National Storage Affiliates is a fast-growing self-storage REIT that benefits from a differentiated business model.
It leads its peers in both historical and current year top- and bottom-line growth.
NSA has a long growth runway, maintains a strong balance sheet, and pays a growing and well-covered dividend.
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Sezeryadigar/E+ via Getty Images National Storage Affiliates (NYSE: NSA ) has been one of my best REIT picks over the past 12+ months, returning 88% since November of last year, far surpassing the 32% rise in the S&P 500 (NYSEARCA: SPY ) over the same timeframe.
It appears that the market has finally come to appreciate the durable advantages of this fast-growing REIT. In this article, I highlight what makes NSA a growth and income stock worth buying, so let’s get started. NSA Is On the Up and Up
National Storage Affiliates is a fast-growing Self-Storage REIT that has a core strategy around the integration of strong regional operators in the top 100 metropolitan statistical areas of the U.S. At present, NSA holds an ownership interest in 940 states and Puerto Rico It is the sixth largest self-storage operator in the U.S., covering 60M rentable square feet.
NSA has participated in the self-storage boom that’s taking place right now, as Hoya Capital highlighted in its recent research report: “Storage REITs hit ‘rock bottom’ of a multi-year downtrend early in the pandemic after reporting a sharp slowdown in leasing activity, but green shoots began to emerge around this time last year. Initially dismissed as a short-term blip, these REITs have reported substantially improving trends in each of the subsequent quarters. Following years of heavy discounting and “free rent,” pricing power has strengthened considerably over the last year with move-in rental rates surging by roughly 50% year-over-year in the second quarter even as occupancy rates climbed to fresh record highs.” – Hoya Capital Real Estate As seen below, NSA leads the pack with expected revenue and NOI growth of 12% and 16%, respectively, for the full-year 2021. (Source: Hoya Capital Real Estate)
NSA continues to execute well with strong operating fundamentals. This is demonstrated robust occupancy of 96.2% and 96.0% for the end of Q3 and October, respectively. It’s also seeing robust rental growth, as street rates grew by 27% and 25% YoY during Q3 and October. This helped to drive an impressive 24% YoY growth in same store NOI during the third quarter.
What sets NSA apart from peers is its PRO (participating regional operators) structure, which covers about 60% of its portfolio. Under this arrangement, PROs absorb 50% of NOI declines until the 6% preferred allocation to SP (subordinated performance) equity is reached, then 100% of the NOI declines until the 6% preferred allocation to SP equity is fully eroded.
This helps to limit the downside for NSA while also bringing in significant alignment of interest and regional brand recognition and operating expertise from its PROs. As seen below, this has helped NSA to achieve relative outperformance compared to peers from revenue, same-store NOI, and FFO/share growth perspectives. Looking forward, NSA has plenty of growth runway, as the self storage industry is highly fragmented with 49K properties owned by over 30K operators. At present, NSA has a total acquisition pipeline of 320 properties valued at $3.2 billion.
This is comprised of 150+ properties in its captive pipeline and an additional 177 properties from a potential buyout of its JV partnership, in which NSA currently owns 25%. Plus, management continues to see a favorable demand and pricing, as noted during the recent conference call : Apart from the normal seasonality we’re experiencing, which has been muted compared to historical patterns. We don’t see any near term sign of changes to the current favorable environment. Occupancy levels remain close to record highs, allowing us to continue our push on street rates, which average 27% higher this third quarter compared to a year earlier. Through the high occupancy level, we’re able to hold discounting concessions well below historical averages. We continue to be assertive on rent increases in place tenants, these rate increases are averaging high single to low double digits. NSA’s forward growth is supported by its strong balance sheet, with a BBB investment grade rating from Kroll. This includes a low net debt to adjusted EBITDA ratio of 4.9x, and high interest coverage ratio of 5.7x. As seen below, NSA carries a healthy debt to enterprise value of […]