National Storage Affiliates Trust (NSA) is a self-managed REIT, which was founded in 2013 and specializes in the operation and acquisition of self-storage properties within the top 100 metropolitan areas in the U.S. and Puerto Rico, notes Ben Reynolds, editor of Top 10 REITs.

The trust owns 915 consolidated self-storage properties in 39 states and Puerto Rico, with 58.1 million square feet. It also manages an additional portfolio of 185 properties owned by its joint ventures. NSA owns a 25% stake in each of its joint ventures.

In the third quarter, NSA grew its revenues 37% over the prior year’s quarter thanks to strong growth in rental rates and a boost from acquisitions. Same-store revenues grew 10.7% thanks to a 13.6% increase in average rental revenue per occupied square foot, partly offset by a decrease in occupancy by 240 basis points.

The REIT grew its FFO per share 26% and narrowed its guidance for its FFO per share in the full year from $2.80-$2.85 to $2.80-$2.82. At the midpoint, this guidance implies 24% growth vs. 2021.

As one of the largest self-storage operators, NSA seems to have unlocked significant competitive advantages. During the last five years, it has achieved growth of same-store net operating income of 9.2%. This compares to 7.4%, 9.0%, 9.0%, and 5.6% of CubeSmart (CUBE), Extra Space Storage (EXR), Life Storage (LSI), and Public Storage (PSA), respectively.

Also given its multi-year contracts and its robust performance throughout the pandemic, NSA should perform well during a recession. Nevertheless, due to its short history, the REIT has yet to prove its resilience.

NSA has grown its dividend aggressively throughout its short history, from $0.54 in 2015 to $2.20 this year. It is currently offering a historic high dividend yield of 5.8%. Its payout ratio is elevated, at 78%, but it’s in line with the REIT’s historical average. Also given its decent balance sheet and its reliable growth trajectory, NSA is likely to continue raising its dividend significantly for many more years.

During its brief history, NSA has swiftly grown its financials thanks to strong growth of rental rates and acquisitions of new properties. We expect future growth to continue to be driven by these two factors, with the REIT claiming an acquisition pipeline of 307 properties. We forecast 8.0% growth of FFO per share over the next five years.

Based on expected 2022 FFO per share of $2.81, the stock trades for a price-to-FFO ratio (P/FFO) of 13.5. This is a historic low for the stock, mostly due to higher interest expense amid rising interest rates. However, our fair value estimate for this REIT is a P/FFO of 16.5.

An expanding P/FFO multiple could boost shareholder returns by 4.1% per year. We also expect annual FFO per share growth of 8.0%, while the stock has a 5.8% dividend yield. We expect total returns of 16.9% per year over the next five years.

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