National Storage Affiliates (NYSE: NSA) is having an excellent year. The real estate investment trust's (REIT) stock price is up about 60% year to date. That's outperformed the more than 20% gain in the REIT sector and the nearly 40% total return of its self-storage REIT peers.
That outperformance likely has investors wondering if National Storage Affiliates’ stock is still worth buying. Here's a look at what drove this year's rally and whether the self-storage REIT has further to run.
A great start to the year
National Storage Affiliates is having an exceptional year. The REIT's net income doubled in the second quarter and jumped 89% year over year during the first half. Meanwhile, its core FFO (funds from operations) has surged more than 40% in the second quarter and first half while growing over 28% on a per-share basis this year.
The REIT is benefiting from strong demand for space in its self-storage facilities. Overall, same-store net operating income (NOI) jumped 21.5% in the second quarter, driven by strong occupancy and rising rental rates. In addition, the REIT has continued to expand its portfolio via acquisition. It purchased 20 properties in the second quarter for around $270 million.
This growth has enabled National Storage Affiliates to increase its dividend. It boosted its payout by 7.9% for the third quarter and has grown it by 20.6% over the past year.
More growth ahead
National Storage Affiliates expects to continue growing at a rapid rate. Its strong start to the year gave it the confidence to increase its forecast. It now sees full-year core FFO per share rising to 24.3% at the midpoint of its range.
A few factors are driving the company's outlook. First, it expects to continue benefiting from strong demand for self-storage space. Meanwhile, the industry isn't building as much space as a few years ago due to some funding constraints for developers following the pandemic. This combination of growing demand amid slowing new supply growth should continue driving higher occupancy levels and rental rates.
In addition, National Storage Affiliates expects to continue acquiring self-storage properties. It anticipates spending $1.1 billion to $1.3 billion on acquisitions this year. That's more than double its prior range of $500 million to $650 million and well ahead of the $543.3 million of acquisitions it made last year. These deals should further boost its bottom line, especially with its stock price riding high, making it less dilutive to issue stock to fund acquisitions.
While there's lots of competition for self-storage properties as new entrants like KKR (NYSE: KKR) get into the space, the strong market is also enticing more operators to consider selling. Because of that, National Storage Affiliates should have no shortage of acquisition opportunities. Meanwhile, it has a competitive advantage over other buyers thanks to its PROs (participating regional operators) program. This structure incentives private self-storage operators to join it so that they can benefit from its scale while maintaining their identity and control.
Does this make National Storage Affiliates a good buy?
All that growth is great, but National Storage Affiliates needs to trade at a reasonable price to make it worth buying. According to NAREIT, shares trade at around 27 times the company's 2021 FFO estimate and about 24.5 times 2022's projection. That's reasonable since most of its peers trade around those same multiples. If anything, National Self Storage is relatively cheaper since it's growing at the fastest rate in its peer group.
That suggests the REIT could continue producing attractive total returns as long as it delivers on its growth forecast. Because of that, it still looks like a solid self-storage REIT to consider buying for the long term, even after its big run this year.