On the heels of nearly $1.7 billion worth of self-storage deals in 2018, self-storage REIT National Storage Affiliates Trust has earmarked as much as $600 million for acquisitions this year. But it’s being picky about facilities that it adds to its portfolio.
“We definitely see a lot of properties on the market that are not stabilized … and we’re not buying those properties,” Arlen Nordhagen, the REIT’s chairman and CEO, said during the company’s Feb. 25 earnings call. “We still believe that’s where the high risk is in this industry, and we’re staying away from that.”
Applying that firm standard, National Storage Affiliates still plans to spend $300 million to $500 million this year on acquiring wholly owned self-storage facilities and another $20 million to $100 million on joint-venture deals.
In the first quarter of 2019, the REIT expects to have closed or be on the verge of closing deals for about 30 facilities, said Tamara Fischer, president and CEO of Greenwood Village, CO-based National Storage Affiliates.
Last year, the REIT bought 57 wholly owned facilities for $356.6 million and participated in a $1.325 billion joint-venture deal to buy 112 facilities from Orlando, FL-based Simply Self Storage. The joint venture subsequently spun out seven facilities to National Storage Affiliates. The REIT owns a 25 percent stake in the joint venture with an affiliate of Chicago, IL-based Heitman America Real Estate REIT LLC.
Growth by affiliation
National Storage Affiliates isn’t growing solely through acquisitions, though.
The REIT signed up Palm Beach Gardens, FL-based Southern Self Storage as its ninth “participating regional operator,” or affiliate, in 2018 and has signed an agreement to make York, PA-based Moove In Self Storage its 10th affiliate.
Affiliates are not only part of National Storage Affiliates’ captive pipeline of acquisitions, but they also bring potential third-party acquisitions to the table.
An affiliate contributes its portfolio to National Storage Affiliates through a tax-friendly UPREIT, an alternative to a 1031 exchange. In return, the affiliate gains equity in the REIT, and National Storage Affiliates provides capital to replace existing debt, along with any joint-venture equity that’s not tied to the UPREIT. An affiliate then agrees to manage and expand its portfolio under the National Storage Affiliates umbrella.
Nordhagen also said during the earnings call that an estimated 16 percent of its facilities are affected by new supply within a three-mile trade area and 30 percent by new supply within a five-mile trade area.
“We’re expecting that it will take two to three more years before the supply-demand dynamics are in balance for the industry,” he said.
Here are other highlights of the earnings call:
- Same-store revenue is projected to grow 2.5 percent to 3.5 percent in 2019, down from 4 percent in 2018.
- Same-store NOI is expected to increase 2.5 percent to 3.5 percent in 2019, down from 4.7 percent in 2018.
- Same-store expenses are projected to rise 2.5 percent to 3.5 percent in 2019, compared with 2.6 percent in 2018.
- Average same-store occupancy slipped from 89.2 percent in 2018 to 89 percent in 2019.