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.
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.