareholder value creation with the announcement of our Deca Initiative in July. Let me first touch on our results for the second quarter. We posted strong same-store revenue growth of 1.3%, an operating expense decrease of 3.4%, and an NOI growth of a positive 3.7%, and maintained average occupancy of 92.5%. Operationally, 10 of our top 15 markets posted positive same-store NOI growth. Our strong focus on expense control led to 150 basis point year-over-year growth in our same-store operating margin. This is our second quarter in a row of improved margins.

This operational performance, coupled with overall efficiencies, resulted in reported FFO as adjusted per share of $0.49, up 17.6% year-over-year. With these results and better-than-expected momentum into the second half of the year, we raised the midpoint of our same-store revenue and same-store NOI guidance, as well as our FFO as adjusted per share guidance. In July, we introduced the DECA initiative, which is our multiyear strategic framework that guides our decision-making as a management team. The DECA initiative stands for disciplined execution, compounding appreciation through six defined pillars for outsized long-term value creation. This value creation is driven by relative outperformance, margin expansion, and outsized FFO as adjusted per share growth. This is the true goal of our DECA initiative. I communicated a $10 billion capitalization level, which will be the output of executing in a disciplined fashion on those goals.

That level is also the size that we think SmartStop's platform can begin to recognize its full potential. Our results and activity this quarter are a perfect reflection of this initiative. Strong same-store results driven by our revenue management platform, talented operations, and store-level teams, growing efficiencies as we scale, and deliberate expense control. Same-store operating margins of 67.3%, up 150 basis points year-over-year, NOI growth of 9.4% in our Canadian joint venture properties year-over-year, 14% growth of the recurring revenue stream for our managed REIT platform, the acquisition of a three-property portfolio of high-quality self-storage properties at a high 5% cap rate, the deployment of approximately $16.3 million of bridge capital at a double-digit yield, an organic reduction to our cash flow leverage to 6.2 times, and finally, sector-leading FFO as adjusted per share growth of 17.6% year-over-year.

Sitting here 16 months post-IPO, we are encouraged by the sector's momentum and our successful execution of the plans we laid out at the IPO. We are excited to articulate and communicate the DECA initiative with all of you, and while the pillars we outlined were on display in the second quarter, we've just begun to scratch the surface of this company's full potential. As I wrote in the letter, the DECA initiative is the future. The foundation is laid, progress has been made, and the work is underway. Now I'm going to turn it over to James.

Thank you, Michael. Starting with our operating performance, our same-store pool posted year-over-year revenue growth of 1.3%, with a 3.4% decrease in operating expenses, leading to an NOI increase of 3.7%, with quarter-ending occupancy of 92.4%. These results were slightly better on a constant currency basis. We were very pleased with our operating expenses, with a year-over-year decrease of 3.4% in the same-store pool in the second quarter. This expense control led to an increase in our same-store margins of 150 basis points. We saw a decrease in payroll, property insurance, repairs and maintenance, and utilities with relatively flat growth in property taxes. Our web rates were down 3.8% during the quarter. Our achieved move-in rates per square foot were down 4.4% on average. Occupancy in July was 92.1%, down 65 basis points year-over-year.

We felt more comfortable holding our asking rates heading into Q3, as our web rates were actually up 1.2% year-over-year for the month of July, slightly better than we anticipated. Our seven properties that were impacted by L.A. County fire ECRI restrictions posted -2% same-store revenue growth in the second quarter. However, with the lift of these restrictions, we are anticipating those returning to positive same-store revenue growth for the remainder of the year. On the external growth front, we acquired three properties on balance sheet in Spartanburg, South Carolina, for approximately $30 million. We also closed on a preferred investment on a property in Goleta, California, for $16.3 million, which we assumed property management of that asset at the end of June.

The result of all of this for the second quarter of 2026 is that we posted fully diluted FFO as Adjusted per share and unit of $0.49. Turning to guidance, we raised our same-store revenue guidance from a range of -0.25% to 1.75% to a range of 0.5% to 1.5%. The lift of the L.A. fire restrictions account for about a quarter of that raise, or 5-7 basis points. The remainder comes from a combination of better than expected second quarter paired with better than expected momentum into the second half.

Additionally, we are reducing our overall operating expense growth range from 1.75% to 3.75% to a range of 0.25% to 1.25%, driven by a combination of controllable expenses and property insurance. The result is an increase of our NOI growth midpoint from -0.25% to a positive 1.15%. Lastly, we raised our guidance on FFO as Adjusted per share from $1.94-$2.04 to $1.98-$2.04. With that, operator, we will open it up to questions.

Well, the answer I think is yes. I think that's kind of what our target is. I think if I step back, I want to kind of reinforce that we do believe this is a solid acquisition cycle. It is here. It's driven by primarily individuals that have built or bought during COVID heyday, and now a lot of them are, quite frankly, over their skis. This result is a wave of high-quality properties that are coming up for sale because owners are effectively out of options. Today, we are seeing a lot of attractive opportunities out there on the stabilized front, U.S. and Canada. U.S., kind of at that mid 5.5, and it's more between a 4-5, I would say, in a lot of the Canadian markets.