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, 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 decrease 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%, over the same period. 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 for existing tenants.

Other property-related revenue, such as tenant insurance fees, also declined by $1.1 million, or 13.9%, due to the loss of properties. On the other hand, management fees and other revenue increased by $0.9 million, or 10.9%, primarily from changes to NSA’s tenant insurance programs.

On the expense side, property operating expenses decreased by $4.9 million, or 8.6%, again due to the reduction in properties owned and operated. General and administrative expenses, however, increased by $1.8 million, or 12.4%, mainly from higher personnel costs and equity compensation.

Depreciation and amortization fell by $10.0 million, or 17.6%, in line with the decrease in the property portfolio. Interest expense also declined by $2.5 million, or 6.2%, as NSA paid down variable-rate debt.

The company recorded a $4.4 million equity loss from its unconsolidated real estate ventures, compared to a $1.9 million gain in the prior year period. This was largely due to the non-cash impact of applying hypothetical liquidation accounting to the 2024 Joint Venture.

Overall, net income attributable to NSA decreased from $29.4 million to $17.1 million, a drop of $12.4 million. This was driven by the various revenue and expense changes discussed above.

For the six months ended June 30, 2024, a similar story emerges. Total revenue declined by $36.9 million, or 8.7%, rental revenue fell by $38.7 million, or 9.8%, and property operating expenses decreased by $6.7 million, or 5.9%. However, NSA recorded a $63.8 million gain on the sale of self-storage properties, leading to a $41.5 million increase in net income compared to the prior year period.

Strengths and Weaknesses One of NSA’s key strengths is its geographically diversified portfolio of 811 self-storage properties across 38 states and Puerto Rico. This diversification helps mitigate risk and provides exposure to multiple markets. Many of these properties are located in high-quality submarkets with strong demand and limited new supply, giving NSA pricing power.

The company’s internalization of its previous “PRO” (Participating Regional Operator) structure is also a positive development. This transition, completed in July 2024, allows NSA to have full control and oversight of its property management, which should improve efficiency and profitability over time.

Another strength is NSA’s access to capital, both through its credit facilities and the ability to issue debt and equity securities. This financial flexibility enables the company to fund acquisitions, capital expenditures, and other growth initiatives.

However, NSA’s reliance on acquisitions and joint ventures as a growth strategy introduces some risk. The success of these transactions depends on the company’s ability to identify, underwrite, and integrate new properties effectively. Any missteps in this process could negatively impact financial performance.

The decrease in occupancy rates across NSA’s portfolio is also a concern. While the company has been able to raise rents, a sustained decline in occupancy could put pressure on revenue and profitability.

Outlook and Conclusion Looking ahead, the self-storage industry continues to face a mixed outlook. On the one hand, demand for self-storage space remains relatively strong, driven by factors like population growth, urbanization, and the need for additional storage during life transitions. This should provide a tailwind for NSA’s business.

On the other hand, rising interest rates and economic uncertainty could dampen consumer spending and impact move-in and move-out activity. NSA’s ability to navigate these market conditions will be crucial to its future success.

The company’s focus on internalization, capital allocation, and disciplined growth through acquisitions and joint ventures appears to be a sound strategy. However, NSA will need to closely monitor occupancy trends, operating expenses, and the integration of new properties to ensure it can continue to deliver value to shareholders.

Overall, NSA remains a well-positioned player in the self-storage industry, with a diversified portfolio, strong access to capital, and a management team that has demonstrated the ability to adapt to changing market conditions. By continuing to execute on its strategic priorities, the company is poised to navigate the challenges and capitalize on the opportunities ahead.