National Storage Affiliates(NSA) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported core FFO per share of $0.40 for Q4 2019, an increase of 8.1% year-over-year [31] - Same-store NOI increased by 3.8% over the prior year, driven by a 2.8% growth in same-store revenues [32] - For the full year 2019, same-store revenue growth was 4%, with property operating expenses growing just 1.6% [33] Business Line Data and Key Metrics Changes - The internalization of SecurCare self-storage, the largest PRO, is expected to be accretive to common shareholders by approximately $0.03 per share in 2020 and about $0.04 to $0.05 per share on an ongoing annual basis [12][29] - Marketing expenses increased by 9% in Q4 compared to the prior year, reflecting increased competition [32][19] Market Data and Key Metrics Changes - Approximately 45% of the company's stores are now impacted by new competitors within a five-mile radius, up from 41% reported last quarter [17] - Leading MSAs for same-store revenue growth include Riverside, San Bernardino, Atlanta, and Las Vegas, while Portland, Phoenix, and Tulsa are lagging due to elevated new supply [22] Company Strategy and Development Direction - The company aims to internalize management of approximately half of its PROs by 2025, with SecurCare being the first to do so [11] - The management transition is expected to be seamless, with Dave Cramer joining as COO to ensure continuity [14][63] Management's Comments on Operating Environment and Future Outlook - The self-storage sector remains in high demand despite increased competition and new supply impacting street rates [16] - The company anticipates that elevated new supply will weigh on revenue growth in 2020, with guidance for core FFO per share of $1.64 to $1.68, implying 7.8% growth at the midpoint [38] Other Important Information - The company has a well-positioned balance sheet with a weighted average cost of debt at 3.5% and a net debt to EBITDA ratio of 5.7 times [36] - The internalization of SecurCare is expected to eliminate approximately $20 million in management fees, generating annualized G&A savings of $2.5 million to $3 million [25][29] Q&A Session Summary Question: Was SecurCare given any preferential treatment during the internalization? - Management confirmed that a special committee of independent trustees oversaw the transaction to ensure high corporate governance standards [40] Question: Does internalizing PROs make it easier to add more externally managed PROs? - Management indicated that internalizing PROs does make it easier to add new ones due to limited capacity for management [41] Question: What have cap rates been doing? - Cap rates for Q4 were in the range of 5.5% to 6%, with expectations that they will not increase significantly [45] Question: What is the net cash impact from the SecurCare transaction? - The transaction is expected to generate approximately $4 million in additional cash flow annually, with G&A savings contributing to overall accretion [72][74] Question: How should property tax growth be viewed in the future? - Management expects property tax expense growth to normalize around 5.5% to 6.5% for 2020, influenced by previous favorable assessments [91] Question: What is the outlook for marketing spend in 2020? - Marketing expenses are projected to grow by 10% to 12% in 2020, reflecting ongoing competitive pressures [92]