Sovran Self Storage Looks More Attractive

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Sovran Self Storage (NYSE:SSS), which went public 20 years ago last month, has the best entry among all veteran self-storage REITs, with price-to-FFO of 20 and dividend yield of 3.8. It has increased dividends for the second time this year — 25 percent in aggregate, which is quite up to the alley of Extra Space (NYSE:EXR), whose dividends increased by 25.5 percent last May.

Sovran operates over 500 facilities under the Uncle Bob’s brand across 25 states and foresees a positive outlook until 2016 with new supply. The management, believing the low-hanging fruits have been taken, have turned their attention to expansion. However, rather than work on development itself, they are working with developers who take the risk involved. In turn, the company receives certificates of occupancy and takes lease risks. They are seeking returns 200 to 250 points above what they acquired once the property stabilizes. They grow by using their ATM program and debt, maintaining 70 equity and 30 percent debt.

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The costs of both land and development have gone up in four years. Due to zoning, municipalities have upped the requirements for storage builders, including calling for glass and chrome construction, so now storage units look as nice, expensive and updated as apartment complexes. Sovran has also updated by investing over the past four years, and online marketing has become a significant channel: At least seventy percent of its customers have come from online.

Nonetheless, the last time we looked at Sovran for its first-quarter figures, its peers were managing better, so we ranked them behind CubeSmart (NYSE:CUBE) and Extra Space. Operationally, Sovran has seen a pickup in occupancy (92.3 percent last May) and rates for new customers (seven- to eight-percent increase May-over-May). Another increase in less than a year is obviously a good sign and makes the case for Sovran more compelling.

Source: Sovran Self Storage, REIT Stream, Fast Graphs


Written by Heli Brecailo

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