Overview of National Storage Affiliates Trust

National Storage Affiliates Trust is a real estate investment trust (REIT) that owns and operates self-storage properties across the United States. The company was founded in 2013 and has grown to become one of the largest self-storage REITs in the country.

The company’s business model is focused on acquiring, operating and managing a geographically diversified portfolio of self-storage properties. As of September 30, 2024, the company owned 811 self-storage properties across 38 states and Puerto Rico, comprising over 52 million rentable square feet. The company also has ownership interests in several joint venture partnerships that own an additional 259 self-storage properties.

A key part of the company’s strategy has been to partner with experienced regional self-storage operators, known as “PROs”, who manage the day-to-day operations of the properties. However, in 2024 the company internalized this PRO structure, bringing the majority of operations in-house.

Financial Performance

For the three months ended September 30, 2024, National Storage Affiliates reported total revenue of $193.6 million, down 11.6% from the same period in 2023. This decrease was primarily due to the sale and contribution of properties to joint ventures over the past year.

Rental revenue, which makes up the majority of the company’s total revenue, decreased by 13.6% to $174.5 million. This was driven by lower average occupancy across the portfolio, from 88.6% in Q3 2023 to 86.0% in Q3 2024. However, average rental rates per occupied square foot increased by 1.6% to $15.57.

Other property-related revenue, which includes fees from tenant insurance programs, decreased by 4.6% to $7.4 million. Management fees and other revenue, which includes fees from managing the company’s joint ventures, increased by 23.0% to $11.7 million.

On the expense side, property operating expenses decreased by 10.0% to $52.7 million, primarily due to the sale and contribution of properties. General and administrative expenses decreased by 13.2% to $13.1 million, mainly from lower management fees following the internalization of the PRO structure.

Depreciation and amortization expense decreased by 14.7% to $47.7 million, also due to the property dispositions. Interest expense decreased by 8.1% to $39.6 million, driven by a reduction in variable-rate debt.

Overall, the company reported net income of $29.8 million for the third quarter of 2024, down from $43.1 million in the same period of 2023. Funds from Operations (FFO), a key metric for REITs, decreased from $0.67 per share and unit in Q3 2023 to $0.61 per share and unit in Q3 2024.

For the first nine months of 2024, total revenue decreased 9.7% to $580.2 million, while net income increased 21.8% to $157.1 million compared to the same period in 2023. FFO per share and unit decreased from $2.01 to $1.84 over this time.

The company’s financial results were impacted by several key events during 2024, including:

• The sale of 32 self-storage properties in Q4 2023 and the contribution of 56 properties to a joint venture in Q1 2024
• The acquisition of 3 properties in the first nine months of 2024, compared to 20 properties acquired in 2023
• The internalization of the company’s PRO structure, which resulted in changes to management fees and other expenses

Strengths and Weaknesses

One of National Storage Affiliates’ key strengths is its geographically diversified portfolio of self-storage properties. The company owns assets across 38 states and Puerto Rico, which helps mitigate risk and provide stable cash flows. Many of the company’s properties are located in markets with high barriers to entry, such as zoning restrictions, which can limit new competition.

The company also benefits from its relationships with experienced regional operators through its joint venture partnerships. This provides local market expertise and helps drive operating efficiencies. The internalization of the PRO structure, while adding some near-term costs, is expected to further strengthen the company’s in-house property management capabilities over the long term.

A potential weakness is the company’s reliance on acquisitions and joint ventures for external growth. While the company has been successful in this area historically, future growth may be constrained if it becomes more difficult to find attractive acquisition opportunities or joint venture partners. The company’s leverage, while manageable, could also limit its financial flexibility.

Additionally, the self-storage industry is subject to some seasonality, with higher occupancy and rental rates typically seen during the summer months. This can lead to fluctuations in the company’s quarterly financial results.

Outlook and Future Prospects

Looking ahead, National Storage Affiliates’ management is focused on continuing to optimize the company’s operations and financial position following the internalization of the PRO structure. This includes integrating the former PRO teams and systems, as well as exploring opportunities to further streamline and enhance the company’s property management platform.

The company also sees potential for additional external growth through joint venture partnerships and selective property acquisitions. The 75% third-party interest in the company’s existing joint ventures, valued at approximately $2 billion, represents a potential acquisition opportunity that could drive future expansion.

However, the self-storage industry is becoming increasingly competitive, with new supply being added in many markets. This could put pressure on occupancy levels and rental rates going forward. The company’s ability to maintain its competitive edge and continue growing its portfolio will be crucial to its long-term success.

Overall, National Storage Affiliates appears to be a well-positioned self-storage REIT with a strong operational foundation and a track record of growth. While the company faces some near-term headwinds, its diversified portfolio, experienced management team, and focus on innovation suggest it is well-equipped to navigate the challenges of the self-storage market and deliver value for its shareholders over the long term.