There aren’t too many certainties in life, but here’s one that’s much more likely than not. If you live within 15 minutes of a decently developed U.S. town…

You live within 15 minutes of at least one self-storage facility, if not three or four.

For instance, if you do a Google Maps search for self-storage in the Spartanburg, South Carolina area – where I live – you’ll find a whole host of options:

  • Prime Storage

  • SmartStop Self Storage

  • Hwy 221 Storage

  • Storage Rentals of America

  • Extra Space Storage (three of them, in fact)

  • CubeSmart

  • Public Storage (one under construction near my house)

  • Tri Star Storage…

I could go on, but I’m sure you get the point.

Of the specific names I listed, three are real estate investment trusts, or REITs: a kind of corporate landlord with special tax status. (REITs don’t have to pay income taxes just as long as they dole out at least 90% of that income to shareholders.)

The REITs in this space are Public Storage (PSA), CubeSmart (CUBE), National Storage Affiliates Trust (NSA), SmartStop Self Storage REIT (STSFF), and Global Self Storage (SELF). There’s also the privately-traded REIT, SROA Capital. And U-Haul, though a regular C corporation, offers many competing facilities as well.

All told, these landlords own just under 12,000 locations in the U.S., representing around 20% of the market share. The remaining 80% is filled with a hodgepodge of small business owners.

Source: Wide Moat Research

As I explain in REITs for Dummies, “The reason why this space is such a small landlords’ world is because of self-storage’s low [capital expenditure] requirements… these buildings are cheap to build, cheap to maintain, and cheap to operate.”

On the downside, that means there’s plenty of opportunity to overbuild, which is precisely what’s happened over the years. So it’s no surprise that these companies’ stocks aren’t looking so hot.

Considering all the data I’m looking at though, I think those prices are about to turn around. So that’s precisely what I want to fill you in on today – before it happens.

A Buying Opportunity

Despite all the overbuilding, followed by savage price wars, self-storage REITs still averaged 10.5% total returns these past five years. It’s also despite how they were the REIT sector’s worst-performing segment last quarter.

And the third quarter of 2024 wasn’t impressive either.

However, as shown below, storage rates now appear to be normalizing.

 

Moreover, facilities under construction actually dropped a little. And the national three-year pipeline shrank as well over the past year.

Source: Wide Moat Research

Yardi Matrix, a commercial real estate data and research firm, even expects a 15% drop in supply for 2025. If true, that could help stabilize rents even further.

And, to quote CRE Daily, one of my go-to commercial real estate sources, “After years of oversupply, self-storage operators may finally be regaining pricing power – especially in markets where new supply is slowing down.”

Based on my own study of the sector, I have to agree. This could be the turning point investors have been waiting for.

Of course, in order to best capitalize on any turnaround, you have to know which companies are best positioned. In which case, let me introduce you to the top four players in the space, by my estimation.

I’m just going to lay out the facts first of each one, explaining how they looked coming into this new year. So make sure to read all the way through for my conclusions.

Let’s start out with CubeSmart…

Is CubeSmart the Wise Play?

In the fourth quarter of 2024, CubeSmart generated funds from operations (“FFO”) of $0.68. That was a negative 2.9% year-over-year change as rates continued to decelerate.

Realized rents declined 1.1% in 2024, with average occupancy down 120 basis points (bps) to 89.6%. And rentals declined 3.9%, with vacates down 3.8%.

With that said, CUBE’s balance sheet remains in good shape. Its leverage was up 10 bps over the third quarter to 4.1 times net-debt/EBITDA (earnings before interest, taxes, depreciation, and amortization).

As shown below, adjusted FFO, or AFFO, per share – a more refined though less regulated calculation that normalizes rent – did notably fall 2% in 2024. Yet analysts now expect 2% growth in 2025 and 4% in 2026.

Source: Wide Moat Research

Plus, the company has generated an AFFO-based compound annualized growth rate (“CAGR”) of 10.2% since 2010. And it has maintained a growing dividend since the Great Financial Crisis.

Source: Wide Moat Research

Shares are now trading at $41.28 with a price-to-AFFO of 16.3 times – which is low compared to its normal 19.3 times. And their dividend yield is 5%.

A Look Into National Storage

National Storage generated fourth-quarter 2024 FFO per share of $0.60. And while that beat the consensus of $0.58, it was still an 11.8% decline year over year.

That is a bit disconcerting. However, it might be due to initial conservatism about its ongoing decision to internalize its participating regional operator business.

Now, period-end occupancy fell 140 bps year over year to 84.4%. But net debt-to-adjusted EBITDA rose 10 bps.

Floating debt was 12.9% of total debt. And AFFO per share dropped by 8% year over year, as our next chart shows.

Source: Wide Moat Research

NSA shares are now trading at $38.62 with a price-to-AFFO multiple of 16.9 times compared to its norm of 20 times. Its dividend yield is an attractive 5.9%, but that comes with an elevated 99% payout ratio.

In short, any further bad news could put its finances, and therefore its dividend, in jeopardy.

Source: Wide Moat Research

A Mixed Message With Extra Space Storage

In the fourth quarter of 2024, Extra Space Storage generated FFO per share of $2.03 as expected, up 0.5% year over year. Meanwhile, average occupancy came in at 93.1%, up 230 bps year over year but 20 bps below the third quarter.

Similarly, same-store revenue declined 0.3% after rising 0.4% in the third quarter.

EXR’s net-debt-to-EBITDA ratio was strong: up 40 bps quarter over quarter to 5.2 times. More than 24% of that debt was floating, unadjusted for loan book, though that number could grow to 39% in the foreseeable future.

AFFO per share, meanwhile, dropped 6% in 2024.

Source: Wide Moat Research

EXR shares are now trading at $152.56 with a price-to-AFFO multiple of 20 times… which is exactly where it usually is. Its dividend yield is 4.3%, and its payout ratio is around 85%.

Source: Wide Moat Research

The Public Storage Pick

Last but not least, Public Storage generated per-share FFO of $4.21 in the fourth quarter. That was up 0.2% year over year and in-line with consensus estimates.

Its period-end rate improved 0.4%, and occupancy dropped 80 bps to 90.5%. Yet same-store revenue rose by 70 bps over the third quarter to negative 0.6%, with six markets experiencing positive growth.

One of PSA’s most impressive points remains its A-rated balance sheet – the only self-storage REIT that can claim any such thing. And while it hasn’t necessarily been the best at raising its dividend every year, it also hasn’t cut it. Plus, it looks set to keep raising it from here.

Source: Wide Moat Research

Its net debt and preferred-equity-to-EBITDA ratio remains stable at 3.9 times. And AFFO per share rose 3% for the full year.

Analysts expect that growth to accelerate to 5% in 2025 and 6% in 2026.

Source: Wide Moat Research

Shares are now trading at $303.62 with a price-to-AFFO multiple of 20.3 times compared to its norm of 22.1 times. Their dividend yield is 4% with a solid payout ratio of 80%.

And the Storage Wars Winner Might Be…

As I’ve been saying in previous articles, I do believe we’re due for at least a “garden-style” recession. In which case, the recession-resistant self-storage sector should be a steady place to park some money.

And I consider Public Storage to be especially well-positioned thanks to its top-notch credit rating. That debt capacity can fund additional growth along with annual retained cash flow.

PSA also has the:

  • Strongest operating metrics, with a 10-year net operating income CAGR of 5.7%

  • Lowest leverage

  • Highest free cash flow margin at 61%

  • Highest conversion rate at 83%

Finally, it has unmatched technology and platform innovation, giving customers an omnichannel digital experience through its website, app, kiosks, and specialized personnel.

With that said, I like Public Storage, which has the widest moat and margin of safety compared to its peers.

Source: Wide Moat Research

Regards,

Brad Thomas
Editor, Wide Moat Research

MAILBAG

Will you be taking Brad’s advice and looking into self-storage? Write us at [email protected].