Shortlisted – Eley Griffiths on National Storage

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How long have you held National Storage REIT (ASX: NSR)?

We have been buying the stock for the past 2 months.

What do you like about it?

National Storage is an owner-operator of self-storage centres Australia wide. It began operations in 2000 and has 62 storage facilities. Of those 62, 28 are owned outright, 10 are on long term lease and 24 are held in a managed fund structure of which National Storage owns 10%.

National Storage (NSR)

The storage industry in Australia is a nascent one and, not surprisingly, remains highly fragmented. The top three players (Storage King, Kennards and National Storage) account for 20% of the marketplace, with the balance comprising a ‘cottage industry’ of one-site operators. The opportunity for National Storage to consolidate this landscape should not be underestimated.

National Storage centres trade at circa 73% occupancy versus levels in the mid 80% enjoyed in 2007. A big part of the appeal with National Storage is the ability to, not only acquire small operators, but also lift storage rates and occupancy levels. Management are storage industry veterans, aligned as shareholders (managing director, Andrew Catsoulis owns 5%) and project a clear vision for how National Storage will exploit this market opportunity.

How is it better than its competitors?

Whilst the product might appear relatively vanilla across operators, it is worth noting that the bulk of its ‘cottage industry’ competition cannot offer a national brand with call centre operability and a sophisticated IT backbone. National Storage are able to offer Australia-wide choice to the customer base and able to tweak facility yields, via a dynamic pricing tool, that permits storage rate movement up/down depending on available supply.

National Storage, being ASX-listed, differentiates itself from its two larger competitors by being able to make future acquisitions with National Storage scrip outright or in combination with cash. This might appeal to potential vendors who are eager to maintain an exposure to the storage sector. Acquisitive competitors cannot offer this.

What is your target price?

Eley Griffiths Group does not set share price targets. We strongly believe that both price rises and occupancy improvements will be a feature of the model, as will acquisitions, which are expected to grow in frequency. We foresee the coincidence of each of these three drivers generating significant earnings per unit growth and with that substantial distribution (dividend) growth.

At what point would you sell it?

EGG would look to quit its holding when our investment process deemed the prospective earnings per share growth was being priced excessively by the market. We would be anxious if the RBA altered tack and looked to remove its interest rate accommodation, spelling trouble for yield sensitive stocks such as those in the REIT sector. We rate a move to higher interest rates as remote in the near to medium term.

How much has the stock added to performance?

Minimal at this point since it is a relatively new addition and our average entry price is only a little below the current market price.

Is it a liquid stock?

National Storage has a market capitalisation of just over $300 million so is very liquid.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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