SMA earnings call transcript, November 4, 2026

Thanks, Victor.

This is Michael. You know, our strategic asset management program plays into the DEC initiative in terms of, you know, the scale and clustering. This is all about clustering. In MSAs where we have 10 properties. or more, we've been very clear, you know, our operating margins improved by over 300 basis points. Where we lack scale and do not see a path to scale, you know, we'd rather recycle that capital into core markets where we can grow, you know, our clusters and efficiently. So we've initially targeted 75 to 125 million. We expect those to close in the first half of 2027. There could be more after that, but this is kind of our initial plan. We have several properties being marketed right now. You know, one that I would point out would be that we have two properties on the island of Nantucket. That's a tough market to scale since there's probably not 10 properties, you know, on the island. So those fit the bill, I think, quite well. Now with that, let's... Pricing expectations, David? Yeah, hey, Victor, it's Korak. So in terms of, you know, the pricing and how I think about accretion dilution, we expect the cap rates on these deals that we're buying to be fairly similar to the ones that we're selling. Remember, this is not a strategy. That is divesting sort of the bottom of the barrel of the portfolio, as you see in a lot of the, you know, asset management programs out there in Reetland, you know, some of the markets like Nantucket, like Michael mentioned, are actually fairly low cap rate markets.

Hey, Victor, allow me to give you a little bit of color on the strategy that happened in the third quarter and then I'll kind of. Transition on how that plays into October and I'll probably steer clear of 2027, but but maybe a little bit of thoughts into there. So to your point, our strategy this quarter was representative of what we said on the call three months ago that we were going to drive rate while at. 92 plus percent occupancy during the busy season. And then coming out of the busy season, we wanted to maintain a good base of that occupancy heading into the slower months. And that's basically what three to look like. Right. You can see it in the move in volumes during the quarter. Move ins were up five. Point six percent new every year. And occupancy was down only 30 bits from August to September. That's a much shallower seasonal step down than typical. We ended the quarter at ninety two one, which is actually where we were in July. And obviously that none of that came at the expense of revenue. Right. Rents were up to. Point six percent. And same for revenue actually accelerated from from 3Q into 3Q from 2Q. The Web rates were down three and a half percent for the quarter, but we used significantly less concessions and going into the fourth quarter, the current run rate on concessions is even less. We're down 25 or 30 percent year over year. And that's a meaningful number. The reality is that we have several levers to drive occupancy, right? We found that customers have had a better response to rate than some of the other.

Leavers that we utilize. So we're using less concessions. We haven't pulled on the marketing lever as hard as we could have. Every customer that we move in, there's a rate that we can grow over a length of stay that continues to elongate. We're now at 32 months and 36 percent of our tenants stay for. over 24 months. Our revenue management system flexes between the rate and the occupancy wherever it sees a better return and two key liens on rate and three key liens towards occupancy. It's the same playbook. It's just a maximize NOI. Our strategy was very much the same in October, right? Our occupancy in October was actually up 10 basis points from the end of September at 92.2%. That doesn't happen quite often. For reference, again, higher than some of our occupancies during the the busy season. Our concessions were down, you know, as I mentioned, 25, 30% quarter to date in the fourth quarter. But our move in rates continue to be down as well, right? High single digits, low double digits. However, towards the end of October, we actually started to see a benefit from both move in rates and concessions. So we shifted the strategies in certain markets, namely Toronto, where our web rates today are actually higher than they were last year in the mid single digit range. So in terms of that spread, you know, I think we are going to start seeing some some compression, but it's, you know, the strategy in the, the third quarter and into October, wouldn't reflect that, right? It, we're just pulling different levers. Thank you. Thanks.

You know, actually, this is Michael. It's actually exceeded our expectations. So let me just kind of step back and kind of give you kind of the overview from the Canadian operating. You know, our same store pool in Canada consists of 13 properties. And so same store revenue in this pool, you know, was slightly positive on a constant currency basis in the third quarter, which was an acceleration from the second quarter. Which was down 1%. That's a little bit bigger acceleration in the third quarter than our US portfolio. Our occupancy in the GTA is 92.6. So it's up 10 basis points year over year. For the full year, we do continue to expect the GTA to run modestly below the US portfolio, primarily a function of tougher 2025 comps. The GTA did deliver 2.7% same-store revenue. growth last year, and that was about 100 basis points ahead of the US. Now, the revenue growth in our GTA portfolio has been, and we've emphasized this, three times the US over the past 36 months. In concert with that, our 10-property joint venture has a high occupancy of 93%, 2.8% year-over-year revenue growth. Our ECRIs within the GTA have been in the low 20s. And with consistent, you know, attrition levels and length of stay has been approximately 26 months year-over-year. So the other aspect is kind of the question you asked was with respect to kind of the other Canadian markets. Other than the GTA, our wholly owned Alberta portfolio has gained about 1,700 basis points of occupancy since we've acquired it in August of last year.

And in the third quarter, it posted year-over-year revenue growth of about 9.2%. In concert with. If you take a look at our entire 29 owned properties within SMA, it posted revenue growth of 8.5% year-over-year with occupancy of 92.3%. And so we continue to see. Strong lease up and our recently opened managed assets in Montreal and our late stage lease up assets in Vancouver. So overall, you know, the Canadian consumer remains healthy. I mean, bad debt is less. Less than half of U.S. levels. It's about one percent, which is incredibly low on the macro uncertainty tied to tariffs, you know, has caused probably some hesitation in rental decisions and certain pocketbooks, I think, in the GTA. But it's interesting. Other markets like Alberta have been. showing much steadier trends. And so, you know, I want to, you know, also emphasize that the structural demand drivers, you know, remain the same. And an aging, downsizing population, the shrinking home sizes, you know, can. Continued, you know, urban densification. And so, our GTA portfolio is truly an irreplaceable real estate, given the barriers to entry are significant, the cost to develop, development charges. And we now stand at 41 properties that are owned and managed in the GTA. Yeah, Michael, if I can just add to that as well. In addition to the performance we've seen in the Alberta 5, which, as a reminder, was acquired at a...

About 75% occupancy about a year ago in August. We've seen the full lease up of that particular portfolio, which was, as Michael mentioned, above our expectations. But again, with some of our other announcements and our other transactions, we're adding... to the clusters in those particular markets in Alberta, most notably in Calgary, which is going to really help with the efficiencies in economies of scale there as well. Yeah.

Okay.

Thank you so much for that, Caller. That's it for me.

Thank you, Spencer.

Thank you.

Market deals have been pretty attractive. And we've kind of announced two of them recently, you know, one in Las Vegas and one in Asheville. Look, we're not going to just chase volume or size, you know, for its own sake. I mean. Everything has to be accretive, you know, at a per share bar. And we like to emphasize that, you know, a $300 million transaction would move, you know, our market cap by a 10 percent. And that's, you know, effectively. Growth, respect to that, that kind of, you know, kind of kind of folds into, you know, the strategic investment that we made in strategic storage Canada, you know, that that. Investment is a prime example of kind of the opportunities that we're seeing, you know, in Canada, we have a growth oriented acquisition joint venture, which expanded, you know, our overall presence in Canada by 30%. It hits on three of our DECA pillars targeting. Ventures that advance, you know, clustering, inquiring operating assets at scale, third party management and disciplined capital allocation. And so this lets us deal with our, you know, Canadian platform with. Not fully burdening, you know, our balance sheet, but it also, as James has discussed it at a meaningful presence in Calgary. Now we have nine stores in Calgary and, and we've done that in kind of a de-risked, you know, manner. And so. You know, this also, you know, creates a really nice pipeline of growth, you know, in Canada, which is certainly a big, you know, target for us. Now, having said that, look, it is great to see that, you know, our recent.

You know, stock performance rose smart stop in the sector. You know, we think it reflects the momentum that we're seeing in our business. You know, our balance sheet is in a good place. We continue to stay disciplined in how we allocate capital. And as we've done today, we'll evaluate the right source of capital against the. Opportunities that we see to create long-term value for our shareholders.

Okay, that's helpful. And then shifting over to operating expenses. You know, down again this year, roughly 2% lower year-to-date. How should we think about the expense backdrop heading into 2027? I guess, how much of this year's improvement is, you know, sort of structural or sustainable? And, or should we expect some normalization and expense growth next year against tougher comps? Yeah, Todd, thanks. It's certainly a pertinent question based on the expense decrease that we saw in the third quarter. Which we're very pleased with. And again, just as we mentioned our opening remarks, it is the third consecutive quarter of year over year margin expansion for us. And it widened, it actually got larger sequentially from the second quarter. This is the. The highest third quarter operating margin we've had since 2023. And we think a big portion of that is structural. Right. And as we mentioned over over our lifetime as a public company in MSAs where we have 10 or more properties, we. Roughly 300 basis points of margin improvement. Right. And that really we saw more of those markets fall into that category. Once we had the SmartStop 3 p.m. platform, it tipped more of those markets, most notably Denver. So markets. Just like Miami, Denver, Chicago, we are seeing 250 to 300 basis points year over year margin expansion on a year to date basis. Some of the expense print that we've seen thus far this quarter.

And the year to date is cyclical. So we had stronger property insurance renewals in terms of a softer property insurance market. We have seen some property tax benefits as well. But the things like payroll efficiencies are real and are going to continue to benefit benefit us as we move. forward and continue the clustering through whether it be acquisitions, joint ventures, third party management, all of the above really help with that story. And then just to echo again, as we mentioned on one of the previous questions, that's another part of that strategic asset. management program by migrating away from non-core markets, we're going to continue to reinforce those efficiencies.

Okay. Thank you.

Thanks, Todd.