National Storage Overcomes Fragmented Market to Become Australia's First Self-Storage REIT

Australia self-storage operator National Storage challenged the business model in its fragmented market to create the country’s first real estate investment trust last year. Managing director Andrew Catsoulis discusses the company’s public status and business strategy.

National Storage is one of Australia’s largest self-storage providers, with 69 facilities nationwide. The company offers self-storage, business storage, records management, wine storage, vehicle storage, vehicle and trailer rental, packaging, insurance, and other value-added services.

In December, the company listed on the Australian Securities Exchange, forming National Storage REIT (NSR) and becoming the country’s first publicly listed, independent, internally managed, fully integrated owner and operator of self-storage. The move brought together 28 freehold storage properties and businesses, and long-term leasehold interests in an additional 10 facilities.

It also generated management rights and a 10 percent investment interest in an additional 24 self-storage facilities owned by Southern Cross Storage Group, an investment fund co-owned by NSR and funds managed by Heitman, a global real estate investment manager. Two more freehold properties were acquired immediately after listing. In addition, the company implemented its operating platform, which provides third-party management services nationwide.

Inside Self-Storage interviewed managing director Andrew Catsoulis, who spoke about the company’s public status, challenges and changes in the Australian self-storage market, and NSR’s future plans.

What led to the establishment of NSR, and what are your goals as a publicly traded company?

Listing National Storage provided an opportunity to reinvent the business model, taking into account 20 years of industry learning and working to develop a strong platform for future growth. It’s provided us with access to considerable capital, which will assist us in executing our consolidation strategy in the highly fragmented Australian storage industry. NSR’s objective is to deliver investors a stable and growing income stream from a diversified portfolio of quality self-storage assets and to drive income and capital value growth through active asset and portfolio management.

What’s the state of the Australian self-storage market?

Self-storage centers emerged in Australia in the late 1970s. According to industry research, there are more than 1,100 self-storage centers in Australia today.

The three major players in the market have a combined modest market share of approximately 25 percent. The industry is highly fragmented, with the majority of owners being independent operators who own a single asset or a small region-specific portfolio of assets. Trading and market conditions have been challenging over the past few years, due in part to economic conditions and low levels of consumer confidence.

Are you seeing new construction, conversions, or both?

There’s some new construction in younger markets, such as Perth in Western Australia. A barrier to entry is the availability and cost of appropriate in-fill sites that are suitable for conversion with storage as the site’s highest and best use. That said, there are a number of industrial sites under conversion, though this isn’t an area in which NSR invests, as these sites typically fall outside our acquisition metrics.

What are some of the challenges NSR faces, and how is the company responding?

Finding the balance between driving occupancy and rate per square meter is a challenge for any storage operator. Through our yield-management system and dynamic pricing model, we’ve chosen to drive rate per square meter recently, given current market conditions. Another challenge is the evolving importance of digital marketing and the Internet, particularly as regards the significant growth in online inquiries over the last five years.

Tell us about NSR’s recent acquisitions and expansion.

Since listing, the number of centers in the NSR portfolio has grown by eight to 69 and has resulted in the increased value of the property portfolio (including indirect interests) by $89.9 million. The new assets are:

National Storage REIT Acquisitions***

What big changes have happened in your market over the past two years?

The shift in the marketing landscape to digital has been most felt in the past few years. This has required a significant investment and new strategies, and continues to require investment and improvement as the marketing landscape continues to change.

What are NSR’s plans for the future?

We are tremendously excited about the future of NSR and strongly believe in the growth potential for our business. With our experienced senior-management team, dedicated storage staff, state-of-the-art operating systems and an ongoing commitment to our core values of “teamwork, care and excellence,” we’re well-placed to continue our growth on a number of fronts, including driving organic same-center growth, executing accretive acquisitions and acting on development opportunities, driving revenue from third-party management, and maintaining an efficient capital structure.

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