Why 4 Coveted REITs May Be Among the Safest 2020 Income Vehicles

Infrastructure

Published: February 6, 2020 7:20 am

One of the few unintended consequences of lower interest rates is the effect it has on savers and people that rely on reasonably safe and secure income. After raising rates three times in 2018, the Federal Reserve reversed course in 2019 and lowered rates. The Fed also has started a new version of quantitative easing that has moved the benchmark 10-year yield back to 1.65%, the same level it was back in the summer of last year and in November of 2016.

Some feel that the benchmark 10-year Treasury bond can go lower, much lower. In fact, some analysts feel that the bond eventually will touch the 1.25% level, which would blow through the lows of the past 20 years. While that is great for those looking to buy or refinance a new home or other major purchase, it’s very rough for conservative investors who need a steady stream of income.

The analysts at Stifel are very positive on self-storage real estate investment trusts (REITs), and with good reason. Of all the companies in the REIT arena, the self-storage group looks like the best value, and it is still kicking out reasonable and dependable distributions.

The Stifel team noted this in their recent report:

We remain constructive on Self-Storage REITs, continuing to believe that the operating environment, while not necessarily good, is better than most people think. This, coupled with relatively attractive valuations, makes most of these REITs attractive investments for the next year or so in our opinion. While we don’t see huge changes happening near-term, we continue to see incremental positives popping up, the most recent being digital marketing costs. This has been responsible for a considerable amount of same-store expense growth for 2019, but we believe this expense line item will at worst see declining growth rates and could actually see outright declines in 2020.

Four stocks are rated Buy, and all make sense for more conservative accounts looking for solid income.

Extra Space Storage

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.

As of the end of 2019, the company owned and operated 1,817 self-storage stores in 40 states, as well as Washington, D.C., and Puerto Rico. The portfolio consists of approximately 140 million square feet of rentable space and 1.3 million units, making the company the second-largest owner/operator of self-storage sites, and it is the largest self-storage management company in the United States.

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, RV storage and business storage.

Extra Space Storage shareholders are paid a 3.30% distribution. The Stifel price target for the shares is $131, while the Wall Street consensus target was last seen at $111.90. The shares closed Wednesday’s trading at $109.47 apiece.

Life Storage

This is a more off-the-radar play that looks solid for 2020. 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 850 storage facilities in 29 states and in the province of Ontario, Canada. The company serves both residential and commercial storage customers with storage units rented by the month. Life Storage consistently provides responsive service to approximately 450,000 customers, making it a leader in the industry.

In January, the company increased its quarterly dividend to $1.07 per common share. After the increase, Life Storage shareholders are paid a strong 3.78% distribution. Stifel has set its price target at $120, while the posted consensus price objective is $110. The stock last traded at $113.32 a share on Wednesday.

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National Storage Affiliates

This $2 billion market cap company also comes in with an industry-leading 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.

As of September 30, 2019, the company held ownership interests in and operated 735 self-storage properties located in 35 states and in Puerto Rico, with approximately 47 million rentable square feet.

The company is one of the largest owners and operators of self-storage properties among public and private companies in the United States, and its shareholders receive a 3.77% distribution.

The $39 Stifel price objective compares with a consensus target price and the most recent closing share price, both of which are $34.88.

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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, 2019, Public Storage had interests in 2,468 self-storage facilities located in 38 states, with approximately 167 million net rentable square feet in the United States. The company also owns a 35% equity interest in Shurgard, which owns 231 storage facilities located in seven Western European nations, with approximately 13 million net rentable square feet.

Public Storage pays investors a 3.60% distribution. The Stifel analysts have a $266 price target. The posted consensus price objective for the stock is $218.64. The shares closed way below the Stifel target on Wednesday at $222.14.

While many of the REIT stocks have moved higher due to the bond market proxy status they carry, there is still plenty of room from current trading levels to the Stifel price targets for some solid total return. Plus, it’s important to remember that distributions from REITs may contain return of capital.