National Storage Affiliates Trust's (NSA) elevated leverage may restrict its ability to pursue growth opportunities compared with its peers, Morgan Stanley said in a Friday note.

The company operates in markets with the lowest employment and income levels relative to its peers, which has led to its key performance indicators underperforming for the last three years, Morgan Stanley analysts said. They noted that the company appears at risk of missing its 2025 guidance and its dividend if operations fail to improve.

The analysts said they expect core funds from operations (FFO) for National Storage to decline by 4.6% in 2025 and 2026, the worst among its peer group, aligning with consensus. The company's valuation gap relative to peers has dropped to 3.8 times from 5.4 times, reflecting early signs of improvements in its key performance indicators reported in Q3. according to the note.

Looking at the bigger picture, the analysts said that storage REITs have underperformed with earnings missing expectations. The slowdown in job opening growth is a negative factor for storage space demand, and the growth in existing home sales could be muted in 2026, the analysts said.

Morgan Stanley upgraded the company's stock rating to equal-weight from underweight and raised the price target to $32 from $30.

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