Self-storage owner and operator National Storage REIT (ASX: NST) is a unique investment opportunity that provides investors with a non-traditional investment in the REIT sector. It has been proven successful so far, with the shares outperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) by more than 50% since listing in late 2013. Interestingly, National Storage was the number one performing Australian REIT during FY15 and was admitted into the ASX 200 in June 2015.
Source: Google Finance
Over the last month, the company has been busy making a number of new acquisitions along with releasing its 2015 financial year (FY15) results. Interestingly, the share price has fallen more than 15% during this time but it now appears like it could be on the way back up.
For investors that might be unfamiliar with National Storage, here is a quick summary of its operations and its most recent results:
Background
National Storage is Australia's first listed self-storage REIT with a market capitalisation of $495 million. It provides services including self-storage, business storage, vehicle storage and hire, wine storage and packaging.
National Storage operates 87 centres across Australia and New Zealand with a number of new acquisitions to be completed over the coming year. As part of its strategy, the majority of its centres are located in highly populated urban with around 70% of revenues earned from residential customers, with the other 30% from business customers.
Strategy
The self-storage sector is highly fragmented with the top three operators only commanding 25% of the total market. This has presented National Storage with the opportunity to consolidate the market using its position as the largest operator in the sector.
It completed 21 acquisitions in FY15 and in the past two weeks alone, announced two new separate acquisitions. These two new acquisitions, one of which is located in Hamilton in New Zealand, will increase its lettable area by more than 10,600 sqm.
Although National Storage has other elements to its strategy, investors need to be aware that acquisitions will be the driving source of growth for the company over the long term. Established centres have only been able to grow earnings in the low single digits and this has mainly occurred through cost cutting measures and price increases. There will come a point where cost-cutting becomes insignificant and increasing prices might reduce occupancy rates as higher prices become less attractive to customers.
FY15 Results
National Storage delivered underlying net profit after tax of $24.3 million which was in line with the company's earlier guidance and up by 25% compared to 2014.
Total assets under management increased by nearly 35% to $740 million with the addition of $189 million in acquisitions.
Importantly, it was able to implement a 7% increase in its rate charged per square metre while still maintaining occupancy levels at over 70%.
As a result of the strong result, National Storage was able to declare a full year distribution of 8.2 cents which equates to a 5.5% dividend yield at the current share price.
Outlook
National Storage is targeting underlying earnings guidance for FY16 of between 19%-21% growth assuming market conditions remain stable. This however, will only translate into earnings per share growth of 6%-7.5% as a result of a significant capital raising that was completed recently.
The company does expect to maintain its payout ratio to remain between 90-100% and this would mean investors who buy shares today can expect a FY16 dividend yield of up to 5.9%.
Foolish takeaway
National Storage is definitely a unique investment proposition in the REIT sector and its acquisition strategy is proving successful so far. With this in mind, investors should note that earnings per share growth may lag behind earnings growth if the company continues to raise capital to fund new acquisitions.
Although the share price has fallen considerably over the past few weeks, I would still like to see the share price to fall to $1.30 before I would consider it to be a value buy.
