Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- National Storage Affiliates Trust (NSA, Financial) reported core FFO per share of $0.62 for Q2 2024, reflecting a decrease of approximately 9% over the prior year period.
- The company has started to see more acquisition opportunities in core markets, including a five-property portfolio in the Rio Grande Valley for $72 million and a 13-property portfolio totaling $75 million.
- NSA has made significant progress on strategic initiatives, including the internalization of the PRO structure, with 70% of PRO managed stores now on the NSA web and operating platforms.
- The transition of PRO managed stores to NSA's platform is on schedule, with 40% of the 172 stores to be rebranded already completed.
- NSA's balance sheet remains strong with a current revolver balance of roughly $400 million, providing $550 million of availability for future opportunities.
Negative Points
- NSA is experiencing reduced customer demand for storage due to a muted housing market and the absorption of new supply, particularly in Sunbelt markets.
- Same-store occupancy rates have declined, ending June at 87% and July at 86.6%, with street rates down 14% from last year.
- Revenue growth declined 2.8% on a same-store basis, driven by a 320 basis point year-over-year decline in average occupancy.
- Expense growth was 4.8% in Q2, driven by increased R&M, marketing, and insurance costs, partially offset by a decline in property taxes.
- NSA has adjusted its full-year expectations downward due to ongoing competitive pressures and muted customer demand, particularly in Sunbelt markets.
Q & A Highlights
Q: Just hoping you could talk a little bit about the PRO internalization. You mentioned the opportunity with an occupancy gap there relative to the corporate managed stores. And what do you think that would entail kind of going forward or what's assumed in the back half of guidance? Are you assuming you're going to have to drop rates incrementally to stimulate more demand? Or how should we think about that evolving in the time frame to close that gap?
A: Juan, thanks for joining. It's a good question. I think we're going to look at that in several ways. I think we'll look at -- as we bring the stores onto our platforms, bringing them onto the customer acquisitions platform around the website, how we deploy marketing dollars, use the AI tools around our Google Analytics to get the right paid search metrics built into those stores. Looking at price and discount certainly will be a part of that equation as we try to drive really to a revenue number we're seeking, but really close the gap closer to that corporate portfolio. We've had good success in the first half of this year around the corporate portfolio with the new tools that we have and the new data analytics that we have, effectively driving occupancy, holding rate very close to where we want to be and just had success. So we think the PRO stores will benefit from coming on to our platforms and will level. Really through the back half of the year and the first part of next year, we'll be able to close that occupancy gap to a level that we're anticipating, market-specific, store specific, of course, but we should see success around occupancy gains there.
Q: And then switching gears, you talked about becoming more acquisitive. You talked about a 13-asset portfolio with the (inaudible) managed fund. Just hoping you could talk a little bit about cap rates and kind of what you're underwriting for that deal, if (inaudible) dollar size as well and just where asset values are today.
A: Yes, sure. We were very, I thought, successful in a couple of fronts in the second quarter. We did buy three assets on balance sheet for about $25 million using 1031 proceeds. So we were able to effectively redeploy capital on assets that we had sold and put it to work in markets where we wanted to target and densify our portfolio. Of the $25 million, two of those assets were stabilized assets in very key markets that just added to our portfolio. Those are purchased in the mid-6s as far as a cap rate look. We were able to also acquire one property in a very targeted market for us. It had a little more lease-up component. So that was probably a little closer to the low 4s. But a little expected here in the next 12, 18, to 24 months to be in the high 6s when it returns to stabilization. So from ease of capital and use of 1031 proceeds, the team did a really good job finding assets to satisfy that. The JV that we mentioned in the Rio Grande Valley, it's still in lease-up, very high-quality assets. We have a large presence there. This has a lot of climate control product that benefits our portfolio that we have in the Rio Grande Valley. It's in the mid-70s right now, very well positioned, very well located for us in the market. So it really fills in a market nicely. The yield on that was in the mid-5s. We expect that to be in the high 7s as we stabilize that portfolio throughout. And then we also added another portfolio of 13 assets in a very key market for us. The due diligence is just completed on, and we're looking forward to bringing that in. It's, again, more stabilized product, 13 properties in a very nice market for us. It will improve our portfolio position and our operational efficiencies. That portfolio is up because it's a little more stabilized, is higher than the mid-5s. It's closer to the 6 as we go into it. It does have some lease-up opportunities with it because they just added some new expansion to it. So that occupancy is in the low 80s right now. So I think the team has done a really good job second quarter, getting back to smart growth, deploying funds in markets where we want to densify our portfolio, and build operational presence and efficiencies.
Q: Brandon, I guess what are you baking in for ECRIs in your guidance at this time? Have those assumptions changed as you see lowered revenue growth guidance?
A: Samir, ECRI assumptions, we plan for the balance of this year to continue to be as assertive as we have been recently. All of the data that we have tells us that we're not really making that much of an impact on customer behavior. Customer response has been really strong and good regarding the pushes on those rate increases. And so right now, we plan to continue to push those out. Obviously, your opportunity set based on what you were able to achieve with occupancy in the spring and summer is impacted there. And so that's all factored into the math. But no changes based on customer behavior or what the data is telling us.
Q: And even, I guess, as a follow-up, what about in the markets when you look at -- you talked about Sunbelt being a little bit more challenged. You're not seeing any changes there from an ECRI perspective either, correct?
A: No, nothing specific to ECRI in those markets or the demographics related to those markets that's telling us there's a big difference or delta in that behavior. If anything, Samir, one of the things that's factored in is, as we transition the ECRI decisions from the PROs who weren't previously kind of fully letting us run those programs, it is going to increase the opportunity set a little bit. Some of the PROs may not have pushed that first rate increase to new move-ins as early as we have with our corporate managed stores, the magnitude of that increase. We've been more confident in being higher on that first increase from a percentage rate change just because of what I mentioned earlier about the data supporting the reception to that. So that is going to be some additive pieces in the back half of the year, which probably benefits maybe the fourth quarter a little bit. But then really going forward into 2025, we should see some benefit there.
Q: Maybe just one more on the transaction market. Can you just comment on whether you're seeing more inbound calls today than normal? I'm just trying to get a sense of how the deals are getting done, are being sourced, and if there are any more willing sellers in today's market than versus maybe like six months ago.
A: Sure. Thanks for the question. I do think we were seeing more deal flow and I would say more deal flow that makes sense to us. I think we've seen traffic over the last 6, 12, 18 months, but I think there was definitely a wider spread on sellers' expectations versus where we
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
