Executive Summary / Key Takeaways

• Strategic Re-Platforming for Efficiency: National Storage Affiliates Trust (NSA) has completed a significant PRO internalization, consolidating brands, systems, and operations to enhance efficiency and unlock future revenue and NOI upside, despite initial delays in realizing full benefits.
• Technology as a Core Differentiator: NSA is leveraging AI in its call center (handling 15% of calls) and self-service tools like "My Storage Navigator" to optimize customer acquisition, improve operational efficiency, and drive digital transaction volumes, positioning itself for long-term competitive advantage.
• Fundamentals Troughing, Outlook Improving: Management believes self-storage fundamentals have "hit bottom," with positive sequential trends in occupancy and RevPar, and an improving supply outlook. The revised 2025 guidance reflects a more conservative near-term view but anticipates a recovery in the latter half of the year.
• Disciplined Capital Recycling: The company is strategically pruning its portfolio by being a net seller of non-core assets in 2025, using proceeds to reduce debt and reinvest in higher-quality properties and its existing portfolio, balancing growth with balance sheet strength.
• Leverage and Dividend Under Scrutiny: While NSA's net debt-to-EBITDA remains elevated at 6.8x, and its dividend payout ratio is high, management maintains a long-term view, confident that operational improvements and an eventual housing market recovery will support future earnings and dividend coverage.

NSA's Strategic Foundation and Market Landscape

National Storage Affiliates Trust (NSA), established in 2013 and operating as a REIT since 2015, has carved a significant niche in the self-storage sector. The company focuses on owning, operating, and acquiring properties predominantly within the top 100 metropolitan statistical areas across the United States. NSA's foundational strategy, inspired by co-founder Arlen D. Nordhagen, centered on integrating experienced regional operators to achieve national scale while maintaining local expertise. This approach allowed for rapid expansion, with NSA's portfolio growing to 807 consolidated properties and managing an additional 260 properties for its unconsolidated joint ventures by June 30, 2025, totaling 1,067 properties across 37 states and Puerto Rico.

The self-storage industry, a needs-based business, is influenced by residential transitions, small business demand, and broader economic mobility. Currently, the sector faces macroeconomic headwinds, including elevated interest rates, inflation, and historically low housing turnover, which has muted demand. However, a significant industry trend points to a projected decline in new supply, with rentable square feet as a percentage of stock expected to decrease from 3.5% in 2024 to 2% by 2027, well below the long-term national average. This improving supply backdrop is a critical tailwind for future fundamentals.

Competitive Positioning and Technological Edge

NSA operates in a competitive landscape dominated by large public REITs such as Public Storage (PSA), Extra Space Storage (EXR), and CubeSmart (CUBE), alongside numerous private operators. NSA's strategic positioning emphasizes geographic diversification and a targeted focus on mid-tier MSAs, which offers resilience against localized market fluctuations. Its post-PRO internalization strategy aims for cost leadership through enhanced operational efficiencies and a unified brand presence.

NSA's technological differentiation is a cornerstone of its strategy to gain a competitive edge and drive operational excellence. The company has invested in consolidated operating platforms and upgraded marketing and pricing tools. A key innovation is the integration of Artificial Intelligence (AI) in its call center, which now handles 15% of total incoming call volume, resolving consumer questions efficiently. This provides tangible benefits by reducing the need for human intervention for routine inquiries, thereby improving operational efficiency and allowing human agents to focus on more complex customer needs. This translates into potential cost savings and improved customer service quality.

Furthermore, NSA has introduced "My Storage Navigator," a self-service tool accessible via QR code scan at its stores, enabling customers to complete 100% of their transactions without manager assistance. The company aims for 4-5% of its rental volume to be processed through this tool within the next six months. This initiative, coupled with its digital platform, where approximately 65% of total rental volume originates (with 40% being pure self-service), highlights NSA's commitment to meeting evolving customer preferences for digital interaction. The company is also leveraging enhanced pricing algorithms and a new, rapidly adapting Google bid model for paid search, driving significantly improved top-of-funnel demand and opportunities. Management views its technology suite as being in the "beginning to middle innings," with substantial performance gains expected as data is integrated and systems learn. This technological roadmap is crucial for NSA's competitive moat, contributing to higher customer acquisition, optimized revenue management, and long-term growth.

When comparing NSA's financial performance to its peers, NSA's TTM Gross Profit Margin of 65.21%, Operating Profit Margin of 37.59%, and Net Profit Margin of 8.92% generally lag behind PSA (73% GPM, 47% OPM, 44% NPM), EXR (72% GPM, 41% OPM, 26% NPM), and CUBE (70% GPM, 45% OPM, 37% NPM). This suggests that while NSA is profitable, its peers currently demonstrate higher efficiency in converting revenue to profit. However, NSA's Debt/Equity ratio of 0.02 (though Net Debt-to-EBITDA is 6.8x) is notably lower than its peers (PSA 0.96, EXR 0.93, CUBE 1.06), indicating a different capital structure or accounting treatment that warrants closer examination. NSA's dividend yield of 7.06% is higher than its peers (PSA 4%, EXR 4%, CUBE 5%), but this comes with a higher payout ratio, a point of management focus.

The PRO Internalization: A Transformative Shift

A pivotal strategic initiative for NSA was the internalization of its Participating Regional Operator (PRO) structure, a long-term vision that became effective on July 1, 2024. This move was designed to maximize performance and shareholder returns by eliminating profit sharing with PROs. The year 2024 involved significant "heavy lifting," including consolidating 12 brands down to 7 (iStorage, Move It, Moove In, Northwest, RightSpace, SecurCare, Southern), onboarding approximately 250 properties and over 380 employees onto NSA's corporate platform, and unifying all stores under a single web domain (NSAstorage.com) and property management system.

While the "nuts and bolts" of this transition were largely completed by December 2024, management noted in Q2 2025 that realizing the full benefits was taking longer than expected. This delay was attributed to persistent macroeconomic headwinds, continued pressure from new supply, and the inherent complexities of integrating revenue management strategies and brand consolidation across a large portfolio. Despite these challenges, the internalization has already yielded G&A savings and tenant insurance benefits, which are expected to be fully realized by early 2025. Two PROs remain in place for third-party management in specific regions, but the vast majority of the portfolio is now under direct NSA management, allowing for centralized operational control and strategic alignment.

Operational Performance: Navigating Headwinds with Strategic Precision

NSA's recent financial performance reflects the challenging operating environment and the ongoing integration efforts. For the three months ended June 30, 2025, NSA reported core FFO per share of $0.55, an 11% decline from the prior year. Same-store revenues decreased by 3%, driven by a 240 basis point decline in average occupancy and a 30 basis point decrease in average revenue per square foot. Same-store NOI fell by 6.1%. Total revenue for the quarter was $188.84 million, with net income attributable to NSA of $19.47 million.

For the six months ended June 30, 2025, core FFO per share was $1.09, a 10.7% year-over-year decline. Same-store revenues decreased by 3.2%, with same-store NOI down 5.9%. Total revenue for the period was $377.20 million, and net income attributable to NSA was $32.47 million. These results were impacted by higher interest expense due to swap maturities, increased property operating expenses (up 4.6% in Q2 2025, driven by property taxes, marketing, R&M, and utilities), and the aforementioned delays in PRO internalization benefits. However, general and administrative expenses decreased by 20.9% in Q2 2025, reflecting initial cost savings from the internalization.

Despite these headwinds, management observes positive sequential trends. Occupancy increased by 140 basis points sequentially in Q2 2025 to 85% and further to 85.3% in July. The year-over-year occupancy delta narrowed to -150 basis points in July from -220 basis points in June. RevPar has shown growth for five consecutive months ending July, with the year-over-year delta improving from -4.2% in February to -1.6% in July. Notably, two of NSA's reported MSAs, Houston and San Juan, inflected positive for same-store NOI in Q2 2025. The existing customer rate increase (ECRI) program continues to be successful, with customer length of stay remaining above historical averages (over 40 months for the current tenant base), providing a long runway for revenue optimization.

Capital Allocation and Financial Health

NSA maintains a robust liquidity profile, primarily driven by cash flow from operations, supplemented by asset dispositions, equity and debt offerings, and its credit facilities. As of June 30, 2025, the company held $26.1 million in cash and cash equivalents and had $544.1 million in remaining borrowing capacity under its revolving credit facility, which provides for total borrowings of $1.35 billion. The company has no debt maturities of consequence until the second half of 2026, providing financial flexibility.

NSA's net debt-to-EBITDA stood at 6.8x at the end of Q2 2025, a slight improvement from 6.9x in Q1 2025. This metric is at the higher end of the company's targeted range of 5.5x to 6.5x. Management acknowledges that near-term negative NOI growth and seasonal weakness may temporarily push leverage above this range but expresses confidence in growing out of this pressure. In March 2025, Kroll Bond Rating Agency (KBRA) downgraded NSA's operating partnership's issuer and senior notes credit ratings to BBB from BBB and revised the outlook to stable from negative, also downgrading preferred shares. This reflects the challenging market conditions and elevated leverage.

In terms of capital allocation, NSA is strategically focused on recycling capital. The company expects to be a net seller of assets in 2025, with proceeds primarily used to pay down the revolver and fund future acquisitions. In H1 2025, NSA sold ten properties for $67.1 million and acquired four properties and two annexes for $24.9 million. These dispositions target non-core markets lacking scale or operational efficiency, with recent sales occurring at sub-6% trailing cap rates. NSA also leverages its unconsolidated real estate ventures, such as the 2023 and 2024 Joint Ventures, for external growth, viewing this as "best cost capital" and "capital light." The 75% third-party interest in these ventures, representing approximately $2.0 billion based on historical book value, is considered a potential future acquisition opportunity.

NSA's dividend policy, with a TTM dividend yield of 7.06% and a high payout ratio, is a key consideration for investors. Management acknowledges the payout ratio is currently above earnings but emphasizes the Board's long-term view, recognizing the self-storage sector's ability to achieve "meaningful improvement in a relatively short time frame" due to its short contract rates.

Outlook and Guidance: A Path to Recovery

NSA has adjusted its 2025 guidance to reflect the persistent macroeconomic challenges and slower-than-anticipated realization of PRO internalization benefits. The revised guidance ranges are:

• Same-store revenue growth: -2% to -3%
• Same-store operating expense growth: 3.25% to 4.25%
• Same-store NOI growth: -4.25% to -5.75%
• Core FFO per share: $2.17 to $2.23

This updated outlook assumes an occupancy trend in the second half of 2025 that is "not too dissimilar" from the previous year, with a year-over-year delta hovering around -150 basis points, and relatively flat year-over-year contract rates, coupled with continued elevated use of concessions. Management believes these revised assumptions are less dependent on a rapid macro recovery, given the six to seven months of operational data available.

Despite the downward revision, management expresses confidence that fundamentals are "troughing" and that the company is "just starting to hit our stride operationally." They anticipate sequential improvement in year-over-year revenue growth and expect some expense pressures to ease. The long-term outlook remains positive, driven by the expected full realization of PRO internalization benefits, the potential for an "outsized benefit" from an eventual housing market recovery (given NSA's exposure to homeowners), and the projected decline in new supply. The back half of 2025 is expected to see significant momentum, which should carry into 2026, as the company focuses on optimizing occupancy and leveraging its enhanced operational platforms.

Risks and Mitigations

Several risks could impact NSA's investment thesis. Persistent macroeconomic headwinds, including elevated interest rates and a stagnant housing market, could continue to suppress demand. The slower-than-expected realization of PRO internalization benefits poses a risk to anticipated revenue and NOI accretion. Continued pressure from new supply in key markets could further challenge pricing power and occupancy. Elevated use of concessions, while a strategic tool, remains a near-term drag on revenues. The recent credit rating downgrade by KBRA highlights increased leverage and market concerns.

NSA is actively implementing mitigation strategies. The company is increasing marketing spend and strategically using concessions to improve occupancy and attract customers. It is also increasing repair and maintenance investments to enhance portfolio performance. Strategic dispositions of non-core assets aim to improve operational efficiency and strengthen the balance sheet. The ongoing integration of technology, including AI and self-service platforms, is designed to drive long-term operational efficiencies and customer acquisition, offsetting some of the market pressures. Management's disciplined capital allocation, including reinvesting in the existing portfolio, seeks to maximize returns in the current environment.

Conclusion

National Storage Affiliates Trust is undergoing a significant transformation, strategically re-platforming its operations and leveraging technology to enhance efficiency and drive future growth. The completion of its PRO internalization, while presenting initial integration challenges, positions NSA to unlock substantial revenue and NOI upside as these benefits fully materialize. The company's commitment to technological differentiation, exemplified by its AI-powered call center and self-service tools, is a critical competitive advantage in an evolving market.

While NSA faces persistent macroeconomic headwinds and elevated leverage, management's conviction that fundamentals are troughing, coupled with an improving supply outlook and the eventual recovery of the housing market, paints a picture of a company poised for a stronger performance in the latter half of 2025 and beyond. Investors should monitor the pace of PRO integration benefits, the trajectory of occupancy and pricing power, and the company's disciplined capital allocation strategy as key indicators of its ability to translate strategic initiatives into sustained shareholder value. NSA's journey through this period of operational refinement and technological advancement is central to its long-term investment narrative.