Investors Sold Self Storage REITs in July

  1. This year, the self-storage REIT sector’s performance has been slightly negative.
  2. When REITs started to released their Q2 results, investors sold their positions in late July.
  3. In general, results have been in line with expectations.
  4. One possible explanation for the mini selloff are concerns over the valuation values, which have reached high levels, especially Extra Storage and Public Storage.

chart01If there’s a REIT sector that hasn’t managed to follow its peers in terms of performance this year, it’s the self-storage sector, which includes five companies, ranging from the small cap National Storage Affiliate (NSA) to the large cap Public Storage (PSA).

On average, their return has been slightly negative at -3%, as opposed to the average REIT return of 19%. While July was a good month, in general, for REITs, self-storage was left with a slightly bitter taste in their mouth. Average REIT return was 5%, whereas self-storage was -4%.

A mini selloff occurred when self-storage REITs started releasing their Q2 results in late July. Despite the good results, Extra Space (EXR) has an 8% drop after the release. Public Storage had the same results, though with just a 6% drop.

Fear of new supply might be a reason why investors are being spooked away. The management teams have flagged new supply, although this is limited to certain markets, such as Denver and Houston. On the west coast, supply appears to be constraint and the sector is thriving.

With that in mind, investors might be concerned about the valuation levels some of the REITs have reached, especially Public Storage and Extra Storage. As far as multiples go, both are trading above the sector average.

In summary, multiples have not come down enough to consider investing in the self-storage sector. This is especially true for Public Storage and Extra Space.

Source: Extra Space Storage Inc.(NYSE:EXR), Public Storage(NYSE:PSA)

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 is long FCH, XHR, CLDT, and PEB.

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