What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-02-26 · 51 added, 30 removed, 257 unchanged (24% of the section changed)

41 unchanged sentences

Our ability to correctly assess the influence or control over an entity affects the presentation of the investment in our consolidated financial statements.

As of December 31, 2020 and 2019, we had no consolidated VIEs.

As of December 31, 2021 we had one consolidated VIE consisting of four stores.

As of December 31, 2020 we had no consolidated VIEs.

REAL ESTATE ASSETS:

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Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020

Results for the year ended December 31, 2020 included the operations of 1,197 stores (944 wholly-owned, six in consolidated joint ventures, and 247 in joint ventures accounted for using the equity method) compared to the results for the year ended December 31, 2019, which included the operations of 1,171 stores (925 wholly-owned, five in a consolidated joint venture, and 241 in joint ventures accounted for using the equity method).

Results for the year ended December 31, 2021 included the operations of 1,268 stores (981 wholly-owned, four in consolidated joint ventures, and 283 in joint ventures accounted for using the equity method) compared to the results for the year ended December 31, 2020, which included the operations of 1,197 stores (944 wholly-owned, six in a consolidated joint venture, and 247 in joint ventures accounted for using the equity method).

Material or unusual changes in the results of our operations are discussed below.

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Total revenues $ 1,577,362 $ 1,356,212 $ 221,150 16.3 %

Property Rental— The increase in property rental revenues for the year ended December 31, 2020 was primarily the result of an increase of $25,242 associated with acquisitions completed in 2020 and 2019.

We acquired 23 stores during the year ended December 31, 2020 and we acquired 21 stores and added 27 leased properties (as part of a new net lease agreement) during the year ended December 31, 2019.

Property rental revenue also increased by $3,755 during the year ended December 31, 2020 as a result of increases in occupancy at our lease-up stores, which was partially offset by a decrease of $(1,301) at our stabilized stores.

Tenant Reinsurance —The increase in tenant reinsurance revenues was due primarily to an increase in the number of stores operated and the higher occupancy at both our lease up and mature sites.

Property Rental— The increase in property rental revenues for the year ended December 31, 2021 was primarily the result of an increase of $151,217 at our stabilized stores related to high occupancy and increased rents to new and existing customers.

Property rental revenue also increased by $40,792 associated with acquisitions completed in 2021 and 2020.

We acquired 74 stores during the year ended December 31, 2021 and we acquired 23 stores during the year ended December 31, 2020.

Property rental revenue also increased by $5,193 during the year ended December 31, 2021 as a result of increases in occupancy at our lease-up stores.

These increases were offset by approximately $15,460 related to the sale of 16 stores into a new joint venture and 16 stores to a third party during 2021.

Tenant Reinsurance —The increase in tenant reinsurance revenues was due primarily to an increase in the number of stores operated and the higher average occupancy across the portfolio.

We operated 2,096 stores at December 31, 2021, compared to 1,921 stores at December 31, 2020.

Management Fees and Other Income —Management fees and other income represent the fee collected for our management of stores owned by third parties and unconsolidated joint ventures and other transaction fee income.

The increase for the year ended December 31, 2020 was primarily due to an increase in the number of stores managed, offset by non-recurring transaction fees earned in 2019.

Management Fees and Other Income —Management fees and other income represent the fees collected for our management of stores owned by third parties and unconsolidated joint ventures and other transaction fee income.

The increase for the year ended December 31, 2021 was primarily due to an increase in the number of stores managed.

As of December 31, 2021, we managed 1,115 stores for third parties and joint ventures compared to 977 stores as of December 31, 2020.

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Property Operations —The increase in property operations expense consists primarily of an increase of $13,440 related to acquisitions completed in 2021 and 2020.

We acquired 23 stores during the year ended December 31, 2020 and acquired 21 stores and added 27 leased properties (as part of a new net lease agreement) during the year ended December 31, 2019.

There was also an increase of $3,932 related to increases in property taxes at stabilized stores.

We acquired 74 stores during the year ended December 31, 2021 and acquired 23 stores during the year ended December 31, 2020.

The increase was partially offset by a decrease in expense of $(4,755) related to property sales.

Tenant Reinsurance —Tenant reinsurance expense represents the costs that are incurred to provide tenant reinsurance.

The decrease in tenant reinsurance expense for the year ended December 31, 2020 was due primarily to a reduction in the number of claims as well as a decrease in the overall average payout on individual claims when compared to the year ended December 31, 2019.

The increase in tenant reinsurance expense for the year ended December 31, 2021 was due primarily to the increase in total number of stores operated compared to the prior year and major storm events that occurred causing an increase in claim payouts.

We operated 2,096 stores at December 31, 2021, compared to 1,921 stores at December 31, 2020.

General and Administrative— General and administrative expenses primarily include all expenses not directly related to our stores, including corporate payroll, travel and professional fees.

These expenses are recognized as incurred.

During the year ended December 31, 2020, we recorded an additional $1,823 in compensation expense as a result of modifications to the terms of the stock-based awards related to the retirement of an executive in June 2020.

We did not observe any material trends in specific payroll, travel or other expenses that contributed significantly to the increase in general and administrative expenses apart from the increase due to the management of additional stores.

During 2021, we experienced higher than average turnover and extended times to fill.

Additionally, we experienced wage pressure which led to increases in wages of approximately 10% nationwide.

These trends will directly increase general & administrative expenses in 2022.

No other material trends in specific travel or other expenses were observed.

Depreciation and Amortization —Depreciation and amortization expense increased as a result of the acquisition of new stores.

We acquired 23 stores and completed the development of a consolidated joint venture store during the year ended December 31, 2020, and acquired 21 operating stores during the year ended December 31, 2019.

We acquired 74 stores during the year ended December 31, 2021, and acquired 23 stores during the year ended December 31, 2020.

Other Income and Expenses

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Equity in earnings and dividend income from unconsolidated real estate entities 32,358 22,361 9,997 44.7 %

Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partner's interest 6,251 — 6,251 100.0 %

Income tax expense (20,324) (13,810) (6,514) 47.2 %

Total other expense, net $ 42,565 $ (130,483) $ 173,048 (132.6) %

Gain on Real Estate Transactions — The gain of $18,075 for the year ended December 31, 2020 was primarily the result of the sale of four properties in Florida for a total sales price of $46,592.

The gain of $1,205 for the year ended December 31, 2019, was a result of the sale of one property in New York for $11,272.

Gain on Real Estate Transactions — During the first quarter of 2021, we sold 16 stores to a newly established unconsolidated joint venture for a total sales price of $168,885 resulting in a gain of $63,477.

Additionally, we sold 16 stores during the fourth quarter of 2021 to a third party for a total sales price of $204,500 resulting in a gain of $73,854.

Interest Expense— The decrease in interest expense during the year ended December 31, 2021 was primarily the result of a lower average interest rate when compared to the same period in the prior year.

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Non-cash Interest Expense Related to Amortization of Discount on Equity Component of Exchangeable Senior Notes— Represents the amortization of the discounts related to the equity components of the exchangeable senior notes issued by our Operating Partnership.

The exchangeable senior notes both had an effective interest rate of 4.0% relative to the carrying amount of the liability.

As of December 31, 2020 the exchangeable senior notes were paid off in full.

The exchangeable senior notes had an effective interest rate of 4.0% relative to the carrying amount of the liability.

The notes were paid in full in November 2020.

Interest Income— Interest income represents amounts earned on cash and cash equivalents deposited with financial institutions, interest earned on bridge loans and debt securities and income earned on notes receivable from common and preferred Operating Partnership unit holders.

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Dividend income represents dividends from our investment in convertible preferred stock of SmartStop, which was purchased in October 2019 for $150,000 with another $50,000 invested in October 2020.

The increase in earnings for the year ended December 31, 2020 is due primarily to the dividend income related to the SmartStop preferred stock.

The increase in earnings for the year ended December 31, 2021 is related in part to the dividend income from the secondary investment of SmartStop preferred stock.

Additionally the increases related to the higher income at our joint ventures are due to store performance and the acquisition of 45 stores with new and existing joint venture partners.

These increases were offset by the sale of our equity interest in 22 stores.

Equity in Earnings of Unconsolidated Real Estate Ventures—Gain on Sale of Real Estate Assets and Purchase of Joint Venture Partner's Interest— In June 2021, we sold our interest in two unconsolidated single store joint ventures to our joint ventures partner.

We received proceeds of $1,888 in cash and recorded a gain of $525.

Also, as of June 2021, the WICNN JV LLC and GFN JV LLC joint ventures sold all 17 of the stores owned by the joint ventures to a third party.

Subsequent to the sales, these joint ventures were dissolved.

As a result of these transactions, we recorded a gain of $5,739.

Income Tax Expense— For the year ended December 31, 2021 , the increase in income tax expense was the result of an increase in income earned by our TRS when compared to the same period in the prior year.

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We believe FFO is a meaningful disclosure as a supplement to net earnings.

Net earnings assume that the values of real estate assets diminish predictably over time as reflected through depreciation and amortization expenses.

Net earnings assume that the values of real estate assets diminish

predictably over time as reflected through depreciation and amortization expenses.

The values of real estate assets fluctuate due to market conditions and we believe FFO more accurately reflects the value of our real estate assets.

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generally accepted accounting principles (“GAAP”), excluding gains or losses on sales of operating stores and impairment write-downs of depreciable real estate assets, plus real estate related depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis.

We believe that to further understand our performance, FFO should be considered along with the reported net income and cash flows in accordance with GAAP, as presented in the

consolidated financial statements.

We believe that to further understand our performance, FFO should be considered along with the reported net income and cash flows in accordance with GAAP, as presented in the consolidated financial statements.

FFO should not be considered a replacement of net income computed in accordance with GAAP.

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Unconsolidated joint venture real estate depreciation and amortization 11,954 9,021 8,044

Unconsolidated joint venture gain on sale of real estate assets and purchase of partner's interest (6,251) — —

Distributions paid on Series A Preferred Operating Partnership units (2,288) (2,288) (2,288)

16 unchanged sentences

Properties included in same-store 842 842

Same-store revenues for the year ended December 31, 2020 were essentially flat, due to higher average occupancy, partially offset by lower rental rates to existing customers, lower late fees and higher bad debt expense related to non-paying tenants.

Expenses were higher for the year ended December 31, 2020, primarily due to increases in payroll, marketing expenses and property taxes partially offset by reduced utilities expense and repairs and maintenance.

Same-store revenues for the year ended December 31, 2021 increased compared to the prior year, due to higher average occupancy, higher average rates to new and existing customers and higher late fees partially offset by higher discounts.

Expenses were lower for the year ended December 31, 2021 compared to the prior year, primarily due to decreases in payroll and marketing expense, partially offset by increases in property taxes, credit card processing fees, repairs and maintenance expense and insurance expense.

The following table presents a reconciliation of same-store net operating income to net income as presented on our condensed consolidated statements of operations for the periods indicated:

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Equity in earnings and dividend income from unconsolidated real estate entities (32,358) (22,361)

Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partner's interest (6,251) —

Interest expense 166,183 172,301

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Proceeds from the sale of common stock, net of offering costs $ 273,189 $ 103,468 $ 198,827

Proceeds from sale of real estate assets and investments in real estate ventures $ 572,728 $ 44,024 $ 11,254

Net proceeds from our debt financing and repayment activities $ 206,691 $ 1,266,270 $ 205,267

Repurchase of common stock $ — $ (67,873) $ —

Proceeds from issuance of public bonds, net $ 1,040,349 $ — $ —

Dividends paid on common stock $ (600,994) $ (467,765) $ (458,114)

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These cash needs include operating expenses, monthly debt service payments, recurring capital expenditures, acquisitions, funding for new notes receivable for bridge loans, building redevelopments and expansions, distributions to unit holders and dividends to stockholders necessary to maintain our REIT qualification.

We expect to generate positive cash flow from operations in 2020, and we consider these projected cash flows in our sources and uses of cash.

We expect to generate positive cash flow from operations and we consider projected cash flows in our sources and uses of cash.

These cash flows are principally derived from rents paid by our tenants.

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As of December 31, 2021, we had $5,984,113 face value of debt, resulting in a debt to total enterprise value ratio of 15.6%.

As of December 31, 2019, we had $5,076,501 face value of debt, resulting in a debt total enterprise value ratio of 25.9%.

As of December 31, 2020, we had $5,767,771 face value of debt, resulting in a debt to total enterprise value ratio of 27.5%.

As of December 31, 2021, the ratio of total fixed-rate debt and other instruments to total debt was 75.3% (including $1,983,145 on which we have interest rate swaps that have been included as fixed-rate debt).

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The weighted average interest rate of total debt at December 31, 2021 and 2020 was 2.6% and 2.7%, respectively.

In July 2019, we obtained a BBB/Stable rating from S&P and in January 2021 we received a Baa2 rating from Moody's Investors Service.

In January 2021, we received a Baa2 rating from Moody's Investors Service and in July 2019, we obtained a BBB/Stable rating from S&P.

We intend to manage our balance sheet to preserve such ratings.

Certain of our real estate assets are pledged as collateral for our debt.

We have a total of 752 unencumbered stores as defined by our public bonds.

Our unencumbered asset value is calculated as $13,498,591 and our total asset value is calculated as $18,072,262 according to the calculations as defined by our public bonds.

We are subject to certain restrictive covenants relating to our outstanding debt.

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In addition, we evaluate, on an ongoing basis, the merits of strategic acquisitions and other relationships, which may require us to raise additional funds.

We may also use Operating Partnership units as currency to fund acquisitions from self-storage owners who desire tax-deferral in their exiting transactions.

We may also use

Operating Partnership units as currency to fund acquisitions from self-storage owners who desire tax-deferral in their exiting transactions.

CONTRACTUAL OBLIGATIONS

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For more information on our contractual obligations related to real estate acquisitions, refer to our commitments and contingencies footnote in the notes to the consolidated financial statements in Item 8 of this Form 10-K.

The self-storage business is subject to seasonal fluctuations.

A greater portion of revenues and profits are realized from May through September.

The self-storage business has been subject to seasonal fluctuations.

A greater portion of revenues and profits is typically realized from May through September.

Historically, our highest level of occupancy has been at the end of July, while our lowest level of occupancy has been in late February and early March.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis