Company Reports

As foreshadowed in our research report published on June 24, 2024, we cease coverage on National Storage REIT. We provide analyst research and ratings on more than 1,600 companies globally and periodically adjust our coverage according to client demand, investor interest, and staffing.

We will discontinue analyst coverage of no-moat National Storage REIT on or about July 15, 2024. Accordingly, we place National Storage REIT under review. We provide analyst research and ratings on over 1,600 companies globally and periodically adjust our coverage according to investor interest and staffing.

National Storage REIT is the largest operator of storage assets in Australia and New Zealand, controlling about 17% of the Australasian market, versus rivals Kennards with 10%, and Abacus Storage King who has 9%. Major expansion plans saw net lettable area grow to over 1 million square meters as at December 2023, up from approximately 200,000 in 2014. The REIT plans to keep acquiring and developing more sites. Acquisitions have exceeded former guidance of AUD 100 million-AUD 120 million per year, with purchases of circa AUD 216 million, AUD 350 million, AUD 200 million and AUD 234 million of assets in fiscal 2020, 2021, 2022, and 2023, respectively.

No-moat National Storage REIT posted underlying earnings of AUD 5.6 cents per share in its first-half results, with a moderate increase in operating profit and a restrained operating margin. We forecast underlying earnings of AUD 11.3 cents per share for fiscal 2024, which is the bottom end of management guidance of AUD 11.3 cents per share and above. We increase our fair value estimate by 2% to AUD 2.30 per share to reflect the time value of money.

National Storage REIT is the largest operator of storage assets in Australia and New Zealand, controlling about 17% of the Australasian market, versus rivals Kennards with 10%, and Abacus Storage King who has 9%. Major expansion plans saw net lettable area grow to over 1 million square meters as at December 2023, up from approximately 200,000 in 2014. The REIT plans to keep acquiring and developing more sites. Acquisitions have exceeded former guidance of AUD 100 million-AUD 120 million per year, with purchases of circa AUD 216 million, AUD 350 million, AUD 200 million and AUD 234 million of assets in fiscal 2020, 2021, 2022, and 2023, respectively.

The federal government’s migration review was released on Dec. 11 and it suggests high population growth remains the status quo. The review tinkers with various visa rules, but contains no major reduction in migrant numbers, suggesting high migration will persist, relative to precoronavirus levels and versus other developed countries.

National Storage REIT posted fiscal 2023 underlying earnings of AUD 11.5 cents per security, slightly ahead of our AUD 11.3 cps estimate. We forecast underlying earnings of AUD 11.4 cps in 2024, close to guidance of at least AUD 11.3 cps. The time value of money increases our fair value by 2% to AUD 2.25, with the REIT fairly valued after a 10% fall since June.

We recommend shareholders of no-moat National Storage REIT, or NSR, do not subscribe for new shares under the company's retail entitlement offer. The issue price of AUD 2.00 per share is 14% above our revised fair value estimate of AUD 1.75 and 4% below the last closing price on June 7, 2021. The offer allows existing shareholders to purchase 1 share for every 6.27 shares held, expanding the issued capital base by about 16%. The retail entitlement offer opens on June 15, 2021 and closes on June 24, 2021 and the rights are nonrenounceable. Proceeds from the proposed AUD 325 million equity raising will be used to repay debt following substantial acquisition activity and provide financial flexibility to pursue further acquisitions and developments. The proposed equity raising is positive for existing shareholders and mildly value-accretive. It allows NSR to reduce its gearing of 35% to a more reasonable 24% on a pro forma basis.

National Storage REIt, or NSR, is the largest operator of storage assets in Australia and New Zealand, and the only pure, listed, storage operator in the market. Major expansion plans have seen net lettable area grow to near 1.1 million square metres in early 2021, up from approximately 200,000 in 2014. The REIT has major plans to acquire and develop more sites. Acquisitions have exceeded former guidance of between AUD 100 million and AUD 120 million per year, with purchases of circa AUD 400 million and AUD 216 million of assets in fiscal 2019 and 2020, respectively.

We increase our fair value estimate for National Storage Group, or NSR, by 10% to AUD 1.70 as we transition coverage to a new analyst, and the group releases December 2020 half-year earnings. Our no-moat, and high uncertainty ratings are unchanged, and we view the group’s capital allocation as Standard, in line with the previous stewardship rating.

National Storage is the largest operator of storage assets in Australia and New Zealand, and the only pure, listed, storage operator in the market. Major expansion plans have seen net lettable area grow to near 1.1 million square metres in early 2021, up from approximately 200,000 in 2014. The REIT has major plans to acquire and develop more sites. Acquisitions have exceeded former guidance of between AUD 100 million and AUD 120 million per year, with purchases of circa AUD 400 million and AUD 216 million of assets in fiscal 2019 and 2020, respectively.

No-moat National Storage Group continues to rapidly expand its network of self-storage assets, having confirmed in late December 2020 that it had acquired existing storage operations, or development sites, to the value of AUD 263 million. That means that by halfway through the fiscal 2021 year, the dollar value of acquisitions have already exceeded last year and our prior full year 2021 estimate by about 40%.

Acquiring and developing self-storage centres in Australia and New Zealand is a key part of National Storage REIT’s strategy. Acquisitions have exceeded former guidance of between AUD 100 million and AUD 120 million per year, purchasing circa AUD 400 million and AUD 216 million of assets in fiscal 2019 and 2020, respectively. NSR is the largest storage player in Australia and New Zealand. NSR, Kennards, and Abacus Property Group (via an interest in Storage King) are the top three but operate only about 20% of the market, providing scope for industry consolidation. NSR attracted three acquisition proposals, all retracted by late February 2020.

Acquiring and developing self-storage centres in a fragmented self-storage industry in Australia and New Zealand is a key part of National Storage REIT’s strategy. National Storage operates under a REIT structure, with the consolidated group comprising a shareholding in National Storage Holdings Limited and a unit in National Storage Property Trust. We believe it’s at the higher-growth, riskier end of the REIT spectrum. Short lease terms provide it with levers like dynamic occupancy and rental price management to generate earnings. But, shorter rental agreements and reliance on its acquisition strategy to grow earnings make it more sensitive than the average passive REIT to macroeconomic factors, particularly housing turnover, the availability of capital, and population growth. Its long-term prospects attracted the interest of three separate non-binding proposals to acquire the REIT, though they were all retracted by late February 2020.

We’ve increased no-moat National Storage REIT fair value estimate to AUD 2.40 per security, from previous AUD 2.32 following multiple non-binding takeover bids for the REIT. While no final offer has been made, our fair value estimate reflects the highest non-binding proposal and the increasing likelihood of the REIT being acquired given multiple competing bids. We continue to believe an acquirer will need to pay a premium to get its hands of the REIT’s extensive portfolio of over 180 self-storage assets. National Storage revealed it’s received three separate full takeover proposals for cash considerations ranging from AUD 2.20 to AUD 2.40 per security: 1) Public Storage (AUD 2.40 per security), 2) Gaw Capital Partner (AUD 2.20), and 3) Warburg Pincus (AUD 2.20). National Storage has granted each non-exclusive due diligence and negotiations are ongoing with each party on their proposal.

Our fair value estimate of no-moat National Storage REIT increases to AUD 2.32 per security from AUD 2.00 following another takeover proposal of the REIT, this time by giant United States-listed self-storage operator Public Storage (NYSE: PSA). Public Storage has made an indicative nonbinding offer to acquire National Storage REIT for a cash price of AUD 2.40 per security. Our fair value estimate reflects a 75% probability that National Storage will be acquired at this new offer price, and a 25% probability that the deal is not completed, which would lead us to revert to our unchanged stand-alone fair value estimate of AUD 1.77. Public Storage’s proposal follows Gaw Capital Partners nonbinding proposal to acquire National Storage, announced to the market on Jan. 23, 2020. Gaw’s proposed acquisition price was not disclosed, but National Storage Board indicate Public Storage’s proposal is superior and have granted Public Storage access to perform due diligence over its portfolio of self-storage assets.

National Storage REIT reported fiscal 2015 underlying earnings of AUD 24.3 million, or AUD 0.082 per security, consistent with guidance. Fiscal 2016 guidance is for growth of 6.0% to 7.5%, implying earnings per security of AUD 0.087 to AUD 0.088 and a distribution towards the upper end of the 90% to 100% payout target range. Portfolio metrics continue to gradually strengthen, with average rent per square metre for the original IPO portfolio increasing by 3% to AUD 282 and the total portfolio (incorporating acquired assets), achieving rent growth of 7% to AUD 293. Occupancy across the portfolio stepped up from 70% to 72%.

Self-storage in Australia is highly fragmented, with more than 1,000 individual facilities. The three largest operators have a combined market share of approximately 25%, led by Storage King's 10%, followed by Kennards at 8%, and National Storage at 7%. The sector in Australia could be characterised as a "cottage industry," with many sole operators. We expect the industry will consolidate going forward, with larger operators acquiring individual assets or small portfolios. As good operators, we expect the major players to improve productivity of acquisitions, and hence boost operating metrics.

National Storage REIT entered the New Zealand market through the purchase of a portfolio of five assets in Christchurch for NZD 23 million. Settlement is likely during August, with the transaction subject to completion of due diligence, which we view as a formality.

Self-storage in Australia is highly fragmented, with more than 1,000 individual facilities. The three largest operators have a combined market share of approximately 25%, led by Storage King's 10%, followed by Kennards at 8%, and National Storage at 7%. The sector in Australia could be characterised as a "cottage industry," with many sole operators. We expect the industry will consolidate going forward, with larger operators acquiring individual assets or small portfolios. As good operators, we expect the major players to improve productivity of acquisitions, and hence boost operating metrics.