Investors are flocking to self-storage real estate investment trust (REIT) Life Storage (LSI). Talk of a potential buyout from its larger peer, Public Storage (PSA 0.04%), and super-strong earnings for the full year 2022 drove its share price up 26% since the start of the year.
Life Storage is without a doubt a solid dividend stock for an income investor. But its recent popularity means it's trading at somewhat of a premium. If you're looking for exposure to the resilient and high-performing self-storage industry but want a better value than Life Storage can offer today, here's why you should consider National Storage Affiliates Trust (NSA 0.68%) instead.
Doing things differently
National Storage Affiliates Trust is the newest publicly traded self-storage REIT to hit the market. The company went public in 2015 with 246 self-storage properties in its portfolio.
Over the last six years, the REIT has grown its portfolio to just over 1,100 locations in 42 states and Puerto Rico.
National Storage doesn't operate under one brand, like most of its self-storage peers do, including Life Storage. Rather, it operates under a variety of regional and corporate brands.
Most of its properties are wholly owned, but it does use a unique acquisition model of joint ventures and Participating Regional Operators (PROs) to grow. In a PRO transaction, National Storage purchases the property, giving a portion of the sale price to the company in addition to equity in the REIT.
The PRO partner remains the independent operator and manager of the property, giving National Storage Affiliates Trust an upper hand in operational costs and efficiencies since its PRO operators already have systems and teams in place to operate it optimally. It also gives the company favorable acquisition prices due to its unique structure.
While its PRO program gives it an advantage for growing, it's not the only reason it's an attractive self-storage stock.
Outperforming its peers for six years running
Roughly 66% of National Storage Affiliates Trust properties are in the fast-growing Sunbelt states that have favorable growth metrics to support the long-term need for self-storage.
The REIT has outperformed its competitors over the last six years, providing a total return of 332%. Life Storage by comparison produced a 182% return during that same period.
It has also had the highest average growth in core funds from operations (FFO) -- a key metric that illustrates a REIT's profitability -- over the last five years compared to its peers. And National Storage Affiliates Trust also pays the highest dividend yield out of the five publicly traded self-storage REITs at 5.5%.
LSI total return level data by YCharts.
And it has a long history of increasing its dividends. The REIT has raised its payout 16 times during the last six years, equating to a dividend increase of 266%. Its dividend payout ratio (77%) isn't far off from Life Storage's (71%), indicating both companies have sufficient coverage for their yields.
Plenty of room to keep growing
The self-storage industry is highly fragmented, with public REIT ownership making up just 21% of the industry. National Storage Affiliates Trust owns around 2% of the market share, leaving plenty of room for the company to continue expanding. The REIT has manageable debt ratios and $35 million of liquidity to help it keep growing.
Last year, it acquired 45 new facilities (Life Storage acquired 49), and it projects around $200 million to $400 million in acquisition spending in 2023. The outlook for 2023 looks healthy, with FFO and revenue to be in line with 2022.
National Storage Affiliates Trust trades at a much better valuation than Life Storage and its self-storage peers at 14 times its FFO. Life Storage's recent surge in share price has pushed its price-to-FFO to 19 times.
While I believe both companies are worthwhile dividend stocks, National Storage Affiliates Trust definitely offers better value and growth opportunities within the self-storage industry right now.
