National Storage Affiliates Trust: Navigating the Self-Storage Landscape

National Storage Affiliates Trust (NSA) is a real estate investment trust (REIT) that owns and operates self-storage properties across the United States. In this report, we’ll take a closer look at the company’s financial performance, key trends, strengths and weaknesses, and the outlook for the future.

Financial Performance For the three months ended June 30, 2024, NSA’s total revenue, including management fees and other revenue, decreased by $25.1 million or 11.6% compared to the same period in 2023. This was primarily due to the sale and contribution of several self-storage properties to joint ventures during this time.

Rental revenue, which makes up the bulk of NSA’s income, decreased by $24.9 million or 12.5%. This was driven by the property dispositions as well as a decrease in average occupancy from 89.0% to 86.1%. However, average annualized rental revenue per occupied square foot increased by 3.3% to $15.59, indicating that NSA was able to raise rents on existing tenants.

On the expense side, property operating expenses decreased by $4.9 million or 8.6%, again due to the reduced property count. General and administrative expenses increased by $1.8 million or 12.4%, primarily from higher personnel costs and equity compensation. Depreciation and amortization fell by $10.0 million or 17.6% for similar reasons.

Looking at the six-month period, a similar story emerges. Total revenue declined 8.7%, rental revenue was down 9.8%, and property operating expenses decreased 5.9%. Average annualized rental revenue per occupied square foot increased 4.1% to $15.65 over this longer timeframe.

Trends and Analysis The key trends highlighted in this report are the impact of NSA’s property disposition activity and the decline in occupancy levels across the portfolio. The sale of 32 properties in late 2023, contribution of 56 properties to a joint venture in early 2024, and sale of 40 additional properties in the first half of 2024 all contributed to the revenue and expense decreases.

Average occupancy fell from 89.0% to 86.1% in the quarter and from 88.8% to 85.8% in the six-month period. This was the primary driver of the rental revenue declines, though NSA was able to offset some of the impact through higher rents.

The company’s joint venture activity is also worth noting. NSA formed a new 2024 Joint Venture during the period, contributing 56 properties. It also has stakes in three other joint ventures that own a combined 241 properties. These ventures allow NSA to access institutional capital and expand its portfolio, though the accounting treatment can create volatility in the financial results.

Strengths and Weaknesses A key strength of NSA is its geographically diversified portfolio of 811 self-storage properties across 38 states and Puerto Rico. This diversification helps mitigate risk and provides opportunities for growth in different regional markets.

The company’s focus on high-quality, well-located properties in markets with barriers to new supply is also a positive. Many of NSA’s facilities are situated in areas where zoning and construction costs make it difficult for new competitors to enter.

However, the company’s reliance on joint ventures introduces some complexity and potential risks. The accounting for these ventures, particularly the application of hypothetical liquidation at book value (HLBV) methods, can create swings in reported earnings that don’t necessarily reflect the underlying operating performance.

NSA’s leverage, while manageable, is also something to monitor. The company has a variety of secured and unsecured debt instruments, including a $1.825 billion credit facility, term loans, and senior unsecured notes. While interest rates and debt levels appear reasonable currently, a significant rise in rates could pressure NSA’s finances.

Outlook and Conclusion Looking ahead, the self-storage industry continues to face headwinds from the normalization of occupancy levels after the pandemic-driven surge. NSA’s disposition activity suggests it is proactively managing its portfolio, though the impact on the financial results is evident.

The company’s focus on high-quality assets, geographic diversification, and access to institutional capital through joint ventures position it well for the future. However, the potential for rising interest rates, competition from new supply, and the complexities of the joint venture structure are risks that bear watching.

Overall, NSA appears to be navigating the current self-storage landscape effectively, though investors should closely monitor the company’s occupancy levels, debt profile, and joint venture performance going forward. The REIT’s diversified portfolio, operational expertise, and strategic partnerships provide a solid foundation for weathering any near-term challenges.