National Storage Affiliates Offers Unique REIT Model

The self-storage industry got another publicly traded player in April when National Storage Affiliates Trust had its initial public offering, though the company’s business model has little in common with others in the sector.

National Storage Affiliates Trust (NYSE:NSA), or NSA, is a real estate investment trust that owns and operates 246 self-storage properties in 16 states.

It has around 14 million rentable square feet and claims to be the sixth-largest owner and operator of self-storage properties among public and private companies.

All of the bigger companies have been publicly traded for more than a decade. They include Public Storage (NYSE:PSA), CubeSmart (NYSE:CUBE), Extra Space Storage (NYSE:EXR), Sovran Self Storage (NYSE:SSS) and U-Haul parent Amerco (NASDAQ:UHAL), which provides self-storage rentals as well as truck and van rentals.

Of those five companies, Sovran is the smallest, with 2014 revenue of $ 326 million. That’s still a lot more than NSA, which recently reported first-quarter revenue of $ 28 million.

Different Drum

Like the bigger players, NSA knows it will need capital to help it expand and compete in a consolidating industry that is still dominated by mom-and-pop outfits. One reason for its recent IPO was to raise money to acquire more properties.

Unlike the bigger players — which have centralized operations and use traditional buyouts to expand — NSA has a complicated way of operating and growing its business. The company, which declined to comment for this article, has a decentralized operating model that involves partnering with Participating Regional Operators, or PROs, that have self-storage properties located in large U.S. metro areas.

According to the NSA website, PROs “contribute their portfolio of properties into NSA through a tax-efficient UPREIT (umbrella partnership real estate investment trust) structure.”

In return, the PROs “receive NSA equity with the advantage of a tax-deferred transaction. NSA provides capital to replace existing debt and any JV equity that is not contributing into NSA.”

Simply put, this means NSA acquires part of a PRO’s business but still gives the PRO an opportunity to continue in a management role and receive returns. Investors who purchase NSA shares are also sharing ownership with PRO units.

The advantage of this strategy, NSA says, is that it can “capitalize on the local market expertise and knowledge of regional self storage operators by maintaining the continuity of their roles as property managers.”

NSA added that “this vision aligns the interests of regional self storage operators with those of public shareholders by allowing the operators to participate alongside shareholders in the financial performance of NSA and their contributed portfolios.”

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