National Storage REIT: Going Down Under For Self Storage Comes At A Price (OTCMKTS:NTSGF)

Introduction

I have several George Carlin albums as he has a unique way of looking at everyday things. One of his famous stand-up routines dealt with “stuff”, in which he included the line, “There’s a whole industry based on keeping an eye on your stuff!”.

This article examines National Storage REIT (OTC:NTSGF), the first publicly traded self storage REIT in Australia. While that adds diversity as most competitors are in the United States and Europe, I’m hesitant to give this REIT any stronger than Sell rating due to its valuation compared to its US competitors. I included competitor comparisons to explain my rating.

Americans are by far the biggest users as about 90% of all self storage units are in the United States. I did find an analysis of the Australian Self Storage market, from which this summary was taken:

Self-Storage Services in Australia industry analysis

Revenue for the Self-Storage Services industry has grown in recent years due to increasing urbanisation and rising demand from Australian consumers. The lack of feasible substitutes for self-storage services has further supported the industry’s performance. Consumers can use self-storage services to store large items, like furniture or automobiles. Demand for self-storage facilities from businesses has also increased over the period. Growth in online shopping has boosted demand from small online retailers that need space to store their stock. Industry-wide revenue has been growing at an average annualised 1.8% over the past five years and is expected to total $1.8 billion in 2023-24, when revenue will fall by an estimated 0.5%.

Source: ibisworld.com/au/industry/self-storage-services

The last sentence in that quote would not attract me as a potential investor!

National Storage REIT review

Seeking Alpha describes this REIT as:

National Storage is the largest self-storage provider in Australia and New Zealand, with over 225 centres providing tailored storage solutions to over 90,000 residential and commercial customers. NSR is the first independent, internally managed and fully integrated owner and operator of self-storage centres to be listed on the Australian Securities Exchange.

Source: seekingalpha.com NTSGF

The company started in 1995 and first listed its shares on the Australian Stock Exchange in 2013. They currently have units in the following states and other areas.

National Storage is the largest self-storage provider on the continent and New Zealand, with self-storage solutions designed for residential and commercial customers with over 230 storage centers across Australia and New Zealand.

Services offered to customers include:

• Self storage units
• Business and commercial storage
• Climate-controlled units for wine storage
• Storage spaces for cars, motorbikes, boats, and other vehicles
• Trailer and truck hire
• Packaging supplies and boxes
• Storage insurance

The company’s commitment and values were listed as follows:

Our Commitment

Each National Storage centre is committed to offering our customers high-quality, convenient solutions paired with outstanding service. At National Storage, you can expect secure, clean and modern premises and a wide range of packaging materials on offer, together with a team of professionals trained in the exacting task of efficient and cost-effective storage.

Our Values

• Teamwork: Each and every member of the National Storage team work together to contribute to the ultimate success of our business.
• Care: We demonstrate this in how we approach our daily role and responsibilities, be it in our dealings with customers or our team. We care for each other and our company and we show this in how we approach our tasks each day, with a positive attitude and a smile.
• Excellence: Since we started back in Brisbane in the 1990’s, we’ve strived for excellence in everything we do, be that through dealing with customers, operations or our service provided to stakeholders at every level of our business.

These three values are at the heart of National Storage and we embrace them each and every day.

Source: nationalstorage.com.au/about-us

Financial review

The Balance sheet shows how much NTSGF has expanded since 2016.

After several years when Retained Earnings barely budged, 2021 and 2022 saw impressive growth.

Looking at the Income statement shows nice annual growth in revenue, with similar growth in Operating income.

Selling, General & Administrative expenses might become an issue if they keep growing at 2X the Rental revenue, though that situation was much improved over the last year and YTD in 2023. NTSGF has funded this growth by an almost 4X increase in the shares outstanding. This has resulted in their annual EPS being $.02 or less since 2016.

Distributions review

They pay semi-annually, with the latest payment down slightly from the prior two. Using the last payment, the yield is about 5%. If you look above, the last line of that dataset shows the payout ratio currently at 281%, so investors should not expect much, if any, growth in dividends.

Portfolio strategy

While I, like many investors, look for opportunities to diversify our portfolios beyond the US markets, it only makes sense if the value is there. To decide that and explain the article’s title, I compared commonly used value parameters against the REITs listed in the Seeking Alpha Self Storage sub-class, plus one from the UK.

• CubeSmart (CUBE)
• Extra Space Storage (EXR)
• National Storage Affiliates Trust (NSA)
• Public Storage (PSA)
• Safestore Holdings Plc (OTCPK:SFSHF)

The Green-colored cells represent the best value; the Red-colored cells the poorest. So while NTSGF has, by far, the best Enterprise Value/Market-Cap ratio, its other EV ratios are, by far, the most out-of-line with the other Self Storage REITs. For those holding NTSGF for non-US exposure for Self Storage REITs, the SFSHF with its UK focus, or PSA with its 35% common equity interest in Shurgard Self Storage Limited (Euronext Brussels: SHUR) might be better choices. While NTSGF adds diversity as most competitors are in the United States and Europe, I’m hesitant to give this REIT any stronger than Sell rating due to its valuation comparisons.

Final thoughts

It was tough to get global data on the Self Storage industry outside the United States but what little I found seems to indicate the rest of the world is catching up to Americans’ need for places to “hold their stuff”. That said, the projection for Australia being below 2% indicates maybe “down under” they have less stuff or bigger houses to store it in. Since I own REITs first for income, then growth, I think even in the US, there are better REIT sectors to deploy one’s capital.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.