Introduction
National Storage REIT (NSR), listed in December 2013 was developed in December 2000 after the merger of Stowaway Self Storage, National Mini Storage and Premier Self Storage. (National Storage Australia 2018)
This Real Estate Investment Trust (REIT) offers services including self-storage, business storage, records management, climate controlled wine storage, vehicle storage, vehicle and trailer hire, packaging, insurance and other value added services. (National Storage 2018)
The NSR portfolio includes more than 43,000 storage units in a total net lettable area of 400,000 sqm. An extra 14,000 storage units within 141,000 sqm of net lettable in managed by the National Storage brand (National Storage 2018)
NSR is a stapled entity consisting of units within the National Storage Property Trust and shares in National Storage Holdings Limited. The responsible entity of NSPT is National Storage Financial Services Limited. (National Storage 2018)
The NSR’s vision is to be able to provide the highest quality, best convenience and most professional service to all of their customers. They provide secure, clean and modern premises with a large variety of packaging materials available. Besides that, their team consists of trained professionals who specialize in efficiency and cost-minimizing storage. (National Storage Australia 2018)
NSR’s top 10 major investors are:
1. Colonial First State Asset Management (Australia) Ltd. – 60,198,631 (10.8%)
2. Cohen & Steers Capital Management, Inc. – 36,519,455 (6.53%)
3. Vanguard Investments Australia Ltd. – 29,573,551 (5.29%)
4. Massachusetts Financial Services Co. – 18,656,085 (3.34%)
5. FMR Investment Management (UK) Ltd. – 17,164,236 (3.07%)
6. BlackRock Financial Management, Inc. – 16,213,292 (2.90%)
7. Andrew Catsoulis – 13,401,780 (2.40%)
8. FIAM LLC – 12,975,686 (2.32%)
9. The Vanguard Group, Inc. – 11,391,521 (2.04%)
10. Norges Bank Investment Management – 11,379,039 (2.04%)
(4-traders 2018)
Location of properties
The location diversification of the properties owned by the NSR is shown in Figure 1.
90% of the property owned by the NSR is located in Australia with the remaining 10% in New Zealand. The largest proportion of the property owned is in Queensland at 29%.
Figure 1 (National Storage 2018c, p.20):
The NSR owns property across a large variety of locations in Australia and New Zealand. Diversification of property locations is one of the strategies that the NSR is using to reduce investment risk and allow them to provide services for a large number of customers.
Types of Property
The properties owned by the NSR consists of many different types of storage facilities including self-storage, business storage, records management, climate controlled wine storage and vehicle storage. However, majority of the property owned are self-storage facilities. The NSR started off offering self-storage services and are well known for it but recently started to branch out into the other forms of storage to satisfy the diverse needs of their customers.
Although the NSR provides different kinds of storage services, all of their property are still storage facilities. The reason why they specialize completely in providing storage services is to be able to maximize economies of scale and cost efficiency. Specializing also helped them provide high quality service to their customers and develop a good reputation. Storage facilities are also very profitable as they can undertake portfolio recycling opportunities to maximize value.
Share prices
Figure 2 (InvestSMART 2018):
Figure 2 illustrates the change in the share prices from January 2018 to April 2018. It can be seen that the share prices fluctuate very often but overall are rising since its lowest point so far this year in early February.
Trust size and debt levels
As of the statement of financial position for the year ending in December 2017, the total trust size of National Storage REIT is $1,351,600,000.
The debt level is $476,700,000 with a gearing ratio of 35%. This gearing ratio is relatively low and it shows that NSR does not use high debt as a strategy to maximize returns. However, this means that NSR is a low risk company.
(National Storage 2018d, p.7)
REIT Strategy
The NSR strategy aims to obtain revenue through multiple different methods in order to maximize returns and profit.
Asset Management
• using a proactive administration to manage occupancy levels and prices to achieve organic growth
• saving money by internally managing assets
• taking advantage of their dominance in the market through economies of scale
• reducing wastage throughout the management process to increase efficiency.
Acquisitions
• Acquire valuable and profitable acquisitions in a diverse industry
Portfolio and Development Management
• Focus all development to the key markets
• Invest in projects to expand existing centers
• Take advantage of chances to recycle portfolios
Product and Innovation
• Search for ways in market in which revenue can be produced
• Advertise brand and product awareness
• Making use of new technologies
• Increase the amount of resources dedicated to improving sustainability
Capital Management
• Managing all forms of risk in a safe and effective way
• Ensure that the capital structure is effective
(National Storage 2018e, p.17)
Investment Potential
In the last financial year, the revenue generated from storage centers of the NSR rose by 22% to $59.6 mil. One of the main contributors to NSR’s income is revenue per available square meter (REVPAM). They managed to increase same center REVPAM by 4% throughout the year and occupancy levels grew to 79%.
Operating profit went up by 25% to $34.5 mil due to the low increase in operating expenditure of 19%. The operating margin improved by 1% and this is an indicator that economies of scale effectively helping out the NSR. Finance costs however went up by 53% due to more loans needed for the new acquisitions. Due to this, the underlying earnings only grew by 11% to $22.4 mil this year which resulted in an increase of 4.9% in underlying earnings per share to 4.3cents.
The level of debt this year fell to $477mil from $481.8mil last year which resulted in a lower gearing ratio of 35%. This shows that the NSR’s level of risk is reducing and could be a safe investment. The NSR also increased the dividends payout by 2.17% to 4.7 cents per share.
It is predicted that in the next financial year, the underlying earnings per share will be within the range of 9.6 cents to 10.1 cents which would mean a growth of 4.4% to 9.8% in comparison to last year. Dividends payout would also be from 9.6 cents to 10 cents.
In conclusion, the underlying earnings and dividends both rose which is the main thing that investors should be looking for in a REIT. So long as they keep their debt and gearing levels in a safe range, the NSR would be a good medium-term investment option.
(Harrison 2018)