Morningstar DBRS Assigns Credit Ratings to SmartStop OP, L.P. at BBB With Stable Trends

DBRS, Inc. (Morningstar DBRS) assigned an Issuer Rating and a Senior Unsecured Debt credit rating of BBB with Stable trends to SmartStop OP, L.P. (the Issuer). Morningstar DBRS notes that the credit ratings are based on the credit risk profile of the combined entity, including SmartStop Self Storage REIT, Inc. (the Parent), and the REIT's subsidiaries (including SmartStop OP, L.P., collectively referred to as SmartStop). Financials are reported on a consolidated basis given the guaranty structure.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings and trends consider SmartStop's position as the owner/operator of a high-quality portfolio of self-storage properties in high-growth markets in the U.S. and Canada, with a strong focus on the Greater Toronto Area (GTA). The assigned credit rating and trend also reflect SmartStop's strengthened balance sheet following the closing of its Underwritten Public Offering (the Offering) on April 3, 2025. The Issuer used the $875.6 million of net proceeds from the Offering to fully repay its $175.0 million 2025 KeyBank Acquisition Facility, $472.1 million credit facility, and redeem all issued and outstanding shares of its Series A Convertible Preferred Stock for $200.0 million. Additionally, SmartStop transitioned both its credit facility and current Private Placement Notes (the Notes) to an unsecured from a secured borrowing base. Morningstar DBRS expects SmartStop to continue to transition to and operate within a primarily unsecured debt-funding strategy.

CREDIT RATING DRIVERS
Morningstar DBRS would consider a positive credit rating action should SmartStop's total debt-to-EBITDA improve to below 7.0 times (x) and EBITDA interest coverage to improve to above 2.66 times (x) on a sustained basis, all else equal. Conversely, Morningstar DBRS would consider a negative credit rating action should SmartStop's total debt-to-EBITDA increase above 8.6x and EBITDA interest coverage remain below 1.83x on a sustained basis, all else equal, or if SmartStop's secured debt-to-total debt ratio were to increase to above 40% on a sustained basis.

FINANCIAL OUTLOOK
Morningstar DBRS expects SmartStop's leverage, as measured by total debt-to-EBITDA, to be in the low 8.0x range by YE2025, a significant improvement from 10.9x as of the last 12 months (LTM) ended March 31, 2025, following debt repayments made from the net proceeds of the Offering. Morningstar DBRS expects total debt-to-EBITDA to continue to improve to the mid-to-high 7.0x range in the medium term. Morningstar DBRS expects the Issuer's EBITDA interest coverage will improve to the mid-2.0x range in the near to medium term from 1.72x in the LTM ended March 31, 2025.

CREDIT RATING RATIONALE
SmartStop's credit ratings are supported by (1) its superior geographic, property, and tenant diversification of self-storage portfolio; (2) a high-quality portfolio of self-storage properties located in major markets of the U.S. and Canada, with a focus in the GTA; (3) a strong financial risk assessment profile, including both leverage and coverage after its Offering in April 2025; and (4) a predominately unencumbered balance sheet as SmartStop transitions to an unsecured financing strategy.

The credit ratings are constrained by (1) a small portfolio as measured by EBITDA of $133.4 million for the LTM ended March 31, 2025; (2) a relatively short lease maturity profile, given the nature of month-to-month self-storage unit rentals with an average length of stay of about 30 months; and (3) asset type concentration with a portfolio focused entirely on self-storage rentals.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025): https://dbrs.morningstar.com/research/454196

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors 
In the analysis of the Issuer, the BRA factors were considered in the order of importance contemplated in the methodology.
 
(B) Weighting of FRA Factors 
In the analysis of the Issuer, the FRA factors were considered in the order of importance contemplated in the methodology.
 
(C) Weighting of the BRA and the FRA 
In the analysis of the Issuer, the BRA carries greater weight than the FRA. 

Notes:
All figures are in U.S. dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Entities in the Real Estate Industry (April 15, 2024), https://dbrs.morningstar.com/research/431170

Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at https://dbrs.morningstar.com/research/431153.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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