Storage REITs have been on quite a roll over the last few years. We will take a look at three: Public Storage (PSA, Financial), CubeSmart (CUBE, Financial) and National Storage Affiliates (NSA, Financial).
My one big fear of REITs and MLPs is that management is often issuing new shares. Management will claim that it is accretive, meaning that what is being bought will add to shareholder value, but that’s not always the case. It’s the first thing I look at.
According to this article, occupancy at the 51,000 storage REITs has grown 11% from first-quarter 2012 to the first quarter of this year. No wonder the sector was up 40% last year. The story is that baby boomers are downsizing, and Millennials still do not own homes.
Public Storage trades at a market cap of $36.1 billion and pays a 3.8% dividend yield. Sales have grown from $1.72 billion in 2008 to $2.52 billion in the last 12 months. Shares outstanding have grown from 168.7 million to 173.9 million. Management has not diluted shareholders. Funds from operations were $1.732 billion, capital expenditures $471 million and dividends $1.38 billion. Not bad financials. Here is a link to an article on Public Storage on GuruFocus. The author is bullish.
The stock has been beaten up this year. It was trading at $275 and now trades at $208. Funds from operations were up 5.1%, but operating expenses were up 6.4%. The quarterly dividend was just increased to $2.
In the financial crisis, revenues dropped from $1.72 billion in 2008 to $1.62 billion in 2009. That tells me the company is not completely immune from a poor economy. However, as one might imagine, people losing their homes must store their goods.
CubeSmart trades at a market cap of $4.46 billion and has a dividend yield of 3.42%. From 2008 until the last 12 months, sales have grown from $217.33 million to $492.49 million. Unfortunately, shares outstanding have grown from 57.2 million to 177.87 million. Last year, funds from operations were $215.7 million, capital expenditures (building units) were $381.8 million, and dividends were $114.9 million.
How did CubeSmart fund this loss and still pay a dividend? By issuing $251.7 million in stock and $82 million in debt. I could go on about operations and locations, but I won't. Why invest in a company that fuels growth by continuously issuing shares?
The next company is National Storage. The market cap is $778 million, and the dividend is 4.05%. The company has not been publicly traded long. Sales for the last 12 months are $140 million on 75.5 million shares outstanding. Its locations operate under the names Guardian, Hide-Away, Move-It, Optivest and several others. National Storage differs from other operations in that it allows owners of storage facilities to take equity in the company. My guess is that shares outstanding will keep growing.
Of course like all REITs, there is a question of interest rates; 3% and 4% isn’t bad when Treasurys are 2%, but rates have been rising recently. That makes these yields a little less attractive. REITs fell over 4% after the election. Of course REITs often carry high amounts of debt which cuts into funds from operations.
Like all real estate, it’s a question of supply and demand. There has been an abundance of building over the last several years. Is this market at its end? It could be. The dividends and valuations on these stocks don’t get me excited. I’d buy if the stocks took a dive and the yields improved. Then the hard question would be how much storage REITs would be affected by the economy and interest rates.
Disclosure: We do not own shares.
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