What happened
Shares of Life Storage (LSI) slumped 11.9% in May, according to data provided by S&P Global Market Intelligence. While the self-storage-focused real estate investment trust (REIT) reported strong first-quarter results, analysts are becoming less bullish on the stock.
So what
Life Storage reported excellent first-quarter results in early May. The self-storage REIT posted $1.44 per share of adjusted funds from operations, up 33.3% from the year-ago period. The company benefited from strong same-store net operating income (NOI) growth of 21.9% year over year, driven by healthy demand for space in its self-storage properties. The REIT also benefited from the continued expansion of its portfolio.
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The REIT took steps to continue growing, acquiring 18 stores for $351.5 million during the quarter, including one from its third-party management platform. It also added 25 stores to its management platform. Those new additions, combined with its healthy deal pipeline and consumer demand trends, led Life Storage to boost its full-year AFFO forecast from a range of $5.93 to $6.03 per share to between $6.04 and $6.14 per share.
However, while the REIT remains optimistic about what's ahead, analysts are growing more cautious about its prospects. BMO Capital Markets analyst Juan Sanabria downgraded shares from outperform to market perform, while lowering the stock's price target from $150 to $130. While the analyst has an overall positive few of the company, Sanabria sees a potential risk if there's a recession. In particular, the analyst is concerned about its Lightspeed business, which provides third-party logistics and warehousing services.
Raymond James analyst Jonathan Hughes also lowered his price target on Life Storage last month, cutting it from $145 to $125. While the analyst has a generally positive view of the company, he sees less near-term upside potential given the current market conditions.
The analyst price target cuts continued in early June, with Truist analyst Ki Bin Kim cutting the bank's price target from $138 to $132. That reduction came after the bank adjusted its model based on the REIT's first-quarter results, recent events, and revenue growth and expense assumptions.
Now what
While analysts have lowered their expectations of Life Storage's upside potential over the last month, they're still quite positive about the self-storage REIT. Given its recent share price of around $115, the REIT trades significantly below their reduced price targets. Because of that, it remains an attractive option for investors seeking exposure to the historically high-performing self-storage sector.
