Self-storage REITs are fairly boring enterprises, because they basically own boxes where people store their things. Those things typically sit there for years, generating quite a sticky consumer base and lots of income even in turbulent times. Public Storage is an indicating name, but there are names worth studying, such as Life Storage and Extra Space Storage. Let’s see which one would suit you the best:
1. The basic enterprise
You don’t have to be a nuclear scientist to operate a self-storage business. To sum it up, such REITs are building or buying structures with many small spaces. They are then rented out, or to be more exact, lockable closets are rented out to people and companies who require more room to store belongings. This has been a quickly-expanding real estate niche for a long time, but rivalry has been gaining traction for its profitability and sticky essence (few people wish to move all of their things just to end up saving a few dollars). The extra construction in the space put pressure on yields, as facilities are getting more competitive, trying to reach users. Despite this, it remains a profitable venture, but the prospects for growth are not as great as they were.
2. Size and scale
Near the end of Q3, Life Storage worked over 900 storage entities in thirty states. Extra Space Storage ran business in nearly 1,900 states over forty states. Public Storage had 2,600 self-storage branches in 38 states and had investments in 239 real estate assets in the form of European storage ventures, and an enterprise-oriented storage facility with 28 million sq. ft. of commercial storage room.
There are some advantages to the economies of scale in this sector, but Life Storage is large enough to spot such advantages. Growth is the real problem, as it’s simpler to grow a small company rather than a big one. Thus, in certain respects, Life Storage could potentially be more intriguing than either Public Storage or Extra Space Storage, which got materially larger marks they leave.
3. Latest performances
Life Storage’s adjusted operating funds, which are like income for an industrial business, rose 4.1 percent y-on-y in Q3 this year. The adjusted operating funds of Extra Space Storage grew 5.6 percent. It’s obvious that they are doing a little better at the moment. That said, these real estate investment trusts are anyways doing better than the Public Storage, which saw the their adjusted operating funds dropping by 3.4 percent y-on-y in Q3. This point is tilting in favor of Extra Space, though not a lot.
Life Storage raised its dividend by 7 percent (to $1.07 for a share for each quarter) at the beginning of the year after it remained unchanged at one dollar per share for several years. The last dividend rise for Extra Space Storage was approximately a 4.5 percent increase last year. Both real estate investment trusts saw dividend cuts when the recession hit around 2008. By contrast, the Public Storage dividend has not risen since 2016, but has not fallen during the recession.
All three of them have payout ratios in the 70 percent range (Public Storage is the largest at approximately 75 percent), so they are very close in that respect. But if you assume that the best dividend is the one that experienced a jump, then Life Storage is your go-to.
Focusing on profits, Life Storage is also the best, providing investors with a 3.7 percent dividend return. Public Storage is next in line at 3.6 percent, with Life Storage dropping to 3rd place with 3.2 percent. Dividend-wise, Life Storage seems as the winner at the moment.
5. The balance sheet
There’s one more thing that has to be looked at: leverage. Public Storage has a relatively low debt-to-equity ratio of approximately 0.3 times. Life Storage’s ratio is only a bit over one times. Extra Space is around 2.2 times, a number that has approximately doubled since 2014. So it is clear that Public Storage is operating out of the best financial base, and Life Storage is yet again ahead of Extra Space.
Extra Space Storage covered its trailing twelve-month interest costs by 3.9 times in Q3 compared to 2.9 times for Life Storage. Those are not bad numbers, but Extra Space seems a bit better when you look at its capability to handle the debt it took onto itself. On the other hand, Public Storage has covered its interest costs fifty times over.
Who comes out on top?
There is no clear winner here. If we look at the whole picture, Life Storage could be viewed as the option that . Its smaller size should render growth simpler to realize, its leverage is lower than that of Extra Room, its dividend is increased, and its return is larger. But all 3 of these self-storage real estate investment trusts have had bigger returns over the last 10 years, and since the beginning of the year, the bearish rally seems to have provided a lot of good news in an industry that is faced with growing competitiveness. This is probably a situation where investors should keep these companies on their list of wishes for the upcoming material marketplace sell off.