National Storage Affiliates Trust: A Different Kind of REIT
operate more than 40 self-storage
properties worth over $200 million.)
When they join NSA, PROs contribute
their properties at current market
value, exchanging their property for
Operating Partnership (OP) units, or
equity in the REIT. In most cases,
this transaction is accomplished
in a tax deferred manner.
While OP units are commonly
used by traditional REITs, NSA has
created a unique feature by adding
a second class of OP units called
Subordinated Performance (SP) units.
National Storage Affiliates Trust:
A Different Kind of REIT
By Jay Marks
As storage business professionals,
you are likely familiar with Real Estate
Investment Trusts (REITs). Now, you
might think that all publicly traded
self-storage REITs are pretty much
alike. However, you’d be mistaken.
Traditional REITs in the self-storage
industry tend to operate with a “topdown” mentality. Decisions are
made at corporate headquarters
and communicated to regional,
divisional and property managers
who work for the corporation and
implement these decisions. You
might say that these organizations
“think globally and act globally.”
National Storage Affiliates Trust
(NSA) was founded in 2013 to create
a different type of REIT – a win-win
partnership that would “think globally
and act locally,” benefiting operators
and investors alike. NSA’s business
model is simple and unique.
According to Arlen Nordhagen, CEO,
National Storage Affiliates Trust,
“We depend on our Participating
Regional Operators (PROs) to continue
managing their self-storage properties
after they join NSA, unlike traditional
REITs. After all, they know the lay of the
land at the local level better than we do.
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They’ve become successful by serving
their customers well in the competitive
environment of their own markets.”
So why contribute their
properties and join NSA
in the first place?
They do so because they believe
NSA provides them with better
access to growth capital, as well
as tools and resources (such as
sophisticated data analytics, call
center, digital marketing support,
revenue management expertise, best
practices, etc.) that might otherwise
be unaffordable to a stand-alone
operator. They gain economies of
scale and technological innovation to
add to their experience and business
savvy. It’s a combination intended to
enhance their profitability and ROI.
How does this public
investor and PRO
partnership actually work?
First, to qualify as a PRO with NSA,
an operator must have a proven,
high-quality management team,
plus own and operate at least 20
self-storage properties in the top
100 MSAs valued at $100 million
or more. (On average, NSA PROs
SBOA Magazine - Fall 2015
As Nordhagen explains, “SP units
are issued to our PROs for part of
their equity value to motivate and
reward them for strong financial
performance on the properties they
manage within NSA. The more
profitably a PRO manages its portfolio
of properties, the more the PRO can
earn in dividends from SP units. That’s
the upside incentive. By contrast,
SP units will pay a lesser dividend
for poor financial performance.
That’s the downside penalty.”
To protect the investor, common stock
and OP unit dividends take priority
with respect to dividends. That’s why
SP units are called “subordinated.”
They take second place. OP units
are economically equivalent to REIT
common shares. Their value is based
on the value of the entire REIT, which
is the same as the price of the common
shares, and they receive the same
dividends as REIT common shares.
Because PROs are vested in the REIT
by virtue of owning both OP units
and SP units, they are motivated to
see both the company as a whole do
well, and to profitably grow their own
portfolio of properties to increase the
distributions and value of their SP units.
To quote Nordhagen, “This business
model is unique in that it aligns
the interests of REIT shareholders
whose stock is equivalent to OP
units with the interests of the
PROs who own both OP and SP
units. It’s a win-win partnership
benefiting everyone involved.”
To learn more about National
Storage Affiliates and NSA’s unique
REIT business model, visit
www.nationalstorageaffiliates.com.
www.theSBOA.com