National Storage Affiliates IPO - The Next Big Thing For Self-Storage REITs?

National Storage Affiliates Trust (NSA) is poised to become the fifth publicly traded self-storage REIT, and will trade under the ticker symbol

. On April 13, National Storage Affiliates announced that it had commenced an initial public offering of 20,000,000 common shares, and will grant the underwriters a 30-day option to purchase up to an additional 3,000,000 common shares. NSA has set an initial public offering (IPO) price range for the offering at between $15.00 and $17.00 per share. "The Company intends to use the proceeds of the offering to acquire 21 additional self-storage properties, repay certain indebtedness and for general corporate and working capital purposes." 5 Largest Self-Storage Landlords Four publicly traded REITs and Amerco, the parent company behind the U-Haul truck rental empire, have performed quite well relative to both the broader market and the equity REITs asset class during the past two years.

 Public Storage

- $32.8 billion cap, dividend yield ~3 percent.  Extra Space Storage

- $7.7 billion cap, dividend yield of ~2.85 percent.  CubeSmart

- $3.8 billion cap, dividend yield of ~2.8 percent.  Sovran Self Storage

- $3.2 billion cap, dividend yield of ~3.35 percent.  Amerco

- $6.34 billion cap, special cash dividend of $1.00 paid in March 2015; over 42 million SF of owned/operated self-storage, in addition to several other UHAL lines of business. How Does Self-Storage Stack Up?

On a risk adjusted basis, the self-storage REIT sub-sector has historically been the top asset class, according to NAREIT data. How Does NSA Compare? Based upon an equity raise of 20 million shares, at a mid-point of $16 per share, National Storage Affiliates will be the sixth largest U.S. self-storage company initially raising ~$320 million, plus the underwriter greenshoe option. National Storage Affiliates appears to be aptly named, as it utilizes an UPREIT structure to "roll-up," a curated collection of "best in class" regional self-storage operators. National Storage regional platform companies are referred to as PRO (participating regional operators), which currently consist of: Guardian, Move It, Northwest, Optivest and SecurCare, and will, upon the completion of this offering and the formation transactions, also include Storage Solutions.

Source - NSA S-11 On a national level, NSA will be providing "marketing scale through the growth of GoStorageUnits.com as a common lead-generating platform utilized by all PROs." However, each PRO operator is also able to leverage local brand recognition in its marketing efforts.

Source: NSA S-11 According to the NSA S-11 filing, post-IPO company portfolio will be comprised of 246 properties with over 100,000 combined units, located across 16 states and containing 13.7 million SF of rentable space; along with a potential acquisition pipeline of 115 properties.

Source: NSA S-11 Notably, overall occupancy was much lower than NSA's publicly traded REIT peers. Sell It/Run It Option There is a have-your-cake-and-eat-it-too appeal to the NSA value proposition for private self-storage operators who want to continue to operate their portfolio of properties, by "leveraging the significant advantages of a lower cost of capital, up-sized internet marketing opportunities and reduced operating and administrative costs associated with NSA's economies of scale." Additionally, this gives NSA affiliates "the advantages of a tax-deferred transaction as well as an eventual exit strategy should they decide to retire from managing their portfolio." Built In Growth Pipeline NSA has a right of first offer to acquire additional PRO properties within designated "shared MSAs" (metropolitan statistical areas). These PRO portfolio properties essentially comprise most of NSA's 115 property acquisition pipeline, with the exception of one property under contract. While dividends can be a major attraction for most REIT investors, the fragmented and largely privately owned self-storage industry is ripe for continued consolidation and rapid growth for publicly traded REITs with access to capital markets. NSA's relatively small market cap could help to "move the needle" through acquisitions as long as they are accretive to earnings (FFO/AFFO). Investor Takeaway While the UPREIT structure, marketing plan and pipeline flexibility appear to be make NSA attractive to PRO and targeted acquisition candidates; it remains to be seen how this strategy will reward common shareholders moving forward. There are always significant risks in investing in any IPO, and investors should always seek professional help to evaluate these risks and investment suitability prior to any purchase.