The Top-Performing Self-Storage REITs of 1H 2023
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The self-storage industry we recently profiled is a rapidly expanding sector in the global commercial real estate market, seeing steadily rising interest from investors attracted by the sector`s robust fundamentals, relative stability, and enticing yields. Self-storage facilities` appeal as an investment opportunity comes from several key factors, including population growth, declining homeownership, the rise of e-commerce, and the aging population. In the current environment, increased migration also plays a role of some importance. There are two broad classes of self-storage: Single, and multi-story.
Single-Story Self-Storage Facilities
Single-story facilities are often the most cost-effective to build and operate. They allow for direct outdoor access to storage units, which can be appealing for customers as it permits easy loading and unloading of items. This building type is common in suburban and rural areas where land is cheaper and more abundant.
Multi-Story Self-Storage Facilities
Multi-story self-storage facilities represent greater efficiencies in the use of space, which helps them to overcome the disadvantages of having less, and therefore more expensive, land to build upon. These facilities can serve a greater variety of storage needs, as they are able to offer climate control, flood protection and often larger unit sizes than their single-story brethren.
REITs as Value Conduits for Investors
As we recently discussed in our article about the self-storage industry and self-storage properties, this unique sector of real estate can be a fantastic place for savvy investors to diversify their portfolios and potentially earn significant returns. This is due to several advantages that self-storage Real Estate Investment Trusts (REITs) bring, such as consistent demand, relatively low operational costs, and resilience to economic downturns. However, like any investment, they also come with certain risks, such as the potential for overbuilding in some markets, location-specific demand, and shifting customer preferences.
Moving on to the star performers of 2023, here are the 10 top-performing publicly-traded self-storage REITs of the first half of the year:
| Rank | REIT | YTD Total Return | Dividend Yield |
|---|---|---|---|
| 1 | National Storage Affiliates Trust (NSA) | 12.6% | 6.36% |
| 2 | Extra Space Storage Inc. (EXR) | 10.8% | 4.20% |
| 3 | CubeSmart (CUBE) | 9.9% | 4.02% |
| 4 | Life Storage Inc. (LSI) | 9.6% | 4.10% |
| 5 | Public Storage Inc. (PSA) | 9.4% | 4.20% |
| 6 | StorageMart Property Trust (SMG) | 9.3% | 5.00% |
| 7 | First Advantage Solutions (FAS) | 9.3% | 4.80% |
| 8 | U-Haul International Inc. (UHAL) | -7.13% | 0.00% |
| 9 | Sovran Self Storage Inc. (SSS) | 8.8% | 4.10% |
| 10 | Armada Hoffler (AHH) | 8.6% | 6.68% |
Starting with the smallest but mightiest, the National Storage Affiliates Trust (NSA). Despite being the smallest of the five, NSA has had the highest Year-to-Date (YTD) total return. The company has demonstrated impressive performance through its extensive portfolio of 1,000 self-storage facilities across the United States, proving that size isn`t everything.
Next, we have the giant in the space - Extra Space Storage Inc. (EXR). As the largest of the five, with a portfolio of over 1,800 self-storage facilities, EXR has shown a strong track record of dividend growth. The dividend yield is currently at a healthy 4.20%, demonstrating its commitment to rewarding its shareholders; however, with risk-free rates at over 5%, investment is still driven by growth potential as opposed to income.
CubeSmart (CUBE) represents another heavyweight in the self-storage REIT arena, with a portfolio of over 1,300 facilities. CubeSmart`s unique selling point is its focus on technology and innovation. It is one of the first self-storage REITs to offer self-service check-in and payment options, giving it a modern edge in a traditional industry.
Mid-sized Life Storage Inc. (LSI), with its portfolio of over 700 facilities, chooses to focus on value-add acquisitions. LSI has been extending its reach in high-growth markets, showing a clear strategy for expansion and future growth.
Public Storage Inc. (PSA), the godfather of self-storage REITs, is the oldest and largest in the United States. With a portfolio of over 2,400 facilities, PSA leads the industry in scale and geographic reach, providing a steady, reliable investment choice.
The lesser-known StorageMart Property Trust (SMG) is a mid-sized self-storage REIT with a portfolio of over 400 facilities. Like LSI, SMG`s focus is on value-add acquisitions, and it has been strategically expanding its presence in high-growth markets.
In a more niche sector, First Advantage Solutions (FAS) targets the military market. Though smaller in size with over 100 facilities, FAS offers a unique value proposition by operating self-storage facilities on military bases across the United States.
Though technically not a REIT, U-Haul International Inc. (UHAL) is the largest self-storage operator in the United States, boasting over 1,700 self-storage facilities. In addition to its storage offerings, U-Haul`s moving and storage services provide diversified streams of revenue and are included for comparison. Although it does not share the obligations of a REIT, its competition largely forces it to offer investors perqs not found in REITs, such as special in-kind dividends. UHAL maintains the advantage of being able to buy back stock in lieu of increasing the dividend, as well as special stock and other in-kind dividends, thus offering investors the advantage of preferred tax treatment.
Sovran Self Storage Inc. (SSS) is a mid-sized self-storage REIT with a strategic focus on the Sunbelt region, a net recipient of migrants from other areas and therefore an ideal location for storage facilities due to greater demand, shorter leases and the net backstop of more people. With a portfolio of over 500 facilities, SSS has been extending its reach in growth-focused areas like Florida and Texas, the top and second-place recipients respectively of net migration as well as net income migration in the last year.
Finally, Armada Hoffler (AHH) is a self-storage REIT with a portfolio of over 400 facilities. The company has a strong focus on value-add acquisitions, and it has been expanding its presence in high-growth markets. AHH`s YTD total return is 8.6%.
In conclusion, despite the size and focus of these self-storage REITs varying greatly, all have demonstrated impressive performance and growth in 2023, and have a bright outlook. As long as the impetus to change location remains strong, self-storage facilities should have a robust market, a straightforward path to profits, and a competitive landscape for investment talent.
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