3 Top Self-Storage REITs to Buy Right Now

By: , Contributor

Published on: Oct 12, 2019

These top three self-storage REITs offer competitive dividend returns.

Real estate investment trusts (REITs) are one of the most accessible ways to passively invest in commercial real estate (CRE). There are over 225 publicly traded REITs in the United States. They mostly focus on investing in different sectors of CRE.

Self-storage REITs can be a promising new addition to your portfolio. See why these three self-storage REITs are good buys right now.

Why self-storage?

Self-storage facilities have been around for decades -- but demand for additional storage space is going up. This has made self-storage an increasingly popular CRE investment.

Self-storage is an appealing sector because of low overhead and construction costs. These facilities have generally shown consistent performance over time. According to SpareFoot, annual revenue for the storage sector is $38 billion. The SSA Self Storage Demand Study, last conducted and published in 2017, shows that 9.4% of households rent a storage unit, with 18% of all facilities being owned by the six largest publicly traded REITs. 

The self-storage performance index (SSPI) measures changes in net operating income, factoring in rental rates, physical occupancy, and operating expenses of self-storage facilities. It reflects the unbiased operating performance of this sector. The SSPI increased 8.1% from Q1 to Q2 2019 and is up nearly 30 basis points since Q2 2013.

This sector is rapidly expanding; in some markets, supply is outpacing demand. Additionally, cap rates are ticking slightly upward as vacancy rates are expected to reach an average of 10.3% in 2019.

It’s important to keep an eye on the demand and development of this sector. Demand is likely to grow as the baby boomer generation downsizes in their retirement years and millennials begin to have families -- hopefully outpacing the current overdevelopment. 

Top three self-storage REITs to buy right now

According to the National Association for Real Estate Investment Trusts, six publicly traded REITs specialize in self-storage. Each company has a unique business model, investment plan, and geographic focus. While the three REITs below may be good investments, it’s up to you to determine the quality of the investment and if it's suitable for you.

It’s important to keep an eye on the demand and development of this sector. Demand is likely to grow as the baby boomer generation downsizes in their retirement years and millennials begin to have families -- hopefully outpacing the current overdevelopment. 

Company Market Capitalization Dividend Yield
National Storage Affiliates Trust (NYSE: NSA) $1.95 billion 3.89%
Life Storage Inc. (NYSE: LSI) $4.93 billion 3.79%
Public Storage (NYSE: PSA) $42.43 billion 3.30%

Data source: Market data as of 10/7/2019.

National Storage Affiliates Trust

National Storage Affiliates Trust is the fifth-largest publicly traded self-storage REIT and one of the newest REITs on the market. It went public in 2015.

NSA focuses on building and acquiring high-end storage facilities in high-growth sectors of the United States. This REIT is growing quickly and achieving some notable numbers, including a 5.5% net operating income (NOI) growth for the second quarter of 2019 compared to the same quarter in 2018.

As of June 30, 2019, NSA owns over 700 storage facilities in 35 states and Puerto Rico. Their reported core funds from operations (core FFO) is $34.3 million, or $0.38 per share. The REIT's stable balance sheet, moderate leverage ratio at less than 41%, and plans for expansion put them high on the list for top self-storage REITs to invest in.

Life Storage Inc.

Life Storage Inc. (NYSE: LSI) is one of the largest self-storage companies in the world, owning over 800 self-storage facilities with 55 million rentable square feet across 28 states.

In Q2 2019, LSI acquired four new properties at a total cost of $43.2 million while adding 11 new stores to its third-party management platform. Management and acquisition fees increased 28% year over year. Occupancy is slightly above the industry average at 90.8% and its financial position remains strong in comparison to other REITs in this sector with a debt service coverage ratio of 4.6x. That's well above the industry average ratio of 3x.

Public Storage

Public Storage (NYSE: PSA) is the largest developer, owner, and operator of self-storage facilities in the country with an interest in nearly 2,500 facilities across 38 states. As of Q2 2019, the company's same-store revenue increased 1.9% year over year in addition to an increase in NOI of $7.9 million. PSA has a healthy payout ratio that fluctuates between 78% and 88%, which is normal for a REIT.

Public Storage added 10 facilities to its portfolio during Q2 2019. On Sept. 11, 2019, Public Storage announced a call for the redemption of all outstanding depositary shares representing interests in its 5.625% Cumulative Preferred Shares. Reliable profits, earnings, and new developments support its expansion and dividend growth, making this an appealing REIT for investors.

When considering these top three self-storage REITs, review each company and determine if its investment portfolio and risk potential make sense for you.

Most commercial assets, including self-storage facilities, are intended to be buy-and-hold investments and provide better returns over a longer period. With that said, shifts in economic circumstances or increases in interest rates can affect any of these companies at any moment.

Always conduct your own due diligence and make sure your investments align with your risk tolerance.

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Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Life Storage Inc. The Motley Fool has a disclosure policy.