Self-storage companies run warehouses where people pay to keep items they do not need immediately but do not want to discard. The contents of these lock-ups range from battered furniture to equipment for bygone exercise fads. Recently, Americans have been sending the shares of self-storage operators straight to the dump.
Since hitting a record high in April, the stock of Public Storage, the country’s largest self-storage owner, has collapsed by 20 per cent, reducing its market value to $59bn. Smaller rivals Extra Space Storage, CubeSmart and Life Storage have all fallen by the same or more.
Operators packed in big gains over the past two years as Americans turned bedrooms into offices and garages into gyms. Demand also came from city dwellers, who needed a place to stash their stuff when they temporarily decamped to the countryside.
The end of lockdowns and rising interest rates have reversed sentiment. Most self-storage companies are structured as real estate investment trusts. A higher rate environment makes the relatively high dividend yields generated by reits less attractive.
But not all reits are alike. Self-storage reits benefit from a combination of lower costs, solid demand, and short-term lease structures. Compared with hotel or office reits, self storage reits are low maintenance. They do not have to spend a lot of money to keep their customers happy.
Demand for self storage is holding up. Public Storage, for example, reported occupancy of more than 95 per cent in its latest quarter. Revenue, margins and net operating income all rose during the period. Even the biggest problem for the self-storage sector — oversupply — appears to be waning.
High housing prices mean potential purchasers may hold off moving. Americans are fond of buying things but not of throwing them away. Demand for storage is not easily swayed by macroeconomic trends. In 2021, there was less self storage development than in 2019. The total value was $3.5bn versus $5bn in 2019.
Investors should hold on to self-storage shares even if they are having a Marie Kondo-style clear-out of their portfolios. They should put the stock away in a safe place, where they will not trip over it.
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