Something that we haven’t seen for quite a while

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It’s been a very good week for equity REITs, something that we haven’t seen for quite a while. Virtually all stocks went positive. In fact, a mere 8 out of the 174 we track had a negative performance. On average, stocks saw a 4.2% increase, higher than the S&P500. We had several stocks that closed the week with a two-digit growth.

Last week, in anticipation of the release of the Q4 results, investors discovered some stocks that had been undervalued and went on a buying spree. Last week’s top three performers, Monogram Residential Trust (apartments), Pebblebrook Hotel Trust, and Sabra Health Care REIT, will soon be releasing results this week. Other top performers included lodging and timber REITs, as well as CorEnergy Infrastructure Trust, which had been one of the most volatile among equity REITs.

At the same time Monogram stock spiked by 6% on Friday, Madison International Realty, a global real estate investment company and current stockholder in the company, disclosed their potential interest in the acquisition of assets. I’m not sure how or even if they are related, but this stock has seen a lot of activity over the past week. Monogram stocks increased by 13%, topping the list as our best performing stock of the week. On the surface, their stock seems to be overpriced since AFFO multiple has reached 21x. As for Pebblebrook and Sabra, their stocks seem to be a bit underpriced.

The sectors that exceled last week were lodging, healthcare, and self-storage. The first two have certainly been battered this year, so it is understandable that there would be some type of reaction above the market average. The median return for both was between 6-7%, but they will still enjoy one of the highest dividend yields among REITs.

On the other hand, self-storage seems to be unstoppable, bordering on irrational exuberance. Public Storage released strong results last Tuesday and their stocks soared by 8%. Its AFFO multiple is very close to the 30s. Sovran Self Storage and CubeSmart also released the Q4 results and their guidance for AFFO growth has been strong. These two stocks have AFFO multiples in the 20s. The truth is that self-storage hasn’t been a sector to find yields. Stocks have fared well, but yields have been below the REIT industry average.

CubeSmart’s growth was spectacular in the fourth quarter. Their FFO share increased by 18% year over year and same-store net operating income growth reached 11%. The company will not be able to keep up this growth in 2016, but the guidance for next year’s growth rates is still very good. FFO per share growth should grow by 10% and same store NOI by 8%.

As for Public Storage, the largest in this sector, their Core FFO per share increased by 11% in the fourth quarter year over year. The company also touched upon market supply, which appears to be growing at 2-2.5%, and even more in highly populated states, including Texas and Florida, where we expect a decrease in rental rates at some point. However, the company wasn’t able to say when the sector as a whole would be affected by oversupply.

Check the reports for Dividend Yield by Sector and Weekly Returns.

Source: CubeSmart(NYSE:CUBE), Monogram Residential Trust, In(NYSE:MORE), Public Storage(NYSE:PSA), Sovran Self Storage Inc.(NYSE:SSS), Pebblebrook Hotel Trust(NYSE:PEB), Sabra Health Care REIT, Inc.(NasdaqGS:SBRA), SEC, Fast Graphs

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on February 19, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of January 31, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report 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. 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.

Is the self-storage sector moving toward consolidation? (Part 2/2)

Click here if you have not read part 1.

So, which companies have the potential to alter the self-storage landscape? Let’s look at the options.

National Storage Affiliates

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National Storage Affiliates is a REIT that was achieved by combining a variety of smaller companies to achieve better access to funding and lower corporate costs. As a result, the small companies received the benefits of larger companies, while retaining management of their original properties. It started with six affiliates (known as PROs) has become the sixth largest self-storage operator in the country. Their 2014 national ranking (with the exception of SecurCare) include: Northwest (16th), Optivest Properties (21st), Storage Solutions (29th), Move It (34th), Guardian Storage Centers (36th), and SecurCare (6th in 2013).

Today, National Storage anticipates adding more affiliates, which should act as an industry catalyzer.

Privately Owned Companies

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Two private companies, Simply Self Storage (founded in 2003 with headquarters in Orlando, FL) and StorageMart (founded by Gordon Durnam after selling his previous company, Storage Trust, to Public Storage in 1999) have the potential to alter industry dynamics. Currently, Simply Self Storage operate more than 160 facilities with over 12 million square feet of rentable space, while StorageMart operates 165 stores in Canada and the United States and has 11 million rentable square feet.

 

W.P. Carey

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Self-storage only accounts for 5% of W.P. Carey’s annualized base rent (ABR), yet they are still one of the top 10 self-storage operators in the US. With 3.5 million square feet of rentable space, they generate an ABR of $32 million. They have only one tenant, U-Haul Moving Partners and Mercury Partners, which makes them the second largest W.P. Carey tenant.

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Currently, W.P. Carey has an 88% interest in this venture and also operates industrial, office, retail, and warehouse space, which contribute greatly to their total revenue. Self-storage is a component of the company’s strategy to be diversified across different types of property.

U-Haul International

The shareholders of Amerco (U-Haul International’s parent company) decided not to pursue the conversion of its real estate assets into a REIT platform at their annual meeting in August 2015. As a result, it doesn’t appear that they will be repositioning the company in the short term.

 

Source: Public Storage (NYSE:PSA), Extra Space Storage, Inc. (NYSE:EXR), CubeSmart Common Shares (NYSE:CUBE), Sovran Self Storage Inc. (NYSE:SSS), National Storage Affiliates Trust (NYSE:NSA), Amerco (NASDAQ:UHAL), W.P. Carey, Inc. (NYSE:WPC).

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.

Is the self-storage sector moving toward consolidation? (Part 1/2)

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In the United States, there are more than 50,000 self-storage facilities and 30,000 operators that account for $24 billion in annual revenue. While around 11% of the industry’s total rentable square footage are self-storage REITs, the other 89% are privately owned and run by operators. Although these statistics indicate that there is significant potential for consolidation in this profitable industry, it remains to be seen whether or not this will actually take place.

In all honesty, it will take considerable effort to make any changes in the industry. Outside of the ten leading operators, there is no single operator with the power to make big changes in the industry’s landscape. Any that do attempt growth will have to do so a little bit at a time through development or the acquisition of smaller players.

chart02Currently, Public Storage, a $43 billion market cap company, is in the industry’s top spot as the largest company. In the United States and Europe, they operate 142 million net rentable square feet of real estate. No other company is anywhere near this. Public Storage has aggressively gobbled up private operators, but, in recent years, due to increasing acquisition competition, they have ramped up a development process. Even if the remaining REITs combine together, they would have no chance of overcoming Public Storage.

In second, Extra Space Storage has an $11 billion market cap with 87 million square feet of rentable space. In September 2015, Extra Space Storage closed on the acquisition of SmartStop Self Storage, which had been the 7th largest operator in the industry, for $1.4 billion USD.

Additional players in the self-storage sector include REITs CubeSmart, Sovran, and W.P. Carey (minority self-storage), as well as recently publicly traded REIT National Storage Affiliates, Amerco (the publicly traded company that operates U-Haul International), and two additional private operators, Simply Self Storage and StorageMart.

So, which companies have the potential to alter the self-storage landscape? Let’s look at the options tomorrow.

Source: Public Storage (NYSE:PSA), Extra Space Storage, Inc. (NYSE:EXR), CubeSmart Common Shares (NYSE:CUBE), Sovran Self Storage Inc. (NYSE:SSS), National Storage Affiliates Trust (NYSE:NSA), Amerco (NASDAQ:UHAL), W.P. Carey, Inc. (NYSE:WPC).

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.

U.S. Self Storage REITs – What’s the Best Performing Company?

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We recently compiled an operational performance ranking of the best REIT stocks based on the Second Quarter results.

We tried to be as straightforward as possible because we want you to understand why particular stocks are leading the charts. We also constructed the operational performance ranking to be concise in order to show how we pick the key drivers of performance. Finally, we ensured… Download Report>>

Extra Space, CubeSmart Outperform Sovran, Public Storage in Q1 2015

Here is a list of the self storage REITs ranked by various Q1-2015 key metrics (operations, funds from operations, distributions, debt, valuation, and projections).  The stocks are rated item by item (from best #1 to worst #5), and at the end, there is a consolidated result.

These are the companies:

  • Extra Space Storage (NYSE: EXR)
  • Public Storage (NYSE: PSA)
  • CubeSmart (NYSE: CUBE)
  • Sovran Self Storage (NYSE: SSS)

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Ranking Item by Item & Consolidated

Metrics Ticker EXR CUBE SSS PSA
Operations
Q1 Revenue growth (YoY) 2 1 3 4
Q1 Same-store NOI growth (YoY) 1 2 4 3
Q1 Same-Store Occupancy 2 3 4 1
Funds From Operations
Q1 FFO per share growth (YoY) 1 3 2 4
Q1 Company FFO per share growth (YoY) 1 3 4 2
Distributions
Q1 Dividend payout ratio 2 1 3 4
Q1 Dividend per share growth (YoY) 2 1 3 4
Debt
Q1 Total debt to total capitalization value 4 3 2 1
Valuation
Q1 Implied Cap Rate 3 2 1 4
Q1 Dividend yield 2 4 1 2
Projections
Dividend per share growth (2015 vs 2014) 4 1 3 2
Company FFO/AFFO per share growth (2015 vs 2014) 1 3 2 4
Total Sum 25 27 32 35
Final Ranking   1 2 3 4
    Results:
  1. Extra Space Storage (NYSE: EXR)
  2. CubeSmart (NYSE: CUBE)
  3. Sovran Self Storage (NYSE: SSS)
  4. Public Storage (NYSE: PSA)

Written by Heli Brecailo

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.​

Does CubeSmart suffer from middle child syndrome with reason? (Series 4 of 5)

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As a middle child, it can often be difficult to get attention, especially as the third in a family of four children. The first typically gets more attention as there were not any siblings around vying for attention and the last gets coddling.

Does it get better if it changes its name to a tricky one?

That’s how I feel about CubeSmart (NYSE:CUBE). As of March 31, 2015, the Company’s market capitalization is US$3.9 billion. This is slightly higher than Sovran Self Storage, but not as high as Extra Space’s and Public Storage’s. However, that doesn’t mean CubeSmart’s not a quality company. It is a solid company that has strategically grown, which is ideal for a dividend growth investor.

Previously known as U-Store-It Trust, it changed its name to CubeSmart in 2011 to enjoy the branding benefits of joining the “big names” club, especially in a highly fragmented industry where customer service is a big differentiator. Furthermore, it takes pride for having re-positioned the portfolio, moving away from slow growth and less population, into high growth and more populated core markets such as New York, Washington DC, and Philadelphia. The result is a high quality, urban-oriented portfolio, which tends towards millennials who live in tight blocks and boomers who downsize to smaller homes.

As the portfolio changed, average occupancy increased from mid-seventy to ninety percent. Currently it is at an all-time high. Additionally, it has positioned itself in the highest income household neighborhoods versus its peers.

Since 2011, CubeSmart has checked all the following boxes:

  • 2-digit total revenue growth
  • 2-digit FFO growth rate
  • 2-digit dividend growth
  • Conservative dividend payout ratio
  • 6 percent average same store revenue growth
  • 8 percent average net operating income growth

2015 Projected Growth Rates 

  • 7 percent net operating income growth
  • 6 percent same store revenue growth
  • 4 percent FFO growth
  • 6 percent dividend

CubeSmart’s debt profile has improved over time and is currently on par with its peers. Nonetheless, the average interest rate of 4.0 percent is relatively high; Sovran’s is 3.7 and Extra Storage’s is 3.4 percent. Public Storage’s debt is less than one percent of its total market capitalization. The average maturity is six years. Most debt is fixed-rate and unsecured. The Company has mid-tier, investment-grade credit ratings from both Standard & Poor’s and Moody’s.

Although CubeSmart has seen capitalization rates of quality acquisitions decrease to approximately five percent, it has kept a good pace of acquisitions. Over the last three years, it has added 3.9, 1.5, and 2.6 million square feet to existing properties (2014, 2013 and 2012 respectively). As of December 31, 2014, the 421 owned self-storage facilities encompassed an aggregate of approximately 28.6 million rentable square feet.

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Valuation wise, price-to-FFO is on par with the last four year’s year-end price-to-FFO mean, as well as the sector’s mean. The dividend yield is acceptable at 2.8 percent.

The Company will release Q1 2015 financials after the market close on Thursday, April 30, 2015.

Takeaway

Although I like the growth story, there doesn’t seem to be much appreciation upside and the dividend yield is just okay. The middle child will have to do more to excel.

Summary

2011 2012 2013 2014 2015P*
Dividends declared per common share, $ 0.29 0.35 0.46 0.55 0.64
Q4 Dividend, $ 0.08 0.11 0.13 0.16
Dividend payout ratio, in percent 45 47 51 51
Dividend yield, in percent 2.7 2.4 2.9 2.5
FFO per share, $ 0.56 0.71 0.87 1.03 1.17
FFO per share (Q4 only), $ 0.09 0.21 0.21 0.26
AFFO per share, $ 0.65 0.74 0.91 1.08
Debt to total capitalization, in percent 37.3 33.3 32.8 23.8
Revenues – Total, $ 000s 227,245 266,322 318,395 376,963
Revenues – Same Store, in percent 3.6 3.8 7.4 7.2 5.5
NOI – Same Store, in percent 5.7 6.0 9.3 9.6 6.5
Year End Occupancy – Same Store, in percent 79.1 85.1 88.8 90.0
Share Price on 31 December, $ 10.64 14.57 15.94 22.07 23.12
P/FFO on 31 December 19.0 20.5 18.3 21.4 19.8
 *2015P=2015 Projection

Written by Heli Brecailo

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.​

How did these U. S. REIT stocks manage so well in Q1-15?

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Yes, you can cry over spilled milk. You should know that, on the whole, REITs did quite well during the first quarter of 2015; what you probably don’t know is that a smaller subset — the self-storage REITs — did even better still, generating a return of 8.8 percent, as opposed to the total returns of several indicators, including:

• S & P 500 — 0.95 percent

• MSCI US REIT — 4.8 percent

• FTSE NAREIT All REITs Index — 4.0 percent

Self-storage has developed into a niche market within the realm of commercial real estate. Its market concentration is low, with only thirteen percent of the facilities controlled by the top ten players and the remainder managed by numerous small businesses.

Self-Storage REITs

The FTSE NAREIT All REITs Index includes four self-storage REITs: Sovran Self Storage, Inc. (NYSE:SSS), Public Storage (NYSE:PSA), Extra Space Storage Inc. (NYSE:EXR), and CubeSmart (NYSE:CUBE).

The four companies share many consecutive years of strong operational performance. As a result of a combination of steady same-store growth and store expansion, their overall revenues have grown by two digits, and net operational income has grown slightly higher than revenues, a sign of how strong their operational efficiency is.

On the cash flow front, funds from operations (FFO) and cash dividends have increased over time and, according to the guidance of management, it is unlikely they will stop in 2015. Last but not least, expansion has been carried out wisely and a healthy debt profile maintained — the company has held its debt-to-enterprise level within reasonable bounds.

Demand drivers

On the macro level, as long as U.S. demographics and the current state of the economy help increase the number of personal possessions which thus need to be stored outside the owner’s residence, self-storage will be in demand. Some believe baby boomers will strengthen this trend by moving into smaller houses. As a result, future growth prospects look positive.

Since convenience is an important reason for choosing a facility (those near home or office are preferred), other drivers of demand have been associated with local market conditions like population growth and average household size and income. Competition and excess supply can also affect occupancy levels and rental rates.

Mixture of self-storage and U-Haul with an office feel

The self-storage concept has quickly evolved into a combination of self-storage and U-Haul with an office “feel.” Operators have begun focusing on generating income by offering additional services like truck rentals, moving and packing supplies, and tenant insurance. To further meet customer expectations, they have adopted innovative products and services, including online and automated kiosk rentals, climate-controlled and wine storage, 24-hour accessibility, customer service call center access and after-hours storage. Self-storage has changed radically.

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Click here to check out self-storage performance in the first quarter of 2015.


Written by Heli Brecailo

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.​