National Storage Affiliates (NSA) - Hoya Hotseat

Yeah, thanks for having me today. We are a self-storage REIT, and we're actually celebrating our 10th anniversary of our IPO this year, which is hard to believe. We've grown rapidly over those 10 years, from approximately 250 storage properties with a total enterprise value of a billion dollars when we came out in IPO, to almost 1,000 properties today and a total enterprise value of approximately $9 billion. We operate in 42 states and Puerto Rico, and approximately two-thirds of our portfolio is in the Sun Belt. We've been focused on delivering healthy returns over the long term through a combination of internal and external growth. In fact, we've led our peers in total return since IPO and have a current dividend yield of about 6%, and we've grown that dividend 200% since our IPO. So, amazing how fast 10 years goes by, but it's been a good success story so far.

Yeah, you know, why we became a REIT is we had several private operators that, in self-storage, it's hard to consolidate and get scale. It's hard to find enough properties and really build a large enough platform where you can be a sophisticated operator in many states and many geographies and have the operational efficiencies you're looking for. So we formed NSA with regional operators that have been in the storage industry for 20 and 30 years, that had the same similar problems that we were facing. We'd get up to a certain size and you just couldn't get the scale you wanted without joining and collaborating and forming a larger firm. So NSA was formed in 2013 by three original founding pros, that's participants, regional operators which we call pros. They were Secure Care, Northwest, and Optimus. I was with Secure Care when we formed in 2013. I'd been with Secure Care for several years before that as the CEO, and then I actually joined NSA as COO in 2020. The reason I joined NSA is we took this founding pro concept, which had been fantastic for us through the timeframe, but over time pros wanted to retire, they wanted to be internalized. So I came to NSA in 2020 and then later moved into the CEO role in 2023. These predecessor entities have a really long history in self-storage and they have a lot of local channels and local knowledge because they're really regional operators. You would see them in pockets of Florida, pockets of Texas, and not really a national footprint. This differentiated pro structure, though, by bringing them together gave us the ability to really build better scale. We built better platforms, we built better technology because we're a larger group, and we had really good success on external growth because of these local knowledges in a very fragmented market. That's what's unique about self-storage: 67% of all the self-storages are run by non-sophisticated operators. So there's a large, large universe of people out there who run one, two, or three stores, so not a lot of national platforms. Through the years, we were able to take this pro structure, grow it to a size and sophistication where it just made sense for us to go ahead and internalize all the pros and not have regional operators. Bring everybody on the corporate platform, corporate efficiencies, bring the technology into play, bring the sophisticated revenue management into play. So in 2024, we actually internalized all the pros and collapsed the pro structure, and really put us in a position for our next phase of growth as we go forward.

Yeah, unique time. COVID was a phenomenal run for the self-storage sector. We had an amazing series of financial results and occupancy results due to COVID. We've come off those COVID highs and kind of settled back in. I think the bull thesis today is one of the things that's happening in our sector, and it's good for our sector: new supply is really starting to come down. One of the things that affects our sector is supply. It's a need-based business, and there's only so much demand out there, and supply does pressure our sector one way or the other. So right now, new supply is coming down and it's expected for the foreseeable future to be below long-term historical averages, so that's good for our sector as we go forward. Secondly, the housing market is bouncing around its bottom. It's hard to say how quickly it's going to come up, but transition is key to our business. Housing would be one of those transitionary demand factors that's been missing in our sector for the past couple of years. We think that's going to recover, and that will derive additional demand for self-storage and it will benefit all of us in the sector for occupancy and pricing power. So that's a second part of that: supply coming down, a little bit of demand coming back up. Then really the last piece of this is the larger operators, as we come out of these tough cycles and come out of these low points, have more sophisticated platforms and more sophisticated revenue management tools. The nice part about the self-storage sector is quick pricing. We price every one of our units, they're rented on a month-to-month basis, so you can change pricing very, very quickly. You can execute on your ECI programs very, very quickly. So as the fundamentals are improving, supply is coming down, I think we're very well positioned to really maximize revenues in the future.

Yeah, I think as we talk about demand, if we go into some type of recessionary period where it's severe and it's long, you certainly have people who don't need the product. Small commercial companies may downsize, you may see less people with income levels that go out and want to rent self-storage. I would tell you though, over history, even in these bear theses, self-storage has been resilient in recessions. One thing about our business: transition creates demand. So if people are downsizing or they're having to move across country for jobs, or they're having to move across the country to move back home, or consolidate households, generally self-storage does okay and better than most sectors. When these times happen, it's just how deep would be the recession, what's the impact of the consumer. I think that would be the one that I would look at, saying that could be a potential headwind. A smaller, shorter recession, a milder recession, might be better for our sector at this point in time because we do benefit from some of that consolidation.

Yeah, I think we got a couple things to talk about. We just spent time internalizing all the pros. So when you consolidate the pro structure and you collapse the pro structure, we have some immediate savings around G&A, so there's a good accretion for us and for our portfolio around the G&A savings. We certainly think there's upside around the operational efficiencies. We used to operate 12 brands, we now operate seven brands. We've taken those seven brands and put them on a singular domain name. So we don't have 12 domain names out there, we have one today. It's dramatically improving our visibility scores as you think about the digital footprint, where you now recognize as a national 1,100-store big footprint, big transactional company out there to people like Google and people in the social media world that are looking for you for some type of visible authority. So that's very helpful for us. Our pro portfolio and our corporate portfolio had a little bit of an occupancy differential, so we think as we work through that this year, that's one thing that sets us apart as we go forward as far as our elevator pitch. But I would also tell you we have great geographic exposure. We have a very diversified portfolio. We operate in Sun Belt and secondary markets, those are a little bit more sensitive to the housing recovery that we do think is coming. And overall, we're smaller than our peer group in size, so external growth moves our needle a little quicker. This is an industry that is still right for consolidation. You think about an industry that had extremely high good production in the COVID years and now is really bouncing off some very bottom inflection points. Good time for us to be consolidating, good time for us to be driving performance out of that consolidation. So I think our needle moves a little bit quicker than our peer group does.