Investing in storage units has been very profitable for investors over time. This strategy does not even have to just be investing in private storage properties that require management and individual market risks. Most Americans buy so much extra stuff over the course of their life that they have to find a new home for those belongings that won’t fit in their own home. So why not lease a storage unit for $150 to $200 a month and pay more than the value of the belongings over a few years?
BofA Securities has issued a very favorable research report on the storage space leaders. The main feature was CubeSmart (NYSE: CUBE) but others were talked up as well. And while this is an equity report, it may also offer some insight to private investors who have considered investing into their own privately-owned storage unit operations.
BofA’s Samir Khanal and Jeffrey Spector raised CubesSmart’s rating to Buy from Neutral and the team raised the official price objective to $50 from $44 in the call. CubeSmart was worth about $9.8 billion on last look, and the stock was last seen down 1% at $52.50 after the report due to more profit taking after a 10% rally in the last month.
CubeSmart has also suggested on its own that it can navigate through an uncertain economy with its conservative guidance. Its own reporting talked up improving occupancy, positive rate trends, solid demand, its high-quality portfolio and a focus on top-tier markets uniquely positioning the company “to perform during uncertain economic climates.”
If BofA’s report is right, that’s nearly 20% in implied upside from the current stock price. Its $2.08 per share dividend gives roughly a 4.9% dividend yield on top of that ambitious upside projection. This BofA report has some strategic themes for the next 12-months, but storage units are also a secular theme for long-term investors who buy and hold. At least that has been the case in recent decades.
The BofA team upgraded CubeSmart after its earnings and after the Newmark Storage Symposium, based on the latest conference echoing a rather positive view on the sector. The reason for highlighting CubeSmart in the upgrade was that it also has a strong balance sheet and is said to show better spending data.
While BofA is more positive on storage fundamentals, the firm does point potential risks out in the health of the U.S. consumer and landlord’s ability to push for existing customer rate increases. Landlords love hiking their rents — and the trick is to hike just enough that it doesn’t merit hiring movers or burning up a day moving to a new cheaper storage unit down the road.
According to the BofA report:
Our $50 price objective for CUBE applies no discount/premium to our forward NAV estimate (previously -2.5%). We remove CUBE’s discount due to its strong balance sheet. We derive our NAV estimate by applying a 5.1% cap rate (previously 5.5%) to our forward NOI estimate of $765 million. We use a 5.1% cap rate based on our outlook for interest rates and current market/transaction comps.
BofA also hiked other storage unit players as well. Oggonomics always reminds its readers that no analyst report should ever be the sole basis to buy or sell a stock. Analysts can get their thesis wrong like the rest of us. And sometimes the fundamentals can change in the blink of an eye.
Public Storage (NYSE: PSA) PSA was last seen at $302 and BofA hiked its price objective to $380 from $368. PSA has a 3.9% dividend yield. BofA’s report said:
Our $380 price objective for PSA applies a +5% premium to our forward NAV estimate (previously in line). We apply a +5% premium given PSA’s strong and flexible balance sheet. We derive our NAV estimate by applying a 5.1% cap rate (unchanged) to our forward NOI estimate of $3.6 billion. We use a 5.1% cap rate based on our outlook for interest rates and current market/transaction comps.
Extra Space Storage Inc. (NYSE: EXR) was last seen at $147 and BofA hiked its price objective to $161 from $155. EXR has a 4.3% dividend yield.
National Storage Affiliates Trust (NYSE: NSA) was last seen at $35.50 and BofA reiterated its $37 price objective. NSA has a 6.3% dividend yield.
Please note that all analyst ratings and the price targets mentioned in this report were issued by each firm named above. Those are their ratings and targets and they may differ greatly from firm to firm. Oggonomics does not issue any formal ratings and price targets of its own on these stocks. Investing involves significant risks, and no analyst reports, even those with very strong conviction, ever come with any guarantees of profits. These research reports also never issue any money-back guarantees in case you lose money.
