Yahoo Finance National Storage Affiliates Trust (NSA) (Q1 2024) Earnings Call Transcript Highlights: ...
Core FFO per Share: $0.60 for Q1 2024, down approximately 9% year-over-year.
Same-Store NOI: Decline noted, specifics not quantified.
Revenue Growth: Declined 1.5% on a same-store basis.
Rent Revenue per Square Foot: Increased by 2.4%.
Average Occupancy: Ended the quarter at 85.9%, down 350 basis points year-over-year.
Expense Growth: Increased by 4.5% in Q1, driven by property tax, marketing, and insurance costs.
Marketing Expenses: Remained elevated due to increased competition.
Insurance Expense Growth: Expected to moderate to low single digits.
Common Share Buybacks: Over $200 million completed in Q1; $72 million remaining subsequently exhausted.
Revolver Balance: Approximately $200 million, with around $750 million remaining available.
Leverage: 6.2x net debt to EBITDA at quarter end.
Interest Rate Swaps: $250 million maturing in Q3 2024, impacting fixed-rate debt adjustments.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
National Storage Affiliates Trust successfully completed strategic initiatives aimed at deleveraging the balance sheet and accessing growth capital, which increased earnings per share and positioned the company for future growth.
The company experienced three months of positive net rentals through the end of April, with a seasonal uptick in occupancy reaching 86%, demonstrating improved rental activity and conversions.
Enhancements in the customer acquisition strategies and operational platforms, including an advanced web presence and upgraded call center operations, are expected to continue improving customer experience and overall performance.
National Storage Affiliates Trust has over $25 million under contract and approximately $200 million of properties in various stages of negotiation, indicating a strong pipeline for future acquisitions.
The company has a strategic focus on Sunbelt markets, which are expected to benefit from attractive population and migration trends, enhancing growth prospects.
Negative Points
The aggressive pricing strategy to drive rental volume has put pressure on move-in rates, which averaged down about 14% year-over-year for the quarter.
Revenue growth declined by 1.5% on a same-store basis, primarily due to a 380 basis point year-over-year decline in average occupancy during the quarter.
Marketing expenses remain elevated due to increased competition for customers, impacting the financial performance.
Several Sunbelt markets continue to face challenges including absorption of new supply, a muted housing market, and a very competitive pricing environment, leading to mixed results in these areas.
The company reported a decrease in Core FFO per share of $0.60 for the first quarter of 2024, representing a decrease of approximately 9% over the prior year period, driven by a decline in same-store NOI and an increase in G&A expenses.
Q & A Highlights
Q: Can you provide more color around April's performance, particularly regarding move-in rates? A: David G. Cramer, President and CEO, noted that April saw positive net move-in activity, although move-in rates slightly worsened compared to the end of the first quarter. Brandon S. Togashi, CFO, added that the year-over-year worsening was partly due to rate increases implemented in April of the previous year.
Q: Are there more non-core asset sales expected in the future? A: David G. Cramer mentioned that while the bulk of asset sales occurred last year, the company continues to evaluate its portfolio and may conduct further sales, though likely not in large chunks as seen recently.
Q: How are you balancing capital allocation between leveraging and buybacks? A: Brandon S. Togashi explained that having completed a significant share repurchase program, NSA now has substantial capacity on its revolver to take advantage of growth opportunities, with a slight preference for deploying capital through joint ventures to manage leverage effectively.
Q: What are the targeted yields or cap rates for acquisitions, and is there a plan to re-up the buyback program? A: David G. Cramer indicated targeting mid-6% cap rates for acquisitions. Regarding buybacks, while nothing is currently authorized, it remains a tool for investment opportunities. Brandon S. Togashi emphasized maintaining leverage within the targeted range of 5.5x to 6.5x net debt to EBITDA.
Q: Can you discuss the slope of seasonality in occupancy and rates, and how it compares to initial expectations? A: David G. Cramer responded that the company is trying to balance revenue by adjusting occupancy and rates, with a focus on conversion rates rather than global metrics. The company is pleased with the rental activity from the seasonal trough in February to April.
Q: Regarding the JV mentioned, could you clarify the rationale behind including the hypothetical liquidation at book value for adjusting EBITDA? A: Brandon S. Togashi explained that the JV arrangement might lead to a different cash split based on performance metrics, which prompted a GAAP-specific methodology for allocating earnings to show a straightforward 75%-25% split.
Q: What are your observations on market recovery across your portfolio, particularly in markets that were previously booming? A: David G. Cramer noted that while some markets like Phoenix and Las Vegas are slower to recover due to new supply and other factors, other areas like the Midwest and Texas are performing well. The company remains optimistic about the growth prospects in its Sunbelt markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
