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A quick introduction to SmartStop Self Storage REIT
Pursuant to an S-11 registration statement, SmartStop Self Storage REIT, Inc. (SMST) has filed a request to raise an undisclosed amount in an initial public offering of its common stock.
That The company operates a network of self-storage facilities in the US and Canada.
SMST wants to expand its acquisition efforts in Canada and the US, but that expansion will require additional capital that could be more expensive in the coming period.
I will provide a final opinion when we learn more information about the IPO.
company
Based in Ladera Ranch, California, SmartStop was formed to acquire and operate self-storage locations in North America. It currently has 153 locations, plus 6 joint venture locations and 12 managed locations.
Management is led by Chairman and CEO H. Michael Schwartz, who has been with the company since its inception in January 2013 and has over thirty years of experience in securities, real estate and corporate financial management.
The company’s main locations include:
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100% deals
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joint venture stores
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Run Stores
Below is a map of the Company’s owned and managed operational properties:
Company footprint (SEC EDGAR)
SmartStop has booked an investment from investors at market value of $992.5 million as of December 31, 2021.
SmartStop market and competition
According to a 2021 market research report by Mordor Intelligence, the global self-storage market was estimated at US$48 billion in 2020 and is projected to reach nearly US$65 billion by 2026.
This represents a projected CAGR of 5.45% from 2021 to 2026.
The main drivers for this expected growth are increasing urbanization and, depending on the region, improved economic prospects.
In addition, increasing urbanization is leading to smaller living spaces in general, requiring individuals to store excess goods in a storage unit separate from their primary residence.
Key contestants or other industry participants include:
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u haul
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Public storage
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Additional storage space
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Simply self-storage
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life store
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CubeSmart
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National Storage Affiliates
Financial performance of the SmartStop Self Storage REIT
The company’s recent financial results can be summarized as follows:
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Increasing topline earnings
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Positive operating result in 2021
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Growing Adjusted Funds from Operations
The following are relevant financial results arising from the company’s registration statement:
|
total revenue |
||
|
Period |
total revenue |
|
|
2021 |
$168,764,571 |
|
|
2020 |
$127,024,363 |
|
|
Operating profit (margin) |
||
|
Period |
operating margin |
|
|
2021 |
$16,507,750 |
9.8% |
|
2020 |
$(21,140,210) |
-16.6% |
|
net income |
||
|
Period |
net income |
|
|
2021 |
$(19,564,718) |
|
|
2020 |
$(51,206,803) |
|
|
Funds From Operations – Adjusted |
||
|
Period |
AFFO |
|
|
2021 |
$43,751,745 |
|
|
2020 |
$14,087,177 |
(Source)
As of December 31, 2021, SmartStop had $37.3 million in cash and $873.9 million in total debt.
SmartStop Self Storage REIT IPO Details
SmartStop intends to raise an undisclosed amount of gross proceeds from an initial public offering of its common stock.
No existing shareholder has expressed an interest in buying shares at the IPO price.
Management says it will use the net proceeds from the IPO as follows:
100% of the issued and outstanding Series A Preferred Stock in [$196.4 million book value as of Dec. 31, 2021]which is the value per share that the holder of the Series A Preferred stock would receive at our initial listing if they had immediately previously converted those Series A Preferred stocks into common shares (based on a conversion price of $10.66 per share). at our initial listing and sold these shares at the initial listing price;
pay the current outstanding balance of [as-yet undisclosed amount] on the revolving credit facility due March 2024
finance external growth through real estate acquisitions; and
Funding for other general corporate purposes.
(Source)
Management’s presentation of the company’s roadshow is not available.
With respect to pending litigation, management states that it is not aware of any litigation that would have a material adverse effect on its financial condition or operations.
The listed bookrunners of the IPO are Citigroup, Wells Fargo Securities, KeyBanc Capital Markets and BMO Capital Markets.
Commentary on SmartStop’s IPO
SMST is seeking public equity investments to repurchase its Series A preferred stock and reduce debt or fund its growth plans with remaining proceeds.
The Company’s financial metrics have resulted in increased revenues, net operating income and adjusted working capital in 2021.
The Company currently plans to pay dividends on its shares at an annual rate of $0.60 per share and currently pays dividends monthly, although this may change to quarterly depending on circumstances decided by the Board of Directors.
The market opportunity for the provision of self-storage services is large and is expected to grow at a relatively robust growth rate of almost 5.5% CAGR through 2026 as the urbanization trend continues to drive increasing demand for self-storage space.
Citigroup is the lead underwriter and IPOs led by the firm over the past 12 months have generated an average negative return (68.3%) since its listing. This is a lowest performance for any major underwriter over the period.
The main risk to the company’s prospects is a continued rising interest rate environment, which will increase the cost of capital required to make further acquisitions in line with its growth initiatives.
Management intends to pursue further acquisitions in major metropolitan areas in Canada and the United States, which will require additional capital for the Company, and such capital may be more expensive or dilute existing shareholders.
As we learn more about the company’s IPO prices and valuation assumptions, I’ll provide a definitive opinion.
Estimated IPO Price Date: To be announced.
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