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.

U.S.REITs: Data Center Up, Self Storage Down

chart01

Download our exclusive dividend yield report

In a week during which several REITs have released their Q1 results, REIT stocks were slightly up. While data center stocks were the best performing sector, self storage was the worst. This week’s highlight was the merger between two office REITs.

Among data center REITs, CoreSite Realty shares saw a 5.2% increase in the last week when the company announced stronger results for the year. They also saw a 4% increase in their 2015 FFO per share guidance. The FFO multiple of the $2.3 billion market cap company is currently around 22 times.

For yet another week, self storage stocks fell. We’ve been noticing the formation of a negative sentiment against this sector. Despite the high multiples, this is the first time we have seen a real movement to dump the stocks, which fell, on average, by 10% in April.

For instance, Public Storage, the largest self storage REIT, saw a 6% increase in dividends during the last week, yet this wasn’t enough to excite the public. Despite the good Q1 results, their shares were down by almost 5%. Rather than investing in the common, many investors have opted to invest in their preferred stocks.

However, last week’s highlights definitely involved office REITs. Cousins Properties and Parkway Properties entered into a stock to stock merger where Parkway shareholders will receive 1.63 shares of Cousins stock for each share of Parkway stock they own. Following its merger with Cousins Properties, Parkway shares went up by 9.2%, while Cousins shares went down by -0.3%.

Right after the merger, the Houston assets will be spun off into a new publicly traded REIT called HoustonCo. The merger will produce a larger Cousins, which will focus on the Sun Belt markets, while excluding exposure to energy markets. HoustonCo will be an independent and internally managed REIT led by some Parkway executives.

On a final note, the shares of Investor Real Estate Trust plummeted by 13% when the activist Land and Buildings went short. L&B believes IRET has 35% downside due to North Dakota’s struggling energy market and a weak apartment market.

Source: CoreSite Realty Corporation(NYSE:COR),Public Storage(NYSE:PSA),Cousins Properties Incorporate(NYSE:CUZ),Parkway Properties Inc.(NYSE:PKY),Investors Real Estate Trust(NYSE:IRET)

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 April 29, 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 March 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.

U.S. REITs: Market Sentiment Prior to Q1 Results Release

 

chart01Another quarterly results period has begun, leaving investors anxious to determine where they will place their next investments. I have never been one to invest solely on market sentiment. However, this sort of context is most important when I’m identifying the best investment window. Week in and week out, I’ve been following the ups and downs of the market, while also paying attention to what kind of news has been driving the movements. Consequently, I quickly selected some of the market sentiments that have been formed pre-results over the past few weeks. Now, there’s just one question. Will they hold steady until the end of the period?

These are the following market sentiments toward equity REIT stocks.

Healthcare and Hotels: Due to a large number of stocks trading above average dividend yield, many have looked to stocks in healthcare and hotels to make their long-term bets. The sentiment appears to be correct. However, I don’t want to be a killjoy, but most of these stocks have a reason to be undervalued, so it’s important to pinpoint the causes first. The field here is certainly wider than in most sectors, but I’d recommend exercising some caution and patience before venturing out.

Realty Income: It is upsetting to see the rich universe of equity REITs condensed into a sole stock, but that’s what many investors do. They limit themselves to this stock. For that reason, opinions about how overpriced it is abound on the internet. Since its well established peers in freestanding retail have also appreciated, this sector has become overcrowded. So, the sentiment is right about it being overcrowded. I would definitely stay away from the popular choices.  

Self Storage: It had been awhile since self storage didn’t fall farther than the rest of the market. However, this happened last week. Most stocks fell south of 4%, which I see as a sign of saturation. Also, while I don’t entirely rely on equity research analysts, it’s worth noting that Goldman dumped Public Storage this week. In summary, I could see some movement geared toward selling self storage.

In fact, the strength of the self storage sector is something to pay attention to with the next releases. There doesn’t appear to be blatant signs of oversupply in the market, which makes me believe the fundamentals are still good. For this reason, I wouldn’t recommend shorting it.

In our dividend yield chart, self storage has had the lowest average dividend yield…even lower than the data centers. This is a sign that it could have reached a peak. I’m not sure if it will go down anytime soon, but lower yield and a higher multiple aren’t a good combination for investors willing to buy. Also, given the limited number of options, I haven’t identified an alternative that feeds into the same fundamentals.

Please let us know if you have identified any other sentiments that are not listed above.

Source: Realty Income Corporation(NYSE:O),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 has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

U.S. REITs: Like Father Like Son

 

chart01PS Business Parks (NYSE:PSB) is a mixed office and industrial REIT that has distributed same or growing dividends over the past eighteen years. PSB boasts a track record of a successful REIT and is part of our first tier group of REIT stocks, which is a handful that hasn’t cut dividends over long periods of time. It is the only investment grade ‘industrial’ REIT of the first tier group.

Forty two per cent of PSB’s shares are owned by Public Storage (NYSE:PSA). Both companies have a long history dating back to 1980s. PSB was formed in 1984 under the name Public Storage Properties XI, with PSA as its general partner. In a 1998 merger, the name was changed to PS Business Parks.

chart02Although PSB and PSA have a lot in common, both companies differ when it comes to REIT size. The former is a mid-sized company with a $2.7 billion market cap that invests in flex office/warehouse spaces, while the latter is one of the largest U.S. equity REITs that owns thousands of self storage stores across the country. However, despite the difference, PSB certainly capitalizes from its large REIT peer.

A recent example is that Standard & Poor’s granted PSB a corporate credit close to its major shareholder. Last year, the company was also upgraded from BBB to A- bringing it even closer to PSA’s ‘A’ credit rating.

PSB’s Portfolio Strength

chart03PSB is a fully integrated, self-advised and self-managed. The company has diverse tenant base, which consists of more than 5,000 customers. The top ten tenants account for 12% of the total annualized income, 6% of which is the U.S. Government. This is an excellent figure.

Half of the company’s rentable square footage is targeted at peculiar types of properties called flex. This type of investment is a combination of warehouse and office space, and has a variety of uses. Among them is the capacity for companies to have management and operations in the same physical space.

chart04The flexibility of this type of investment appeals to small and medium sized business tenants, which encompasses more than a third of rental income. Due to the tenant profile, PSB doesn’t usually compete with institutional buyers in acquisitions.

Geographically, although PSB is limited to six states, investments are well distributed within those states. Moreover, the company took advantage of high demand (and valuation) for flex, industrial and office assets and exited Portland, Phoenix, and Sacramento markets. The high demand explains why the company wasn’t active in terms of acquisition in 2015.

Valuation

Like PSA, PSB doesn’t come cheap compared to the broad REIT market. Since the share price has risen 23% over the past 12 months, it comes as no surprise that dividend yield is below equity REIT average and multiples are high. Yield is around 3% and stock is trading at 26 times AFFO.

chart05

Source:PS Business Parks Inc.(NYSE:PSB), Public Storage(NYSE:PSA),Fast Graphs, Standard and Poor’s

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.

Something that we haven’t seen for quite a while

sample

Download our Dividend Yield Report. 

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.

Attention, Loyalists, STAG Dropped Another 9% 

 

chart01.pngI’ve always struggled covering popular stocks because oftentimes investors form opinions based on emotions rather than facts. I’m not very keen on unanimity because it creates an aura around a company and management that makes people disregard weaknesses. For sure, it’s good for the company, but this benefit doesn’t necessarily translate to the investor.

Take STAG Industrial for instance. The company has demonstrated numerous flaws in its investment strategy and the way it handles its funding. But no matter what, there has been a legion of investors loyal to the company. The management used to tell investors they wanted to grow their assets aggressively, annually, and the ‘masses’ loved it. The management only skipped the part that a significant portion of growth would come on the shareholders’ expenses. Go figure!

STAG’s share price has now trended downwards. Even a Wall Street analyst downgraded the stock last year; I believe it takes a lot of guts for an analyst to downgrade a stock when everyone else is not. The price accumulated a 17% drop this year and 38% since December 31, 2014. It is now very cheap relative to its peers. Whenever the share price drops, people hopeful of a rebound buy more. By the way, loyalists, just a heads-up–the STAG share price dropped another 9% last week.

The same aura has been created around big ‘O’, the monthly dividend company. The company released its results last Wednesday and shares spiked by 8.2% last week. National Retail Properties (NNN), its closest peer, also released strong results on the following day and the market reaction was ‘nada’. In fact, I have already written articles showing that NNN’s performance is as good as big ‘O’. Also, in the same category of net leases, I have highlighted Agree Realty Corp as an opportunity.

The secret of the big ‘O’ is its track record and consistency. Every month when it distributes the same or increased dividends, it is holding itself accountable to its shareholders. That is, it sends the following message: ‘We have generated growing cash and here it is’. And since it’s been doing so for years and has increased the dividend for 73 quarters in a row, the stock seems to be immune to these volatile times. It has a beta of 0.12, as opposed to NNN’s 0.36.

The other side of the coin is that people quickly forget that the stock seems overpriced relative to its peers, edging an AFFO multiple of 22x. Also, dividend yield of 3.9% is below peer average. It is at the same magnitude of Public Storage, which reached 27x, but it has moved way above the entry point.

Maybe that’s something STAG could learn from O. Focus on track record and consistency, and the market will reward you. This way, STAG could detach from the market’s volatility (STAG’s beta of 1.05).

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

Source: Public Storage(NYSE:PSA), Realty Income Corporation(NYSE:O), National Retail Properties, In(NYSE:NNN), STAG Industrial, Inc.(NYSE:STAG)

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 12, 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

chart03

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

chart05chart04

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

chart06

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.

chart07

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.