Amidst a flurry of balance sheet maneuvers and cautious guidance, National Storage Affiliates Trust (NSA) dropped a bombshell in their Q4 2023 earnings call – one that seems to have slipped under the radar of most analysts. Hidden within their commentary about customer behavior lies a potential catalyst for outperformance that could rewrite the narrative of a challenging market.

The key takeaway? **NSA’s customers are remarkably sticky.**

While executives acknowledged a competitive environment and persistent pressure on rental rates, they repeatedly emphasized the exceptional stability of their existing customer base. This stickiness, coupled with the effectiveness of their Existing Customer Rate Increase (ECRI) program, is creating a powerful dynamic that could offset the headwinds of muted housing markets and temper the impact of new supply.

Evidence of Customer Stickiness

Occupancy Dip Less Severe Than Expected: Despite an overall decline in occupancy, ending the quarter at 86% (down 410 basis points year-over-year), the picture isn't as bleak as it first appears. January occupancy finished 390 basis points below last year, but this gap tightened in February, suggesting a potential turning point.

Move-in Volume Picking Up: January and February saw improvements in rental activity, with move-in volume exceeding that of the previous year. Crucially, move-out volume trended downwards, leading to a net rental gain in February – a promising sign for a traditionally slow month.

Portland's Performance a Striking Example: In their second largest market, Portland, occupancy soared to an astonishing 800 basis points above pre-pandemic levels. While achieved rates may be lower, this aggressive approach to occupancy maximization demonstrates NSA's willingness to leverage pricing flexibility.

ECRI Program a Silent Success: The ECRI program is quietly fueling rate stability, offsetting downward pressure on street rates. Cadences and effectiveness remain consistent, and the program's success with long-tenured customers allows NSA to be more aggressive with newer tenants, potentially driving a faster ramp-up in achieved rates.

The Hypothesis: NSA's Customer Stickiness is an Undervalued Asset

This remarkable customer loyalty offers a unique advantage in a challenging market. The longer tenants stay, the more opportunities NSA has to implement ECRIs and push rates, effectively buffering against the impact of street rate compression.

The Numbers: A Back-of-the-Envelope Calculation

Let's assume a conservative scenario:

Average occupancy remains flat at 86%.

ECRI program continues at current pace and effectiveness.

Move-in volume continues to trend upwards, offsetting churn.

Under these conditions, NSA could see a significant boost in achieved rates, even without a major recovery in street rates. This, in turn, could translate into same-store revenue growth that surpasses the low-end of their guidance, potentially pushing towards the midpoint or even higher.

Occupancy Trends: Q4 2023 - Q1 2024

The following chart illustrates NSA's reported year-over-year occupancy change, highlighting the potential bottoming in February.

While NSA's strategic initiatives and cautious guidance dominate the headlines, their customer stickiness is a crucial piece of the puzzle. This silent weapon could prove far more impactful than many realize, driving a quiet revolution in self-storage performance and setting the stage for an impressive comeback.

"Fun Fact: Did you know NSA operates over 1,000 self-storage facilities across 42 states and Puerto Rico? That's a lot of sticky customers!"