The self-storage industry is a unique asset class. The industry has strong historical performance as well as low costs to develop, maintain, and operate and is known for being resilient during challenging economic times. This makes self-storage real estate investment trusts (REITs) in particular a good fit for a retirement portfolio.
But not all self-storage REITs provide the same security or stable returns. Let's see how National Storage Affiliates Trust (NYSE: NSA) stacks up and whether it's a good fit for a retirement portfolio.
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National Storage Affiliates Trust invests in, owns, and manages 784 self-storage facilities across 35 states in the U.S. and Puerto Rico with 49 million square feet under management, making it the sixth-largest owner and operator of self-storage facilities among public and private companies in the U.S.
A large part of the company's success and continued growth has been operating with Participating Regional Operators (PROs), using a tax-advantaged UPREIT structure to give independently owned storage operators access to certain tax benefits and other benefits like lower cost of capital while maintaining interest in the property through REIT shares. Similar to a purchase leaseback, the current owner still manages and operates the facility under a new management agreement and under the National Storage Affiliates umbrella.
This model has allowed National Storage Affiliates to acquire facilities faster than competitors while avoiding the pricing pressure resulting from the current oversupply of newly developed facilities. It also acquires properties through strategic joint ventures and third-party acquisitions, focusing on regional operators to help maintain and manage these facilities.
Growth comes with some risk
Despite second-quarter 2020 challenges, National Storage Affiliates Trust reported an 0.3% increase in net income when compared to the same quarter in 2019. Core funds from operations (FFO) saw growth, up 7.9%, while the company added four new self-storage facilities for a total of $36.2 million.
National Storage Affiliates Trust has a strong dividend track record, with 11 dividend increases since going public in 2015. Third quarter 2020 marks an additional dividend increase of 6.3% from third quarter 2019, making its quarterly dividend $0.34, a return of 4% based on trading prices at the time of this writing.
Its payout ratio is also stable, currently at 83%, which means National Storage Affiliates Trust is likely able to maintain its dividend payout based on current operations. Like most other REITs and stocks, the company's stock price tanked in March 2020, and unable to fully recover from the loss, the stock is still down 11%. Historically, the company's value has risen steadily over the past five years, in line with its growth and performance.
The one thing going against National Storage Affiliates Trust right now is its debt-to-EBITDA ratio, which currently is 6.3 times, meaning it may be slightly overleveraged. Cash or cash equivalents currently are at $17.2 million,
Is National Storage Affiliates Trust a good fit for a retirement portfolio?
Retirement portfolios generally need a mix of security, consistency, and growth. Since the account sits untouched until retirement, it's ideal to target stocks or REITs that can provide steady returns and growth over a long period of time with reduced risk exposure.
National Storage Affiliates Trust has a proven growth strategy with more room to grow and a consistent track record and fairly decent return but doesn't quite carry its weight when it comes to security. I think it has a lot of potential and a great business model, but when compared to its peers, it carries considerable debts, making it a good fit for those willing to take on a bit of risk for a potentially big reward. Investors with lower risk profiles who value safety over growth or returns should look elsewhere within the storage industry.