What’s Special about National Storage? (Part 1/2)

chart01The more I look at National Storage Affiliates the more excited I get about the company’s shares. In a recent post I indicated that the stock was a potential entry point for the self-storage segment. As you may have read self-storage valuations have skyrocketed making this segment one of the best performing REITs in during 2015.

In addition to the U.S. economy, there are a plethora of additional factors that have helped the self-storage sector. For example, zoning, demographics, trends, potential consolidation, an excellent operating performance, amongst other factors make it attractive to investors. We do not see any signs that this will change in 2016.

chart02Sometimes good attributes can become a curse. Many REIT investors have devoted piles of capital to purchase stocks in established self-storage companies. This cash infusion elevated their valuations to one of the highest plateaus in the entire REIT industry.

In April 2015, National Storage Affiliates (NYSE:NSA) presented itself as a rookie in the space. Although the management team has been involved in the self-storage sector since the last century, the lack of public history may have discouraged many investors. This caused the company’s FFO multiple at 19x, which is significantly lower than its peers at 26x.

This article is an attempt to further the knowledge regarding National Storage. Positive industry fundamentals, combined with a lower valuation relative to peers have led us to begin writing about the company. Next we will review National Storage from three additional aspects: Profile, Capital Structure, and Operating Performance.

What is National Storage?

What makes National Storage different from its larger peers is the Participating Regional Operators, or PROs for short. The company is comprised of a group of six affiliate operators that have contributed their properties in exchange for National Storage’s operating partnership and subordinated performance units called OP and SP units. The affiliates manage their contributed properties.

chart03Due to this structure, National Storage has quickly become the sixth largest self-storage operator in the United States with 16 million square feet of rentable space. Now that they are a public company it should be far easier to access funding. In turn, this will attract more PRO’s, enabling the REIT to grow larger than its current 277 locations in 16 states. In order to show you a comparison, the fifth largest self-storage operator is Uncle Bob’s. This company has reached 500 locations in 25 states. The largest operator, Public Storage, has over 2,200 locations in 37 states.

SecurCare, Northwest, and Optivest founded national Storage in 2013. The other three affiliates, Guardian, Move It, and Storage Solutions followed suit. SecurCare is by far the largest affiliate, accounting for more than 40% of the total available square footage. The founder of SecurCare is also the CEO of National Storage.

If National Storage recruits a significant number of affiliates within the next three years, the company will easily expand upon their current $1.4 billion equity market capitalization. The current PRO pipeline falls between 10-15 operators with typical portfolios of $100 million each.

To be continued…

Source: National Storage Affiliates Trust (NYSE:NSA), Fast Graphs.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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