National Storage Affiliates Trust Announces Internalization of its PRO Structure
03 Junho 2024 - 5:05PM
Business Wire
National Storage Affiliates Trust (“NSA” or the "Company")
(NYSE: NSA), announced an agreement in principle for the
internalization of its participating regional operating (“PRO")
structure, which is expected to close on July 1, 2024. As part of
the transaction, we expect our eight existing PROs, who currently
manage 32% of NSA’s 1,050 properties, to transition management to
NSA’s platform in phases to ensure a seamless execution.
David Cramer, President and CEO commented, “The internalization
of the PRO structure marks the beginning of the next exciting
chapter for NSA. This accretive transaction will further enhance
our growth profile and simplify our structure. Additionally, given
the size and sophistication of NSA’s operating platform, now is the
optimal time to consolidate all operations.”
We expect the completion of the internalization of the PRO
structure to create several potential strategic benefits,
including:
- Simplified structure and financial reporting: NSA will
no longer pay performance distributions to holders of subordinated
performance units ("SP Units"). This will provide more transparency
to investors and greater potential upside in FFO per share growth
as there will be no further sharing in NOI generated from
PRO-managed properties with holders of SP Units.
- Significant G&A savings: As part of the transaction,
NSA expects to acquire the PROs' management agreements and will no
longer pay any supervisory and administrative fees. After the
completion of the management transition, NSA will directly manage
the vast majority of the former PRO properties and expects to
realize approximately $7.5 - $9.0 million of annual G&A
savings. We also plan to work with select former PROs in a few
markets to optimize our property management.
- Execute enhanced customer acquisition strategy: We will
launch our new website, nsastorage.com, which will incorporate our
existing brands and PRO brands that we expect to acquire on a
multi-brand website for a seamless web reservation experience.
Along with the full integration of our centralized call center
supporting the properties, we expect that these steps will enhance
the customer experience and improve efficiency.
- Enable brand flexibility: NSA will continue to operate
multiple brands, selecting the brand with the best scale economies
in a given market, while eliminating brands that are less dominant.
We will focus on enhancing regional brand effectiveness to improve
our market positioning.
- Optimize operational execution: NSA will be able to
leverage the full benefits of its scale and centralized platforms
to drive NOI by optimizing revenue and margins through a consistent
approach to data analysis and pricing across the entire
portfolio.
- Expand portfolio optimization strategy: NSA will
continue to execute on its asset recycling program in non-core
markets and will implement this strategy across its entire
portfolio. We will fully control the direction of our acquisition
growth strategy, targeting core markets where we will focus on
building market concentration.
Mr. Cramer further commented, “This milestone is very much in
line with our recent strategic initiatives, all with a goal of
positioning NSA for accelerated earnings growth in 2025 and beyond.
While the PRO structure fueled our significant growth over the past
several years and has contributed to our sector-leading core FFO
per share growth since our IPO in 2015, now is the right time to
pivot and position NSA for accelerated earnings growth once the
fundamental environment improves.”
Expected transaction details surrounding the internalization
include:
- Annual FFO accretion. Management expects that upon the
completion of the management transition, the transaction will be
accretive to FFO per share by approximately $0.03 - $0.04,
primarily due to annual G&A savings. Additional future
accretion is expected to be realized through organic positive NOI
growth from PRO-managed properties whereby the upside sharing will
be eliminated.
- PRO management agreements acquired: Consistent with
prior internalizations, we expect to purchase the PRO management
contracts and, in certain cases, specified intellectual property
(including brand, trade names and trademarks) for 4x EBITDA from
the management of the PRO-managed properties.
- Tenant insurance contracts purchased: In connection with
acquiring the PRO management contracts described above, NSA expects
to acquire from the PROs the right to direct the tenant insurance
business for our properties, using a valuation methodology
consistent with prior internalizations.
- Total consideration: Total cash and OP units expected to
be paid in conjunction with the buyout of the management contracts
and tenant insurance policies is expected to be approximately $85.0
- $90.0 million. These newly issued OP units, as well as OP units
issued upon conversion of SP units, will generally have a one-year
lockup on resales.
- Phased transition: NSA will execute a phased approach,
allowing for management transitions of NSA-owned properties in a
controlled and thoughtful manner.
- NSA will start working on the transition immediately and plans
to execute new property management agreements with the majority of
our PROs for a transitionary period following the completion of the
internalization at a newly negotiated management fee. NSA
anticipates that these transitionary periods will be staggered over
the next twelve months.
- Captive pipeline: Many of the former PROs, including
ones that have previously retired, will continue to maintain a
significant equity ownership in NSA and have a significant vested
interest in NSA’s continued success. While we will no longer have a
contractual agreement regarding the captive pipeline, we expect to
continue to pursue external growth opportunities with former
PROs.
- Adjustment to FFO per share calculation: NSA expects all
12.1 million outstanding SP units will be converted to
approximately 18.2 million OP units in NSA OP, LP and the DownREIT
partnerships, as applicable at a weighted average conversion ratio
of 1.51 and will be included in the common shares and units
outstanding for purposes of calculating FFO per share. Such amounts
include the Company’s DownREIT SP unit equivalents, which are
expected to be converted to DownREIT OP unit equivalents.
Arlen Nordhagen, co-founder of NSA and Vice Chairperson of the
Board, commented, “The PRO structure has been instrumental in
driving NSA‘s tremendous growth over the years. Our long-term
vision for NSA always contemplated the eventual internalization of
the PRO structure, and current market conditions make today the
right time for a win-win scenario for common shareholders and PROs
alike. I’m grateful to our PROs for their invaluable contributions
to NSA’s success and excited about how this event will contribute
to earnings growth going forward.”
Tamara Fischer, Executive Chairperson of the Board, added “As I
reflect over the past eleven years since our formation, I am truly
grateful for the tremendous success that we have experienced,
largely due to the cooperative partnership with our PROs. We have
been truly fortunate to build our company with such a highly
experienced group of self storage operators. Like Arlen and Dave, I
am very excited about the future opportunities for NSA and believe
now is the right time for this transition.”
About National Storage Affiliates Trust
National Storage Affiliates Trust is a real estate investment
trust headquartered in Greenwood Village, Colorado, focused on the
ownership, operation and acquisition of self storage properties
predominantly located within the top 100 metropolitan statistical
areas throughout the United States. As of March 31, 2024, the
Company held ownership interests in and operated 1,050 self storage
properties located in 42 states and Puerto Rico with approximately
68.7 million rentable square feet. NSA is one of the largest owners
and operators of self storage properties among public and private
companies in the United States. For more information, please visit
the Company’s website at www.nationalstorageaffiliates.com. NSA is
included in the MSCI US REIT Index (RMS/RMZ), the Russell 1000
Index of Companies and the S&P MidCap 400 Index.
NOTE REGARDING FORWARD LOOKING
STATEMENTS
Certain statements contained in this press release constitute
forward-looking statements as such term is defined in Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and such statements
are intended to be covered by the safe harbor provided by the same.
Forward-looking statements are subject to substantial risks and
uncertainties, many of which are difficult to predict and are
generally beyond NSA's control. These forward-looking statements
include information about possible or assumed future results of
NSA's business, financial condition, liquidity, results of
operations, plans and objectives. Changes in any circumstances may
cause our actual results to differ significantly from those
expressed in any forward-looking statement. When used in this
release, the words "believe," "expect," "anticipate," "estimate,"
"plan," "continue," "intend," "should," "may" or similar
expressions are intended to identify forward-looking statements.
Statements regarding the following subjects, among others, may be
forward-looking: market trends in NSA's industry, interest rates,
inflation, the debt and lending markets or the general economy; the
Company's business and investment strategy; the acquisition and
disposition of properties, including those under contract and our
ability to execute on NSA's acquisition pipeline; and the
internalization of PROs into NSA. For a further list and
description of such risks and uncertainties, see our most recent
Annual Report on Form 10-K, subsequent Quarterly Reports on Form
10-Q and Current Reports on Form 8-K filed with the Securities and
Exchange Commission, and the other documents filed by NSA with the
Securities and Exchange Commission. The forward-looking statements,
and other risks, uncertainties and factors are based on NSA's
beliefs, assumptions and expectations of its future performance,
taking into account all information currently available to us.
Forward-looking statements are not predictions of future events.
NSA disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
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National Storage Affiliates Trust Investor/Media
Relations
George Hoglund, CFA Vice President - Investor Relations
720.630.2160 ghoglund@nsareit.net
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