Both the self and the data storage sectors have been titanium-proofed to market volatility and thrived in a year when less than a third of all U.S. equity REITs have shown positive returns.
Valuation multiples of self-storage, for instance, have soared. At the year’s start, we observed price-to-AFFO between 20× and 25×. They are now approaching 30× and do not seem about to stop anytime soon. With total returns varying from 22% (Sovran Self Storage) to 53% (Extra Space Storage), it is easy to feel that one has missed out on that coveted high school party.
Self-storage appeared so good that Public Storage has been a top position in BlackRock’s residential REIT ETF iShares Residential Real Estate Capped (REZ).
Data center stocks, in comparison, have also soared this year, though by and large, valuation multiples remain below 20×.
What’s in favor of self-storage?
- Positive fundamentals of the American economy have driven growth in the industry. Because self storage generates fewer jobs or tax revenues, some municipalities have been issuing fewer permits.
- Zoning may also allow for limited opportunities, pushing away the long-term possibility of over-supply.
- Baby boomers have initiated a downsizing trend that has also been observed in manufactured houses: Though looking for smaller houses, they still want to keep their belongings.
Is it too late to join the party?
Despite excellent performance and good fundamentals, there seem to be only limited appreciation opportunities, and dividend yields are among the lowest in the industry.
Having said that, smaller, newly-formed REITs like National Storage Affiliates Trust can be your ticket into this industry. National Storage’s price-to-AFFO is 18×, its dividend yield 5% and its management experience. The risk lies in investing in a company whose public track record is low. The stock has increased 27% since its IPO in April. Obviously, this is not a recommendation, but an investment idea that is worth considering.
Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.
Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.