What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-28 · 36 added, 45 removed, 269 unchanged (23% of the section changed)

4 unchanged sentences

For a discussion of such risk factors, see the section in this Form 10-K entitled “Risk Factors.” Dollar amounts in thousands, except share and per share data, unless otherwise stated.

We are a fully integrated, self-administered and self-managed real estate investment trust (“REIT”), formed to own, operate, manage, acquire, develop and redevelop self-storage properties (“stores”).

We are a fully integrated, self-administered and self-managed REIT, formed to own, operate, manage, acquire, develop and redevelop self-storage properties (“stores”).

We derive substantially all of our revenues from our two segments:

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Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022

Results for the year ended December 31, 2022 included the operations of 1,451 stores (1,132 wholly-owned, one in a consolidated joint venture, and 318 in joint ventures accounted for using the equity method) compared to the results for the year ended December 31, 2021, which included the operations of 1,268 stores (981 wholly-owned, four in a consolidated joint venture, and 283 in joint ventures accounted for using the equity method).

Results for the year ended December 31, 2023 included the operations of 2,377 stores (1,903 wholly-owned, two in a consolidated joint venture, and 472 in joint ventures accounted for using the equity method) compared to the results for the year ended December 31, 2022, which included the operations of 1,451 stores (1,132 wholly-owned, one in a consolidated joint venture, and 318 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 $ 2,560,244 $ 1,924,170 $ 636,074 33.1 %

Property Rental— The increase in property rental revenues for the year ended December 31, 2022 was primarily the result of an increase of $220,629 at our stabilized stores related to high occupancy and increased rents to existing customers.

Property rental revenue also increased by $100,601 associated with acquisitions completed in 2022 and 2021.

We acquired 153 stores during the year ended December 31, 2022 and we acquired 74 stores during the year ended December 31, 2021.

Property rental revenue also increased by $5,431 during the year ended December 31, 2022 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.

Property Rental— The increase in property rental revenues for the year ended December 31, 2023 was primarily the result of an increase of $507,054 associated with our merger with Life Storage on July 20, 2023, (the "Life Storage Merger" or "Merger") and other acquisitions completed in 2023.

We acquired 757 wholly-owned stores in the Merger and an additional 14 stores during the year ended December 31, 2023.

We acquired 153 stores during the year ended December 31, 2022.

In addition to the increase attributable to the Merger, property rental revenues increased by $46,712 due to operating results at our stabilized stores and increased by $7,523 as a result of increases in occupancy at our lease-up stores.

Tenant Reinsurance —The increase in tenant reinsurance revenues was due primarily to an increase in the number of stores operated.

We operated 3,714 stores at December 31, 2023, compared to 2,338 stores at December 31, 2022.

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Tenant reinsurance 58,874 33,560 25,314 75.4 %

Transaction related costs 1,548 — 1,548 —

Transaction costs — 1,548 (1,548) (100.0)

Life Storage Merger transition costs 66,732 — 66,732 — %

General and administrative 146,408 129,251 17,157 13.3 %

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Total expenses $ 1,390,103 $ 888,017 $ 502,086 56.5 %

Property Operations —The increase in property operations expense consists primarily of an increase of $32,242 at stabilized stores due to increased payroll, credit card processing fees, utilities, property taxes and insurance.

The increase was also attributed to $34,547 related to acquisitions completed in 2022 and 2021.

We acquired 153 stores during the year ended December 31, 2022 and acquired 74 stores during the year ended December 31, 2021.

The increase was partially offset by a decrease in expense of $6,934 related to property sales.

Property Operations —The increase in property operations expense consists primarily of an increase of $153,712 associated with the Life Storage Merger and other acquisitions completed in 2023.

We acquired 757 wholly-owned stores in the merger and an additional 14 stores during the year ended December 31, 2023.

We acquired 153 stores during the year ended December 31, 2022.

Additionally, property operations expense increased $22,097 at stabilized stores due to increased marketing expense, credit card processing fees and insurance.

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

The increase in tenant reinsurance expense for the year ended December 31, 2022 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.

Tenant reinsurance expense included a $3,000 charge for tenant reinsurance claims related to damages incurred from Hurricane Ian.

The increase in tenant reinsurance expense for the year ended December 31, 2023 was due primarily to the increase in total number of stores operated compared to the prior year.

We operated 3,714 stores at December 31, 2023, compared to 2,338 stores at December 31, 2022.

Transaction Related Costs —This represents the costs that were incurred as part of the acquisition of Bargold Storage Systems, LLC ("Bargold").

Transaction Costs —This represents the costs that were incurred as part of the acquisition of Bargold.

Life Storage Merger Transition Costs— Represents the costs that were incurred as part of the Life Storage Merger primarily consisting of severance paid as part of employment agreements with certain employees and officers of Life Storage.

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.

Our overall expense has increased due to acquisitions, business combinations and growth through our joint venture partners and managed portfolio.

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

We experienced wage pressure which led to increases in wages of approximately 10% nationwide.

During 2022, we continued to see these trends but to a lesser extent and as such we do not expect these trends to continue in 2023.

Our overall expense has increased primarily as a result of our increased size through acquisitions, business combinations and growth through our joint venture partners and managed portfolio.

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 153 stores during the year ended December 31, 2022, and acquired 74 stores during the year ended December 31, 2021.

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

We acquired 757 wholly-owned stores in the Life Storage Merger and an additional 14 wholly-owned stores during the year ended December 31, 2023.

We acquired 153 stores during the year ended December 31, 2022.

Other Income and Expenses

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Interest expense (419,035) (219,171) (199,864) 91.2 %

Non-cash interest expense related to amortization of discount on Life Storage unsecured senior notes (18,786) — (18,786) 100.0 %

Interest income 84,857 69,422 15,435 22.2 %

Equity in earnings and dividend income from unconsolidated real estate entities 54,835 41,428 13,407 32.4 %

Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets — 6,251 (6,251) 100.0 %

Income tax expense (21,559) (20,925) (634) 3.0 %

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We recognized a total gain of $14,249 related to the sale of these assets.

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 increase in interest expense during the year ended December 31, 2023 was the result of higher overall debt and a higher average interest rate when compared to the same period in the prior year.

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Average interest rate 4.6 % 4.1 %

Non-cash Interest Expense Related to Amortization of Discount on Life Storage Unsecured Senior Notes— Represents the amortization of the discount recorded to present the fair value of the Life Storage unsecured senior notes assumed as part of the Life Storage Merger.

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

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To the extent that cash or profits in excess of these preferred returns are generated, we receive a higher percentage of the excess cash or profits, as applicable.

We added a total of 37 stores to new and existing joint ventures for the year ended December 31, 2022 resulting in higher earnings when compared to the prior year.

Dividend income represents dividends from our $200,000 investment in preferred stock of SmartStop.

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.

We added a total of 154 stores to new and existing joint ventures (145 stores from the Life Storage Merger) during the year ended December 31, 2023 resulting in higher earnings when compared to the prior year.

Dividend income represents dividends from our investment in preferred stock of SmartStop Self Storage REIT, Inc.

and Strategic Storage Trust VI, Inc.

Income Tax Expense— For the year ended December 31, 2023 , 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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Properties included in same-store 913 913

Same-store revenues for the year ended December 31, 2022 increased compared to the same periods in 2021

due to higher average rates to existing customers and higher other operating income partially offset by lower occupancy.

Same-store expenses increased for the three months and year ended December 31, 2022 compared to the same periods in 2021

due to increases in payroll, credit card processing fees, utilities, property taxes and insurance.

The same-store expense growth

rate for the year ended December 31, 2022 is amplified by negative expense growth in the 2021 comparable period.

Same-store revenues for the year ended December 31, 2023 increased compared to the same periods in 2022 due to higher average rates to existing customers and higher other operating income partially offset by lower occupancy.

Same-store expenses increased for the year ended December 31, 2023 compared to the year ended 2022 due to increases in payroll, credit card processing fees, utilities, property taxes and insurance.

The same-store expense growth rate for the year ended December 31, 2023 is amplified by negative expense growth in the 2022 comparable period.

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 (54,835) (41,428)

Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets — (6,251)

Interest expense 419,035 219,171

Non-cash interest expense related to amortization of discount on Life Storage unsecured senior notes 18,786 —

Depreciation and amortization 506,053 288,316

Income tax expense 21,559 20,925

Transaction related costs 1,548 —

Transaction costs — 1,548

Life Storage Merger transition costs 66,732 —

General and administrative 146,408 129,251

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Acquisition, development and redevelopment of stores (420,892) (1,353,510) (1,289,524)

Life Storage Merger, net of cash acquired (1,182,411) — —

Cash paid for business combination — (157,302) —

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Issuance and purchase of notes receivable (330,499) (529,245) (317,482)

Investment in debt securities $ — $ — $ (300,000)

Proceeds from sale of notes receivable 167,495 210,048 172,002

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As of December 31, 2022, the weighted average interest rate for all fixed rate debt was 3.4%, and the weighted average interest rate on all variable rate debt was 5.5%.

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.

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 which was upgraded to BBB+/Stable in July 2023 in connection with the Life Storage Merger.

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

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Our liquidity needs consist primarily of operating expenses, monthly debt service payments, recurring capital expenditures, distributions to unit holders and dividends to stockholders necessary to maintain our REIT qualification.

We may from time to time seek to repurchase our outstanding debt, shares of common stock or other securities in open market purchases, privately negotiated transactions or otherwise.

Such repurchases, if any, will depend on prevailing market

conditions, our liquidity requirements, contractual restrictions and other factors.

We may from time to time seek to repurchase our outstanding debt, shares of common stock or other securities in open market

purchases, privately negotiated transactions or otherwise.

Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

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

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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