Real estate investment trusts (REITs) are the kind of investment that the Reddit/WallStreetBets crowd would probably sneer at, but the reality is we are now in no-man’s-land when it comes to the stock market. Investor sentiment is in the euphoria range, margin debt has skyrocketed and it seems like everyone has pretty much forgotten last year’s 35% drop in a month. Toss in the fact that we are quickly approaching summer, when volume and interest in the market drops dramatically.

One area that has acted very well, but stays under the radar, is the self-storage REITs. You know them well, because regardless of where you live, they are ubiquitous. The main reason is we are a nation of people that constantly buy things and, in many cases, do not have the room at home to store them. Note that many self-storage REITs also have land and space for boats, campers, trailers and other large items.

A new Stifel research report remains very positive on the group, as almost all the positive metrics that have driven solid growth remain in place. The report said this about gauging forward strength in the sector:

The way we see it, continued outperformance should come from a mix of earnings growth and increasing valuations. The earnings growth stems from strong operating results, with extremely high occupancy coupled with continued strong demand. The valuations remain attractive and could expand, in our view. Historically self-storage trades at a 15% premium to the broader REIT Universe forward multiple, currently it trades at 4%. We expect storage’s relative multiple to move up over the next 12 months closer to the average historic premium. There are two big concerns facing the group, construction and increased move-outs. Construction should be relatively modest over the next few years given the slow-down from the pandemic. Move-outs should pick up from extremely low levels, but the current high occupancy and continued strong demand should lead to revenue growth through 2022.

The analysts cover five top stocks, and all are rated Buy. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

CubeSmart

This company has posted some very solid numbers and remains a compelling buy.
CubeSmart (NASDAQ: CUBE) is a self-administered, self-managed REIT focused on the leasing, management, acquisition and selective development of self-storage facilities.

According to the 2020 Self-Storage Almanac, CubeSmart is one of the top three owners and operators of self-storage properties in the United States. As of the fourth quarter of last year, the company’s self-storage facilities are located in 25 states and the District of Columbia. The property portfolio aggregates 33 million square feet, comprising 543 owned facilities. The company also manages another 723 self-storage facilities as part of its third-party management program.

Shareholders receive a very solid 3.27% distribution. Stifel has a $46 price target on the shares, and the Wall Street consensus target is $41.69. CubeSmart stock closed on Tuesday at $41.53 per share.

This top REIT has very solid upside potential for investors. Extra Space Storage Inc. (NYSE: EXR) is a fully integrated, self-administered and self-managed REIT headquartered in Salt Lake City, Utah. Like many self-storage companies, Extra Space offers rentable storage space offering customers conveniently located and secure storage units across the country, including boat storage, recreational vehicle storage and business storage.

As of the fourth quarter of 2020, the company owned or operated 1,971 self-storage stores in 40 states, the District of Columbia and Puerto Rico. The portfolio consists of approximately 149.2 million square feet of rentable space and 1.4 million units, making the company the second-largest owner/operator of self-storage stores and the largest self-storage management company in the country.

Unitholders receive a 2.72% distribution. The Stifel price target is $166, while the consensus target is $145.08. Extra Space Storage stock closed at $147.26 on Tuesday.

Life Storage

This more off-the-radar play looks solid for 2021. Life Storage Inc. (NYSE: LSI) is a self-administered and self-managed equity REIT that is in the business of acquiring and managing self-storage facilities.

Located in Buffalo, New York, the company operates more than 900 storage facilities in 30 states and in Ontario, Canada. It serves both residential and commercial storage customers with storage units rented by month. Life Storage consistently provides responsive service to approximately 500,000 customers, making it a leader in the industry.

One strong side of the company’s business uses its management expertise and brand name on facilities owned by other companies and receives a steady, predictable fee for its services. Life Storage currently manages 330 properties through this program, and 77 of them were added in 2020 alone.

In addition, Life Storage’s properties are concentrated in areas where population density and household income are above the U.S. average. Since 2010, Life Storage has increased its funds from operations (the REIT version of earnings) per share at a 9.3% annualized rate, and its dividend has grown nearly as fast.

Shareholders receive a 3.15% distribution. The $105 Stifel price target compares to a $95.70 consensus target. Tuesday’s final trade for Life Storage stock was reported at $94.01.

This $3.3 billion market cap company also comes in with a very solid distribution. National Storage Affiliates Trust (NYSE: NSA) is a Maryland REIT focused on the ownership, operation and acquisition of self-storage properties located within the top 100 metropolitan statistical areas throughout the United States.

The company is one of the largest owners and operators of self-storage properties among public and private companies in the United States. As of September 30, 2020, the company held ownership interests in and operated 788 self-storage properties located in 35 states and Puerto Rico, with approximately 49.5 million rentable square feet.

Shareholders receive a 3.17% distribution. Stifel has set a $50 price objective. The posted consensus target price is $42.60. The stock closed on Tuesday at $44.20 per share.

Public Storage

This giant self-storage leader has always been a go-to REIT stock for income investors. Public Storage Inc. (NYSE: PSA) is a fully integrated, self-administered and self-managed REIT that primarily acquires, develops, owns and operates self-storage facilities.

As of September 30, 2020, the company had interests in 2,504 self-storage facilities located in 38 states with approximately 171 million net rentable square feet in the United States. It had an approximate 35% common equity interest in Shurgard Self Storage, which owned 239 self-storage facilities located in seven Western European nations with approximately 13 million net rentable square feet operated under the Shurgard brand.

Furthermore, Public Storage had an approximate 42% common equity interest in PS Business Parks, which owned and operated approximately 28 million rentable square feet of commercial space at September 30, 2020.

Investors receive a 2.91% distribution. The Stifel team has a $310 price target. The $263.90 consensus target is below Tuesday’s final print of $275.06 a share.

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The bottom line is that go-go momentum investors will have very little interest in this group. Long-term growth and income investors sensing an overbought and very rich market can still buy some great total return vehicles in these top companies. Note that return of principal can be included in REIT distributions.

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