SmartStop Self Storage REIT, Inc. Q3 FY2025 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the Smart Stop Self Storage REIT third quarter earnings call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at that time, please press star, then the number one on your telephone keypad. If you'd like to withdraw your question at any time, please press star one again. Thank you. I would now like to turn the call over to David Korak. 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 statements within the meeting 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 the reconciliation of these measures to gap measures can be found in our earnings release and supplemental disclosure that were issued last night and are available for download on our website at investors.smartstopsellstorage.com. In addition to myself, today we have H. Michael Schwartz, founder, chairman, and CEO, as well as James Berry, our CFO. Now I'll turn it over to Michael.

Thank you, David, and thank you for joining us today for our third quarter earnings call to discuss our first full quarter as a New York Stock Exchange-listed company. I'll start with some introductory remarks on SmartStop, the Argus transactions, and the industry before I hand it over to James to discuss the quarter. After that, we'll open it up to Q&A with James, David, and myself. Before we dive into the high-level remarks, a few highlights of our third quarter results. We posted a strong third quarter with sector-leading same-store revenue growth of 2.5%, and average occupancy of 92.6%, both largely in line with our expectations. We reported FFO as adjusted per share of $0.47, which was about $0.02 below our expectations for the quarter. This was entirely driven by two events that we noted in last night's earnings release, an unexpected vacate of our only notable industrial tenant and the recognition of a one-time equity-based compensation expense related to performance units issued in 2023. James will elaborate on these items later in the call. With these pieces in mind and our 3-2 strong operating results, we maintain the midpoint of our full year 2025 FFO as adjusted per share guidance. We had another robust quarter, both in terms of performance and activity. First, we opportunistically returned to the Canadian maple bond market, raising $200 million Canadian at a 3.89% coupon, this time with a five-year maturity. During the quarter, we acquired approximately $86 million of Class A storage properties on balance sheet in both the U.S. and Canada. We also acquired one property subsequent to the quarter end for $15.3 million. These on-balance sheet acquisitions are primarily Class A properties located in top markets consistent with our communicated acquisition strategy. We also increased our loans and preferred investments to the managed REITs by approximately $20 million. Between these loans and our on-balance sheet acquisitions, we deployed about $106 million of Accredited Capital as a member of the MSCI U.S., commonly known, and certainly not least, we entered into a contribution agreement with Argus Professor. Needless to say, it was another visit. Before turning to the industry, I just want to spend a minute on the Argus transaction, which we closed on October 1st. Since the IPL Roadshow, we have been communicating to the street that we intended to enter the third-party management business, and we're actively exploring either developing a platform of our own or acquiring an existing pure play platform. After thoroughly studying the merits of both paths, we decided that if we could find the right partner, the latter would be the most beneficial to our shareholders. We've known the principles of Argus for almost two decades and have the utmost respect for what they've built, so we had tremendous confidence that we'd identified the right partner, one with a robust third-party management platform, a top-notch team of professionals, strong relationships across the United States, and a managed portfolio that strongly overlapped with ours. With approximately 230 stores under management across 26 states, Argus was the second-largest independent third-party storage manager in the U.S. Together, we now operate more than 460 self-storage properties in North America, nearly doubling our store count and increasing our overall owned and managed net rental square feet. This deal immediately jumpstarts our third-party management strategy in a creative manner, rather than a dilutive and helping one ourselves. A few highlights of the deal. Given the size of the managed portfolio, this essentially doubles our data sets, enabling better revenue management across both existing and property clustering, and in time should lead to margin expansion for both. This provides SmartStop with pipeline of potential acquisition targets, including off-market. Also opens the door to bridge lending to current or something that no other independent third-party manager can provide. And lastly, this deal pays third-party management in Canada and vastly underserved management. As for an update, as of today, we have not experienced any attrition or indications of attrition beyond what we had already known in our underwriting. The integration is going very well, and we've had no turnover of Argus employees. Finally, I'll note that we've closed our first lending opportunity with a $4.8 million preferred investment related to a five-property portfolio that just onboarded onto our platform last week. Turning to the industry, on the operations front, we continue to believe that 2025 will be an incrementally better year than 2024, but not as strong as a more normalized year in storage. Accordingly, we saw a more normalized rental season as compared to the past two years, but again, still not quite a typical rental season. The recovery in storage is happening, but the choppiness in customer demand continues. During the quarter, we saw a healthy July and August to close out busy season, but a weaker than anticipated September. Industry move-in rates continue to stabilize, but are still negative year over year, though significantly less negative than the previous two years. However, our strategy is working. Website visits are up significantly. Reservations remain strong. In the third quarter, we posted the highest ever lead conversion statistics in our company's history. We also posted the highest hit rate on tenant protection in our company's history. Our customers' health remain strong. Delinquencies remain at below average levels and, in fact, are down year over year. 25% of our new rentals utilize our SmartPay feature for payment, and nearly 50,000 customers have downloaded our mobile app. ECRIs remain healthy without any change in attrition. Customers citing their rental rates as a reason for leaving our properties is down year-over-year on our exit surveys. With our year-to-date results through busy season paired with an improved supply picture, we remain optimistic on the sector's slow and steady recovery, creating momentum as we head into 2026. I do want to quickly touch on the retail shareholder lockup expiration. On October 1st, our six-month post-lockup of our existing retail shareholders expired. Over the course of the next two weeks, as expected, we saw elevated volume and volatility in our stock price. Since then, both volume and volatility have normalized. While we aren't able to calculate the exact turnover of our retail shareholder base, we want to once again thank our retail shareholders who have been such an important part of SmartStock. Taking a step back, we have accomplished a tremendous amount in a short period of time as a publicly traded company. We believe we're off to a strong start and are executing on the story that we laid out on our IPO Roadshow in March. 2025 will certainly be known as a transformational year for SmartStop. We had a successful IPO raising $931.5 million in some of the most difficult capital markets and tarot concerns, a.k.a. Liberation Day. We raised $700 million in Maple bonds at a sub-4% rate. We had more than $500 million in accretive acquisitions over the past 12 months, including the acquisition of Argus Professional Storage Management. Sector-leading same-store revenue growth, even with the backdrop of the single largest self-storage supply wave in our sector's history. expected strong FFO growth that should further accelerate. Without a doubt, we're in a choppy self-storage market with volatile capital markets and plenty of uncertainty in the broader economic environment. However, through all this choppiness, SmartStop's accomplishments over the past seven months have positioned this company to achieve solid forward growth and take advantage of the better days ahead in self-storage. We are a small cap company with a large cap platform built for continued growth in the U.S. and Canada. With that, I'll turn it over to James to discuss the quarter.

Thank you, Michael. Starting with our operating performance, we are pleased to report that our same-store pool posted year-over-year revenue growth of 2.5%, with operating expense growth of 4.5%, leading to an NOI increase of 1.5%. These were all in line with our expectations. The FX impact from our 13 Canadian same-store assets was a headwind of approximately 10 basis points to our overall same-store pool, as we posted constant currency revenue growth of 2.6%, expense growth of 4.6%, and NOI growth of 1.6%. Revenue growth was in line for the third quarter, and we accomplished best-in-class same-store revenue growth, utilizing less concessions and limited marketing dollars, while maintaining strong occupancy of over 92%. On the operating expense front, property taxes were up 4.8%, and marketing expense was up only 1.8%. We saw muted or negative expense growth in payroll, utilities, professional, and administrative expenses. Notably, our property insurance was down 4.5% this quarter, as we finally started to see pressure alleviate in that market. The result was that same-store operating expenses were up 4.5% year-over-year. Our same-store pool ended the quarter at 92.4% occupancy, up 10 basis points year-over-year, while average occupancy was 92.6%, up 40 basis points year-over-year. Our web rates were down about 3.9% year-over-year for the third quarter, while our achieved move-in rates were down 8.5% on average, as the stabilization of the rate environment slowly but surely continues. As we moved into October, we put a strong emphasis on maintaining occupancy headed into slow season. In doing so, we actually grew our average and ending occupancy over September by about 10 basis points. October ended occupancy at 92.5 percent, up 20 basis points year-over-year. In-place rates were up 50 basis points year-over-year and flat versus September, and we are positive on a year-over-year basis for rentals in the month of October by 9 percent. On the external growth front, we acquired six properties for $83 million and a piece of land within a joint venture for $1 million during the quarter, leading to a full-year acquisition of $318 million through the end of September. Subsequent to quarter end, we acquired Argus, as well as one property in the Orlando MSA for $15.3 million. I'll note that as of September 30th, we have acquired nearly $500 million on balance sheet over the last 12 months. Turning to the managed REIT platform, our three managed REIT funds, inclusive of 1031 eligible DSC programs, ended the quarter with assets under management of $972 million. We recognize gross fees of $3.6 million, and the managed REITs have a combined portfolio of 48 operating properties and approximately $4 million net rentable square feet at quarter end. We also increase our loans and preferred investments to the managed REITs by approximately $20 million, all of which happened in September. As a result, we recognize interest income of $1.5 million during the quarter. The DST programs continue to successfully raise equity, and we are excited that FST 10 has closed its first property subsequent to quarter end as that program gets up and running. The result of all of this is that for the third quarter of 2025, we posted fully diluted FFO as adjusted per share and unit of $0.47. As Michael mentioned, this was a few cents below our expectations, driven by two main items. First, we recorded an approximate $825,000 expense due to performance-based equity compensation in G&A from the expectation that legacy performance units issued in 2023 will vest at 200% of target. These units were tied to same store operating performance relative to our peer group. The midpoint of our previous guidance for G&A expenses issued in August 2025 did not contemplate the recognition of this expense on the midpoint for the full year 2025. The impact of this expense to our FFO has adjusted per share and OP unit outstanding is about a penny and a half for the full year 2025. Second, during the quarter, a tenant renting industrial space at one of our non-same store properties unexpectedly defaulted on their lease and vacated the space. This tenant accounted for approximately $730,000 of annual NOI. We believe the impact to our FFO has adjusted per share to be just under a penny for the full year 2025. We are in the process of finding a replacement tenant while simultaneously evaluating a redevelopment of that space into traditional self-storage. And just to preempt the question, this was our only industrial space in the owned portfolio. Even in the face of those two items, third quarter was a much cleaner quarter from a transaction standpoint as compared to the second quarter, but there are a few more moving pieces to keep in mind headed into the fourth quarter on the capital side. These include the September Maple Bond, which was completed on September 26th, the coupon step-down of our U.S. private placement, which occurred on October 1st, and the refinance of our joint venture-level debt, which was completed last week. Looking out to the remainder of 2025, we updated our guidance for the full year last night. We are now expecting same-store revenue growth in the 1.9% to 2.3% range, with operating expense growth in the 4.0% to 4.4% range, resulting in NOI growth of 0.9% to 1.1%. The other moving pieces, as compared to our previous guidance, were as follows. Better-than-expected execution on the Canadian Maple Bond, better-than-expected managerial EBITDA, higher G&A primarily driven by the previously mentioned performance units, reduction of our same-store NOI guidance by 10 basis points at the midpoint, and a reduction to our non-same store in Hawaii due to the aforementioned industrial tenant. We also narrowed our acquisitions guidance to $365 million to $385 million. The result of all of these updates is that we are tightening our FFOs adjusted per share range to $1.87 to $1.91 for the full year 2025. Lastly, turning to the balance sheet, in September we priced our second maple bond, raising $200 million Canadian or approximately $144 million USD. The notes have a five-year maturity and bear a coupon of 3.888%. We were extremely pleased with its execution, which coming off the back of our June offering was multiple times oversubscribed. In October, we closed on a $160 million Canadian term loan within our Smart Center joint ventures, of which we are 50% owners. The loan is a five-year term and bears a fixed interest rate of 3.87%. We used the proceeds to pay off all the existing JV-level debt, which had a weighted average cost of 5.7%. The joint venture was also able to raise excess proceeds of approximately $27 million Canadian as a result of this refinance. With the Maple Bond and the JV-level debt issued in October, we have fully hedged our Canadian FX exposure from a cash flow standpoint naturally. Additionally, over 99% of our outstanding debt was fixed as of quarter end and pro forma for the JV refinance. While our work on the balance sheet is continuous, we are very happy with the transformation of the debt stack that we've been able to accomplish since April. And with that, Operator, we will open it up to questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star, then the number one on your telephone keypad to raise your hand and enter the key. If you'd like to withdraw your question at any time, simply press star 1 again. Thank you. Your first question comes from Todd Thomas with KeyBank Capital Markets. Your line is open.

Yeah, hi, thanks. James, I wanted to ask about acquisitions. You know, you touched on investments that you've completed, I think it was over the last 12 months, targeting 375 this calendar year. How are you thinking about acquisitions from here with a view into 26? Do you pause given, you know, sort of some of the volatility in capital costs and with leverage in the high fives? Or do you stay, you know, do you maintain this pace moving ahead?

Hey, Todd, it's Korak. I'll start and then hand it over to the rest of the team here. So, you know, what we've said from the get-go is that we've got this target leverage range, you know, in the five to six time range, and we intend to stay in there. Obviously, there's going to be periods where we are below it, as we were right after the IPO, and there's going to be periods that, you know, we opportunistically look to take that up a little bit. But we do want to, you know, maintain that as our target range on a go-forward basis. When you think about the pace of acquisitions, right, this year, 375 is the midpoint of the range, which entails, you know, just over 10% growth of the asset base overall. We'd love to be able to grow the portfolio by 10% or more in a given year. But realistically, when you just do the math, if we wanted to do that next year, that would require some common equity to help keep us in that target leverage range. And so what we've said from the beginning is we're not going to go out and issue, you know, common equity at a six-and-a-half cap to go buy five-and-a-half cap assets on a go-forward basis. The math just doesn't make sense to us. So I think what I would say is, you know, when we look out, you know, know, we're going to be, you know, really prudent with how we deploy capital and be opportunistic

on a go-forward basis. And, Todd, this is Michael Schwartz, but I would add, you know, also is that as many of you are aware, we've had some significant structural changes to our balance sheet, which we're starting to see kind of that kind of flow through with respect to kind of our FFO for the third quarter, moving in potentially the fourth quarter, and then 2026. And so as we look at our levers of growth, clearly external growth is one that we'd like to capitalize on. But we obviously need to be careful of where we're trading. But we do have other levers of growth. You know, we do have our same-store pool. We do have our non-same-store pool. We have our joint venture pool. And, you know, we have our third-party management platform with Argus, which obviously we're spending a lot of attention. And last but not least, you know, we do have our managed REIT platform, which we think will add some additional contribution as we move forward. And then finally, at this point, we do not have a joint venture partner. At some point in the future, we will have a joint venture partner, and we think that that will create, you know, additional lever for growth.

Just to frame one more thing, Michael mentioned the acquisition of Argus, which obviously closed subsequent to quarter end. and some of the consideration there was in the form of equity for tax planning purposes. So, actually, that transaction should bring down our leverage on a net basis when you roll from 930 to 10-1, just from that transaction alone. Okay, that's helpful.

And then one or two on Argus, actually. First, can you talk about the integration of that platform, the timeline for SmartStop to, you know, to fully integrate leasing, revenue management, financial reporting, whatever else. And, Michael, you talked about the scale benefits that you might expect to achieve in some of the overlapping markets. Any early update or insights on that and sort of the timeline to begin to see some of those benefits?

Todd, thank you. Well, the good news here is that with the acquisition of Argus, there's not this integration within SmartStop, okay? And so let me step back. When we decided to acquire Argus, we spent a lot of time understanding what Argus had built. And they had built this entrepreneurial third-party management platform that was developed for entrepreneurial cell storage owners that were fiercely independent. And so some want full service, but some actually want to stay in the overall aggregate operations. And so we've recognized that we have to respect the entrepreneurial owners within that. And so what our strategy has been, and we've been making this clear, is that we want to provide the services that these owners want. And so what we stepped back and said, how do we do that? Well, one, go in there and say to these owners that you now all have to be pushed onto the SmartStop platform. That's not very entrepreneurial whatsoever. And being an entrepreneur, I'm very sensitive to that. So we put together a menu, a menu of options that gives us a differentiated experience versus some of the third-party platforms out there. One, if you want to be on the SmartStop platform, hey, great. We will brand you, sign a couple-year agreement, and we will kick in some dollars to change signs out and brand and onward remarks. Or if you like your brand, well, we love your brand, too. You can keep your brand, you can move to the SmartStop platform, we'll create a page within the SmartStop environment, and you're utilizing all the benefits. However, if you really want to maintain, you know, your independence through a private label solution, we're going to allow that. Now, do we think that the properties will perform better on the SmartStop platform? Absolutely, yes. However, we think there's some significant amount of enhancements that we're going to be able to offer the current owners. So, for example, from accounting perspective, from a reporting perspective, and in addition, consultation perspective on things that they're seeing, how we look at it. And so, one of the big items that we're doing, we're having a very large operator meeting at the end of January. We need to get out and meet these operators one-on-one. We need to introduce ourselves to them. And so from that perspective, I think next year we will start to see, I think, some of the choices that they will exercise. And so that's how we kind of look at the transaction, and that's how we're handling the transaction. But we do believe over time, at minimum, people will probably be choosing the SmartStop Legacy brand at minimum. We're engaging a lot of the owners right now, and a lot of them are very intrigued. But I think in January, it would be a great opportunity to introduce ourselves. And I think at that point, we will get a better sense of who's going to be transitioning to the SmartStop platform.

Yeah. And, Todd, just to add on in terms of kind of timelines and lead flows that we've seen thus far, I would say we've seen interest across owners across the spectrum of menus, right? So we've had people that want to engage with a SmartStop branded location, some that want SmartStop legacy, and some want to continue on and then learn more about the platform. So overall, the reception from the owners has been positive and definitely curious about the upgrades that are going to. And I will add that, you know, obviously they're running on a separate operating system.

We've received a separate data card, and we're about three to four weeks in provide some similar aspects that we have at SmartStop. So that takes a little bit of time. So it's probably, you know, a 60 to 90 days just from a technology perspective.

And lastly, you know, one of the strategies we had in this transaction is we could actually bring our balance sheet to bear to help out owners. And as we mentioned in our opening remarks, we've already closed on one of those transactions in a highly accreted manner, you know, double-digit coupon in a preferred investment. So, and again, that's servicing our customers from an owner perspective.

Okay, great.

Your next question comes from the line of Jonathan Hughes with Raymond James. Your line is open.

Hey, good afternoon. Thanks for the prepared remarks and commentary. I appreciate you adding the earnings bridge. I find it very helpful. I think some who see that might be inclined to annualize that implied fourth quarter figure to get a sense of next year's earnings. But what are some considerations we should be aware of as we look at that implied fourth quarter FFO and think ahead to next year. I mean, I know there's overall seasonality in the business. Is there also maybe some G&A seasonality? Just some more color there would be great. Thanks.

Thanks, Jonathan. It's Korak. I will try not to be long-winded here, but I will probably fail because of the last one pack. So, yeah, we gave the quarterly bridge just given the step up in FFO from 3Q to 4Q. So, it's 56 cents for a 4Q on the midpoint. I'll note just to be clear that that $0.56 is on the 4Q share count of about 59.2 million shares, not the full-year weighted average share count of 51 million shares. So that $0.56, is that a good run rate in a 2026, to your question? And I'll try to answer that as best I can without going into actual guidance, which we will give in February. So 4Q is the first quarter that reflects all of the various financing activities that we've done this year, from the IPO to the maple bonds to the JV refi to the private placement coupon step down. It's not quite a full year of the JV, but that's the least impactful piece there. So from a financing standpoint, it's a pretty darn good run rate, right? From a G&A standpoint, for 4Q is about $7 million of clean G&A. That 3Q number was $9 million. So in addition to the 825K of performance units, which all hit in the third quarter, there's some seasonality in G&A whereby 4Q is naturally less than 3Q. My point being that $7 million is probably not the right number, but also $9 million is probably not the right number, so somewhere in the middle. Those are the two, you know, sort of pieces that I would call out on that front. You know, everything else is sort of, you know, an assumption into next year. And so, you know, I don't want to get into fame store necessarily, just given the fact that, you know, we'll guide that as we get into February. But for the non-same store pool, right, we have 28 properties and another 10 that are in the JV. The non-same store properties are obviously classified as such because they're non-stabilized and or their recent acquisitions or both. Inherently, in those, we would expect the NOI generated by the properties to be higher next year, offset, of course, by the property with the industrial tenant that we discussed. On the JVs, you know, four of those ten properties are non-stabilized, and six that are stabilized are putting up better NOI growth than the same sort of GTA properties. So two of those three pools of our properties, in theory, would put up better NOI growth than this year. On the 3PM front, the third-party management front, obviously we completed that transaction in October, so the accretion for the full year is not quite recognized. But, you know, you pair that, and that should be pretty good growth for us. It was an accretive transaction. We still feel really good about the yields that we gave on those numbers. And then on the managed REIT side, you know, the natural growth in the fee from the revenue growth of those, you know, unstabilized portfolios paired with potential future AUM growth could benefit us into 2026. So a lot there, but those are some of the big pieces I'd point to, John.

Very helpful. I appreciate it. Just one more for me on just the acquisitions front and guidance earlier there was tightened, but can you talk about how you source investment opportunities? Maybe, you know, what percent are brokered versus sourced via relationships? And, you know, maybe how much do you look at on a monthly basis versus what is acquired? So, you know, effectively like a conversion rate.

Yes, that's a good question. And obviously, you know, we believe we see, I think, most acquisitions out there in the U.S. and also Canada. So, you know, we've got a team of about six people that are just carrying through, you know, acquisitions on both sides of the overall aggregate border. You know, many acquisitions are not institutional quality. I think they're discarded, you know, from at minimum. I think overall, the acquisition flow and quality has been pretty consistent from our perspective. I think sellers are willing to trade. Not all of them, but they are willing to trade. And I think it's been evidenced by, you know, our half a billion dollars. I think we found the right acquisitions at the right pricing, I think, you know, at the right time. And so we feel pretty comfortable, you know, with respect to the flow. So from where we get these, I mean, look, this is my 21st year, so Wayne's been with me 17 years. So between the two of us, you know, we're getting, you know, from the traditional brokers, we're getting traditional from owners, developers, you know, third parties. I mean, we get a lot of calls from a variety of different people that have self-storage properties, and so they can be on or off market. And so I think that has been very consistent. And obviously, Bliss in Canada has a tremendous amount of relationships within Canada. So she's hearing and seeing all those deals and starting to, you know, pitch those to us. I think, you know, with respect to kind of a hit rate, I can't say I give you a number from a hit rate. But what I can say, the ones we want, there's enough out there that we can transact.

That's great. Thank you for the time.

Your next question comes from the line of Nicholas Ilico with Scotiabank. The line is open.

Hello, this is Victor Fedevon with Nick. Now, as we are getting closer to the end of this year, just trying to understand your framework of thinking about 2026, kind of what is your base macro expectation for 2026, and how are you thinking about moving rents and occupancy dynamics kind of in the next 12 months versus the last 12 months?

Hey, thanks for the question. So I will once again be careful here on sort of the 2026 outlook. But I think from a macro standpoint, there's a lot at play, both, you know, a lot of moving pieces, both in the United States and Canada, right? And so I don't want to get too bogged down in the macro because, honestly, I don't know. With that said, from a storage perspective, there is one thing I do know, and it's that the supply picture in self-storage in the United States is improving, right? and the impact from that new supply will be less in 2026 than it will be in 2025. So from the demand side, you know, I think there's a lot of moving pieces, and it's too early to really tell. But from the supply side, which is a good half of the total equation, we feel better about 2026 than 2025.

Yeah, and I think if you step back also, I think that you are seeing additional listings out there. Listings are up year over year. You're not seeing things trade. I think you're still probably seeing the prices maybe come down to, you know, 5%, 10% to 15%. But I think that sets us up for 2026 and that in concert with the reduction in interest rates, I think, could create some mobility. I don't want to overplay that. But, you know, the listing for housing, I think, is a good indicator of future transactions. And you're seeing a lot of markets where listings are increasing and people are talking about that. So I think, you know, we're cautiously, you know, optimistic, you know, with respect to that. But in addition, I will add that what I'm seeing, you know, even with all the choppiness we've talked about, you're seeing natural absorption in the storage market. And I think that's incredibly important. And I know that I'm a broken record on supply, and we've talked about supply. But I think that natural absorption is going to carry over into 2026.

And then a second small one for me. Now that you've added this third-party managed platform and have access to much more data across several markets, where should we expect to see these first synergies in terms of improved pricing strategies and expense control?

Yeah, this is James. I'll jump in on specifically the margin expansion story. it. We've always said whenever we get to sort of 10 properties or so in an MSA, that's sort of our benchmark for getting to economies of scale. Within the next 12 months, we start to see that real, that margin improvement in those economies of scale start to come in. Clearly, we just closed on this Argus transaction on October 1st. I will note there are four more markets that the Argus property overlap tips us into that 10 property mark, right? So we were previously at six and We've added four more as a result of that transaction. But, again, it's going to take, call it, a 12-month period before we start to see the economies of scale really chip in there. And then from a revenue management perspective, I mean, clearly that's our mousetrap, and our algorithms are continuing to incorporate that data and then further enhance their overall pricing synergies to maximize revenue, right? And so that's going to be – that's an ongoing process, whether it's our data or the newly integrated Argus data as well.

Thank you.

Your next question comes from the line of Juan Sanabrida with BMO Capital Markets. Your line is open.

This is Robin. Hey, I'm sitting in for Juan. I was curious on Toronto, what your preliminary thoughts are on the market's performance heading into 26. And if you can provide some data points on expected new supply this year and 2026 specifically for Toronto.

Yeah, hi, it's Michael Schwartz. Why don't I talk about supply, and then I'll kick it over to David and talk about some of the KPIs. From a supply perspective, there's been a lot of chatter out there, and we've heard it with respect to additional supply in Canada and in Toronto. And the answer is yes. And we've been very clear in communicating that on previous calls, there is a good amount of supply in Toronto right now. Now, a lot of the supply that is from us. We've delivered seven properties in the GTA in the past 36 months. We have a pipeline of about a dozen identified properties that we'll look to deliver over the next five years, and an additional pipeline behind that. Today, about half of our properties are being impacted by new supply. Now, the square foot under construction is approximately 10% from our estimation of existing stock. Now, those stats are pretty consistent with what we've seen for the past five years or so. But when we look out and we expect to see that drop to 5% to 6% next year. And so that said, there are isolated trade areas, as there always will be, particularly where multiple projects are being delivered at once, and we will see temporary softness. But this is not a structural or Toronto-wide issue. So, for example, Leaside, which is one of the most competitive, I think, markets within the GTA, we have eight properties in a half-mile ring of competition. And we're still experiencing very high overall occupancy and $35 plus, you know, rents per square foot. I think the answer is we can compete, you know, specifically from a technology perspective. So at scale, the GTN Canada in general remain dramatically undersupplied relative to the population. Urban densification continues. Living spaces are shrinking, and new supply, they face significant barriers. In some areas, the development charges, just for the privileged developed self-storage, is approximately $45 a square foot. So in a lot of cases, the math simply doesn't support a national regional oversupply narrative. And so we don't think that will be for the foreseeable future.

So just to talk about some of the metrics in Toronto right now, on a constant currency basis, same-store revenue growth was 1.4% in the third quarter. The comp in 3Q24 was 2.6%, so a much tougher comp than the U.S., which was actually net. If you look at our joint venture properties that would meet the definition of our same-store pool, they actually did even better at around 5.3% year-over-year revenue growth on a constant currency basis. As we sit here today, or at the end of October, excuse me, the occupancy is 92.5%. That's up 80 BIPs year-over-year. So that gap has widened and is actually wider than the states. And then we've added another 20 basis points, you know, in the first six states. Move-in rates were down about 9% in October, which was actually better than the states. I think our overall, you know, demand remains solid, right, in our trade areas. I think the platform continues to capture an outsized amount of that demand. And really we haven't seen, you know, any of the weakness from changes to immigration policy or macro environment. And it appears that the recently proposed budget could be a potential, you know, economic catalyst. So, you know, given our operational advantages and everything I just said, our thesis on Canada and the GTA, you know, remains unchanged.

I'm just curious if it's impacting your thoughts on deploying capital for the smart center DAV, if you'd like to take that elsewhere, or just curious on your thoughts here.

Can you repeat that? You were a little choppy there.

I was just curious on the – if that changes your view on deploying capital through the SmartCenter JV, if you're thinking about taking some of that capital deployment in other markets.

No, no. I mean, actually, we're leaning into the SmartCenter's joint venture. You know, part of the strength of that relationship is their access to their retail platform and a lot of underutilized land within some of their retail that we can leverage up and put a smart stop cell storage next to a, you know, a Walmart, next to, you know, a Home Depot. So the answer is no. I think, you know, we are interested in expanding, but not at the expense of that joint venture. I think we've talked about that we believe there's a tremendous opportunity in Canada, And that's why we've, you know, we've moved into developing on the island of Victoria, Vancouver, Calgary, Edmonton, and Montreal. And so I think, you know, sitting and building out, I think, one of the nicest aggregate portfolios in the GTA is now going to benefit us with respect to our overall growth path throughout the top five metropolitan cities within Canada.

Thank you. And now that we're past the IPO lockup, can you maybe talk about what the potential recapture rate back into your managed REIT funds has been?

Well, one of the things when it comes to kind of the managed REIT platform, we were going to, you know, talk about this, is that because we switched over to our new managing broker-dealer, we were effectively about six months behind with respect to be able to kind of launch new products. So I think at this point, the recapture rate, we're going to have to look at 2026 from that perspective. So right now, we don't have the proper product out in the marketplace right now.

Understood. And then I was just curious if you can maybe disclose the industrial tenants that went bankrupt.

Yeah, actually, we're a little bit limited in what we can say in terms of this particular matter because obviously someone, we had a tenant that broke their lease prematurely. And so we're, you know, evaluating all of our options as it relates to that contract. So at this time, you know, we're not at liberty. Just to talk about that particular property, just to note, this is a component of this non-same store asset where the majority of the square footage is self-storage. So if you think about it, there is a redevelopment opportunity. It could also just be a releasing opportunity. So we're looking at all those options.

Got it.

Your next question comes from Michael Mueller with J.P. Morgan.

Your line is open.

Yeah, hi. I guess for the two questions, first, I guess, how much higher are the margins in the markets that you were talking about where you have at least 10 properties compared to the others? And then the second question, just going down the path of adding a JV, I guess what hole do you see that needs to be filled by adding a JV or that you can fill by adding a JV, especially, you know, because it could, I guess, increase optically the complexity to the story overall? So, I guess, how do you think about that tradeoff?

Hey, I'll start with the margin question. So, when we look at our markets where we've consistently had 10-plus properties, we're generally about 300 basis points higher than our overall portfolio average. And if you look at a market like Toronto, where we have 35 properties in that MSA, we're actually closer to 500 basis points higher in terms of our – relative to our portfolio average. So that just gives you a sense of the scalability of the platform in all of these particular markets.

Yeah, so from a joint venture to your second question there, Mike, you know, I'll be clear. We already have a joint venture, right, with Smart Centers. That is a pure development joint venture. I believe what you're referring to is if we added, you know, an institutional acquisitions joint venture. So I'll speak to that specifically. What we'd look for there and what, you know, the gap, I guess, we would be trying to fill is, you know, given the size of our company, right, if we wanted to go out and acquire a billion-dollar portfolio, right, and I'm making numbers up here, it would be tough for us to do that with the capital that we have right now. But if we were able to partner with an institutional joint venture where we were, you know, a smaller part of the overall deal, ELP, you know, and put 5%, 10%, 15%, 20% into a particular joint venture, that deal is all of a sudden a lot more achievable for smart stuff to take down. I think beyond that, you know, portfolios that are maybe not pure stabilized, you know, maybe there's a place in there. But I think, you know, the main goal would be to be able to compete for, you know, larger deals and make those deals accretive for smart stuff.

Okay.

Your next question comes from Wes Galladay with Baird. Your line is open.

Hey, everyone. A question on the revenue management. Sometimes it's early to detect signs of weakness in the economy. I'm just curious if your revenue management is, you know, pivoting more to an occupancy mentality right now.

I mean, our strategy is currently an occupancy strategy. So we think that positions us for success. More importantly, that positions us in the slow seasons in the fourth quarter and the first quarter to maintain as high as occupancy as we can so that as we move into the busy season, that we're only focusing on really economic overall aggregate occupancy. And so that to us has always been incredibly important. We focus on high occupancy, then we're focusing on, you know, rates and discounts, and then we're focusing on existing customer rent increases. That is kind of has been our process.

Yeah, if you think about the occupancy that we posted in the quarter and then where we are in October, we're sitting here at the end of October at 92.5% occupancy. That's up 20 basis points year over year. and, importantly, is up 10 basis points over September, which is a really nice, you know, sequential move for us and really illustrates our strategy that Michael laid out to maintain occupancy into the fall. So we're really happy with that.

And maybe a quick follow-up on the fourth quarter. It looks like the guidance implies, like, a small uptick in the fourth quarter on stands for revenue. Is that maybe going to be due to the occupancy build, or will that be, you know, potentially easy comps, rate? What's driving that?

I just doing the math, I think it actually it's a slight downtick versus the 2.5% and absolute on same-store revenue. It implies a further reduction of OPEX. So the OPEX is where the absolute NOI gain would be there. But we're assuming same-store revenue goes down in the fourth quarter versus the third quarter in terms of absolute dollars.

Okay.

Your last question comes from Eric Lubchow with Wells Fargo. Your line is open.

Great. Thanks for taking the question. I apologize if I missed this earlier, but it seems like your Q3 same store came in largely in line with expectations. Q4, obviously, maybe the expectations are a touch lower. So maybe just touch on some of the moving parts and what you're seeing in October. I know there are some difficult comps in a handful of, you know, hurricane or storm-impacted markets that you're going to laugh, but maybe just give us kind of an update on how you're feeling in terms of exit rate going into 26 versus last quarter.

Hey, thanks. So I just went over the October occupancy number, so I'm not going to say that again, but, you know, we feel really good about where occupancy is sitting, you know, in the 92.5 percent, you know, range. When you think about move-in rates during the quarter, the third quarter, James touched on this in his remarks, but they were down about 8.9%. In October, those were down about 18% year-over-year as the, you know, building occupancy strategy played out. You pointed this out, but I'll note that October 2024 was the most difficult move-in comp of the whole second half of 2024, so not too surprising to see that down year-over-year. As we moved into November, the trends have improved. We're still sitting at 92.5% occupancy, which is really, really, really happy with that. And the move-in rates have actually improved sequentially by about 6% or 7% over the October numbers, and in-place rates have actually improved sequentially over the October numbers as well. And we're now up 40 basis points in occupancy year over year. So those stats have improved as we've gone into November. And then lastly, just to touch on ECRIs as they are, you know, a piece of the whole puzzle, you know, we continue to pull that lever without changes to attrition there. You know, attrition is actually down year-over-year, as James and Michael mentioned. And without getting into specific numbers, because some of that's, you know, a bit proprietary, you know, we gave ECRIs to more tenants in October than new rentals, right? And that average ECRI was above the 18% in a really healthy place. So we feel really good about all those pieces as we stand here right now.

Just to touch, because you brought up the hurricane-impacted markets, just to kind of recap those, Obviously, Asheville was a hurricane-impacted market, and as was kind of the Gulf Coast of Florida. We were effectively lapping the occupancy comp on Asheville, but remember we didn't do any sort of existing customer rate increases until the first quarter of 2025. So both the Asheville market as well as, for example, the Tampa market, while we are starting to lap the occupancy comp where we had elevated occupancy, we are coming in with a pretty healthy head of steam on the rate side.

Got it. Super helpful. Appreciate that. And maybe just one final question. I think, how are you guys thinking about, you know, obviously, move-in race, there's a little bit of tough pressure in the back half of the year. Partial part of it is comp-based. You've heard of some of your larger peers kind of leaning in on discounts or promotions, kind of more short-term ways to bring people in the door. Or how are you seeing that competitive backdrop play out between, you know, discounted move-in rates versus promotions or upfront discounts? And what do you think is kind of more effective in keeping that occupancy number up?

Yeah, so if you look at what we've done this year versus last year, year-to-date, our concession numbers have been down pretty materially, like in the 20% to 30% range. So we were able to drive, you know, rentals without using concessions nearly as much, and that's paid off for us, I think, and you see it in the revenue growth numbers and the results overall. As we stand here today, you know, that's less so the case, right? We're utilizing concessions a little bit more than we were, you know, in the third quarter, especially as compared to last year, but not drastically differently. So, you know, I'd say we're utilizing all of our tools to drive rentals right now. The one thing I would point out is that from a marketing spend perspective, we've been, you know, not utilizing that nearly as much as we were last year. I mean, in the second quarter, I think we were negative 4% or 5%. And in this quarter, the third quarter, we were only up like 1.5%, 1.8%, something like that. So not having to spend a lot to drive rentals. Great. And those rentals, for what it's worth, are up, you know, 3% in the third quarter and are up 8%, 8% or 9% into October. So, you know, the strategy is working.

Thank you.

Thank you. And with no further questions in queue, I'd like to turn the conference back over to Michael Schwartz for closing remarks.

Thank you, Operator. It's been amazing. The first seven months as a publicly traded company, we've accomplished a lot in just a short amount of time. We thank our investors, both retail and institution, for their support. And we look forward to the next quarter in 2026. Thank you for your time and interest in SmartStop self-storage, the smarter way to store. Have a great day.

This concludes today's conference call. You may now disconnect.