NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns an issuer rating of BBB with a Stable Outlook to NSA OP, LP, the operating partnership subsidiary of National Storage Affiliates Trust (“NSA”). KBRA also assigns a BBB- rating to NSA’s $172.5 million outstanding perpetual preferred shares.
The KBRA ratings and outlook reflect favorably on the company’s low 33% debt to year-end total market capitalization of $4.6 billion (both include NSA’s share of off-balance sheet joint venture debt), diversification across 499 consolidated properties and 27 states in all U.S. regions as of year-end 2018, well-staggered unsecured debt maturity schedule, and a large unencumbered asset pool representing approximately 80% of consolidated property net operating income.
Credit strengths associated with the NSA operating platform include the considerable depth and breadth of local market expertise provided by NSA’s senior management team and the participating regional operators (“PROs”) who manage nearly all of NSA’s consolidated properties, high equity ownership by senior management and PROs, and alignment of interests resulting from PRO ownership of subordinated partnership units and interests in all PRO-managed properties.
The ratings also recognize that NSA’s same-store revenue and net operating income growth have consistently led the storage sector and ranked among the highest for any REIT—notwithstanding KBRA expectations that excessive new supply in certain markets will weigh on storage revenue growth over the next several years—and that NSA has consistently funded its more rapid growth through equity offerings and issuance of partnership units.
KBRA considers storage properties to have lower capital expenditures and risk of obsolescence than most commercial property types, as well as greater resilience to recessions as observed from the relatively stable storage property revenues and storage REIT share prices during the Great Recession.
KBRA’s credit assessment is balanced by recognition of NSA’s higher dividend payout ratio and a shorter 3.8-year weighted average maturity for unsecured debt, although the latter is mitigated by expectations for longer-dated unsecured debt offerings and recognition that in fourth-quarter 2018 NSA became one of only several REITs to obtain 10-year bank term loan financing.
Uncertainty also exists regarding succession plans of individual PROs, which could negatively impact NSA’s continuing ability to source and assimilate property acquisitions—considered to be a core strength of NSA and a strong fit with the highly fragmented private ownership of storage properties. The rating also recognizes some uncertainty regarding the timing and success of potential integration of PRO-managed properties, upon individual PRO retirement, onto NSA’s internal property and asset management platform. In the context of its small number of self-managed consolidated properties, NSA’s two joint ventures with entities managed or advised by global real estate investment management company Heitman (NSA owns a 25% interest in 176 properties with $2.0 billion gross book value) are considered a net positive for the company, providing the scale necessary for growth of the iStorage brand and continued investment in operating and technology initiatives.
KBRA will follow up with a more comprehensive report of its rating rationale and NSA’s credit profile.
Related Publications: (available at www.kbra.com)
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
