National Storage Affiliates Trust Q2 FY2024 earnings call

• Competitive environment: Continued pressure from a competitive operating environment with reduced customer demand for storage due to muted housing market and new supply absorption, especially in Sunbelt markets. Rental activity slowed in late June and July.
• Acquisitions: Started deploying capital from JV 2023, closed on a $72 million high property portfolio in the Rio Grande Valley, with another $75 million 13-property portfolio under contract. Also bought 3 assets on balance sheet for ~$25 million using 1031 proceeds.
• PRO internalization: Transition of PRO-managed stores to NSA's platform is on schedule. 70% of 333 PRO-managed stores are on NSA web and operating platforms, 40% of 172 stores to be rebranded are completed. Expect accretion from G&A savings, elimination of cash flow split, and revenue management/operations efficiencies. There's a 300 basis point occupancy gap between PRO-managed and corporate-managed stores expected to close.
• Financial results: Core FFO per share $0.62, revenue growth down 2.8% same-store, expense growth 4.8% in Q2 with drivers like R&M, marketing, and insurance; partially offset by lower property taxes. Balance sheet: Revolver balance ~$400 million with $550 million availability; fulfilled share repurchase program, bought out management contracts related to PRO stores.

Core FFO per share for the second quarter 2024 was $0.62, a decrease of approximately 9% year-over-year. Revenue declined 2.8% on a same-store basis, driven by a 320 basis point year-over-year decline in average occupancy offset by a 60 basis point growth in rent revenue per square foot. Same-store occupancy ended June at 87% and July at 86.6%. Street rates grew sequentially in the second quarter but declined 1.7% in July and are down 14% from last year.

Revised core FFO per share projection for 2024 is $2.36 to $2.44. Adjusted due to competitive pressures and Sunbelt market challenges where sufficient customer demand wasn't materializing and competitive pressures persisted. Non-Sunbelt markets had better performance with sequential occupancy gain and street rate increase, while Sunbelt markets were more challenged with lower occupancy and street rate decline.

• Competitive operating environment leading to reduced customer demand.
• Muted housing market and absorption of new supply impacting storage demand, especially in Sunbelt markets.
• Interest rate uncertainties affecting debt management and capital deployment.
• Potential for continued downward pressure on street rates and occupancy if customer demand doesn't improve.

Q: Talk about the PRO internalization and occupancy gap closure.

A: Dave Cramer mentioned looking at marketing, revenue management, and pricing to close the 300 basis point occupancy gap between PRO-managed and corporate-managed stores, with success expected in the back half of the year and into 2025.

Q: Comment on acquisitions, cap rates, and asset values.

A: Dave Cramer discussed buying assets using 1031 proceeds, with cap rates varying by asset type (mid-6s for stabilized assets, low 4s for lease-up properties, mid-5s for JV portfolio, ~6 for 13-asset portfolio).

Q: Update on G&A synergies and revenue management accretion.

A: Brandon Togashi said G&A savings realization is in 2025 and beyond, with revenue management accretion from operational efficiencies and ECRI strategy implementation starting mid-back half of 2024.

Q: Impact of PRO internalization on operating performance.

A: Dave Cramer said there was a lift but the team had a well-planned transition with minimal distraction, expecting smooth progress.

Q: Customer demand and ECRI behavior.

A: Dave Cramer noted existing customers are healthy, ECRI behavior is influenced by economic factors like unemployment and income levels, and currently, no major change in behavior is seen.