National Storage Affiliates Trust ("NSA" or the "Company") (NYSE: NSA) today reported the Company’s second quarter 2023 results.
Second Quarter 2023 Highlights
- Reported net income of $45.5 million for the second quarter of 2023, a decrease of 6.1% compared to the second quarter of 2022. Reported diluted earnings per share of $0.28 for the second quarter of 2023 compared to $0.24 for the second quarter of 2022.
- Reported core funds from operations ("Core FFO") of $88.2 million, or $0.68 per share for the second quarter of 2023, a decrease of 4.2% per share compared to the second quarter of 2022, driven by same store growth and net operating income (“NOI”) contribution from non-same store properties, which was more than offset by elevated interest expense due primarily to higher interest rates.
- Reported an increase in same store NOI of 3.4% for the second quarter of 2023 compared to the same period in 2022, driven by a 2.8% increase in same store total revenues partially offset by an increase of 1.4% in same store property operating expenses.
- Reported same store period-end occupancy of 90.0% as of June 30, 2023, a decrease of 450 basis points compared to June 30, 2022.
- Acquired two properties that are considered annexes to existing properties for approximately $13.8 million during the second quarter of 2023. Consideration for these acquisitions included the issuance of $5.6 million of OP equity, consisting of subordinated performance units.
- Issued the previously announced $120.0 million of senior unsecured notes due July 5, 2028, with an effective interest rate of 5.75%, in a private placement to certain institutional investors.
Highlights Subsequent to Quarter-End
- Acquired one self storage property for approximately $17.8 million. Consideration for this acquisition included approximately $7.8 million of net cash and OP equity of approximately $9.9 million, consisting primarily of subordinated performance units.
David Cramer, President and Chief Executive Officer, commented, “Our team did a great job controlling expenses during the quarter as opex growth of just 1.4% helped drive same store NOI growth of 3.4%. Contract rates grew a healthy 7% year-over-year, and our average tenant duration is over 40 months which allowed us to remain assertive on our existing customer rate increase program. We experienced a softer spring leasing season than we anticipated, and the interest rate environment was tougher than expected, leading us to lower our full-year same store and Core FFO per share guidance.”
Mr. Cramer further commented, “As we work through the tough year-over-year comps, we remain bullish on the medium and long-term outlook for both NSA and the overall self storage sector. We are confident in our targeted concentration in attractive Sunbelt markets and will continue to focus on enhancing our People, Process and Platform initiatives. We believe that this strategic focus will position us well to deliver on both operational initiatives to drive internal growth and balance sheet repositioning so we can opportunistically execute on external growth when the time is right.”
Financial Results
($ in thousands, except per share and unit data) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2023 | 2022 | Growth | 2023 | 2022 | Growth | ||||||||||||||
Net income | $ | 45,476 | $ | 48,425 | (6.1 | )% | $ | 85,868 | $ | 93,211 | (7.9 | )% | |||||||
Funds From Operations ("FFO")(1) | $ | 88,478 | $ | 90,932 | (2.7 | )% | $ | 172,744 | $ | 177,788 | (2.8 | )% | |||||||
Add back acquisition costs | 239 | 682 | (65.0 | )% | 1,083 | 1,235 | (12.3 | )% | |||||||||||
Subtract casualty-related recoveries(2) | (522 | ) | — | — | % | (522 | ) | — | — | % | |||||||||
Add loss on early extinguishment of debt | — | — | — | % | 758 | — | — | % | |||||||||||
Core FFO(1) | $ | 88,195 | $ | 91,614 | (3.7 | )% | $ | 174,063 | $ | 179,023 | (2.8 | )% | |||||||
Earnings per share - basic and diluted | $ | 0.28 | $ | 0.24 | 16.7 | % | $ | 0.56 | $ | 0.48 | 16.7 | % | |||||||
FFO per share and unit(1) | $ | 0.68 | $ | 0.70 | (2.9 | )% | $ | 1.32 | $ | 1.37 | (3.6 | )% | |||||||
Core FFO per share and unit(1) | $ | 0.68 | $ | 0.71 | (4.2 | )% | $ | 1.34 | $ | 1.38 | (2.9 | )% | |||||||
(1) | Non-GAAP financial measures, including FFO, Core FFO and NOI, are defined in the Glossary in the supplemental financial information and, where appropriate, reconciliations of these measures and other non-GAAP financial measures to their most directly comparable GAAP measures are included in the Schedules to this press release and in the supplemental financial information. | |
(2) | Casualty-related recoveries relate to casualty-related expenses incurred during 2022. |
Net income decreased $2.9 million for the second quarter of 2023 and $7.3 million for the six months ended June 30, 2023 ("year-to-date") as compared to the same periods in 2022, resulting from total revenue and NOI increasing by $16.6 million and $12.0 million, respectively, for the second quarter of 2023 and $37.4 million and $25.2 million, respectively, for the six months ended June 30, 2023 resulting primarily from additional NOI generated from the 41 wholly-owned self storage properties acquired between July 1, 2022 and June 30, 2023, and same store NOI growth. These increases in total revenue and NOI were offset by an increase in interest expense of $15.2 million for the second quarter of 2023 and $30.5 million for the six months ended June 30, 2023 as compared to the same periods in 2022.
The decrease in FFO and Core FFO for the second quarter of 2023 and year-to-date was primarily the result of a decrease in net income of 6.1% and 7.9%, respectively, partially offset by a decrease in distributions on subordinated performance units, as compared to the same periods in 2022.
Same Store Operating Results (834 Stores)
($ in thousands, except per square foot data) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
2023 | 2022 | Growth | 2023 | 2022 | Growth | ||||||||||||||||
Total revenues | $ | 186,708 | $ | 181,549 | 2.8 | % | $ | 370,623 | $ | 355,481 | 4.3 | % | |||||||||
Property operating expenses | 50,194 | 49,477 | 1.4 | % | 100,614 | 96,018 | 4.8 | % | |||||||||||||
Net Operating Income (NOI) | $ | 136,514 | $ | 132,072 | 3.4 | % | $ | 270,009 | $ | 259,463 | 4.1 | % | |||||||||
NOI Margin | 73.1 | % | 72.7 | % | 0.4 | % | 72.9 | % | 73.0 | % | (0.1 | )% | |||||||||
Average Occupancy | 90.0 | % | 94.1 | % | (4.1 | )% | 89.9 | % | 93.9 | % | (4.0 | )% | |||||||||
Average Annualized Rental Revenue Per Occupied Square Foot | $ | 15.27 | $ | 14.26 | 7.1 | % | $ | 15.19 | $ | 13.99 | 8.6 | % | |||||||||
Year-over-year same store total revenues increased 2.8% for the second quarter of 2023 and 4.3% year-to-date as compared to the same period in 2022. The increase for the second quarter was driven primarily by a 7.1% increase in average annualized rental revenue per occupied square foot, partially offset by a 4.1% decrease in average occupancy. The year-to-date same store total revenue increase was driven primarily by an 8.6% increase in average annualized rental revenue per occupied square foot, partially offset by a 4.0% decrease in average occupancy. Markets which generated above portfolio average same store total revenue growth for the second quarter of 2023 include: Atlanta, McAllen and Oklahoma City. Markets which generated below portfolio average same store total revenue growth for the second quarter of 2023 include: Las Vegas, New Orleans and San Antonio.
Year-over-year same store property operating expenses increased 1.4% for the second quarter of 2023 and 4.8% year-to-date as compared to the same periods in 2022. The increase primarily resulted from increases in marketing and insurance expense, partially offset by decreases in personnel and repairs and maintenance expenses.
Investment Activity
During the second quarter, NSA invested $13.8 million in the acquisition of two annexes to existing properties, consisting of approximately 81,600 rentable square feet configured in approximately 500 storage units. Total consideration for these acquisitions included approximately $8.2 million of net cash, and $5.6 million of subordinated performance units.
Balance Sheet
On April 27, 2023, NSA closed on its private placement of $120.0 million of senior unsecured notes due July 5, 2028, with an effective interest rate of 5.75%, after taking into account the effect of interest rate swaps. NSA used the proceeds to repay outstanding amounts on its revolving line of credit and for general corporate purposes.
Common Share Dividends
On May 25, 2023, NSA's Board of Trustees declared a quarterly cash dividend of $0.56 per common share, representing a 1.8% increase from the second quarter 2022 and from the previous quarter in 2023. The second quarter 2023 dividend was paid on June 30, 2023 to shareholders of record as of June 15, 2023.
2023 Guidance
The following table outlines NSA's updated and prior Core FFO guidance estimates and related assumptions for the year ended December 31, 2023. The Company's revisions to Core FFO per share estimates are primarily driven by lower same store growth assumptions and higher interest rates. Due to an improvement in our tenant insurance program, “Management fees and other revenue” are expected to be higher than previously estimated.
Current Ranges for
| Prior Ranges for
| Actual
| |||||||
Low | High | Low | High | ||||||
Core FFO per share(1) | $2.63 | $2.69 | $2.78 | $2.86 | $2.81 | ||||
Same store operations(2) | |||||||||
Total revenue growth | 1.50% | 2.75% | 3.75% | 5.25% | 12.1% | ||||
Property operating expenses growth | 4.50% | 5.75% | 4.50% | 6.00% | 4.8% | ||||
NOI growth | 0.25% | 1.75% | 3.00% | 5.50% | 14.9% | ||||
General and administrative expenses | |||||||||
General and administrative expenses (excluding equity-based compensation), in millions | $51.0 | $53.0 | $53.0 | $55.0 | $53.1 | ||||
Equity-based compensation, in millions | $6.5 | $7.0 | $6.5 | $7.0 | $6.3 | ||||
Management fees and other revenue, in millions | $32.0 | $34.0 | $28.0 | $30.0 | |||||
