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National Storage Affiliates: An Enticing Dividend-Growth Pick
Stock Analysis & Ideas

National Storage Affiliates: An Enticing Dividend-Growth Pick

Story Highlights
  • NSA has managed to retain a robust growth momentum, despite the underlying challenges that have been pressuring most REITs.
  • The company’s expansion prospects remain attractive, with its future acquisitions likely to be accretive in its per-share metrics.
  • Shares are relatively attractively priced considering the company’s ongoing growth pace and underlying dividend yield.

National Storage Affiliates Trust (NSA) is a self-administered and self-managed REIT focusing on operating and acquiring self-storage properties found within the top 100 metropolitan statistical areas throughout the United States and Puerto Rico.

The company’s property portfolio includes 844 consolidated self-storage properties in 39 states and Puerto Rico, featuring 55.7 million rentable square feet. In addition, via its property management platform, National Storage Affiliates also operates a supplementary portfolio of 177 properties possessed by its unconsolidated real estate ventures. Specifically, the company owns a 25% equity stake in each of these unconsolidated real estate properties.

In my view, National Storage Affiliates features multiple qualities. Additionally, with growth prospects remaining promising and the yield currently hovering over 4% following its recent correction, the stock’s investment case appears rather enticing. Accordingly, I am bullish on the stock.

Growth Endures Despite The Challenges

The ongoing macro challenges have suppressed the growth of many REITs. These include a rising-rates environment resulting in reduced investment activity, rental escalations underperforming the roaring inflation, and occupancy levels remaining softened, especially in retail and office-related REITs. Yet, National Storage Affiliates’ growth remains strong, as proven by its most recent quarterly results. Further, the company’s investment pipeline appears robust, and is set to drive further growth over the medium to long-term.

NSA’s most recent Q1-2022 results illustrated the company’s encouraging growth trajectory, with total revenues coming in at $187.1 million, implying year-over-year growth of 52.1%.

The gain in revenues was due to elevated same-store sales and expansion from acquisitions. In particular, year-over-year same-store total revenues rose by 16.6% to $132.6 million, powered mainly by a 250 basis point boost in average occupancy and a 13.4% gain in average annualized rental revenue per occupied square foot. In addition, NSA purchased 12 self-storage properties for approximately $93 million during the three-month period, which, combined with the rest of the acquisitions the company executed over the past four quarters, also strengthened results.

With the top-line results expanding rapidly, the company’s bottom line has been experiencing economies of scale. Core funds from operations (FFO) came in at $87.4 million, a 70.7% increase compared to the prior-year period, largely supported by NOI (Net Operating Income) growth of 22.2% and proportionally softer growth in operating expenses which came in at just 3.1%. FFO grew by 38.7% to $0.68 on a per-share basis, as a result of the added shares the company issued to partially finance its recent acquisitions.

Still, the per-share growth pace remained very impressive, with the recent acquisitions evidently being accretive to the company’s results. If the company’s performance wasn’t impressive enough already, NSA’s occupancy stood at 94.8% at the end of the quarter, up 140 basis points year-over-year.

Regarding the company’s future growth, it’s not only important that NSA merely expands its property portfolio but that this expansion is going to be accretive on a per-share basis.

This is how value is created in this space, after all. I expect NSA’s future growth to continue to be accretive, with the company boasting an acquisition pipeline of more than 300 properties. These comprise 130 properties with an estimated worth of $1.4 billion and the previously mentioned 177 properties which are in its Joint Venture, from which NSA has the right to acquire the remaining 75% stake.

Dividend & Valuation

NSA numbers seven years of successive annual dividend increases. While this is not a lengthy record, note that the company was founded as “recently” as 2013. NSA’s five-year DPS CAGR currently stands at 12.56%, while the latest hike of 11.1% retained the growth in the double-digits.

For fiscal 2022, management expects NSA’s core FFO/share to land between $2.80 and $2.85, up from $2.68 and $2.74, previously. The midpoint of this range, at $2.83, implies year-over-year growth of 25.2%. Thus, it’s quite possible that this year’s dividend hike will also be sustained in the double-digits.

The midpoint of management’s guidance also implies a payout ratio of around 71% at NSA’s current annualized DPS of $2.00, which should easily sustain aggressive DPS hikes combined with the underlying FFO/share growth, even if growth was to temporarily soften moving forward.

Finally, management’s guidance implies a forward P/FFO of 17.6 at the stock’s current levels. In my view, this multiple does not adequately reflect the company’s double-digit FFO/share and DPS growth prospects. Especially considering that shares come attached to a 4.1% dividend yield, which should provide a notable margin of safety against a further multiple compression. All while increasing the predictability of shareholders’ total return potential, in general.

Wall Street’s Take

National Storage Affiliates stock has a Moderate Buy consensus rating, based on two Buys and one Hold assigned in the past three months. The average National Storage Affiliates price target of $56.50 implies 11.88% upside potential.

Takeaway

In my view, National Storage Affiliates makes for an attractive pick for dividend-growth investors.

The company’s growth remains impressive, while its acquisition pipeline should translate into a relatively predictable expansion path. Amid double-digit FFO/share growth prospects, dividend hikes should also remain in the double-digits, as management’s guidance also pointing towards another prosperous year ahead.

The cherry on top is that the stock offers a relatively hefty yield considering its ongoing growth pace, which should provide investors with a wide margin of safety, concluding an appealing investment case.

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