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Strong second-quarter performance: SmartStop reported 1.3% same-store revenue growth, a 3.4% decline in operating expenses and 3.7% same-store NOI growth. Adjusted FFO rose 17.6% to $0.49 per share and unit, while occupancy averaged 92.5%.
Full-year guidance was raised: The company increased its same-store revenue outlook to 0.5%-1.5%, lifted the midpoint of same-store NOI growth guidance to 1.15% and raised adjusted FFO guidance to $1.98-$2.04 per share. It also lowered its expected operating-expense growth range to 0.25%-1.25%.
Expansion and strategic initiatives continue: SmartStop raised capital deployment guidance to $55 million-$75 million, acquired a three-property South Carolina portfolio and reported a bridge-lending pipeline above $100 million. Management is also advancing the multiyear "Deca Initiative" and integrating the Argus management platform, with larger margin benefits expected in 2027.
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Smartstop Self Storage REIT (NYSE:SMA) reported second-quarter operating results that included same-store revenue growth, lower operating expenses and higher funds from operations, while raising portions of its full-year outlook.
Founder, Chairman and Chief Executive Officer H. Michael Schwartz said the company generated 1.3% same-store revenue growth, reduced same-store operating expenses by 3.4% and increased same-store net operating income by 3.7%. Average occupancy was 92.5%, while 10 of the company's top 15 markets posted positive same-store NOI growth.
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"Our strong focus on expense control led to 150 basis point year-over-year growth in our same-store operating margin," Schwartz said. Same-store operating margin reached 67.3%, marking the company's second consecutive quarter of margin improvement.
Fully diluted FFO as adjusted was $0.49 per share and unit, up 17.6% from the prior-year period.
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Chief Financial Officer James Barry said the same-store portfolio ended the quarter with occupancy of 92.4%. Operating-expense declines reflected lower payroll, property insurance, repairs and maintenance, and utility costs, while property taxes were relatively flat.
Web rates declined 3.8% during the quarter, and achieved move-in rates per square foot declined 4.4% on average. July occupancy was 92.1%, down 65 basis points year over year. However, July web rates increased 1.2% from a year earlier, which Barry said was somewhat better than anticipated.
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Barry also pointed to increased density in certain markets as a contributor to cost efficiencies. In Denver, where the company expanded its presence after assuming the Argus platform last year, operating expenses declined substantially, largely because of payroll savings. SmartStop's owned and managed presence in Denver increased from nine properties to more than 50 properties following the transition, according to Barry.
The company said it continues to target physical occupancy around 92% or higher, seeking to maintain enough occupancy to support rental-rate growth during the busy season. Annualized rent per square foot increased 1.9% during the quarter.
SmartStop increased its full-year same-store revenue outlook to a range of 0.5% to 1.5%, compared with its previous range of negative 0.25% to positive 1.75%. Barry said roughly one-quarter of the increase reflects the lifting of Los Angeles County fire-related ECRI restrictions, with the remainder tied to stronger-than-expected second-quarter results and momentum entering the second half.
The company reduced its expected operating-expense growth range to 0.25% to 1.25%, from 1.75% to 3.75%, citing controllable costs and property insurance. The revised assumptions lifted the midpoint of same-store NOI growth guidance to 1.15%, from negative 0.25% previously.
SmartStop also raised its FFO as adjusted guidance to $1.98 to $2.04 per share, compared with prior guidance of $1.94 to $2.04.
David Corak, senior vice president of corporate finance and strategy, said the company expects move-in rates to reach an inflection point later in the year, between the end of the rental season and year-end. Management said a more normal off-season without additional volatility could support results toward the upper end of the revenue guidance range.
During the quarter, SmartStop acquired a three-property portfolio in Spartanburg, South Carolina, for approximately $30 million. Schwartz said the acquisition was completed at a high-5% capitalization rate. The company also closed a $16.3 million preferred investment in a Goleta, California, property and assumed management of that asset at the end of June.
Management raised full-year capital deployment guidance to between $55 million and $75 million. Schwartz said the company sees what it considers a favorable acquisition cycle, including opportunities in stabilized U.S. and Canadian properties. He said SmartStop is targeting acquisitions that are accretive rather than pursuing transaction volume for its own sake.
Corak said the company's bridge-lending pipeline remains above $100 million, with target yields of 10% to 14%. As of June 30, SmartStop had approximately $20 million of preferred investments across six properties, all of which are managed by the company, with a blended yield just below 11%.
In July, SmartStop announced its "Deca Initiative," a multiyear framework centered on disciplined execution and compounding appreciation. Schwartz said the initiative is intended to drive relative outperformance, margin expansion and FFO as adjusted per-share growth, with the company ultimately targeting a $10 billion capitalization level.
In Canada, SmartStop's 13-property Greater Toronto Area same-store portfolio posted a 1% constant-currency revenue decline in the second quarter. Its Canadian joint venture with SmartCentres, which includes 10 properties, reported revenue growth of 6.7% and NOI growth of 9.4%. Management said the GTA portfolio faced difficult comparisons with the prior year but expects supply to moderate over the next two or more years.
Schwartz said SmartStop remains committed to Canada despite the expected entry of Public Storage through its pending PS Canada acquisition. He said the company has substantial overlap with PS Canada in the GTA, but management declined to speculate on Public Storage's future operating strategy.
In Asheville, North Carolina, SmartStop said occupancy was 91.8% and web rates turned positive year over year in July. The company expects Asheville to remain a relative underperformer through the third quarter because of occupancy comparisons following a natural disaster. Barry said portions of two Asheville properties were subject to eminent-domain proceedings, while the company expects to begin rebuilding a flood-damaged property in early 2027. The replacement asset is expected to be about 83% larger than the destroyed property.
Management also said it is progressing through the integration of the Argus third-party management platform. Schwartz said full margin synergies from the platform remain more of a 2027 story as technology migration and rebranding continue, though the company is seeing early benefits in lead generation, owner satisfaction and market-level scale.
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The article "Smartstop Self Storage REIT Q2 Earnings Call Highlights" was originally published by MarketBeat.
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