National Storage REIT on target as suitors circle

National Storage REIT is sticking to its earnings growth targets as three companies run the rulers over it.

National Storage managing director Andrew Catsoulis. Picture: Steve Pohlner

The listed National Storage REIT has unveiled its first-half results as three companies undertake due diligence ahead of potentially submitting takeover offers valuing the company at about $1.9bn.

US giant Public Storage lobbed a $2.40 per share proposal and rivals Gaw Capital Partners and Warburg Pincus, that approached the company at $2.20 per share, are also conducting non-exclusive due diligence, but the shares dropped 2c to $2.38.

National Storage said it and advisers JPMorgan were “in discussions” with all three parties about their proposals. The company warned the timing of revenues received from its acquisition, development and joint ventures may be impacted by the sale process.

But it stuck to its target of earnings per share growth of 4 per cent and underlying earnings of $78m, assuming no material changes in market conditions.

The company delivered a first-half profit of $150.7m and said underlying earnings were up 31 per cent to $34.5m.

This saw a 4.8 per cent lift in underlying earnings per share to 4.4c, once its equity raisings were taken into account, and the company paid a first-half distribution of 4.7c per share.

National Storage’s assets under management have jumped by 17 per cent to $2.29bn and net tangible assets increased by 9 per cent to $1.77 per share as the company snapped up $179m of storage facilities. It bought 14 existing storage centres, and a new development site.

Managing director Andrew Catsoulis said the centres had delivered a “solid” performance despite challenging economic conditions. He said this was “consistent with our ongoing consolidation strategy in what remains a highly fragmented industry. NSR continues to remain at the forefront of this industry consolidation process”.

“Our combined pipeline of over 15 new developments, joint ventures, expansions and third party turnkey projects will enhance our continued growth by providing important additional capacity in key markets,” Mr Catsoulis said.

Overall occupancy across Australasia bumped up 0.3 per cent to 82.4 per cent and the company expects improvements in this half. Revenue Per Available Square Metre was up 0.5 per cent but the company called out “economic headwinds” in markets, including Sydney. The WA business is also picking up.

Moelis analysts said the result looked soft and noted the share price equated to a premium to net tangible assets of 35 per cent at Tuesday’s closing price. There was also a distribution payout ratio of 107 per cent.

Macquarie analysts said that underlying growth was “still anaemic” and said the improving portfolio metrics were yet to show up in the cash flow statement.

“We believe downside risk outweighs the benefit from a potential bidding war,” they said.

“Looking at the first half 2020 result on a line by line basis, rental income was below expectations and operating expenses were above expectations which drove a material EBITDA miss. This was partly offset by a better-than-expected outcome at the net interest line,” the analysts said.