Earnings Call Transcript - SMA Q3 2025

Operator, Operator

Thank you for joining us. My name is Colby, and I will be your conference operator today. I would like to welcome you to the SmartStop Self Storage REIT Third Quarter Earnings Call. I will now turn the call over to David Corak. Please proceed.

David Corak, Executive

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 were 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.

H. Schwartz, CEO

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 transaction 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 3Q strong operating results, we maintained 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 CAD 200 million at a 3.89% coupon this time with a 5-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 accretive capital during the quarter. Additionally, we are proud of SmartStop's inclusion as a member of the MSCI U.S. REIT Index, more commonly known as the RMZ. Lastly, but certainly not least, we entered into a contribution agreement with Argus Professional Storage Management. Needless to say, it was another very active quarter. Before turning to the industry, I just want to spend a minute on the Argus transaction, which we closed on October 1. Since the IPO roadshow, we have been communicating to the market 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 have tremendous confidence that we've 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 to over 35 million. This deal immediately jump starts our third-party management strategy in an accretive manner rather than a dilutive and lengthy process of developing 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 new geographies. We get immediate property clustering in 12 current SmartStop markets, which in time should lead to margin expansion for both managed and owned properties. This provides SmartStop with direct access to a captive pipeline of potential acquisition targets, including off-market deals. It also opens the door to bridge lending to current or potential owners, which is something that no other independent third-party manager can provide. And lastly, this deal paves the way for SmartStop to expand third-party management in Canada, a vastly underserved management market. 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 closed our first lending opportunity with a $4.8 million preferred investment related to a 5-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 the 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 remains strong. Delinquencies remain at below average levels and, in fact, are down year-over-year. 25% of our new rentals utilize our Smart Pay feature for payments, 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 1, our 6-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 SmartStop. 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 tariff concerns. 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 and expected strong FFO growth that should further accelerate in the fourth quarter. 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.

James Barry, CFO

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 fewer 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 heading into the 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%, 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%. 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 30, 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 DST programs ended the quarter with assets under management of $972 million. We recognized 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 increased our loans and preferred investments to the managed REITs by approximately $20 million, all of which happened in September. As a result, we recognized interest income of $1.5 million during the quarter. The DST programs continue to successfully raise equity, and we are excited that SST X 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 as adjusted per share and OP unit outstanding is about $0.015 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 as adjusted per share to be just under $0.01 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, the 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 26, the coupon step-down of our U.S. private placement, which occurred on October 1, 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 managed REIT EBITDA, and 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 NOI due to the aforementioned industrial tenant. We also narrowed our acquisitions guidance to $365 million to $385 million. The result of all these updates is that we are tightening our FFO as 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 CAD 200 million or approximately USD 144 million. The notes have a 5-year maturity and bear a coupon of 3.888%. We were extremely pleased with this execution, which coming off the back of our June offering was multiple times oversubscribed. In October, we closed on a CAD 160 million term loan within our SmartCentres joint ventures, of which we are 50% owners. The loan is a 5-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 CAD 27 million 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.

Operator, Operator

Your first question comes from Todd Thomas with KeyBanc Capital Markets.

Todd Thomas, Analyst

James, I wanted to ask about acquisitions. You touched on investments that you've completed. I think it was over the last 12 months, targeting $375 million this calendar year. How are you thinking about acquisitions from here with a view into '26? Do you pause given sort of some of the volatility in capital costs and with leverage in the high 5s? Or do you maintain this pace moving ahead?

David Corak, Executive

Todd, it's Corak. I'll start and then hand it over to the rest of the team here. So what we've said from the get-go is that we've got this target leverage range in the 5 to 6x 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 we opportunistically look to take that up a little bit. But we do want to maintain that as our target range on a go-forward basis. When you think about the pace of acquisitions, right, this year, $375 million is the midpoint of the range, which entails 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 common equity at a 6.5% cap to go buy 5.5 cap assets on a go-forward basis. So the math just doesn't make sense to us. So I think what I would say is when we look out, we're going to be really prudent with how we deploy capital and be opportunistic on a go-forward basis.

H. Schwartz, CEO

And Todd, this is Michael Schwartz. I would add also 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 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 to 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. We do have our same-store pool. We do have our non-same-store pool. We have our joint venture pool. And we have our third-party management platform with Argus, which obviously we're spending a lot of attention on. And last but not least, 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 additional leverage for growth.

James Barry, CFO

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 9/30 to 10/1 just from that transaction alone.

Todd Thomas, Analyst

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 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?

H. Schwartz, CEO

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 self-storage owners that were fiercely independent. 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, we didn't think it was prudent to 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 you march. Or if you like your brand, well, we love your brand too. You can keep your brand and 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 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 are some significant enhancements that we're going to be able to offer the current owners. So for example, from an 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 a 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 will 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.

James Barry, CFO

Yes. 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...

H. Schwartz, CEO

And I will add that, obviously, they're running on a separate operating system. We've received a separate data card, and we're about three to four weeks into being able to provide some similar aspects that we have at SmartStop. So that takes a little bit of time. So it's probably a 60 to 90 days just from a technology perspective.

James Barry, CFO

One of our strategies in this transaction is to leverage our balance sheet to support owners. As mentioned in our opening remarks, we have already completed one of these transactions in a highly accretive way, with a double-digit coupon in the preferred investment. This approach allows us to serve our customers from the owners' perspective.

Operator, Operator

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

Jonathan Hughes, Analyst

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.

David Corak, Executive

Thanks, Jonathan. It's Corak. I will try not to be long-winded here, but I will probably fail because it's a longer answer. So yes, we gave the quarterly bridge just given the step-up in FFO from 3Q to 4Q. So it's $0.56 for the 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 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, the implied guide for 4Q is about $7 million of clean G&A. That 3Q number was $9 million. So in addition to the $825,000 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, 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 sort of pieces I would call out on that front. Everything else is sort of an assumption into next year. And so I don't want to get in the same-store necessarily just given the fact that we'll guide to 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, four of those ten properties are non-stabilized and six that are stabilized are putting up better NOI growth than the same-store 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 if you pair that, and that should be pretty good growth for us. It was an accretive transaction, and we still feel really good about the yields that we gave on those numbers. And then on the managed REIT side, the natural growth in the fees from the revenue growth of those unstabilized portfolios paired with potential future AUM growth did benefit us into 2026. So a lot there, but those are some of the big pieces I'd point to, Jonathan.

Jonathan Hughes, Analyst

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

H. Schwartz, CEO

Yes, that's a good question. We primarily see most acquisitions in the U.S. and Canada. We have a team of about six people focused on managing acquisitions across the border. While many acquisitions do not meet institutional quality standards and are typically rejected, we believe the flow and quality of deals have been fairly consistent from our viewpoint. There is a willingness among some sellers to trade, as demonstrated by our $500 million in acquisitions. We feel confident about the opportunities we've found at the right prices and timing. We're sourcing these acquisitions through traditional brokers, property owners, developers, and various third parties. We receive numerous inquiries from different sources holding self-storage properties, whether they are publicly listed or not. This sourcing has been consistent, and Bliss in Canada has built strong relationships, allowing her to identify and pitch these deals to us. I can’t provide a specific hit rate, but I can say that there are enough desirable options available for us to pursue.

Operator, Operator

Your next question comes from the line of Nicholas Yulico with Scotiabank.

Viktor Fediv, Analyst

Hello. This is Viktor Fediv on 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 move-in rents and occupancy dynamics kind of in the next 12 months versus the last 12 months?

David Corak, Executive

Thank you for the question. I'll be cautious regarding the outlook for 2026. From a macro perspective, there are many factors at play in both the United States and Canada. I don't want to focus too much on the macro aspects because, to be honest, I'm uncertain. However, from a storage perspective, I do know that the supply situation in self-storage in the United States is getting better. The impact of new supply will be less in 2026 compared to 2025. On the demand side, there are many variables, and it's too early to make a definitive statement. But regarding the supply side, which is a significant part of the overall picture, we are more optimistic about 2026 than about 2025.

H. Schwartz, CEO

Yes. And I think if you step back also, you're seeing additional listings out there. Listings are up year-over-year. You're not seeing things trade. You're probably still seeing the prices maybe come down by 5% to 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 the listing for housing, I think, is a good indicator of future transactions. You're seeing a lot of markets where listings are increasing and people are talking about that. So I think we're cautiously optimistic with respect to that. But in addition, I will add that what I'm seeing, even with all the choppiness we've talked about, you're seeing natural absorption in the storage market. 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.

Viktor Fediv, Analyst

Understood. 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 the first synergies in terms of improved pricing strategies and expense control?

James Barry, CFO

Yes, this is James. I'll address the margin expansion. We've always mentioned that reaching about 10 properties in a market is our benchmark for achieving economies of scale. In the next 12 months, we expect to see significant margin improvements due to these economies of scale. We just completed the Argus transaction on October 1, which overlaps with four more markets, bringing us to the 10-property mark. Previously, we had six properties, and this transaction adds four more. However, we anticipate that it will take around 12 months before we start seeing these economies of scale really contribute. From a revenue management standpoint, our algorithms are continuously utilizing both our own data and the newly integrated Argus data to enhance pricing strategies and maximize revenue, and this will be an ongoing process.

Operator, Operator

Your next question comes from the line of Robin Haneland with BMO Capital Markets.

Robin Haneland, Analyst

This is Robin Haneland 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?

H. Schwartz, CEO

It's Michael Schwartz. Why don't I talk about supply, and then I'll kick it over to David to 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 is from us. We have 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. 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. For example, lease side, which is one of the most competitive markets within the GTA, we have eight properties in a 0.5-mile range of competition. We're still experiencing very high overall occupancy and $35-plus rents per square foot. I think the answer is we can compete, specifically from a technology perspective. So at scale, the GTA in Canada in general remain dramatically undersupplied relative to the population. Urban densification continues. Living spaces are shrinking, and new supply faces significant barriers. In some areas, the development charges, just for the privilege to develop self-storage, is approximately $45 a square foot. In a lot of cases, the math simply doesn't support a national, regional oversupply narrative. So we don't think that will be for the foreseeable future. David?

David Corak, Executive

Yes. 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 3Q '24 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, occupancy is 92.5%. That's up 80 basis points year-over-year. So that gap has widened and is actually wider than the states. And then we've added another 20 basis points in the first six days of November. Move-in rates were down about 9% in October, which was actually better than the States. I think our overall demand remains solid in our trade areas. I think the platform continues to capture an outsized amount of that demand. Really, we haven't seen any of the weakness from changes to immigration policy or the macro environment. It appears that the recently proposed budget could be a potential economic catalyst. So given our operational advantages and everything I just said, our thesis on Canada and the GTA remains unchanged.

Robin Haneland, Analyst

Just curious if it's impacting your thoughts on deploying capital for SmartCentres JV, if you'd like to take that elsewhere? Or just curious on your thoughts there?

H. Schwartz, CEO

No. No. I mean, actually, we're leaning into the SmartCentres joint venture. 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 SmartStop self-storage next to a Walmart, next to a Home Depot. So the answer is no. I think 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 moved into developing on the island of Victoria, Vancouver, Calgary, Edmonton, and Montreal. I think 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.

Robin Haneland, Analyst

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?

H. Schwartz, CEO

Well, one of the things when it comes to the managed REIT platform, we were going to talk about this is that because we switched over to our a 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.

Robin Haneland, Analyst

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

James Barry, CFO

Yes. We're somewhat restricted in what we can disclose regarding this matter because we had a tenant that ended their lease early. We are currently assessing all our options related to that contract, so we can't provide details about that specific property at this moment. It is important to mention that this is part of our non-same-store assets, where most of the space is dedicated to self-storage. Therefore, there is a potential for redevelopment or a possibility for re-leasing, and we are considering all those avenues.

Operator, Operator

Your last question comes from Michael Mueller with JPMorgan.

Michael Mueller, Analyst

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 because it could, I guess, increase optically the complexity to the story overall. So I guess, how do you think about that trade-off?

James Barry, CFO

Yes. 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 margins relative to our portfolio average. So that just gives you a sense of the scalability of the platform in all of these particular markets.

David Corak, Executive

Yes. So from a joint venture to your second question there, Mike, I'll be clear, we already have a joint venture, right, with SmartCentres that is a pure development joint venture. I believe what you're referring to is if we added an institutional acquisitions joint venture. So I'll speak to that specifically. What we look for and what we’d look for there and what the gap, I guess we would be trying to fill is given the size of our company, right, if we wanted to go out and acquire a $1 billion 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 a smaller part of the overall deal, we can put 5%, 10%, 15%, 20% into a particular joint venture, that deal is all of a sudden a lot more achievable for SmartStop to take down. I think beyond that, portfolios that are maybe not pure stabilized, maybe there's a place in there. But I think the main goal would be to be able to compete for larger deals and make those deals accretive for SmartCentres.

Operator, Operator

Your next question comes from the line of Wes Golladay with Baird.

Wesley Golladay, Analyst

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 pivoting more to an occupancy mentality right now?

H. Schwartz, CEO

Our current strategy focuses on maintaining high occupancy. We believe this approach positions us well for success, especially during the slower periods in the fourth and first quarters. By maximizing our occupancy, we can shift our focus to overall economic occupancy as we enter the busier season. This strategy has always been crucial for us. We prioritize high occupancy first, followed by managing rates and discounts, and then we look at increasing rents for existing customers. This has been our approach.

David Corak, Executive

Yes. 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, it's up 10 basis points over September, which is a really nice 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.

Wesley Golladay, Analyst

Okay. 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 same-store revenue. Is that maybe going to be due to the occupancy build? Or will that be potentially easy comps, rate? What's driving that?

David Corak, Executive

I believe there's a slight decrease compared to the 2.5% in same-store revenue. This suggests a further reduction in operational expenses. Therefore, the increase in net operating income would come from the operational expenses. However, we're anticipating that same-store revenue will decline in the fourth quarter compared to the third quarter in terms of absolute dollars.

Operator, Operator

Your last question comes from Eric Luebchow with Wells Fargo.

Eric Luebchow, Analyst

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 could you 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 hurricane or storm impacted markets that you're going to lap. 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?

David Corak, Executive

I reviewed the October occupancy figures, and I won’t repeat that. However, we are very pleased with our occupancy level at 92.5%. Regarding move-in rates during the third quarter, they declined by about 8.9%. In October, we saw a year-over-year decrease of around 18% as our building occupancy strategy was implemented. You noted earlier that October 2024 had the toughest move-in comparison in the second half of 2024, so the year-over-year decline is not unexpected. Moving into November, we have noticed improvements in trends. We are maintaining 92.5% occupancy, which we are happy with, and move-in rates have sequentially increased by about 6% or 7% from October. Additionally, in-place rates have also seen a sequential improvement from October. We now have a year-over-year increase of 40 basis points in occupancy. All these metrics show improvement as we enter November. Finally, regarding ECRIs, which are part of our overall strategy, we continue to leverage that without affecting attrition, which has decreased year-over-year, as mentioned by James and Michael. While I won't disclose specific figures as some are proprietary, we allocated more ECRIs to tenants in October than to new rentals, and the average ECRI was above 18%, indicating a healthy status. We feel very confident about these various components at this moment.

H. Schwartz, CEO

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're 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 the, 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.

Operator, Operator

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

H. Schwartz, CEO

Thank you, operator. It's been an amazing 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 institutional 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.

Operator, Operator

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