I understand that self-storage is subject to oversupply and that these REITs typically offer a pretty low yield/dividend. But I am not sure I see the feast or famine when looking at the PSA chart. To me, it looks like investors have done pretty well. Also, I wonder how much of self-storage is small-business related vs. consumer. I am not sure if that distinction makes a difference, but I know that a lot of businesses use self storage facilities.
Interesting point about business use, Dave. Every thesis you see about self-storage involves some story about homeowners. I honestly don't know what the division is. Of course a business of any size needs warehousing not ten by x spaces.
The main thing for that sector, though, is that in round numbers storage space has doubled in the USA since 2000 while population has increased 20%. Consensus among things I read is that overall, the market is saturated. Rents grew strongly in a post pandemic surge, but have been coming back down lately. The REITs are consolidators in the industry, but still need good local economics to make that work.
Regarding feast or famine in the stock chart, maybe feast or beans is a better description. The price chart shows four peaks since 2000, each followed by a drop with several years to recover. Total return is boosted by the larger dividend yields that were common before the GFC.
On top of all that, multiple compression has been substantial across the interval show, accounting for a doubling in price. Take that out and you get an 8% CAGR in price. Not bad but it does not look to me like forward growth can keep that going.
I have been working for a non-profit here in the SF Bay Area, and for a while, we had a small storage space which I visited quite often. It seemed like there was a fair number of small business operating out of these spaces (ebay sellers/collectors, used bikes, rental equipment, party supplies, etc.).
Also, one great point you made is that these companies tend to be consolidators and need good local economics to make that work. Acquisitions might be one of the best ways for these companies to keep it going and to address some of the oversupply. Slide #9 of this EXR presentation ( https://ir.extraspace.com/static-files/1c3efc04-edad-4a5a-b873-2d0552e21c8e ) provides a summary of the current market players. EXR is saying that there are still lots of opportunties to acquire smaller storage facilities, and then drive efficiencies by leveraging the marketing/tech platform which they have developed to reduce staff, etc.
Yes I've seen that story about potential market consolidations before and I believe it. Headwinds at the moment likely include whether potential sellers are willing to take what is now a reasonable price (an issue in all property sectors at present). This issue will be exacerbated by the reduced level of current rents. I don't know EXR well but have nothing against them.
Hi Bradley, I have owned CCI on and off for some years. But with thought I came to realize how absolutely dependent they are on the handful of operators in the wireless sector and on how much they choose to grow. All those projections of unending 7% or so dividend growth are completely dependent on the future resembling the past. And it seems to me they cherry pick the past.
The result is think of them as a B2B C-corp. If their sector is doing well and seems likely to expand, they can be an effective investment. But they don't have the inherent stability of a leased building, as we've seen over the past few years.
I understand that self-storage is subject to oversupply and that these REITs typically offer a pretty low yield/dividend. But I am not sure I see the feast or famine when looking at the PSA chart. To me, it looks like investors have done pretty well. Also, I wonder how much of self-storage is small-business related vs. consumer. I am not sure if that distinction makes a difference, but I know that a lot of businesses use self storage facilities.
Interesting point about business use, Dave. Every thesis you see about self-storage involves some story about homeowners. I honestly don't know what the division is. Of course a business of any size needs warehousing not ten by x spaces.
The main thing for that sector, though, is that in round numbers storage space has doubled in the USA since 2000 while population has increased 20%. Consensus among things I read is that overall, the market is saturated. Rents grew strongly in a post pandemic surge, but have been coming back down lately. The REITs are consolidators in the industry, but still need good local economics to make that work.
Regarding feast or famine in the stock chart, maybe feast or beans is a better description. The price chart shows four peaks since 2000, each followed by a drop with several years to recover. Total return is boosted by the larger dividend yields that were common before the GFC.
On top of all that, multiple compression has been substantial across the interval show, accounting for a doubling in price. Take that out and you get an 8% CAGR in price. Not bad but it does not look to me like forward growth can keep that going.
Thanks for the explanation.
I have been working for a non-profit here in the SF Bay Area, and for a while, we had a small storage space which I visited quite often. It seemed like there was a fair number of small business operating out of these spaces (ebay sellers/collectors, used bikes, rental equipment, party supplies, etc.).
Also, one great point you made is that these companies tend to be consolidators and need good local economics to make that work. Acquisitions might be one of the best ways for these companies to keep it going and to address some of the oversupply. Slide #9 of this EXR presentation ( https://ir.extraspace.com/static-files/1c3efc04-edad-4a5a-b873-2d0552e21c8e ) provides a summary of the current market players. EXR is saying that there are still lots of opportunties to acquire smaller storage facilities, and then drive efficiencies by leveraging the marketing/tech platform which they have developed to reduce staff, etc.
Thanks again.
Yes I've seen that story about potential market consolidations before and I believe it. Headwinds at the moment likely include whether potential sellers are willing to take what is now a reasonable price (an issue in all property sectors at present). This issue will be exacerbated by the reduced level of current rents. I don't know EXR well but have nothing against them.
I guess everyone needs to re-set their valuation expectations for a higher rate environment and oversupply. Time should help with that....
Hello Paul, if I recall, you gave strong consideration to CCI at one point. Have you now soured on the entire sector?
Hi Bradley, I have owned CCI on and off for some years. But with thought I came to realize how absolutely dependent they are on the handful of operators in the wireless sector and on how much they choose to grow. All those projections of unending 7% or so dividend growth are completely dependent on the future resembling the past. And it seems to me they cherry pick the past.
The result is think of them as a B2B C-corp. If their sector is doing well and seems likely to expand, they can be an effective investment. But they don't have the inherent stability of a leased building, as we've seen over the past few years.