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National Storage REIT (ASX:NSR) reports FY18 result, raising $175 million

Earlier today, National Storage REIT (ASX: NSR) reported its annual result for the year ended 30 June 2018.

The real estate investment trust (REIT) revealed that total revenue increased by 19% to $135.3 million. This was partly driven by a 3.8% increase of same-centre revenue per available square metre (REVPAM) to $220 at June 2018. Total occupancy across the Australian portfolio grew by 330 basis points to 80.8%.

During FY18 National Storage spent $155.3 million acquiring a number of new storage facilities, which added 87,500 square metres of net lettable area.

Net operating profit grew by 19% to $76.4 million and underlying earnings per share (EPS) grew by 12.5% to 51.4 cents. When statutory items like property revaluations are included the net profit after tax (NPAT) increased by 41% to $145.8 million.

National Storage grew the FY18 distribution by a decent 4.3% during FY18 to 9.6 cents per security. The net tangible assets (NTA) per security grew by 13% to $1.51. The distribution plus NTA growth combined resulted in a total return of 19.9% for the year.

Debt drawn increased by $114.6 million to $596.4 million at 30 June 2018, representing a gearing ratio of 38%. This is within the target gearing range of 25% to 40%, but only just. However, the covenant gearing ratio is 55% so National Storage had plenty of breathing space.

National Storage has hedged around $319 million of its debt at an average cost of 4%.

Capital raising and FY19 outlook

National Storage announced a capital raising for $175 million to fund six contracted or settled assets for a cost of $57 million since the start of FY19. It also has over $100 million of acquisition opportunities as active considerations, with a majority of those expect to settle within six months. The remaining money will be used to reduce the gearing ratio to 30% for further opportunities.

The offer price has been set at $1.66, a 6.5% discount to the last closing price of $1.775. The retail component of the entitlement offer opens 29 August 2018.

Due to the additional securities and gradual deployment of proceeds, management have guided underlying EPS to be between 9.6 cents to 9.9 cents in FY19. This represents EPS growth being flat to a 3% rise . However, underlying EPS growth would be 6% to 10% per annum over FY20 to FY21.

National Storage also announced an agreement with Stockland Corporation Ltd (ASX: SGP) to potentially create storage developments in Stockland’s portfolio. Management also intend to develop a capital partnership for National Storage’s existing portfolio across New Zealand, which would reduce the gearing even further.

Foolish takeaway

National Storage is currently trading with a distribution yield of 5.4%. It’s one of my favourite REITs, however the recent strong appreciation means the share price is valued at a 17% premium to the NTA.

For the income alone I think it’s a pretty good choice, however total returns may be a bit slower over the next 12 months due to the current high price.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended National Storage REIT. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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