Nothing boring about these returns – National Storage REIT | Summer Series

Bryce: [00:00:20] Welcome to the Equity Mates Summer Series proudly brought to you by Sharesies over 12 episodes where diving into some of the most exciting, the most interesting and well known companies from Australia and the US. Each episode we're also joined by an expert to help us unpack the key metrics, the bull case and the bear case for each company. My name is Bryce and as always, I'm joined by my equity by Ren. How you going? 

Alec: [00:00:45] I'm very good, Bryce. Good to be here. For our only rates for the summer series. 

Bryce: [00:00:51] Only rate.

Alec: [00:00:52] Real estate investment trust. 

Bryce: [00:00:53] Yeah, that's the jargon. 

Alec: [00:00:55] You want to own property, you don't have to go to the Commonwealth Bank and get a mortgage. Now you can buy it on the share market or rates and you don't you can get some different types of property. And the one that we're going to talk about today is one that people really don't think about. But it's been a pretty good investment. 

Bryce: [00:01:11] Pretty good investment. You would have seen plenty of them around. We are diving into national storage rate and as is the ticker listed on the ASX. And our expert joining us in the second half of this episode is Lew Parent from Jordan, the investment bank. To help us really understand the bull case, the bear case and what are the metrics that you look at when it comes to investing in storage unit? 

Alec: [00:01:34] Yeah. So national storage for people that aren't familiar is self-storage. Yeah. Big warehouse divided into smaller units. People come and rent them and they put their stuff in today's. 

Bryce: [00:01:44] Episode, and the summer series is probably supported by Sharesies, couple of reasons why we love Sharesies is you can invest the way you like. You can choose from over 8000 companies and exchange traded funds in Australia, in the US and over in New Zealand markets. Plenty to choose from, plenty.

Alec: [00:02:02] To choose.

Bryce: [00:02:02] From. And they are pretty accessible, very approachable platform, especially with the ability to auto invest in all of those markets that I just spoke about. You can dollar cost averaging to Australia, US and New Zealand, all the markets all available. Love to say it. Download the Sharesies app or visit www.sharesies.com.au To learn more. If you use the code grow, they'll throw an extra $10 into your account when you sign up ready to invest. Promotion terms and conditions do apply. All investing involves risk. This is not a recommendation and you should perform your own research, promotes and sees apply and that code is open to everyone. It's public and we don't get a kickback from it is just for the user $10 into the account and then to close out. We are not licenced. We're not aware of your financial circumstances. All information on the show is for education and entertainment purposes only. So in one sentence, what is national storage rates? 

Alec: [00:02:58] You'll do that long an introduction and then you'll only give me one sentence. It is Australia and New Zealand's largest self-storage provider. 

Bryce: [00:03:10] Nice. Okay. 

Alec: [00:03:11] Or one of let's go with largest. I bet you saved some metric. 

Bryce: [00:03:17] Their largest self-storage has been a bit of an investment trend. 

Speaker 1: [00:03:22] Yeah. 

Alec: [00:03:22] If you're in fin twit financial twitter, you'll probably see people speaking about it. It's like one of those investment things kind of like, you know, like vending machines, self-storage. It strikes me as a real, like Gary Vee investment. Right? Right. Make some more money. 

Bryce: [00:03:39] I'm sure, of fund managers.

Alec: [00:03:41] Let's talk about the business behind self-storage. At least one of the bigger businesses here in Australia and New Zealand behind self-storage national storage. So it was founded in 2000. It was listed in 2013 as a real estate investment trust. And to quote the company, it's Australia's first listed independent, internally managed, fully integrated owner and operator of self-storage centres in Australia. 

Bryce: [00:04:09] I think our sentence is better. One of Australia, New Zealand's biggest self-storage providers. 

Alec: [00:04:14] Yeah. Yeah, true. True. 

Bryce: [00:04:16] So what they've managed to do, Ren, is consolidate a number of, I guess, small time storage facilities and now have quite a large distribution network. They've taken over and acquired 160 centres in Australasia since the start of 2013. 

Alec: [00:04:34] Yeah. So they have over 200 in total. So really this story is a story of listing in 2013 and rolling up self-storage. The old. 

Bryce: [00:04:45] Roll up. 

Alec: [00:04:45] The old roll up in FY 22 alone, they acquired 23 locations, spent 200 million doing it. The first part of this story is a roll up story. The second part is organic development. So they have 34 active projects at the moment. 21 of them are new developments like Know Greenfield Site or whatever. They're building more self-storage. The other 13 projects are expansions or redevelopments. So taking their existing sites and redoing them. But. That's the business. It's essentially become the number one self-storage player. Like some of the best businesses are simple businesses, and all they're doing is acquiring more and more storage space so you can store all your crap. 

Bryce: [00:05:34] Well, speaking of storing stuff, they offer self storage. They offer storage for businesses. They offer climate controlled wine storage, vehicle storage. They also do a bit of vehicle and trailer hire just to throw that in. 

Alec: [00:05:48] To get rom the storage. They also sell boxes. Anything, all of your storage needs. These guys have a covered. 

Bryce: [00:05:54] Tupperware. 

Alec: [00:05:56] Not big enough. 

Bryce: [00:05:58] So then when looking at a rate Ren, real estate investment trust or real estate business, because at its core, this is what you're actually investing in. You're investing in the storage units and then the ability for them to rent out and generate a bit of an income from their storage units. So occupancy rate is a key metric to look for. 

Alec: [00:06:18] Across all real estate. If you're looking at offices, if you're looking at retail space, you know, like a Westfield's owned by centre group, you know, the or if you're looking at national storage, one of the key things you want to look for is how much of the available space that they have actually taken, because you can have the best space in the world, but if the occupancy rate is very low, it's not going to do that too well. So national storage, where are we coming in? 

Bryce: [00:06:45] So they have a group occupancy right across the board of 88.9%. That is up almost 3% in the past financial year. So more people are renting more of that space. Seems like a pretty solid occupancy, right? I would add that the Wagga rental market has an occupancy rate of something like 99% for residential. Oh, so not comparable but yeah. 

Alec: [00:07:11] Not at all. 

Bryce: [00:07:13] So I throw in that titbit. 

Alec: [00:07:14] And so I guess the reason why occupancy is important is how you make money on a rate is twofold. First of all, the property that it owns gets more valuable. So National Storage owned a couple of billion dollars worth of property, i.e. the storage facilities and the land that they're on. And then so that's the first way you make money, that land getting more valuable. And the second way you make money is from tenants paying rent or in this case from stores paying storage fees. And so a high occupancy rate is good because it means there's money coming in, there's income that you get paid. But then it also means that the land that they hold is more valuable because it's producing income. It's producing more income. That's the business, baby. 

Bryce: [00:08:02] It's pretty straightforward. 

Alec: [00:08:04] So I guess the question arises across like how does that compare? You know, I'm saying good, good or bad, it sounds pretty good. So Cushman Wakefield, they have some insights a full across Australia's self-storage sector. Do you wanna have a punt? What do you reckon it would be? 

Bryce: [00:08:21] Average occupancy. Yeah. Across in. 

Alec: [00:08:23] Self-Storage across Australia. 

Bryce: [00:08:25] 72%. 

Alec: [00:08:27] Really. 

Bryce: [00:08:28] I don't know. It's a Guess. 

Alec: [00:08:33] So, 88%. But last year it was 83%. So it was up like five percentage points up in a year. Interesting. So I guess we bought a lot of stuff during COVID. Now, do you have a guess what the US occupancy rate is? 

Bryce: [00:08:52] They would probably be storing a lot. So 92. 

Alec: [00:08:56] You've absolutely nailed it. 91.5. So there. 

Bryce: [00:08:59] You go. So we've got some room to grow. 

Alec: [00:09:02] Yes. So we've got some room to grow. But I guess national storage. Keep building. 

Bryce: [00:09:08] National storage keep building. Yeah. So where, where, where is the future life in national storage? Because is this just a roll up game. Are they just, is their play here to I guess, get as many of the small time fragmented players that are in the market? I know there's one near where I live that it's just a solo player has a warehouse not many units come in buy that this is where they're getting their revenue from. 

Alec: [00:09:30] Yeah. So they've got four strategies of growth, organic growth, so improve occupancy rate, then they've got acquisitions, roll up the local storage place. The process talking about third pillar is development and expansion. So that's, you know, building more storage. Then the fourth one, which every company is going to put in technology and innovation. What do you reckon? The technology and innovation pipeline for the self storage, remote locking. That's not bad. 

Bryce: [00:09:59] It's got to be. Maybe I was going to say climate control, but we already know that doing climate control with wine, we come to you, we bring your storage unit to you. 

Alec: [00:10:07] Well, that exists. That's Toxie box. 

Bryce: [00:10:10] Oh, yeah, that's true. Toxie in a box or whatever. It's called Taxi Box. It tells you how much wasted storage space you have in your unit and you could get a smaller or a larger unit. I don't know. But I'm just sitting here thinking, what's the demand for storage here? Like if you're investing in one of these, you're it's twofold. You want the value of the property that national storage rate has, but you want that occupancy rate getting higher and higher. At the end of the day. 

Alec: [00:10:37] Let me give you the bull case. Australians as a population are getting older. Have you seen a demographic pyramid? And you know what happens when you get older and when the kids leave home and they stop calling, you downsize. Yes, but you don't want to get rid of your stuff because you've been building a life together. You got so many memories. Paris is beautiful painting from when he was five years old. What are you going to do with that? You can't fit it in the house, but you can't throw it out. It would break his heart. National storage. 

Bryce: [00:11:06] Well, you're not wrong. I'm actually reading a little bit here and there's some pretty strong drivers around that. But also the, you know, consumerism, e-commerce growth, but primarily shrinking living spaces is becoming a a big driver. Think about all these houses that are being built smaller and smaller and downsizing population density in the cities. I guess they're all factors for people wanting self-storage. It's interesting. So what are the numbers? Ren. 

Alec: [00:11:32] Because it's real estate, because you're looking at what's the value of the real estate I'm buying when I buy a share. We want it to start with net tangible assets. Now net tangible assets are tangible assets minus liabilities. Forget goodwill and all of that stuff. Basically, how much for a company like this, how much land do they own minus how much debt they have? What's left is your net tangible assets. Divide that by the number of shares they have 2.34 a share and the share price is $2.40 when we record. 

Bryce: [00:12:02] So a little bit of a premium. but it feels not it feels like that's where it should be trading. 

Alec: [00:12:09] The value of their investment properties was up 26% last year. 

Bryce: [00:12:12] Nice.

Alec: [00:12:13] Good time to be in property. When is a bad sign? 

Bryce: [00:12:17] A market cap of 3 billion? They are down 11% year to date, but they have been up 50%. Well, they are up 50% over the past five years and then pretty good returns since they IPO'd total shareholder returns of 308%, outperforming ASX 200 and more importantly the ASX 200 rate index by 185% and 213% respectively. 

Alec: [00:12:41] Not bad. So that's the market cap story. You've said it was a boring business, but boring businesses with good returns. It's great. The revenue story is also pretty impressive. So $280 million revenue last financial year when they first listed $54 million in 2013. 

Bryce: [00:13:05] So five Times. 

Alec: [00:13:06] So that's a compound annual growth rate of about 25%. 

Bryce: [00:13:08] Pretty impressive. 

Alec: [00:13:09] Growing your revenue 25% a year is very impressive. Well, it's always a key call out with roll ups, though, because when you're rolling up businesses, of course, your revenue is going to grow. If you're buying a new business every year, buying your storage units every year, you're getting a revenue free kick. The question is, is profit growing? [00:13:29][19.7]

Bryce: [00:13:30] Well, what's the answer? Is profit growing.

Alec: [00:13:32] $27 million last financial year. Five years ago, $7 million. 

Bryce: [00:13:38] So it is. 

Alec: [00:13:39] It is up almost 300% not bad. 

Bryce: [00:13:42] Not bad. So what about in terms of someone sitting back going, alright, so I've invested in this and the long term play. I hope that the, the NTA goes up and that's where I might get a return later down the track. Are these also an income producing stocks like are these the dividend, the yield stocks that if these companies are taking in rent each month or whatever it is, are they a yield stock? 

Alec: [00:14:07] National Storage has a 4% dividend yield. Okay. 

Bryce: [00:14:10] Pretty good. Yeah, not bad considering what you could what you're getting in banks at the moment. 

Alec: [00:14:14] The final question, maybe this is something we spoke to a little about. How big is this? Like, I know you kind of asked that question before and I gave you the boomers downsizing answer, but like the 25% combat annual growth rate, you know, what was the total addressable market when it comes to self-storage? That's probably my key question. But the business story of the past decade is pretty undeniable. 

Bryce: [00:14:35] I guess the question is, do they start heading overseas? 

Alec: [00:14:38] Yeah, but like all self-storage markets the same. 

Bryce: [00:14:41] I know. True. So as we're learning over the summer series, it's not your high flying fancy tech companies that are the only ones that are pumping out good revenue numbers year on year. The last ten years was at 24%. Thereabouts. Yeah, for for national storage rates. So national storage rate is available on the Australian Stock Exchange, the ticker is NSC and you can access the Australian markets plus the US market and New Zealand market on the sharesies.com.au Platform with no investment minimum invest the way you like choose from over 8000 companies and exchange traded funds across the three markets sharesies.com.au Platform makes investing easy. All investing involves risk. This is not a recommendation and you should perform your own research promotes and says apply. Now we are going to take a very quick break and we'll be right back to discuss national storage rate with Lou Pirenc, who is the head of property research at Jarden. All right. We're back from the break. And it is our pleasure to welcome an expert to the studio to help us talk through national storage rate. And we have a head of property research at Jarden Lou Pirenc. Lou, welcome. 

Lou: [00:15:50] Thank you. Good to be here.

Alec: [00:15:51] Now, Lou, we've spoken a little bit about what the company does, national storage. But now we want to speak about it as an investment. And we really want to start with how you analyse the company and how you think about the company. So when you're looking at any rate, but in this instance, national storage, what matters? Like, what are you really looking at? And then on the flipside, is there anything that you just don't worry about that you might hear about in the media or something about you? Like that doesn't matter for this company.

Lou: [00:16:16] Yeah. No, I think it's a good question. I mean, the two key things for any property trust is, you know, rent and then your cost of doing business. So if you if you think about to rent for storage, that's called rent pam revenue per available metre. Clearly your contracts are much shorter than than for, you know, an office building or retail retail building. But that's really what we're what we're focussed on. How much can I charge accommodation, occupancy and and your average rate the drivers for that rent are, you know, housing market's structural trends like, you know, people moving into smaller places working from home or non-retail. A third of revenue is now actually small businesses as well. And you know, a lot of that is just online, you know, people importing things from, say, China and then shipping it to to consumers. So it's basically it's it's and that's the good thing about the business model is that all these drivers have slightly different trends and therefore there's not one particularly thing that we worry about. But yeah, it's probably the consumer discretionary spending and the housing market that are the, the key drivers sort of key metrics that we look at. Then the other big thing for for any property trust is its cost of debt. Clearly, we come out of a period of what is it, five, ten years of, you know, free debt, while now suddenly you need to pay for for your borrowings. National storage gearing is luckily quite low, but it's definitely a big headwind. But the good thing is that their top line growth is very strong at the moment, so definitely want to reach that are least worried about rising cost of debt. 

Bryce: [00:17:44] And so how are they able to increase the prices that they charge year on year? What's their pricing power?

Lou: [00:17:51] Hit a pricing power, really? I mean, it's all to do with occupancy. So when they first IPO'd ten years ago, I think the average occupancy was mid seventies, maybe high seventies. And at that point they would increase prices, but it would be a little bit more hit and miss in some markets. All of a sudden your occupancy drops quite a bit if you increase your pricing, not at the average occupancy for the portfolio is 89%. You could argue that in many of your assets, your your fool, there's always some time in between the tenant moving out and somebody else moving in. So if you're in that high eighties to mid nineties, you can basically start pushing price. The other important thing is technology kind of now they have quite sophisticated yield management systems built like hotels or, you know, any other online, online business. So they can now asset by asset as opposed to let's just increase all prices nationally by 10% and see what sticks. Now they can actually be very specific about, you know, Perth Airport just as an example, you know, it's a bit weaker so we're not going to push the price but you know, a time and it's 98% full and we're just going to keep increasing the prices until we see a negative impact. 

Alec: [00:18:57] Yeah, we were joking about that in the first half of this episode. Well, on their investor deck, there's four pillars to growth and it's the organic growth, improving occupancy acquisitions, development and expansion. And then this fourth pillar of technology and innovation. And we're just saying that every company these days has technology and innovation as a wealth three. And like what, what is the technology in the self-storage game? But you just mentioned one example there. Are there any other examples of cutting edge technology that we should be. 

Bryce: [00:19:28] Oh, we came up with was remote locking. Remote locking using it. We're just going to have to show that climate control. 

Lou: [00:19:37] Report is your management is going to be, you know, 80% of it. Then it is, you know, if customers feel that, you know, they don't have to bring their pet log or their key, that's all a little bit easier. I mean, reservation system, which is linked to that yield management system. But I guess the easier it is, you make it for people to book, to keep paying to almost forget about it. Yeah. So they will keep paying without kind of anybody realising that they're spending 20 that money. That's all very positive. Cyber security, given that it's a customer base, a consumer facing company is very important as well. 

Alec: [00:20:11] Bryce had a suggestion that they should come up with something where they tell their customers how much unused space that they're paying for so they can downsize. That doesn't feel like a great business. 

Bryce: [00:20:21] Or they need more. 

Lou: [00:20:23] Well, it is. It is one of the great things about storage is and, you know, I think many of our, you know, colleagues and friends are aware of it once it's in storage. The hurdle of having to go and go through it and it is quite high. So you give up a lot of things in a slowdown before you, I think, make the effort of throwing away or your storage. 

Alec: [00:20:44] Even just the idea of going to a storage unit and unpacking the boxes and sorting it, that for me is too much. I'm just like, no. 

Bryce: [00:20:52] Yeah, it's interesting. So let's turn to the bull case. You've been covering this stock since IPO. What is the bookcase for and how is the company trying to, I guess, maintain competitive advantage or build competitive advantage? 

Lou: [00:21:06] I mean, I think the most important things in the ten years that it's been listed now is scale. And I when when the company first came to market, it was you know, it was large, but it was still all about we need to buy as many assets as we can to to kind of create that scale. Now it feels like they have that scale. They still want to grow, but they can be more selective in where they want to grow, kind of. So it's not just we buy any storage facility that's out there and we'll pay top dollar for it. Now they will be much more selective about buying land and building a new facility. So development has become a much bigger part of the growth story. So that's the first one. The second one are these structural trends that I spoke about earlier, kind of downsizing, kind of housing affordability, unless, you know, that disappears, which I think is unlikely, people will always look at, you know, do I get a three bedroom apartment or house or do can I do with two bedrooms? And then I just put some stuff in storage. Working from home? Yes, post-COVID. We're back in the office, but I don't think anybody is now sitting at home saying, oh, you know, that home office that we've created or the spare bedroom, I want to turn back into just putting all my stuff in. So I think that is a structural trend. I mean, we'll see over the next few, few years. All my retail, as I said before, I think is here is here to stay and will grow. It almost becomes a small logistics play. And with logistics in Australia, you know, sitting on less than 1% vacancy, all of that and the demand for that is quite strong as well. So I think the structural growth is there, the scale is there. And then what is important as well is that it's a very fragmented industry. So there's really only three major brands, national storage. Storage King I cannot yeah, but more than 50% of storage nationally is still independent. So there is that ongoin growth that you can, you know, to either build something and see what happens or you can still consolidate. 

Alec: [00:23:07] That was going to be my question, like they've had an incredible run of growth. They've acquired, I think about 160 companies or sites and they've got over 200 in their portfolio. And the question becomes how big can this market be for them? But if over 50% is still small or independent players, and I guess that's really the answer to the question that there's the big. 

Lou: [00:23:28] Structural growth you can consolidate. And I think that a lot of the smaller independent operators are starting to realise that when you only have 1 to 10 facilities and building and your management system a marketing, a, websites, a, a marketing platform is all much, much harder. 

Alec: [00:23:45] Opportunity for some young software developer to build a yield management system and sell it to the independents. But anyway, I'm not code. 

Lou: [00:23:57] I think because I mean the US is such an established storage market, I think most of those technologies have been there for a long time and are being used, you know. Yeah, I know that our national storage out there, your management system. 

Alec: [00:24:09] So on the flipside, if we think about what breaks the thesis for national storage, what keeps you up at night when you're thinking about this company? Where could it all go wrong? 

Lou: [00:24:18] Yeah, no, it's a good question. I think structurally it's actually quite hard to see other than somebody else coming in and building from scratch, an equal portfolio that is difficult to see in the near term. It is still more cyclical than most of the other asset classes just because your leases are shorter. So if you do see a severe consumer downturn, as much as we were talking about the hurdles of giving up your storage, if things get really bad, at some point you will realise, Oh, we're paying a lot for storage, we don't know what's there, we don't need it, so maybe we should look at it. And the same with the housing slowdown. It's not so much house prices, but it's if people stop renovating, if people stop moving from A to B, it almost doesn't matter if it's upsizing, downsizing or moving sideways. All of that is a good storage event, can be for a month, can be for six months, can be at that point for four multi years and an interest rates as as I mentioned before that that's right now is fairly what keeps management up at night most in terms of just how do you manage the how much do you hedge how much don't you don't you hedge. But the good news for them is that it's all more cyclical worries than structural business model. 

Alec: [00:25:28] Disruption is something that you think about with a lot of businesses hard. Just say it with a business like this. Earlier in the episode, Bryce and I were talking about I think it's called Taxi Box, where they, they like go to your house and you pack it there and then they take it away. That's probably the only business model innovation that we could think of. Are there other ones maybe coming out of the US or something that could challenge the established self-storage business in Australia? Drive your stuff to the shed. Put it in there, lock the door.

Lou: [00:25:58] It's hard to see. And the flexi box model is an interesting one. I think a lot of people would pay a premium for if I don't have to go to my storage and somebody can just take take it away. As an operating model, it also helps that you can then move. I mean, if land becomes too expensive, wherever these taxi boxes are today, you can just keep moving them further out, you know, east, west, north, south, depending on where land is still cheaper. Clearly, it has a massive operating cost linked to it. You know, all of a sudden you have, you know, truck drivers, the cost of that, the logistics of that. Things can go wrong in transit. So, I mean, we often ask national storage and storage king where they are considering it. And they're very happy at the moment for people to just come to them as opposed to the other way around. And I think right now, the structural growth is enough for there to be enough, you know, growth for both a mobile and a and a traditional storage. The one thing we have thought about is potentially is there going to be an aggregator of storage facility? So a bit like in hotels where you used to just go to a hotel and whatever they quoted, you would have to pay. Now you can go to Booking.com or any other website, which is kind of a bit of a race to the bottom in terms of pricing. I'm not sure that there is enough, you know, because you have to really dominant players. And then a Qantas is really only in Sydney that makes it a little bit harder for an aggregator to make that money, especially when the current operators are already quite efficient in how much they can charge. But it's something to watch. 

Alec: [00:27:33] That would be fascinating. 

Bryce: [00:27:35] Massive warehouse where all the internal storage compartments can change size to the perfect size? That's yield management. 

Alec: [00:27:43] It's not bad.

Lou: [00:27:45] That's a good one. 

Alec: [00:27:50] Feel free to pitch it to Any of the companies here. 

Bryce: [00:27:55] What does National Storage look like in ten years? What would you hope to see from it? 

Lou: [00:28:00] Their own objective is to double in size over the next five years, and I don't think there's anything to stop them from then in ten years time to maybe not double again, but certainly be three X in terms of the two square metre of of space through a combination of acquisitions and, and developments. And I mean, I've mentioned it before, but developments really is a very big part of the growth story. Now, there's a real premium being paid for more modern facilities because you do have safety and technology kind of on people just like fancy, fancy buildings as opposed to dodgy storage buildings on the industrial site. And right now, I don't see any reason why they can't. It's a very simple model from that point of view. It's really just keep buying or building more space. I think they've proven that they can increase the occupancy. So I think they're kind of now in that sweet spot where they can add another two or 300 basis points. But I don't think it's ever going to be 99% for. So the growth is going to be from expanding and because Australia is still a relatively new market, um, in storage compared to the US or the UK which had a more established market. So space per square metre, I actually can't remember top of my head what that is, but I think with the US it's probably less than half in terms of and yes, there's big structural differences in terms of what the US is compared to Australia, but I still think it's a it's a very good story for them. 

Alec: [00:29:23] Does this model travel like does national storage or storage king or Canada decide that, you know, we're going to go to New Zealand or Indonesia or I don't know, like. Or does it just stay in Australia? 

Lou: [00:29:37] It does travel. I mean, national storage. And because both are in New Zealand, it's almost seen as, you know, a part of the same region. I think if you then go to Southeast Asia, you just need to understand a market quite well. So I think that that would actually ironically be a bit of an indication that maybe that they're not as comfortable with the growth domestically. So if you see them go, go there. But then national storage was, you know, on the takeover offer from two US players just before COVID. So clearly US players felt that it was something that's, you know, they can there's benefits to being global as opposed to just a US player. Hmm. 

Alec: [00:30:18] It does feel like a prime private equity role up play that they like Blackstone or KKR. Maybe the market is not big enough for them, but they come in and aggressively hire by one of the big guys and then try and aggressively roll up a lot of the independent players just with. Our balance sheet. 

Lou: [00:30:32] I think that's right. I mean, Blackstone is you know, they've bought a few sites, I think in Australia and I think they are on record too to like storage as an asset class globally. The tricky thing is now in Australia where you have two dominant players as much as fragmentation for Blackstone to basically build this one asset at a time. And maybe that's a great story. I don't know what they're going to do, but consolidation certainly is something that could happen.

Alec: [00:31:00] It's this has been a great conversation. And just a reminder that you don't have to be too complicated when it comes to investing. Sometimes simple is great. 

Lou: [00:31:06] No, that's absolutely, absolutely right. And that's the great thing about REITs and national storage in general is that it's very much a question of rent minus some sort of overheads and then and then your cost of cost of debt and that's it.

Alec: [00:31:18] Well, speaking of other rates, you mentioned at the start of this, something that caught my ear. You said you're not too worried about national storage debt. And it made me wonder which REITs you are worried about. Care to name any that you are worried about? 

Lou: [00:31:34] Yeah, let me I think any rate, we're gearing it's a combination of things. It's gearing is one thing and all the rates have learnt from the financial crisis. So I think the average gearing for the sector is, you know, high twenties and it has been a lot higher. But I think anybody who is kind of thirties, particularly mid thirties or above and also based on a very aggressive cap rate, clearly cap rates is, you know, important as you know, the debt multiple or the inverse multiple of the asset of the rent. So if you are if you have a cap rate of, say, 4%, well, the cost of debt is now the marginal cost of that is now five, five and a half percent. And clearly that will have to go up and therefore, your gearing will go up quite aggressively as well. So it's actually I mean, I'm not avoiding the question, but I really can't think. I don't have any reason that we cover that. I think, oh, that's a disaster in the making. The sector overall is in good shape. I do think that there's going to be some rates that will start selling some assets to just have some more wiggle room in case cap rates move up more than than we thought. 

Alec: [00:32:41] Yeah, well, that's a good news story. That's a positive note to end it on.

Lou: [00:32:44] And maybe back to national storage. Their cap rate is 5.9, so they also have one of the most conservative cap rates out there. So even with the rising cost of debt and that's kind of what I meant with why I'm less I'm always worried about debt and clearly their interest expense is going up. It's just I have a lot of top line growth and that gearing is very manageable and their cap rate is very conservative.

Bryce: [00:33:09] Well, National storage rate is listed on the ASX. The stock ticker is NSR. And if you download the sharesies.com.au App or visit sharesies.com.au to learn more. You can get access to Australia, New Zealand and US markets promo code GROW to get $10 into your account to start investing promotion T&Cs apply. But Lou thank you so much to self and Jarden and it's an absolute pleasure to hear you to hear thoughts on a stock. I'm sure that not many people in the Equity Mates community would be across so. 

Alec: [00:33:39] But everybody would have driven past. 

Bryce: [00:33:41] Yes, everyone would have driven. So thank you so much for your time.

Lou: [00:33:44] No, thanks for having me.