With over 71.5 million square feet of rental space, National Storage Affiliates (NSA) is one of the largest owners and operators of self-storage facilities in the US. The company was founded in 2013 and went public in 2015. NSA is a REIT with an unusually interesting structure. The company is composed of separate Participating Regional Operators (PRO), who contribute their properties in exchange for equity in NSA, while still retaining their brand name and control as property managers for their individual portfolios. In addition to the PROs, NSA has three different internal brands (iStorage, Northwest, and SecurCare) that manage other parts of NSA’s business. Out of the 1,100 properties that constitute the NSA portfolio, 915 are wholly owned (either by their PROs or through the core NSA portfolio) and 185 are part of 2 joint ventures, in which NSA has a 25% stake.
NSA has dropped by over 44% during this year’s bear market, but has still managed to grow on the business side. In Q3 2022, same store net operating income grew by 12.1% year-over-year and revenue grew by 10.7%. Additionally, NSA reports a 94.1% same store average occupancy rate. Over the years, NSA has consistently either met or beat EPS and funds from operations (FFO) estimates and has steadily increased its dividend since its IPO in 2015. NSA has also been expanding its business through a series of acquisitions, which has led to an 81.5% increase in wholly-owned square feet from 2019 to 2021 – a striking number especially when compared to the 600 pound gorilla in this space, Public Storage (PSA), which has grown by 22.4% in the comparable time period. In the last 5 years, NSA has seen an average same store revenue growth of 7.3% and an average same store net operating income growth of 9.2%.
NSA could be an attractive opportunity during a recession, considering the self storage storage sector holds up well and outperforms other REITs both in the midst of a recession and in the long term. In the last 28 years, self storage has proven to be the least volatile and most profitable equity REIT sector, with an average annual return of 18.8% and a volatility ratio (defined by the standard deviation of return divided by the average return) of a little over 1. Apartment REITs sit at a volatility ratio of around 1.5 and an average annual return of 14.2% and office and retail REITs both have an average annual return of around 12.1% and a volatility ratio that is slightly below 2.
NSA has an enterprise value of $9.9 billion, and as is typical for REITs, net debt is fairly large (around $3.5 billion) and makes up around 35% of the enterprise value. NSA is able to easily cover the interest on the debt, with an interest coverage ratio of 5. The weighted average maturity of the debt is 5.4 years, especially with around $1 billion set to mature in the next two years. This short-term maturity of debt is a significant concern in light of rising interest rates, the fact that NSA’s current effective interest rate is a low 3.6% and the company has very little cash on the balance sheet.
The company has an annual (forward) dividend payout of $2.20 per share, which works out to an attractive yield of 6%. This compares with an average dividend yield of 3.36% for the five public self-storage REITs. The five year dividend growth rate has been almost 16% and the company has been increasing dividends for seven years in a row.