National Storage Affiliates Internalization: PRO Perspectives

National Storage Affiliates Trust (NSA), the Colorado-headquartered REIT that owns, operates, and acquires self-storage properties throughout the U.S. and Puerto Rico, has announced that it will be internalizing its participating regional operating (PRO) structure. The PROs, which currently manage 32 percent of NSA’s 1,050 properties, will transition to NSA’s management platform in phases when the transaction closes, which is expected to happen on July 1, 2024.

“The internalization of the PRO structure marks the beginning of the next exciting chapter for NSA,” NSA President and CEO David Cramer said in a company press release. “This accretive transaction will further enhance our growth profile and simplify our structure. Additionally, given the size and sophistication of NSA’s operating platform, now is the optimal time to consolidate all operations.”

The NSA press release, which can be read in its entirety here, includes many quotes from NSA leadership. To get another perspective, MSM reached out to several PROs. John Gilliland, who leads the Moove In Storage PRO responsible for properties located throughout Pennsylvania, Maryland, New Jersey, and New York, and Marc Smith, who leads the Personal Mini Storage PRO responsible for the central Florida market, answered the call. Both Gilliland and Smith also serve on the PRO Advisory Board.

Gilliland says that the timing of this internalization was right. “Moove In joined NSA as a PRO in 2019, and it was one of the best professional decisions I’ve ever made,” he says. “We experienced a meteoric rise in the number of stores that we bought and managed, and contributed to the REIT.”

Adds Gilliland, “It worked great up until it didn’t.”

He cites the doubling of interest rates and the return to mean after the highs of COVID for accelerating the retirement of the PROs. “All REITs fell out of favor with Wall Street, and self-storage wasn’t spared from that.”

Gilliland says that after much consideration, the PROs unanimously voted to internalize, even if some had trepidations. “The PRO model was set up so that NSA provides the equity and debt that we need to buy properties. When that was no longer a viable way of doing things, we had to do something. This was the best move for us to make at this time.”

While the timing may have been right, Smith says that some PROs were more prepared for it than others. “This was a surprise to some of the PROs,” Smith told MSM. “I’m not sure it was a shock, but it was definitely a surprise.”

Smith states that some of the PROs would have retired voluntarily anyhow – three already had prior to this – so internalization worked out for them. But for others, he says it felt premature. “Personally, I’m further away from retiring than some of the other PROs. In fact, my wife says I’ll probably never retire,” he laughs. “So, for me, this was a little earlier than I’d hoped.”

Despite a few lingering doubts from some of the PROs, Gilliland and Smith confirm the vote to internalize was 100 percent in favor of the transaction.

Understanding The Current NSA PRO Structure

NSA is currently composed of four internal brands that manage NSA’s joint ventures and corporate managed stores: 

• iStorage
• Move It Self Storage
• Northwest Self Storage
• SecurCare Self Storage 

Outside of the corporate brand platforms, there are eight PROs who manage portfolios under their own brands but who have contributed their properties to NSA in exchange for equity in the REIT. NSA’s PROs are widely respected industry owner-operators with an average of approximately 30 years of storage industry experience. The eight existing PROs that make up this transaction are as follows:

• Blue Sky Self Storage, a strategic partnership between Argus Professional Management and GYS Development LLC led by Lee Fredrick, Ben Vestal, and Michael Perry.
• Guardian Storage, led by self-storage veteran John Minar.
• Hide-Away Storage, led by developer and former SSA chairman Steve Wilson.
• Moove In Self Storage, led by John Gilliland, CEO of Investment Real Estate Group of Companies (IREGC) and Moove In’s president.
• Personal Mini Storage, led by self-storage investor, former SSA board chair and current Large Operators Council chair Marc Smith.
• RightSpace Storage, the Optivest brand of properties, run by its co-founder Warren Allan.
• Southern Self Storage, led by founders Robert McIntosh and Peter Cowie.
• Storage Solutions, led by founder Bill Bohannan and vice president Ray McRae.

With the internalization of the PROs, can we expect to see fewer of these self-storage brands? According to NSA, the REIT will continue to operate multiple brands, however it will be boosting brands with the best scale economies in given markets and eliminating brands that are less dominant.

“The PROs were offered to retain their brand,” Smith says. “Some are doing that, others are not. For example, my stores will be rebranded as iStorage since that is the corporate brand platform most dominant in the region. In another part of the country, they may choose to rebrand as Northwest Storage or SecureCare.”

“Moove In will stay as Moove In for now,” Gilliland told MSM, confirming that some PROs may take a corporate name while others may keep their PRO brand. “We’re in the Northeast, which is probably the furthest PRO from [NSA’s headquarters in Colorado]. This is our home turf, and we know it better than anyone. So, we’ll continue to manage it just like we did before, and just as well as we did before, because we care and because we own lots of stock, and we want to see that go up too!”

By internalizing the PROs, all the brands under the NSA umbrella will now be centralized under one website, which the REIT expects will increase customer acquisitions. “We will launch our new website, nsastorage.com, which will incorporate our existing brands and PRO brands that we expect to acquire on a multi-brand website for a seamless web reservation experience,” says NSA. “Along with the full integration of our centralized call center supporting the properties, we expect that these steps will enhance the customer experience and improve efficiency.”

Gilliland says that this isn’t much different than how it’s been done. “The truth is, for most of the PROs, even though our brand was public-facing online, the backend was run by NSA. So, while we’d get flagged for having all these segregated brands, we were still harnessing the power of the whole. The new push will be the NSA-branded site.”

NSA and PRO Internalization Benefits

The NSA press release highlights many expected benefits of the internalization, including accelerated earnings growth. Some of this will be attributed to NSA having more transparency to investors without the PRO structure, which provided higher dividends to PROs that outperformed the whole.

“Some people on Wall Street didn’t understand [the PRO structure], so they tended to discount NSA shares because of it,” says Smith. “By doing away with PRO participation, NSA will be emulating what the other REITs like Extra Space, Public Storage, and CubeSmart do. This structure they understand and should make shares more valuable.”

Gilliland agrees. “Wall Street doesn’t like different. This levels the playing field with our peers, and the increase in share value will make up for what most PROs would have received in higher dividends.”

“At least in the short term, the benefits on the NSA side are greater than the benefits on the PRO side,” muses Smith. “In the long term, however, because the PROs own shares of NSA, the internalization, or PRO retirement, should benefit the shares that they own as they increase in value.”

The PRO Legacy

While PROs may be being internalized, their contributions to the success of NSA cannot be overstated.

“The PRO structure has been instrumental in driving NSA’s tremendous growth over the years,” says Arlen Nordhagen, co-founder of NSA. “Our long-term vision for NSA always contemplated the eventual internalization of the PRO structure, and current market conditions make today the right time for a win-win scenario for common shareholders and PROs alike. I’m grateful to our PROs for their invaluable contributions to NSA’s success and excited about how this event will contribute to earnings growth going forward.”

Gilliland complements this statement. “When Arlen organized the PRO structure, it was always expected that the PROs would eventually retire or be internalized. It was an amazing run, but no one just expected interest rates doubling so fast. It really put a rock in the cog of the machine. This was the right thing to do.”

“Sure, I’d much rather be a PRO with a big checkbook,” laughs Gilliland. “But there’s a lot of dry powder in self-storage. When the transaction market gets going again, we’re well-poised to buy a lot of property and continue our growth pattern.”

Smith also looks forward to the future. “Businesses are always evolving, and as businesspeople we expect a certain element of change and we try to embrace it,” he concludes. “This [internalization] had a little bit more of a surprise factor than other changes, that’s all. That’s the way of business!”

–

Brad Hadfield is Modern Storage Media's web manager and news writer.

Further Reading:

• RM Isn’t Right by Arlen Nordhagen, Founder & Vice Chairman, NSA
• Who’s Who In Self-Storage: Arlen Nordhagen, NSA 
• John Gilliland Receives Lifetime Achievement Award 
• Who’s Who In Self-Storage: Marc Smith, Personal Mini Storage