# SmartStop Self Storage REIT, Inc. (SMA) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from SmartStop Self Storage REIT, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1585389/000095017022004427/ck0001585389-20211231.htm
Accession: 0000950170-22-004427
Filing date: 2022-03-23
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SMA/
All MD&A years: /company/SMA/mda/
Next year: /company/SMA/mda/fy2022/ (FY 2022)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial data contained within this Form 10-K, and our accompanying consolidated financial statements and the notes thereto. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I.

Overview

SmartStop Self Storage REIT, Inc., a Maryland corporation (the “Company”), is a self-managed and fully-integrated self storage real estate investment trust (“REIT”). Our year-end is December 31. As used in this report, “we,” “us,” “our,” and “Company” refer to SmartStop Self Storage REIT, Inc. and each of our subsidiaries.

We focus on the ownership, operation, and acquisition of self storage properties located primarily within the top 100 metropolitan statistical areas, or MSAs, throughout the United States and the top census metropolitan areas, or CMAs, in Canada. According to the 2022 Self Storage Almanac, we are the 11th largest owner and operator of self storage properties in the United States based on number of properties, units, and rentable square footage. As of December 31, 2021, our wholly-owned portfolio consisted of 139 self storage properties diversified across 18 states and the Greater Toronto Area of Ontario, Canada comprising approximately 92,000 units and 10.6 million net rentable square feet. Additionally, we had a 50% equity interests in six unconsolidated real estate ventures located in the Greater Toronto Area, which consisted of five operating self storage properties and one parcel of land currently under development into a self storage facility. Further, through our Managed REIT Platform, we now serve as the sponsor of three Managed REITs: Strategic Storage Growth Trust II, Inc., a private REIT (“SSGT II”), Strategic Storage Trust VI, Inc., a publicly-registered non-traded REIT (“SST VI”), and Strategic Storage Growth Trust III, Inc., a new private REIT which is in its initial stages of formation (“SSGT III”), which pay us fees to manage and operate 17 self storage properties.

Our primary business model is focused on owning and operating high quality self storage properties in high growth markets in the United States and Canada. We finance our portfolio through a diverse capital strategy which includes cash generated from operations, borrowings under our syndicated revolving line of credit, secured and unsecured financing, equity offerings and joint ventures. Our business model is designed to maximize cash flow available for distribution to our stockholders and to achieve sustainable long-term growth in cash flow in order to maximize long-term stockholder value at acceptable levels of risk. We execute our organic growth strategy by pursuing revenue-optimizing and expense-minimizing opportunities in the operations of our existing portfolio. We execute our external growth strategy by developing, redeveloping, acquiring and managing self storage facilities in the United States and Canada, and we look to acquire properties that are physically stabilized, recently developed, in various stages of lease up or at certificate of occupancy. We seek to acquire under-managed facilities that are not operated by institutional operators, where we can implement our proprietary management and technology to maximize net operating income.

As discussed herein, we, through our subsidiaries, also served as the sponsor of Strategic Storage Trust IV, Inc., a public non-traded REIT (“SST IV”) through March 17, 2021, and currently serve as the sponsor of SSGT II, SST VI, and SSGT III, (SSGT II, SST VI, SSGT III, and prior to March 17, 2021, SST IV, the “Managed REITs”), and operate the properties owned by the Managed REITs, consisting of, as of December 31, 2021, 17 properties and approximately 12,000 units and 1.3 million rentable square feet. In addition, we have the internal capability to originate, structure and manage additional investment products (the “Managed REIT Platform”) which would be sponsored by SmartStop REIT Advisors, LLC (“SRA”). We generate asset management fees, property management fees, acquisition fees, other fees and a portion of the tenant protection program revenue. For the property management and advisory services that we provide, we are reimbursed for certain expenses which help to offset our company’s net operating expenses.

Industry Outlook

Self storage industry fundamentals are currently robust, with many properties operating at optimal revenue-producing occupancy and favorable industry dynamics resulting in above-average pricing power for self storage operators. Operators are able to achieve high same-store occupancy levels through a diverse base of customer demand from individuals as well as businesses. As of the end of the second quarter of 2021, according to the 2022 Self Storage Almanac, the industry average occupancy was 94.5% and as of December 31, 2021, the US listed REITs averaged ending occupancy of 94.4%. Additionally, the self storage industry maintained strong occupancy and revenue growth throughout the course of the COVID-19 pandemic, exemplifying how the fundamentals of self storage continue to drive demand in the face of a variety of a challenging operating environment. Based on these favorable supply and demand dynamics, we believe that disciplined self storage operators will generate revenue growth in the near term and will continue to drive revenue through various economic cycles. Likewise, we expect only moderate growth in new supply through 2022. We believe that overhead costs and

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maintenance capital expenditures are considerably lower in the self storage industry as compared to other real estate sectors, and as a result of that strong operating leverage, self storage companies are able to achieve comparatively higher operating and cash flow margins. Although property taxes were kept in check through assessment challenges in 2021, we expect elevated property tax increases in our sector in the coming years. We expect same-store expense growth resulting from increases in employee costs, property insurance and property taxes in 2022, to be partially offset by operating efficiencies gained from leveraging technology, resulting in what we believe will be manageable same store expense increases.

Critical Accounting Policies

We have established accounting policies which conform to generally accepted accounting principles (“GAAP”). Preparing financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Following is a discussion of the estimates and assumptions used in setting accounting policies that we consider critical in the presentation of our financial statements. Many estimates and assumptions involved in the application of GAAP may have a material impact on our financial condition or operating performance, or on the comparability of such information to amounts reported for other periods, because of the subjectivity and judgment required to account for highly uncertain items or the susceptibility of such items to change. These estimates and assumptions affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities at the dates of the financial statements and our reported amounts of revenue and expenses during the period covered by this report. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied or different amounts of assets, liabilities, revenues and expenses would have been recorded, thus resulting in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements. Additionally, other companies may use different estimates and assumptions that may impact the comparability of our financial condition and results of operations to

those companies.

We believe that our critical accounting policies include the following: real estate purchase price allocations; the evaluation of whether any of our long-lived assets have been impaired; the valuation of goodwill and related impairment considerations, the valuation of our trademarks and related impairment considerations, the valuation of our contingent consideration liability, the determination of the useful lives of our long-lived assets; and the evaluation of the consolidation of our interests in joint ventures. The following discussion of these policies supplements, but does not supplant the description of our significant accounting policies, as contained in Note 2 – Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements contained in this report, and is intended to present our analysis of the uncertainties involved in arriving upon and applying each policy.

Real Estate Purchase Price Allocation

We account for acquisitions in accordance with GAAP which requires that we allocate the purchase price of a property to the tangible and intangible assets acquired and the liabilities assumed based on their relative fair values. This guidance requires us to make significant estimates and assumptions, including fair value estimates, which requires the use of significant unobservable inputs as of the acquisition date.

The value of the tangible assets, consisting of land and buildings is determined as if vacant. Because we believe that substantially all of the leases in place at properties we will acquire will be at market rates, as the majority of the leases are month-to-month contracts, we do not expect to allocate any portion of the purchase prices to above or below market leases. We also consider whether in-place, market leases represent an intangible asset. Acquisitions of portfolios of facilities are allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates which take into account the relative size, age, and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available.

Our allocations of purchase prices are based on certain significant estimates and assumptions, variations in such estimates and assumptions could result in a materially different presentation of the consolidated financial statements or materially different amounts being reported in the consolidated financial statements.

Real Property Assets Valuation

We evaluate our real property assets for impairment based on events and changes in circumstances that may impact the carrying amounts of such assets. When indicators of potential impairment are present, we will assess the recoverability of the particular asset by determining whether the carrying value of the asset will be recovered, through an evaluation of the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. This evaluation is based on a number of estimates and assumptions. Based on this evaluation, if the expected undiscounted future cash flows do not exceed the carrying value, we will adjust the value of the real property asset and recognize an impairment loss. Our evaluation of the impairment of real property assets could result in a materially different presentation of the financial

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statements or materially different amounts being reported in the financial statements, as the amount of impairment loss, if any, recognized may vary based on the estimates and assumptions we use.

Intangible Assets Valuation

In connection with the acquisition of the self storage advisory, asset management and property management businesses and certain joint venture interests of SmartStop Asset Management, LLC, our former sponsor (“SAM”), along with certain other assets of SAM (collectively, the “Self Administration Transaction”), we allocated a portion of the consideration to the contracts that we acquired related to the Managed REITs and the customer relationships related to our tenant insurance, tenant protection plans or similar programs (the “Tenant Protection Programs”). For these intangibles, we are amortizing such amounts on a straight-line basis over the estimated benefit period of the contracts and customer relationships. We evaluate these intangible assets for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable. In such an event, an impairment charge is recognized and the intangible asset is marked down to its fair value.

See Note 5 – Self Administration Transaction of the Notes to the Consolidated Financial Statements contained within this report for additional information.

Goodwill Valuation

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible assets and other intangible assets acquired. Goodwill is allocated to various reporting units, as applicable, and is not amortized. We perform an annual impairment test for goodwill and between annual tests, we evaluate the recoverability of goodwill whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be fully recoverable. If circumstances indicate the carrying amount may not be fully recoverable, we perform a quantitative impairment test of goodwill to compare the fair value of each reporting unit to its respective carrying amount. If the carrying amount of goodwill exceeds its fair value, an impairment charge will be recognized.

See Note 5 – Self Administration Transaction of the Notes to the Consolidated Financial Statements contained within this report for additional information.

Trademarks Valuation

Trademarks are based on the value of our brands. Trademarks are valued using the relief from royalty method, which presumes that without ownership of such trademarks, we would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, we avoid any such payments and record the related intangible value of our ownership of the brand name.

We qualitatively evaluate whether any triggering events or changes in circumstances have occurred subsequent to our annual impairment test that would indicate an impairment condition may exist. If any change in circumstance or triggering event occurs, and results in a significant impact to our revenue and profitability projections, or any significant assumption in our valuation methods is adversely impacted, the impact could result in a material impairment charge in the future.

See Note 5 – Self Administration Transaction of the Notes to the Consolidated Financial Statements contained within this report for additional information.

Contingent Earnout Valuation

In connection with the Self Administration Transaction, we issued the Class A-2 Units, as a form of contingent consideration, which is required to be revalued at each reporting period, based on the discounted probability weighted forecast of achieving the requisite AUM thresholds or the occurrence of an Earnout Acceleration Event (both as defined in Note 5 – Self Administration Transaction in the Notes to the Consolidated Financial Statements).

Estimated Useful Lives of Real Property Assets

We assess the useful lives of the assets underlying our properties based upon a subjective determination of the period of future benefit for each asset. We record depreciation expense with respect to these assets based upon the estimated useful lives we determine. Our determinations of the useful lives of the assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as such determinations,

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and the corresponding amount of depreciation expense, may vary dramatically based on the estimates and assumptions we use.

Consolidation Considerations

Current accounting guidance provides a framework for identifying a variable interest entity (“VIE”) and determining when a company should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements. In general, a VIE is an entity or other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. Generally, a VIE should be consolidated if a party with an ownership, contractual, or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and noncontrolling interest at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest.

We evaluate the consolidation of our investments in joint ventures in accordance with relevant accounting guidance. This evaluation requires us to determine whether we have a controlling interest in a joint venture through a means other than voting rights, and, if so, such joint venture may be required to be consolidated in our financial statements. Our evaluation of our joint ventures under such accounting guidance could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as the joint venture entities included in our consolidated financial statements may vary based on the estimates and assumptions we use.

REIT Qualification

We made an election under Section 856(c) of the Internal Revenue Code of 1986 (the Code) to be taxed as a REIT under the Code, commencing with the taxable year ended December 31, 2014. By qualifying as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and could have a material adverse impact on our financial condition and results of operations. However, we believe that we are organized and operate in a manner that will enable us to continue to qualify for treatment as a REIT for federal income tax purposes, and we intend to continue to operate as to remain qualified as a REIT for federal income tax purposes.

COVID-19 Pandemic

Our rental revenue and operating results depend significantly on the demand for self storage space. Since the beginning of the COVID-19 pandemic in late March 2020, our operations have adjusted to meet the needs of our customers and employees, while striving to create a safe environment for everyone at our properties and corporate offices. We also adjusted our in-store operations in order to comply with the various governmental orders, and, in certain cases, we had to temporarily close some of our offices. Additionally, we expanded our options for customers to rent units via contactless means, including directly through our website and call center. The negative operational and financial impacts associated with COVID-19 were most significant to our business in the second quarter of 2020, with customer demand for self storage resuming at or above normalized levels during the second half of 2020 and continuing through 2021.

The challenges associated with the COVID-19 pandemic were partially offset by other trends that helped maintain the demand for self storage. The broader shift of people working from home, elevated migration patterns and strength in the housing market helped drive continued growth in self storage demand through 2021, resulting in the highest physical occupancies the company has achieved to date.

As rental activity, occupancy levels, and rental rates recovered during the second half of 2020 and through 2021, our financial performance has continued to improve. Same-store and overall results are expected to normalize over the coming quarters as the comparable periods change.

The underlying relative strength in the self storage industry in the midst of the COVID-19 pandemic continued into 2021. The ultimate extent and duration of the COVID-19 pandemic could still affect the self storage industry and/or us, potentially by the impact of governmental orders or broader economic conditions, and inflation which could impact our customers, and in turn could affect our financial condition, collections, liquidity, and results of operations. These potential future developments are uncertain and cannot be predicted. This includes new information that may also emerge concerning the breadth of the COVID-19 outbreak, as well as the actions to contain or treat its impact, including the distribution and broad acceptance of various vaccines for COVID-19 or the efficacy of those vaccines against new COVID-19 variants.

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Results of Operations

Overview

We derive revenues principally from: (i) rents received from our self storage tenant leases; (ii) fees generated from our Managed REITs; (iii) our Tenant Protection Programs; and (iv) sales of packing and storage-related supplies at our storage facilities. Therefore, our operating results depend significantly on our ability to retain our existing tenants and lease our available self storage units to new tenants, while maintaining and, where possible, increasing the prices for our self storage units.

Competition in the market areas in which we operate is significant and affects the occupancy levels, rental rates, rental revenues and operating expenses of our facilities. Development of any new self storage facilities would intensify competition of self storage operators in markets in which we operate.

As of December 31, 2021 and 2020, we owned 139 and 112 operating self storage facilities, respectively. Our operating results for the year ended December 31, 2020 included full year periods for 111 operating self storage facilities and partial period results for one operating property where development was completed and the property was placed in service during 2020. Our operating results for the year ended December 31, 2021 included full year periods for 112 operating self storage facilities and partial period results for 27 operating properties. Operating results in future periods will depend on the results of operations of these properties and of the real estate properties that we acquire in the future.

SST IV Merger

On March 17, 2021, we acquired 24 operating self storage facilities and six real estate joint ventures by way of merger with SST IV. The 24 SST IV operating properties had a weighted average physical occupancy of 89.1%, 92.6%, 96.1%, 95.6%, and 94.8% as of December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021, respectively.

We expect the SST IV Merger to be accretive to FFO, as adjusted as we continue to recognize a lower cost of capital, as the former SST IV properties reach higher levels of physical and economic occupancy and continued growth from the six joint venture properties in various stages of lease up and development.

Comparison of the Years Ended December 31, 2021 and 2020

Total Self Storage Revenues

Total self storage related revenues for the years ended December 31, 2021 and 2020 were approximately $158.2 million and $110.2 million, respectively. The increase in total self storage revenues of approximately $48.0 million, or 43.6%, is partially attributable to the 24 operating self storage facilities acquired in connection with the SST IV Merger (approximately $25.0 million or 22.7%) and increased same-store revenues (approximately $18.1 million or 17.4%).

We expect self storage revenues to increase in future periods as our lease-up properties continue to increase occupancy and/or rates, and to otherwise fluctuate based on the performance of our same-store pool, which will be influenced by the overall economic environment and fluctuations in self storage supply, amongst other things.

Managed REIT Platform Revenue

Managed REIT Platform revenue for the years ended December 31, 2021 and 2020 was approximately $6.3 million and $8.0 million, respectively. The decrease in Managed REIT Platform revenue of approximately $1.7 million is primarily attributable to the SST IV Merger in March of 2021. We expect Managed REIT Platform revenues to initially remain lower than what was recorded in 2020 as a result of the SST IV Merger as we no longer receive fees from SST IV, and subsequently increase as our other Managed REITs grow their assets under management. If and when the SSGT II Merger closes, that will also cause a decrease in such fees.

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Reimbursable Costs from Managed REITs

Reimbursable costs from Managed REITs for the years ended December 31, 2021 and 2020 were approximately $4.3 million and $5.8 million, respectively. Such revenues consist of costs incurred by us as we provide property management and advisory services to the Managed REITs, which are reimbursed by our Managed REITs, pursuant to our related contracts with the Managed REITs. We expect reimbursable costs from Managed REITs to fluctuate commensurate with our Managed REITs' increase in operations as we receive reimbursement for providing such services, and decline in the short term if and when the SSGT II Merger closes.

Property Operating Expenses

Property operating expenses for the years ended December 31, 2021 and 2020 were approximately $48.1 million (or 30.4% of self storage revenue) and $38.3 million (or 34.8% of self storage revenue), respectively. Property operating expenses include the costs to operate our facilities including payroll expense, utilities, insurance, real estate taxes, and marketing. The increase in property operating expenses of approximately $9.8 million is primarily attributable to the 24 operating self storage facilities acquired in connection with the SST IV Merger (approximately $7.6 million). We expect property operating expenses to decrease as a percentage of revenues as revenues increase. Additionally, we expect same-store expense growth to continue from increases in employee costs, property insurance and property taxes in the coming years, to be partially offset by operating efficiencies gained from leveraging technology.

Managed REIT Platform Expenses

Managed REIT Platform expenses for the years ended December 31, 2021 and 2020 were approximately $1.5 million and $2.8 million, respectively. Such expenses primarily consisted of expenses related to non-reimbursable costs associated with the operation of the Managed REIT Platform we acquired on June 28, 2019, and the Administrative Services Agreement (as described in Note 5 – Self Administration Transaction, of the Notes to the Consolidated Financial Statements contained in this report). We expect Managed REIT Platform expenses to fluctuate in future periods commensurate with the level of services provided through the Administrative Services Agreement.

Reimbursable Costs from Managed REITs

Reimbursable costs from Managed REITs for the years ended December 31, 2021 and 2020 were approximately $4.3 million and $5.8 million, respectively. Such expenses consist of costs incurred by us as we provide property management and advisory services to the Managed REITs, which are reimbursed by our Managed REITs, pursuant to our related contracts with the Managed REITs.

General and Administrative Expenses

General and administrative expenses for the years ended December 31, 2021 and 2020 were approximately $23.3 million and $16.5 million, respectively. These expenses consist primarily of compensation-related costs, legal expenses, accounting expenses, transfer agent fees, directors’ and officers’ insurance expense and board of directors-related costs. The increase is primarily attributable to increased board of directors’ related costs, other professional costs and compensation-related expenses. We expect general and administrative expenses to decrease as a percentage of total revenues over time.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for the years ended December 31, 2021 and 2020 were approximately $53.4 million and $42.1 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of our in place lease intangible assets resulting from our self storage acquisitions and amortization of certain intangible assets acquired in the Self Administration Transaction. The increase in depreciation and amortization expense is primarily attributable to additional depreciation and amortization on the properties and intangibles acquired in the SST IV Merger.

Other Acquisition Expenses

Other acquisition expenses for the years ended December 31, 2021 and 2020 were approximately $0.9 million and $1.4 million, respectively. These acquisition expenses were incurred prior to acquisitions becoming probable in accordance with our capitalization policy.

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Contingent Earnout Adjustment

The contingent earnout adjustments for the years ended December 31, 2021 and 2020 reflects an increase in the contingent earnout liability of approximately $12.6 million and a reduction in the liability of approximately $2.5 million, respectively. The increase of approximately $15.1 million during the year ended December 31, 2021 was due primarily to increases in our assets under management coupled with amendments made to the provisions of the earnout during 2021.

Impairment of Goodwill and Intangible Assets

Impairment of goodwill and intangible assets for the years ended December 31, 2021 and 2020 was none and approximately $36.5 million, respectively. The impairment charge incurred in the first quarter of 2020 was the result of the impairment of certain assets and goodwill associated with the Managed REIT Platform.

Impairment of Investments in Managed REITs

Impairment of investments in Managed REITs for the years ended December 31, 2021 and 2020 were none and approximately $4.4 million, respectively. Certain of our equity investments in the Managed REITs derive their value from the potential to receive certain subordinated distributions based on certain performance criteria of the Managed REITs, and we determined in the first quarter of 2020 that those criteria were less likely to be met, causing a reduction in the fair value of the related equity investments. We determined that such reduction in fair value was other than temporary, therefore requiring the impairment charge recorded.

Write-off of equity interest and preexisting relationships in SST IV upon acquisition of control

Write-off of equity interest and preexisting relationships in SST IV upon acquisition of control for the years ended December 31, 2021 and 2020 was approximately $8.4 million and none, respectively. Such expense represents the Company’s write-off of the SST IV special limited partnership interest we held in SST IV, which per the terms of the SST IV Merger, terminated without consideration, as well as the write-off of the intangible assets related to the SST IV advisory agreement and property management contracts due to the termination of such contracts with the SST IV Merger.

Gain on Sale of Real Estate

Gain on sale of real estate for the years ended December 31, 2021 and 2020 was approximately $0.2 million and none, respectively. The gain was related to a sale of a parcel of excess land attached to the self storage facility we own in McKinney, Texas. The sale of this parcel did not affect the operations of our McKinney, Texas property.

Interest Expense and Accretion of Fair Market Value of Secured Debt

Interest expense and the accretion of fair market value of secured debt for the years ended December 31, 2021 and 2020 were approximately $31.7 million and $32.5 million, respectively. The decrease of approximately $0.8 million is primarily attributable to lower rates on a year over year basis, partially offset by an increase in the average outstanding principal balance, primarily as a result of the SST IV Merger. The reduction in overall rates during 2021 is as a result of the new Credit Facility, entered into in connection with the SST IV Merger. In future periods we expect interest expense to fluctuate commensurate with our future debt levels and interest rates. We will seek out future opportunities to optimize our debt capital sources, including sources that result in a lower overall cost of debt.

Interest Expense – Debt Issuance Costs

Interest expense – debt issuance costs for the years ended December 31, 2021 and 2020 were approximately $1.7 million and $3.6 million, respectively. We expect interest expense - debt issuance costs to fluctuate commensurate with our future financing activity.

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Net Loss on Extinguishment of Debt

Net loss on extinguishment of debt for the years ended December 31, 2021 and 2020 was $2.4 million and none, respectively.

Other

Other (income) expense for the years ended December 31, 2021 and 2020 was approximately $0.2 million of expense, as compared to approximately $6.0 million of income, respectively. Other consists primarily of state and federal tax expense, adjustments to deferred tax liabilities, foreign currency fluctuations, changes in value related to our foreign currency and interest rate hedges not designated for hedge accounting, and equity in earnings attributable to our unconsolidated joint ventures. The change is primarily the result of favorable deferred tax adjustments of approximately $5.9 million during 2020, primarily related to the intangible impairments noted above.

Same-Store Facility Results – Years Ended December 31, 2021 and 2020

The following table sets forth operating data for our same-store facilities (those properties included in the consolidated results of operations since January 1, 2020, excluding nine lease-up properties we owned as of January 1, 2020) for the years ended December 31, 2021 and 2020. We consider the following data to be meaningful as this allows for the comparison of results without the effects of acquisition, lease up, or development activity.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

N/M Not meaningful

(1)
Revenue includes rental revenue, Tenant Protection Programs revenue, ancillary revenue, and administrative and late fees.

(2)
Property operating expenses excludes corporate general and administrative expenses, interest expense, depreciation, amortization expense, and acquisition expenses.

(3)
Of the total rentable square feet, parking represented approximately 940,000 square feet and 680,000 square feet as of December 31, 2021 and 2020, respectively. On a same-store basis, for the same periods, parking represented approximately 680,000 square feet.

(4)
Determined by dividing the sum of the month-end occupied square feet for the applicable group of facilities for each applicable period by the sum of their month-end rentable square feet for the period.

(5)
Determined by dividing the aggregate realized rental income for each applicable period by the aggregate of the month-end occupied square feet for the period. Properties are included in the respective calculations in their first full month of operations, as appropriate. We have excluded the realized rental revenue and occupied square feet related to parking herein for the purpose of calculating annualized rent per occupied square foot.

(6)
Included in the non same-store data is a self storage facility consisting of approximately 84,000 square feet owned by SST VI OP, which was consolidated for approximately three months in 2021.

Our same-store revenue increased by approximately $18.1 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 due to higher annualized rent per occupied square foot and increased occupancy.

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The following table presents a reconciliation of net loss as presented on our consolidated statements of operations to net operating income, as stated above, for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020"],["Net loss","","$","(19,564,718",")","","$","(51,206,803",")"],["Adjusted to exclude:"],["Managed REIT Platform revenue","","","(6,322,970",")","","","(8,048,630",")"],["Managed REIT Platform expenses","","","1,451,166","","","","2,806,921"],["General and administrative","","","23,265,196","","","","16,471,199"],["Depreciation","","","40,946,406","","","","32,294,627"],["Intangible amortization expense","","","12,422,205","","","","9,777,116"],["Other property acquisition expenses","","","934,838","","","","1,366,092"],["Contingent earnout adjustment","","","12,619,744","","","","(2,500,000",")"],["Impairment of goodwill and intangible assets","","","\u2014","","","","36,465,732"],["Impairment of investments in Managed REITs","","","\u2014","","","","4,376,879"],["Write-off of equity interest and preexisting relationships in SST IV upon acquisition of control","","","8,389,573","","","","\u2014"],["Gain on sale of real estate","","","(178,631",")","","","\u2014"],["Interest expense","","","31,818,237","","","","32,597,613"],["Interest expense\u2014accretion of fair market value of secured debt","","","(110,942",")","","","(130,682",")"],["Interest expense\u2014debt issuance costs","","","1,676,309","","","","3,586,381"],["Net loss on extinguishment of debt","","","2,444,788","","","","\u2014"],["Other","","","244,076","","","","(5,986,719",")"],["Total net operating income","","$","110,035,277","","","$","71,869,726"]]
[[/GREPCENT_TABLE]]

Comparison of the Years Ended December 31, 2020 and 2019

The results of operations and cash flows for the years ended December 31, 2020 compared to December 31, 2019 were included in our Annual Report on Form 10-K for the year ended December 31, 2020 which was filed with the SEC on March 26, 2021.

Non-GAAP Financial Measures

Funds from Operations

Funds from operations (“FFO”) is an industry wide metric promulgated by the National Association of Real Estate Investment Trusts, or NAREIT, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, or the White Paper. The White Paper defines FFO as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and real estate related asset impairment write downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Additionally, gains and losses from change in control are excluded from the determination of FFO. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. Our FFO calculation complies with NAREIT’s policy described above.

54

FFO, as Adjusted

We use FFO, as adjusted, as an additional non-GAAP financial measure to evaluate our operating performance. We previously used Modified Funds from Operations (“MFFO”) (as defined by the Institute for Portfolio Alternatives) as a non-GAAP measure of operating performance. Management replaced the MFFO measure with FFO, as adjusted, because FFO, as adjusted, provides investors with supplemental performance information that is consistent with the performance models and analysis used by management. In addition, FFO, as adjusted, is a measure used among our peer group, which includes publicly traded REITs. Further, we believe FFO, as adjusted, is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies.

In determining FFO, as adjusted, we make further adjustments to the NAREIT computation of FFO to exclude the effects of non-real estate related asset impairments and intangible amortization, acquisition related costs, other write-offs incurred in connection with acquisitions, contingent earnout expenses, accretion of fair value of debt adjustments, gains or losses from extinguishment of debt, adjustments of deferred tax liabilities, realized and unrealized gains/losses on foreign exchange transactions, and gains/losses on foreign exchange and interest rate derivatives not designated for hedge accounting, which we believe are not indicative of the Company’s overall long-term operating performance. We exclude these items from GAAP net income (loss) to arrive at FFO, as adjusted, as they are not the primary drivers in our decision-making process and excluding these items provides investors a view of our continuing operating portfolio performance over time and makes our results more comparable period to period and to other REITs, which in any respective period may experience fluctuations in such acquisition, merger or other similar activities that are not of a long-term operating performance nature. FFO, as adjusted, also reflects adjustments for unconsolidated partnerships and jointly owned investments. We use FFO, as adjusted, as one measure of our operating performance when we formulate corporate goals and evaluate the effectiveness of our strategies.

Presentation of FFO and FFO, as adjusted, is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and FFO, as adjusted, the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and FFO, as adjusted, are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations, which is an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and FFO, as adjusted, should not be considered as an alternative to net income (loss) (determined in accordance with GAAP) and should be reviewed in conjunction with other measurements as an indication of our performance.

55

Neither the SEC, NAREIT, nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or FFO, as adjusted. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the publicly registered, non-traded REIT industry, and we would have to adjust our calculation and characterization of FFO or FFO, as adjusted. The following is a reconciliation of net income (loss), which is the most directly comparable GAAP financial measure, to FFO and FFO, as adjusted, for each of the periods presented below:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2021","","","Year Ended December 31, 2020","","","Year Ended December 31, 2019"],["Net loss (attributable to common stockholders)","","$","(29,401,595",")","","$","(54,354,394",")","","$","(24,750,333",")"],["Add:"],["Depreciation of real estate","","","40,158,233","","","","31,711,102","","","","29,188,668"],["Amortization of real estate related intangible assets","","","11,030,316","","","","5,110,207","","","","8,441,245"],["Depreciation and amortization of real estate and intangible assets from unconsolidated entities","","","754,831","","","","\u2014","","","","\u2014"],["Deduct:"],["Gain resulting from acquisition of unconsolidated affiliates(1)","","","\u2014","","","","\u2014","","","","(8,017,353",")"],["Gain on deconsolidation","","","(169,533",")","","","\u2014","","","","\u2014"],["Gain on sale of real estate","","","(178,631",")","","","\u2014","","","","(3,944,696",")"],["Adjustment for noncontrolling interests","","","(5,727,520",")","","","(4,756,580",")","","","(2,079,045",")"],["FFO (attributable to common stockholders)","","","16,466,101","","","","(22,289,665",")","","","(1,161,514",")"],["Other Adjustments:"],["Intangible amortization expense - contracts(2)","","","1,391,889","","","","4,666,909","","","","3,052,149"],["Acquisition expenses(3)","","","934,838","","","","1,366,092","","","","225,550"],["Acquisition expenses and foreign currency (gains) losses, net from unconsolidated entities","","","210,377","","","","\u2014","","","","\u2014"],["Self administration transaction expenses(4)","","","\u2014","","","","\u2014","","","","1,572,238"],["Contingent earnout adjustment(5)","","","12,619,744","","","","(2,500,000",")","","","200,000"],["Write-off of equity interest and preexisting relationships in SST IV upon consolidation","","","8,389,573","","","","\u2014","","","","\u2014"],["Impairment of goodwill and intangible assets(6)","","","\u2014","","","","36,465,732","","","","\u2014"],["Impairment of investments in Managed REITs(6)","","","\u2014","","","","4,376,879","","","","\u2014"],["Accretion of fair market value of secured debt(7)","","","(110,942",")","","","(130,682",")","","","(131,611",")"],["Net loss on extinguishment of debt(8)","","","2,444,788","","","","\u2014","","","","2,647,633"],["Foreign currency and interest rate derivative losses, net(9)","","","366,849","","","","203,995","","","","730,719"],["Adjustment of deferred tax liabilities(2)","","","(2,025,869",")","","","(5,926,732",")","","","(806,083",")"],["Adjustment for noncontrolling interests","","","(2,720,691",")","","","(5,321,725",")","","","(619,663",")"],["FFO, as adjusted (attributable to common stockholders)","","$","37,966,657","","","$","10,910,803","","","$","5,709,418"]]
[[/GREPCENT_TABLE]]

56

(1)
Such gain was recorded as a result of obtaining control of certain of our Tenant Protection Programs joint ventures in the Self Administration Transaction and in accordance with the NAREIT White Paper was excluded from the determination of FFO.

(2)
These items represent the amortization, accretion, or adjustment of intangible assets or deferred tax liabilities. As these items are non-cash and not primary drivers in our decision-making process, FFO is adjusted for their effect to arrive at FFO, as adjusted, as a means of determining a comparable sustainable operating performance metric to other real estate companies.

(3)
In evaluating investments in real estate, we differentiate the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for publicly registered, non-traded REITs that have generally completed their acquisition activity and have other similar operating characteristics.

(4)
Self administration transaction expenses consist primarily of legal fees, as well as fees for other professionals and financial advisors incurred in connection with the Self Administration Transaction. We believe that adjusting for such non-recurring items provides useful supplemental information because such expenses may not be reflective of on-going operations and is consistent with management’s analysis of our operating performance.

(5)
The contingent earnout adjustment represents the adjustment to the fair value of the Class A-2 Units issued in connection with the Self Administration Transaction. FFO is adjusted to arrive at FFO, as adjusted, as this acquisition related item is not a primary driver in our decision-making process and excluding this provides investors a view of our continuing operating portfolio performance over time.

(6)
The impairment charges relate to our goodwill, intangible assets and investments in the Managed REIT Platform acquired in the Self Administration Transaction. We believe that adjusting for such non-recurring items provides useful supplemental information because such expenses may not be reflective of on-going operations and is consistent with management’s analysis of our operating performance and provides for a means of determining a comparable sustainable operating performance metric.

(7)
This represents the difference between the stated interest rate and the estimated market interest rate on assumed notes as of the date of acquisition. Such amounts have been excluded from FFO, as adjusted, because we believe FFO, as adjusted, provides useful supplementary information by focusing on operating fundamentals, rather than events not related to our normal operations. We are responsible for managing interest rate risk and do not rely on another party to manage such risk.

(8)
The net loss associated with the extinguishment of debt includes prepayment penalties, the write-off of unamortized deferred financing fees, and other fees incurred. We believe that adjusting for such non-recurring items provides useful supplemental information because such losses may not be reflective of on-going transactions and operations and is consistent with management’s analysis of our operating performance.

(9)
This represents the mark-to-market adjustment for our derivative instruments not designated for hedge accounting and the ineffective portion of the change in fair value of derivatives recognized in earnings, as well as changes in foreign currency related to our foreign equity investments not classified as long term. These derivative contracts are intended to manage the Company’s exposure to interest rate and foreign currency risk which may not be reflective of our ongoing performance and may reflect unrealized impacts on our operating performance. Such amounts are recorded in “Other” within our consolidated statements of operations.

Non-cash Items Included in Net Loss:

Provided below is additional information related to selected non-cash items included in net loss above, which may be helpful in assessing our operating results:

•
Interest expense - debt issuance costs of approximately $1.7 million, $3.6 million, and $4.0 million, respectively, were recognized for the years ended December 31, 2021, 2020, and 2019.

57

Cash Flows

A comparison of cash flows for operating, investing and financing activities for the years ended December 31, 2021 and 2020 are as follows:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2021","","","Year Ended December 31, 2020","","","Change"],["Net cash flow provided by (used in):"],["Operating activities","","$","58,764,984","","","$","26,769,871","","","$","31,995,113"],["Investing activities","","$","(120,214,731",")","","$","(28,958,838",")","","$","(91,255,893",")"],["Financing activities","","$","25,674,567","","","$","13,739,338","","","$","11,935,229"]]
[[/GREPCENT_TABLE]]

Cash flows provided by operating activities for the years ended December 31, 2021 and 2020 were approximately $58.8 million and $26.8 million, respectively, an increase of approximately $32.0 million. The increase in cash provided by our operating activities is primarily the result of an increase in net income when excluding the impact of non-cash items included in the determination of net income, which resulted in an increase in cash provided by operating activities of approximately $32.5 million, slightly offset by an approximately $0.5 million reduction in cash resulting from changes in working capital accounts.

Cash flows used in investing activities for the years ended December 31, 2021 and 2020 were approximately $120.2 million and $29.0 million, respectively, a decrease in the use of cash of approximately $91.3 million. The increase in cash used in investing activities primarily relates to the SST IV Merger and the acquisitions of our Oakville III, Riverside III, and Lakewood properties, all of which were completed during the year ended December 31, 2021 as compared to only normal capital improvement and development activities with no self storage acquisitions during the year ended December 31, 2020. Additionally, during the year ended December 31, 2021, we received $13.5 million from the redemption of our SSGT II Preferred Units, compared to a net cash outflow of $13.5 million for our net investment in SSGT II Preferred Units during the year ended December 31, 2020.

Cash flows provided by financing activities for the years ended December 31, 2021 and 2020 were approximately $25.7 million and $13.7 million, respectively, a change of approximately $11.9 million. The change in financing activities is primarily attributable to the approximately $72.6 million of additional net debt proceeds during the year ended December 31, 2021, compared to approximately $50 million in proceeds from the issuance of Series A Convertible Preferred Stock during the year ended December 31, 2020, as well as an additional $11.1 million in distributions paid to our common and preferred stockholders and noncontrolling interest holders in our Operating Partnership during 2021, when compared to 2020, primarily related to the SST IV Merger and additional $50 million of outstanding Series A Convertible Preferred Stock.

Liquidity and Capital Resources

Short-Term Liquidity and Capital Resources

We generally expect that we will meet our short-term liquidity requirements from the combination of existing cash

balances and net cash provided from property operations and the Managed REIT Platform. Alternatively, we may issue additional secured or unsecured financing from banks or other lenders, or we may enter into various other forms of financing. On March 17, 2021, we entered into a debt facility (the “Credit Facility”), which was further expanded in October 2021. As a result of the increased capacity on our Credit Facility, we have additional operational flexibility and are better positioned to take advantage of additional opportunities, while meeting our liquidity needs.

COVID-19 initially caused significant volatility in the debt and equity markets, and any continued and/or further impact will depend on future developments, which are highly uncertain. While we do not expect such events to have a material impact upon our liquidity in the short-term, continued uncertainty or deterioration in the debt and equity markets over an extended period of time could potentially impact our liquidity over the long-term.

Distribution Policy and Distributions

Preferred Stock Dividends

The shares of Series A Convertible Preferred Stock rank senior to all other shares of our capital stock, including our common stock, with respect to rights to receive dividends and to participate in distributions or payments upon any voluntary or involuntary liquidation, dissolution or winding up of the Company. Dividends payable on each share of Series A Convertible Preferred Stock will initially be equal to a rate of 6.25% per annum, which accrues daily but is payable quarterly in arrears. If the Series A Convertible Preferred Stock has not been redeemed on or prior to the fifth anniversary date of the

58

Initial Closing, the dividend rate will increase an additional 0.75% per annum each year thereafter to a maximum of 9.0% per annum until the tenth anniversary of the Initial Closing, at which time the dividend rate shall increase 0.75% per annum each year thereafter until the Series A Convertible Preferred Stock is either converted or repurchased in full.

Common Stock Distributions

On December 20, 2021, our board of directors declared a distribution rate for the first quarter of 2022 of approximately $0.00164 per day per share on the outstanding shares of common stock payable to both Class A and Class T stockholders of record of such shares as shown on our books at the close of business on each day during the period commencing on January 1, 2022 and continuing on each day thereafter through and including March 31, 2022. In connection with these distributions, after the stockholder servicing fee is paid, approximately $0.0014 per day will be paid per Class T share. Pursuant to the selling agreements we entered into with respect to the sale of Class T Shares, no further stockholder servicing fees will be paid on Class T Shares subsequent to April 2022. Such distributions payable to each stockholder of record during a month will be paid the following month.

Background and History of Common Stock Distributions

Since substantially all of our operations are performed indirectly through our Operating Partnership, our ability to pay distributions depends in large part on our Operating Partnership’s ability to pay distributions to its partners, including to us. In the event we do not have enough cash from operations to fund cash distributions, we may borrow, issue additional securities or sell assets in order to fund the distributions. The terms of the Series A Convertible Preferred Stock place certain restrictions on our ability to pay distributions to our common stockholders. In general, we are prohibited from paying distributions to our common stockholders other than regular cash dividends on a basis consistent with past practice and dividends payable in shares of common stock in connection with an initial listing of such shares. Accordingly, we are presently only permitted to pay cash distributions, which may be reinvested in stock pursuant to our DRP, unless otherwise approved by the holder of the Series A Convertible Preferred Stock. Absent the foregoing restrictions, our charter allows our board of directors to authorize payments to stockholders in cash or other assets of the Company or in stock, including in stock of one class payable to holders of stock of another class.

We may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from debt or other financing sources.

Distributions are paid to our common stockholders based on the record date selected by our board of directors. Such distributions are based on daily declaration and record dates. We expect to continue to regularly pay distributions unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Distributions are authorized at the discretion of our board of directors, which are directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Code. Absent the restrictions noted above, our board of directors may increase, decrease or eliminate the distribution rate that is being paid on our common stock at any time. Distributions are made on all classes of our common stock at the same time. The per share amount of distributions on Class A Shares and Class T Shares differ because of different allocations of class-specific expenses. Specifically, distributions on Class T Shares are lower than distributions on Class A Shares because Class T Shares are subject to ongoing stockholder servicing fees. The funds that are available for distribution may be affected by a number of factors, including the following:

•
our operating and interest expenses;

•
our ability to keep our properties occupied;

•
our ability to maintain or increase rental rates;

•
construction defects or capital improvements;

•
capital expenditures and reserves for such expenditures;

•
the issuance of additional shares;

•
financings and refinancings; and

•
dividends with respect to the outstanding shares of our Series A Convertible Preferred Stock.

59

The following shows our distributions paid and the sources of such distributions for the respective periods presented:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2021","","","","","","Year Ended December 31, 2020"],["Distributions paid in cash \u2013 common stockholders","","$","26,157,045","","","","","","$","19,160,171"],["Distributions paid in cash \u2013 Operating Partnership unitholders","","","6,139,772","","","","","","","5,514,994"],["Distributions paid in cash \u2013 preferred stockholders","","","12,277,935","","","","","","","8,786,655"],["Distributions reinvested","","","19,564,929","","","","","","","15,954,081"],["Total distributions","","$","64,139,681","","","","","","$","49,415,901"],["Source of distributions"],["Cash flows provided by operations","","$","58,764,984","","","","91.6","%","","$","26,769,871","","","","54.2","%"],["Cash provided by financing activities","","","\u2014","","","","0.0","%","","","6,691,949","","","","13.5","%"],["Offering proceeds from distribution reinvestment plan","","","5,374,697","","","","8.4","%","","","15,954,081","","","","32.3","%"],["Total sources","","$","64,139,681","","","","100","%","","$","49,415,901","","","","100","%"]]
[[/GREPCENT_TABLE]]

From our inception through December 31, 2021, we paid cumulative distributions of approximately $246 million, of which approximately $206 million were paid to common stockholders, as compared to cumulative FFO of approximately $19.0 million.

For the year ended December 31, 2021, we paid distributions of approximately $64.1 million, of which approximately $45.7 million was paid to common stockholders, as compared to FFO of approximately $16.5 million, which reflects a write-off of equity interest and preexisting relationships of approximately $8.4 million and acquisition related expenses of approximately $0.9 million.

For the year ended December 31, 2020, we paid distributions of approximately $49 million, of which approximately $35 million was paid to common stockholders, as compared to negative FFO of approximately $22 million, which reflects impairment of goodwill, intangible assets, and our investments in Managed REITs, net of deferred tax liability and contingent earnout adjustments, of approximately $32 million, and acquisition related expenses of approximately $1.4 million.

The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.

We must distribute to our stockholders at least 90% of our taxable income each year in order to meet the requirements for being treated as a REIT under the Code. Our directors may authorize distributions in excess of this percentage as they deem appropriate. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period, but may be made in anticipation of cash flow that we expect to receive during a later period and may be made in advance of actual receipt of funds in an attempt to make distributions relatively uniform. To allow for such differences in timing between the receipt of income and the payment of expenses, and the effect of required debt payments, among other things, we could be required to borrow funds from third parties on a short-term basis, issue new securities, or sell assets to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. We are not prohibited from undertaking such activities by our charter, bylaws or investment policies, and we may use an unlimited amount from any source to pay our distributions. These methods of obtaining funding could affect future distributions by increasing operating costs and decreasing available cash, which could reduce the value of our stockholders’ investment in our shares. In addition, such distributions may constitute a return of investors’ capital.

We may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from available funds or from debt financing and pursuant to our distribution reinvestment plan. The payment of distributions from sources other than cash flows from operations may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.

60

Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flows from operations. However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our investments in the current real estate and financial environment and the types and mix of investments in our portfolio. As a result, future distributions declared and paid may exceed cash flow from operations.

Indebtedness

As of December 31, 2021, our net debt was approximately $873.9 million, which included approximately $340.7 million in fixed rate debt, $536.8 million in variable rate debt and approximately $0.2 million in net debt premium less approximately $3.9 million in net debt issuance costs. See Note 6 – Debt and Note 14 – Subsequent Events of the Notes to the Consolidated Financial Statements for more information about our indebtedness.

Additionally, we are party to a master mortgage commitment agreement (the "SmartCentres Financing") with SmartCentres Storage Finance LP (the "SmartCentres Lender"). The SmartCentres Lender is an affiliate of SmartCentres Real Estate Investment Trust, an unaffiliated third party ("SmartCentres"), that owns the other 50% of our unconsolidated real estate joint ventures located in the Greater Toronto Area of Canada. As of December 31, 2021, approximately $67.2 million Canadian Dollars ("CAD") was outstanding on the SmartCentres Financing. The proceeds of the SmartCentres Financing have been and will be used to finance the development and construction of the JV Properties. See Note 4 – Investments in Unconsolidated Real Estate Ventures for additional information regarding the SmartCentres Financing.

Long-Term Liquidity and Capital Resources

On a long-term basis, our principal demands for funds will be for potential property acquisitions, either directly or through entity interests, for the payment of operating expenses and distributions, and for the payment of interest on our outstanding indebtedness.

Long-term potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, issuance of equity instruments, undistributed funds from operations, and additional public or private offerings. To the extent we are not able to secure requisite financing in the form of a credit facility or other debt, we will be dependent upon proceeds from the issuance of equity securities and cash flows from operating activities in order to meet our long-term liquidity requirements and to fund our distributions.

Our material cash requirements from contractual and other obligations primarily relate to our debt obligations. The expected timing of those outstanding principal payments are shown in the table below. The information in this section should be read in conjunction with Note 6 – Debt, and Note 12 – Commitments and Contingencies, of the Notes to the Consolidated Financial Statements contained within this report.

[[GREPCENT_TABLE]]
[["","","Principal Payments due during the years ending December 31:"],["","","Total"],["2022","","$","2,914,434"],["2023","","","44,166,662"],["2024","","","293,039,610"],["2025","","","2,869,188"],["2026","","","341,916,098"],["2027 and thereafter","","","192,605,555"],["Total payments","","$","877,511,547"]]
[[/GREPCENT_TABLE]]

As of December 31, 2021, pursuant to the SSGT II Unit Purchase Agreement, we were also contractually obligated to purchase up to an additional $7.5 million in SSGT II Preferred Units at SSGT II’s option. Additionally, as of December 31, 2021, pursuant to the SST VI Mezzanine Loan, we were potentially required to fund an additional $38.2 million in debt to SST VI at their option. See Note 10 – Related Party Transactions of the Notes to the Consolidated Financial Statements for more information about our obligations under these agreements.

For cash requirements related to potential acquisitions currently under contract, please see Note 3 – Real Estate Facilities of the Notes to the Consolidated Financial Statements.

Subsequent Events

Please see Note 14 – Subsequent Events, of the Notes to the Consolidated Financial Statements contained in this report.

61

Seasonality

We believe that we will experience minor seasonal fluctuations in the occupancy levels of our facilities, which we believe will be slightly higher over the summer months due to increased moving activity.