Think about it: you see them everywhere, and either you know somebody that uses them or you do yourself. Not only are they the optimum place to get items out of the garage or attic, they are also a place where people park campers and boats. The self-storage real estate investment trusts (REITs) are ubiquitous, and there is one huge reason why. We all have too much stuff.
In a new research report, Merrill Lynch makes the case that these stocks remain attractive based on the analyst’s expectations for further market share gains, accretive acquisitions and increased demand, even in a slowly improving economy. With occupancies averaging about 92%, and demand solid, the analysts have four top stocks to buy now.
Investors should remember that REIT distributions can contain return of principal.
CubeSmart
This company recently posted very solid numbers and remains a compelling Buy. CubeSmart (NYSE: CUBE) owns or manages 694 self-storage facilities across the United States. According to the 2016 Self-Storage Almanac, CubeSmart is one of the top four owners and operators of self-storage facilities in the nation. Its self-storage facilities are designed to offer affordable, easily accessible, secure and, in most locations, climate-controlled storage space for residential and commercial customers.
The company reported that funds from operations (FFO), as adjusted, were $58.1 million for the fourth quarter of 2015, compared with $46.8 million for the fourth quarter of 2014. FFO per share, as adjusted, increased 17.9% to $0.33 for the fourth quarter of 2015, compared with $0.28 for the same period last year. So, all in all, a very solid quarter, and the view for 2016 looks just as solid.
CubeSmart investors are paid a 2.81% distribution. The Merrill Lynch price objective for the stock is $34, and the Thomson/First Call consensus target is $32.95. The shares closed Monday at $29.90.
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Extra Space Storage
This top REIT resides on the analyst’s Top Picks list. Extra Space Storage Inc. (NYSE: EXR) owns or operates 1,088 self-storage properties in 35 states, Washington, D.C., and Puerto Rico. Its properties comprise approximately 725,000 units and approximately 80.4 million square feet of rentable storage space, offering customers conveniently located and secure storage solutions across the country, including boat storage, RV storage and business storage. The company is the second largest owner or operator of self-storage properties in the United States, and it is the largest self-storage management company in the country.
Wall Street analysts note that management teams at the storage REITs see an additional 0.5% to 1.5% of occupancy gains in 2016. While that may seem small, that is an immediate increase to top and bottom line numbers. According to other Wall Street analysts, so far this month net rents are up 8.3% year over year, much better than January’s 4.6% increase, driven mostly by Extra Space and other sector leaders. This could position the industry well for the upcoming spring leasing season.
Extra Space Storage investors are paid a 2.85% distribution. The Merrill Lynch price target is $98. The consensus target is $91.77 Shares closed Monday at $82.15.
Public Storage
This industry leader could be among the most familiar to investors. Public Storage (NYSE: PSA) engages in the acquisition, development, ownership and operation of self-storage facilities in the United States and Europe. Its self-storage facilities offer storage spaces for lease on a month-to-month basis for personal and business use.
The company also has interests in commercial properties containing commercial and industrial rental space and ancillary operations, which include reinsurance of policies against losses to goods stored by self-storage tenants and retail operations comprising merchandise sales.
For the three months ended December 31, 2015, net income was $303.0 million or $1.74 per diluted common share, compared to $284.0 million or $1.64 in 2014, representing an increase of $19.0 million or $0.10. Public Storage posted a $39.5 million increase in self-storage net operating income is a result of a $29.5 million increase in its Same Store Facilities and a $9.9 million increase in the Non Same Store Facilities. Revenues for the Same Store Facilities increased 6.6%, or $31.3 million, in the three months ended December 31, 2015, as compared to 2014. Solid earnings growth and an outstanding trajectory.
Investors are paid a 2.7% distribution. The $265 Merrill Lynch price target is higher than the consensus target of $240.66. Shares closed Monday at $239.40.
Sovran Self Storage
This company may be a touch more under the radar, but the upside looks very promising. Sovran Self Storage Inc. (NYSE: SSS) engages in the acquisition, ownership and management of self-storage properties in the United States. The company’s self-storage properties offer storage space to residential and commercial users, as well as offering outside storage for automobiles, recreational vehicles and boats. The company owns and manages 328 properties, consisting of approximately 20.3 million net rentable square feet in 22 states, according to the most recent data available.
The company posted solid fourth-quarter numbers that slightly beat estimates, but most importantly it issued very strong guidance for 2016, which helps support the stock going forward. With the whole sector in a sweet spot, investors have numerous solid choices to pick from.
Investors are paid a 3.15% distribution. The Merrill Lynch price objective is set at $122, and the consensus target is $114.77. The shares closed Monday at $106.44.
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Exciting may not be the word to use for the self-storage REITs, but dependable is. Plain and simple, many Americans are pack rats, and they have to find a safe place to store their excess stuff. These four leading companies are pleased to oblige them and will make solid money doing so.
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