What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-04 compared with 2024-08-02 · 71 added, 50 removed, 247 unchanged (33% of the section changed)

33 unchanged sentences

We consider a store to be stabilized once it has achieved either an 80% occupancy rate for a full year measured as of January 1 of the current year, or has been open for three years prior to January 1 of the current year.

As of June 30, 2024, we owned or had ownership interests in 2,389 operating stores.

Of these stores, 1,912 are wholly-owned, five are in consolidated joint ventures, and 472 are in unconsolidated joint ventures.

As of September 30, 2024, we owned or had ownership interests in 2,401 operating stores.

Of these stores, 1,934 are wholly-owned, seven are in consolidated joint ventures, and 460 are in unconsolidated joint ventures.

In addition, we managed an additional 1,461 stores for third parties bringing the total number of stores which we own and/or manage to 3,862.

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Our acquisitions have given us an increased scale in many core markets as well as a foothold in many markets where we had no previous presence.

As of June 30, 2024, approximately 2,235,000 tenants were leasing storage units at the operating stores that we own and/or manage, primarily on a month-to-month basis, providing the flexibility to increase rental rates over time as market conditions permit.

As of September 30, 2024, approximately 2,245,000 tenants were leasing storage units at the operating stores that we own and/or manage, primarily on a month-to-month basis, providing the flexibility to increase rental rates over time as market conditions permit.

Existing tenants generally receive rate increases at least annually, for which no direct correlation has been drawn to our vacancy trends.

Although leases are short-term in duration, the typical tenant tends to remain at our stores for an extended period of time.

For stores that were stabilized as of June 30, 2024, the average length of stay for tenants who have vacated was approximately 17.5 months.

The average annual rent per square foot for our existing customers at stabilized stores, net of discounts and bad debt, was $20.38 for the three months ended June 30, 2024 and 2023.

Average annual rent per square foot for new leases was $15.60 for the three months ended June 30, 2024, compared to $17.15 for the three months ended June 30, 2023.

For stores that were stabilized as of September 30, 2024, the average length of stay for tenants who have vacated was approximately 17.2 months.

The average annual rent per square foot for our existing customers at stabilized stores, net of discounts and bad debt, was $20.55 for the three months ended September 30, 2024, compared to $20.73 for the three months ended September 30, 2023.

Average annual rent per square foot for new leases was $13.49 for the three months ended September 30, 2024, compared to $15.63 for the three months ended September 30, 2023.

The average discounts, as a percentage of rental revenues, at all stabilized properties during these periods were 2.2% and 2.7%, respectively.

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The following table presents additional information regarding net rentable square feet and the number of stores by state.

June 30, 2024

September 30, 2024

REIT Owned Joint Venture Owned Managed Total

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Totals 1,941 146,292,309 460 35,940,624 1,461 114,418,358 3,862 296,651,291

(1) Includes five consolidated joint ventures and excludes approximately 18,000 units related to Bargold.

(1) Includes seven consolidated joint ventures and excludes approximately 18,200 units related to Bargold.

RESULTS OF OPERATIONS

Amounts in thousands, except store and share data

Comparison of the three and six months ended June 30, 2024 and 2023

Results for the three and six months ended June 30, 2024 included the operations of 2,389 stores (1,912 wholly-owned, five in consolidated joint ventures, and 472 in joint ventures accounted for using the equity method) compared to the results for the three and six months ended June 30, 2023, which included the operations of 1,457 stores (1,133 wholly-owned, one in a consolidated joint venture, and 323 in joint ventures accounted for using the equity method).

Comparison of the three and nine months ended September 30, 2024 and 2023

Results for the three and nine months ended September 30, 2024 included the operations of 2,401 stores (1,934 wholly-owned, seven in consolidated joint ventures, and 460 in joint ventures accounted for using the equity method) compared to the results for the three and nine months ended September 30, 2023, which included the operations of 2,369 stores (1,896 wholly-owned, two in a consolidated joint venture, and 471 in joint ventures accounted for using the equity method).

The following table presents information on revenues earned for the periods indicated:

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2024 2023 $ Change % Change 2024 2023 $ Change % Change

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Total revenues $ 824,804 $ 748,034 $ 76,770 10.3 % $ 2,435,006 $ 1,762,470 $ 672,536 38.2 %

Property Rental— The increase in property rental revenues for the three and six months ended June 30, 2024 was primarily the result of an increase of $501,213 associated with the merger of Life Storage (the “Life Storage Merger”), other acquisitions completed in 2023, and acquisitions completed in the first six months of 2024.

We acquired 761 wholly-owned stores in 2023 and an additional nine wholly-owned stores during the six months ended June 30, 2024.

Property Rental— The increase in property rental revenues for the nine months ended September 30, 2024 was primarily the result of an increase of $561,324 associated with the merger of Life Storage (the “Life Storage Merger”), other acquisitions completed in 2023, and acquisitions completed in the first nine months of 2024.

We acquired 771 wholly-owned stores in 2023 and an additional 20 wholly-owned stores during the nine months ended September 30, 2024.

The Life Storage Merger occurred on July 20, 2023;

therefore the three months ended September 30, 2024 include the additional store count for the full quarter compared to the three months ended September 30, 2023 only including the significantly increased store count from the Merger date forward.

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

We operated 3,812 stores at June 30, 2024 compared to 2,388 stores at June 30, 2023.

The three and nine months ended September 30, 2024 include the larger store count from the Life Storage Merger for the entire respective periods, while the results for the three and nine months ended September 30, 2023 only include the Life Storage stores from July 20, 2023 forward.

We operated 3,862 stores at September 30, 2024 compared to 3,651 stores at September 30, 2023.

Management Fees and Other Income— Management fees and other income primarily 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 three and six months ended June 30, 2024 was due to both an increase in the number of stores managed and an increase in the overall revenue of stores under management when compared to the same period last year.

As of June 30, 2024, we managed 1,895 stores for joint ventures and third parties, compared to 1,254 stores as of June 30, 2023.

The increase for the nine months ended September 30, 2024 was due to both an increase in the number of stores managed and an increase in the overall revenue of stores under management when compared to the same period last year.

As of September 30, 2024, we managed 1,921 stores for unconsolidated joint ventures and third parties, compared to 1,755 stores as of September 30, 2023.

The following table presents information on expenses for the periods indicated:

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2024 2023 $ Change % Change 2024 2023 $ Change % Change

1 unchanged sentence

Tenant reinsurance 17,510 19,130 (1,620) (8.5) % 55,646 37,701 17,945 47.6 %

Life Storage Merger transition costs — 54,174 (54,174) (100.0) % — 54,174 (54,174) (100.0) %

General and administrative 39,750 37,406 2,344 6.3 % 123,373 107,011 16,362 15.3 %

1 unchanged sentence

Total expenses $ 461,341 $ 448,242 $ 13,099 2.9 % $ 1,376,295 $ 925,797 $ 450,498 48.7 %

Property Operations— The increase in property operations expense during the three and six months ended June 30, 2024 consists primarily of an increase of $152,504 related to the Life Storage Merger, other acquisitions completed in 2023, and acquisitions completed in the first six months of 2024.

We acquired 761 wholly-owned stores in 2023 and an additional nine wholly-owned stores during the six months ended June 30, 2024.

Additionally, for the three and six months ended June 30,

2024 there was an increase of $17,340 at our stabilized stores primarily due to property and casualty insurance, payroll, marketing, and property tax, partially offset by utilities.

Property Operations— The increase in property operations expense during the three and nine months ended September 30, 2024 consists primarily of an increase of $174,964 related to the Life Storage Merger and acquisitions completed in the first nine months of 2024.

The Life Storage Merger occurred on July 20, 2023;

therefore the three and nine months ended September 30, 2024 include the additional store count for the full quarter, as compared to the three and nine months ended September 30, 2023 only including the significantly increased store count from acquisition date forward.

We acquired 771 wholly-owned stores in 2023 and an additional 20 wholly-owned stores during the nine months ended September 30, 2024.

Additionally, for the three and nine months ended September 30, 2024 there was an increase of $16,139 at our stabilized stores primarily due to property and casualty insurance, payroll, marketing, and property tax, partially offset by utilities.

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

These increases are primarily related to an increase in stores.

We operated 3,812 stores at June 30, 2024 compared to 2,388 stores at June 30, 2023.

The increase is largely due to the number of stores operated during each period.

We operated 3,862 stores at September 30, 2024 compared to 3,651 stores at September 30, 2023.

Life Storage Merger Transitions Costs— Represents the costs that were incurred as part of the Life Storage Merger in July 2023 that did not meet the definition of transaction costs and primarily consist 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, office expense, office rent, travel and professional fees.

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

We acquired 761 wholly-owned stores in 2023 and an additional nine wholly-owned stores during the six months ended June 30, 2024.

We acquired 771 wholly-owned stores in 2023 (757 wholly-owned stores in the Life Storage Merger on July 20, 2023) and an additional 20 wholly-owned stores during the nine months ended September 30, 2024.

As a result, depreciation expense was higher for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023.

Additionally, the increase relates to the amortization of intangibles recorded as part of the Life Storage Merger.

1 unchanged sentence

The following table presents information on other revenues and expenses for the periods indicated:

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2024 2023 $ Change % Change 2024 2023 $ Change % Change

4 unchanged sentences

Equity in earnings and dividend income from unconsolidated real estate entities 16,246 15,043 1,203 8.0 % 48,508 38,602 9,906 25.7 %

Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and sale of a joint venture interest 13,730 — 13,730 100.0 % 13,730 — 13,730 100.0 %

Impairment of Life Storage trade name (51,763) — (51,763) 100.0 % (51,763) — (51,763) 100.0 %

Income tax expense (10,857) (6,944) (3,913) 56.4 % (27,443) (17,238) (10,205) 59.2 %

Total other revenues & expenses, net $ (160,518) $ (100,936) $ (59,582) 59.0 % $ (436,280) $ (213,627) $ (222,653) 104.2 %

Loss on real estate assets held for sale— During the three months ended June 30, 2024, the Company listed seven properties for sale.

The properties have been recorded at current fair value less selling costs which resulted in an estimated loss of $54,659.

Interest Expense— The increase in interest expense during the three and six months ended June 30, 2024 was primarily the result of a higher debt balance and higher weighted average interest rate compared to the same period in the prior year.

As of June 30, 2024, we had approximately $11.8 billion in total face value of debt, compared to approximately $7.5 billion at June 30, 2023.

The increase in the face value of debt is due to the Life Storage Merger.

The weighted average interest rate of the total of fixed- and variable-rate debt was 4.6% at June 30, 2024, compared to 4.5% at June 30, 2023.

Loss on real estate assets held for sale— As of September 30, 2024, we had 17 stores classified as held for sale.

Of the 17 stores, nine had an estimated fair value, net of selling costs, less than the carrying value of the assets.

During the three and nine months ended September 30, 2024, we recorded estimated losses of $8,961 and $63,620, respectively.

Interest Expense— The increase in interest expense during the three and nine months ended September 30, 2024 was primarily the result of higher outstanding debt and a higher weighted average interest rate compared to the same period in the prior year.

As of September 30, 2024, we had approximately $11.8 billion in total face value of debt, compared to approximately $11.3 billion as of September 30, 2023.

The total face value of debt as of September 30, 2023 reflected an additional $3.7 billion of debt issued in connection with closing the Life Storage Merger on July 20, 2023.

Non-cash Interest Expense Related to Amortization of Discount on Life Storage Unsecured Senior Notes— Represents the amortization of the discount assigned to 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 variable interest rate bridge loans, debt securities and on notes receivable from Common and Preferred Operating Partnership unit holders.

The increase in interest income during the three and six months ended June 30, 2024 was primarily the result of an increase in amount of bridge loans held combined with an increase in interest rates.

The balance of bridge loans was $1,136,306 as of June 30, 2024, compared to $540,355 as of June 30, 2023.

The increase in interest income during the three and nine months ended September 30, 2024 was primarily the result of an increase in the amount of bridge loans outstanding combined with an increase in interest rates.

The balance of bridge loans was $1,032,244 as of September 30, 2024, compared to $533,000 as of September 30, 2023.

Equity in Earnings and Dividend Income from Unconsolidated Real Estate Entities— Equity in earnings of unconsolidated real estate entities represents the income earned through our ownership interests in unconsolidated joint ventures.

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and Strategic Storage Trust VI, Inc.

Income Tax Expense —The increase in income tax expense for the three and six months ended June 30, 2024 was primarily the result of an increase in book income and a decrease in permanent tax deductions related to stock awards.

Equity in Earnings of Unconsolidated Real Estate Ventures - Gain on Sale of Real Estate Assets— In August 2024, the ESS Bristol Investments LLC joint venture sold five of its eight stores to another of our unconsolidated joint ventures, and we recognized a gain of $10,324 for our pro rata share of the transaction.

In September 2024, we sold our membership interest in the Alan Jathoo JV LLC unconsolidated joint venture, which held nine stores, to our partner and recognized a gain of $3,406 on the transaction.

Impairment of Life Storage Trade Name— During the three months ended September 30, 2024, we decided to operate all stores under a single brand.

As a result of that decision, we deemed the Life Storage trade name intangible asset to be impaired and recognized a loss for the full value of the asset.

Income Tax Expense —The increase in income tax expense for the three and nine months ended September 30, 2024 was primarily the result of an increase in book income and a decrease in permanent tax deductions related to stock awards.

FUNDS FROM OPERATIONS

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The following table presents the calculation of FFO for the periods indicated:

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2024 2023 2024 2023

4 unchanged sentences

Unconsolidated joint venture real estate depreciation and amortization 7,922 6,698 23,771 16,359

Unconsolidated joint venture gain on sale of real estate assets (13,730) — (13,730) —

Distributions paid on Series A Preferred Operating Partnership units — — — (159)

8 unchanged sentences

The following table presents operating data for our same-store portfolio.

For the Three Months Ended June 30, Percent For the Six Months Ended June 30, Percent

For the Three Months Ended September 30, Percent For the Nine Months Ended September 30, Percent

2024 2023 Change 2024 2023 Change

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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:

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2024 2023 2024 2023

3 unchanged sentences

Equity in earnings and dividend income from unconsolidated real estate entities (16,246) (15,043) (48,508) (38,602)

Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and sale of a joint venture interest (13,730) — (13,730) —

Interest expense 142,855 122,899 412,875 289,370

2 unchanged sentences

Income tax expense 10,857 6,944 27,443 17,238

Life Storage Merger transition costs — 54,174 — 54,174

General and administrative 39,750 37,406 123,373 107,011

Impairment of Life Storage trade name 51,763 — 51,763 —

Management fees, other income and interest income (64,829) (50,111) (179,634) (134,216)

6 unchanged sentences

Same-store net operating income $ 314,258 $ 317,570 $ 932,798 $ 940,955

Cash flows from operating activities for the six months ended June 30, 2024 increased when compared to the same period in the prior year.

Cash flows used in investing activities relate primarily to our acquisition and development of new stores, sales of stores, investments in unconsolidated real estate entities and notes receivable from bridge loans, and fluctuate depending on our actions in those areas.

Cash flows from operating activities for the nine months ended September 30, 2024 increased when compared to the same period in the prior year.

Cash flows used in investing activities relate primarily to our acquisition and development of new stores, sales of stores, investments in unconsolidated real estate entities notes receivable from bridge loans, and fluctuate depending on our actions in those areas.

Cash flows from financing activities depend primarily on our debt and equity financing activities.

A summary of cash flows along with significant components are as follows:

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Net cash provided by operating activities $ 1,479,151 $ 1,037,959

Net cash used in investing activities (877,503) (1,636,052)

Net cash used in financing activities (269,572) (316,763)

Net cash (used in) provided by financing activities (612,406) 723,479

Significant components of net cash flow included:

2 unchanged sentences

Loss on real estate assets held for sale 63,620 —

Impairment of Life Storage trade name 51,763 —

Accounts payable, accrued expenses and other liabilities 63,726 117,940

Acquisition and development of real estate assets (461,633) (263,866)

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

Investment in unconsolidated real estate entities (7,175) (179,258)

Issuance and purchase of notes receivable, net of principal payments (585,731) (137,198)

Proceeds from sale of notes receivable 175,335 134,064

Proceeds from unsecured term loans and senior notes and revolving lines of credit 5,542,362 5,194,665

8 unchanged sentences

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2024, we had $76,973 available in cash and cash equivalents.

As of September 30, 2024, we had $88,931 available in cash and cash equivalents.

Our cash and cash equivalents are held in accounts managed by third party financial institutions and consist of invested cash and cash in our operating accounts.

During 2024 and 2023, we experienced no loss or lack of access to our cash or cash equivalents;

During 2024 and 2023, we experienced no loss or lack of access to our cash and cash equivalents;

however, there can be no assurance that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

As of June 30, 2024, we had $11,803,723 face value of debt, resulting in a debt to total enterprise value ratio of 25.5%.

As of June 30, 2024, the ratio of total fixed-rate debt and other instruments to total debt was 75.0% ($8,857,343 total fixed-rate debt including $1,383,303 on which we have interest rate swaps that have been included as fixed-rate debt).

The weighted average interest rate of the total of fixed- and variable-rate debt at June 30, 2024 was 4.6%.

As of September 30, 2024, we had $11,827,208 face value of debt, resulting in a debt to total enterprise value ratio of 22.8%.

As of September 30, 2024, the ratio of total fixed-rate debt and other instruments to total debt was 78.3% ($9,256,376 total fixed-rate debt including $1,382,568 on which we have interest rate swaps that have been included as fixed-rate debt).

The weighted average interest rate of the total of fixed- and variable-rate debt at September 30, 2024 was 4.5%.

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

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

We were in compliance with all financial covenants at June 30, 2024.

We were in compliance with all financial covenants at September 30, 2024.

We expect to fund our short-term liquidity requirements, including operating expenses, recurring capital expenditures, dividends to stockholders, distributions to holders of Operating Partnership units and interest on our outstanding indebtedness, out of our operating cash flow, cash on hand and borrowings under our revolving lines of credit.

3 unchanged sentences

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

As of June 30, 2024, we had a total of 1,680 unencumbered stores as defined by our public bonds.

As of September 30, 2024, we had a total of 1,705 unencumbered stores as defined by our public bonds.

Our unencumbered asset value was calculated as $29,442,214 and our total asset value was calculated as $34,958,852 according to the calculations as defined by our public bonds.

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We may also use Operating Partnership units as currency to fund acquisitions from self-storage owners.

On April 15, 2024, we entered into equity distribution agreement (the “Equity Distribution Agreement”) with certain sales agents and forward purchasers named therein.

On April 15, 2024, we entered into an equity distribution agreement (the “Equity Distribution Agreement”) with certain sales agents and forward purchasers named therein.

Under the terms of the Equity Distribution Agreement, we may issue and sell, and the forward purchasers may sell, from time to time through or to the sales agents, shares of our common stock having an aggregate offering price of up to $800 million.

1 unchanged sentence

333-278690) previously filed with and declared effective by the Securities and Exchange Commission (the “SEC”) and a prospectus supplement and accompanying prospectus, filed with the SEC.

As of June 30, 2024, no shares have been sold under the Equity Distribution Agreement, which we refer to as our "at the market" equity program.

As of September 30, 2024, no shares have been sold under the Equity Distribution Agreement, which we refer to as our "at the market" equity program.

OFF-BALANCE SHEET ARRANGEMENTS

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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-Q

Item 2. Management’s Discussion and Analysis