What's in store for National Storage REIT?

About the author:

Author name:

By Fiona Buchanan

Job title:

Co-Head of Research, Senior Analyst

Date posted:

04 July 2014, 9:36 AM

Sectors Covered:

Property, AREITS

National Storage REIT (NSR) is the first ASX-listed, internally managed and fully integrated owner and operator of self-storage centres. The REIT has a portfolio of freehold and leasehold centres as well as management rights and a 10% equity interest in an additional portfolio owned by Southern Cross Storage Group.

We believe the fragmented industry provides a strong pipeline of acquisitions which will also deliver scale benefits given NSR's operating platform.

Self-storage REIT

NSR is an internally managed stapled group which listed in December 2013 at A$0.98. The group was established in 2000 and is the second largest fully-integrated self-storage group in Australia by number of owned centres and the third largest by number of self-storage centres under operation and management.

NSR derives a majority of its income from renting self-storage space and providing ancillary storage products (packaging materials, insurance and locks). The biggest revenue drivers are occupancy (guidance to reach 74.4% by year end) and rental rates (average growth of 4% pa over the past 10 years).

NSR Portfolio overview

• The operating platform (a fully integrated manager of storage centres);
• a portfolio of 34 freehold self-storage centres;
• long-term leasehold interests over an additional 10 self-storage centres; and
• management rights and a 10% interest in an additional 26 self-storage centres owned by Southern Cross Storage Group.

Including all announced acquisitions (three acquisitions are due to settle in 1H15), we estimate gearing (net debt/assets) will be c26%.

Investment highlights

National Storage (NSR) offers investors:

• the opportunity to invest in a leading brand in self-storage with a diversified portfolio across Australia;
• a highly scalable operating platform;
• earnings upside from increased occupancy (longer-term target 80% from around 72.5% currently);
• potential for near term cap rate compression;
• conservative gearing;
• future growth potential via acquisitions given the fragmented storage market; and
• an attractive FY15 distribution yield of 6.6%.

We initiate coverage with an Add recommendation and a share price target of A$1.37.

More information

Morgans clients can access our detailed research on National Storage REIT (NSR). If you are interested in finding out more, please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.