Smartstop Self Storage REIT Inc (SMA) Earnings

Management highlights

- Strategic Announcement: DECA Initiative * Launched the multi-year DECA (Disciplined Execution, Compounding Appreciation) strategic framework focused on long-term shareholder value creation via six defined pillars, with a target long-term capitalization level of $10 billion where the platform can reach full potential * Core goals include relative market outperformance, margin expansion, and outsized adjusted FFO per share growth - Operational Performance Highlights * 10 out of the company's top 15 U.S. markets posted positive same-store NOI growth, with average overall occupancy maintained at ~92.5% for the quarter * Deliberate expense control drove margin expansion for the second consecutive quarter, with lower costs across payroll, property insurance, repairs and maintenance, and utilities (property taxes remained relatively flat) * Adjusted FFO per share was 49 cents, representing 17.6% YoY growth * 7 properties impacted by LA County Fire ECRI restrictions posted -2% same-store revenue growth in Q2, but restrictions have since been lifted - External Growth Activity * Acquired a 3-property high-quality self-storage portfolio in Spartanburg, South Carolina for ~$30 million at a 5% cap rate * Deployed $16.3 million in bridge capital for a preferred investment in a Goleta, California property, and assumed property management of the asset * Organic leverage reduction brought cash flow leverage to 6.2x * Canadian JV properties delivered 9.4% YoY NOI growth, with stable occupancy in the GTA and strong growth in Alberta markets

Guidance

- Same-store revenue guidance: Raised from a range of -0.25% to 1.75% to 0.5% to 1.5%; ~5-7 bps of the increase comes from lifted LA fire restrictions, with the remainder from stronger-than-expected Q2 performance and H2 momentum - Overall operating expense growth guidance: Lowered from 1.75% to 3.75% to a range of 0.25% to 1.25%, driven by lower controllable expenses and lower-than-expected property insurance costs - Same-store NOI growth midpoint: Revised upward from -0.25% to +1.15% - Adjusted FFO per share guidance: Raised from $1.94 - $2.04 to $1.98 - $2.04, maintaining the upper bound of the original range - Full-year capital deployment guidance for acquisitions: Raised to a $55 million to $75 million range, with capacity for additional activity if attractive opportunities emerge

Segment performance

1. Core Same-Store Self Storage (U.S.): Reported 1.3% YoY same-store revenue growth, a 3.4% YoY decrease in operating expenses, 3.7% YoY same-store NOI growth, and a 150 bps YoY expansion of same-store operating margin to 67.3%. End-of-quarter average occupancy was 92.4%, with July 2026 occupancy at 92.1% (down 65 bps YoY). This segment contributes the majority of total company revenue. 2. Canadian Joint Venture Properties: Delivered 9.4% YoY NOI growth, with 92.3% occupancy for stabilized, recently opened joint venture assets. 3. Managed REIT/Third-Party Platform: Generated 14% YoY growth in recurring revenue. Post-acquisition integration of the Argus platform is ongoing, with new onboarding of larger, higher-quality properties offsetting smaller offboarded assets. 4. Bridge Lending Joint Venture: Had $20 million in deployed capital as of Q2 end, with an additional $3 million deployed after quarter close, and a blended yield of just under 11%.

Risks & headwinds

- Proposed and enacted pricing/rent regulation in the self-storage sector (most notably New York) poses potential risk to revenue management systems; the company has no direct exposure to New York's regulated markets, but monitors regulatory developments closely - Supply-side pressure in some U.S. and Canadian markets continues to pressure move-in rents, though supply impact is expected to decrease through H2 2026 and into 2027-2028 - New market entry by a large competitor (Public Storage via its acquisition of PS Canada) in Canada could alter competitive dynamics, though management is confident in its existing position and ability to compete - Macroeconomic uncertainty in Canada has caused some hesitation and delays in consumer rental decisions, concentrated in specific GTA pockets - Uncertainty around future interest rates and property owner leverage has created some inconsistent pricing in broker-listed acquisition transactions - AI implementation for cost savings and revenue enhancement is in early stages, with material benefits expected over the medium term rather than the near term

Analyst Q&A

• Q: What cap rates is management seeing in the current acquisition environment, and how active do you expect to be? /

  A: Management expects continued acquisition activity around its recent target cap rates: mid-5% range in most U.S. markets, and 4% to 5% in most Canadian markets. A wave of high-quality properties is coming to market as COVID-era overleveraged owners face limited options, creating an attractive acquisition cycle. Full-year capital deployment guidance has been raised to $55-$75 million, with additional capacity available, but the company will not chase volume just for size and will only pursue accretive acquisitions. 100 million dollars of acquisitions moves SmartStop's market cap by ~10%, making even moderate deals meaningful for growth.

• Q: How much of the recent 150 bps margin expansion is sustainable from operating leverage, versus temporary cost savings? Where is future margin expansion coming from? /

  A: Temporary savings from a softening property insurance market will continue through 2026, but the largest sustainable driver is clustering/scale density in regional markets. After the Argus acquisition increased Denver market presence fourfold, Denver operating expenses dropped substantially entirely from payroll efficiency. Markets with 10+ properties already see a 300 bps margin improvement vs smaller footprints, and three additional markets crossed the 10-property threshold after Argus, so further expansion is expected as integration continues. Additional sustainable expansion will also come from favorable insurance renewals, ongoing solar initiatives reducing utility costs, and steady same-store performance.

• Q: What is the update on the Asheville market after eminent domain and flood-related property losses? /

  A: Two Asheville properties were impacted by eminent domain, with 80% of one property and 20% of a second taken, and customers are being relocated through a legal settlement process. After being our 2025 top-performing market, occupancy dipped after the losses but is already positive YoY as of July 2026, performing slightly better than expected. The company will break ground in early 2027 to rebuild the flood-destroyed property at 83% larger than the original, with delivery expected in late 2027/early 2028, reinvesting in the high-potential market.

• Q: How does the recently announced Public Storage entry into Canada via the PS Canada acquisition impact SmartStop's Canadian strategy and fundamentals? /

  A: There is moderate overlap between the competitor's new footprint and SmartStop's core GTA portfolio, but management welcomes the competition and expects to outperform. Canadian consumer demand remains structurally solid: bad debt is less than half of U.S. levels and improving, core demand drivers (population densification, downsizing, immigration) remain intact, and the Alberta portfolio has already grown occupancy 15% over the past two quarters. SmartStop's 16-year-old GTA portfolio consists of irreplaceable core real estate, and the company remains committed to growing the Canadian market, with multiple acquisition and JV opportunities currently under evaluation.