• Core FFO per Share: $0.62 for Q3 2024, a decrease of 7.5% year-over-year.
• Same-Store Revenue Decline: 3.5% decrease driven by a 290 basis point decline in average occupancy and a 90 basis point decline in rent revenue per square foot.
• Expense Growth: 1.2% increase, mainly due to property taxes and insurance.
• Private Placement Notes: $350 million issued with a 5.6% weighted average coupon and 7.6 years weighted average maturity.
• Debt Paid Off: $470 million in Q3 2024, including $325 million tranche C term loan and $145 million tranche B term loan.
• Leverage: 6.4 times net debt to EBITDA at quarter end.
• Guidance for 2024: Reaffirmed midpoints for same-store NOI growth of negative 5.5% and core FFO per share of $2.40.

• Warning! GuruFocus has detected 8 Warning Signs with NSA.

Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• National Storage Affiliates Trust (NYSE:NSA) experienced an uplift in occupancy on the West Coast of Florida, particularly in Tampa and Sarasota Bradenton, with a 600 basis point increase.
• The company is making significant progress in the internalization of its PRO structure, with 85% of the transition completed ahead of schedule.
• NSA successfully closed on two portfolio transactions, enhancing its portfolio quality and operational efficiencies.
• The company reported a strong balance sheet, having issued $350 million of private placement notes and paid off $470 million in debt during the third quarter.
• NSA's existing customer base remains healthy, with stable payment activity and length of stay, supporting the company's revenue management strategies.

Negative Points

• Core FFO per share decreased by 7.5% over the prior year period, primarily due to a decline in same-store NOI.
• Revenues declined 3.5% on a same-store basis, driven by a 290 basis point year-over-year decline in average occupancy.
• Fee rates during the third quarter were down 17% from the prior year, with expectations of further decline in the near term.
• The operating environment remains competitive, particularly in Sunbelt markets with elevated new supply.
• The company faces challenges with elevated supply in certain markets, such as Atlanta, Phoenix, and Las Vegas, impacting performance.

Q & A Highlights

Q: The full year FFO guidance implies a sequential drop-off versus what was reported in the third quarter. Can you clarify if the midpoint is a good base to work from and if a $0.04 to $0.05 sequential deceleration is expected? A: Yes, the midpoint of the guidance implies Q4 would be around $0.56, a sequential decline from Q3. The third quarter had some one-time benefits, including $800,000 in fees from joint venture deals, with $650,000 being one-time acquisition fees. Additionally, there were some property tax benefits that are more one-time in nature. When normalized, the third quarter might be around $0.60 or $0.61. The rest of the sequential decline is due to seasonality in the business. - Brandon Togashi, CFO

Q: Can you provide an update on how web traffic, conversions, and relative occupancy differences are trending between corporate-managed stores and PRO stores that were previously third-party managed? A: We've been successful in transitioning PRO stores, particularly in the Southwest markets like Phoenix and Las Vegas. These markets have shown occupancy gains of 50 to 80 basis points better than our overall portfolio. We've also implemented sizable rate increases for existing tenants, which will benefit us in late Q3, Q4, and into 2025. Our digital footprint and customer acquisition strategies have improved, and we expect more benefits in 2025. - David Cramer, CEO

Q: Regarding the internalization transaction, is there anything to consider related to G&A or other income lines as we move into Q4 and early 2025? A: The immediate benefits from the internalization include savings on G&A and tenant insurance, which started on July 1. The G&A benefit is reflected in reduced supervisory and administrative fees, which will continue to taper down. By early 2025, we should see the full benefits on a run-rate basis. However, we lose the benefit of SP unit sharing, which impacts FFO as long as NOI is negative. - Brandon Togashi, CFO

Q: Can you provide an update on the transaction environment and any capital recycling or dispositions planned? A: We've seen an increase in deal volume and quality, and we're encouraged by the opportunities in markets we like. We've identified 15 to 20 assets for potential disposition, with plans to list properties in Q4 and early next year. We aim to recycle $100 million to $200 million of assets over time, focusing on net buying going forward. - David Cramer, CEO

Q: How would you characterize the current demand environment and your expectations heading into 2025? A: Our portfolio is diversified, with some markets facing challenges due to elevated supply and tough comps, particularly in the Sunbelt. However, we've found stability in markets like Portland, Oregon. October showed improved rental activity and occupancy, which is encouraging. We expect continued stabilization and improvement in certain markets as we move into 2025. - David Cramer, CEO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.