CubeSmart (NYSE:CUBE) and Public Storage (NYSE:PSA) are two “buy”-rated storage real estate investment trusts, their strong fundamentals benefiting from better macroeconomic metrics for the next couple of years despite a rich valuation overall in this segment of the real estate industry, says David Toti, Senior Managing Director at Cantor Fitzgerald.
“In storage, we’ve had a strange call. We have two ‘buys’ and two ‘sells’ in storage, which most people look at and kind of scratch their heads, because all the fundamentals are relatively similar. CubeSmart has been our top pick in the group, just because over the past few years it’s been a relative value, and that stock has performed quite nicely. Our other pick is Public Storage, which has lagged a little bit, but it’s a stock that always trades at a relatively rich valuation,” Toti said.
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Toti says that despite the storage stocks are more expensive that then apartments on an implied cap rate basis and a premium basis, making the group very rich and leading to analysts to downgrade stocks in the sector for the last few months, the sector is poised to benefit for conditions for the next couple of years.
“A lot of people are out there saying that the storage names are the new apartments, but I tend to disagree with that, because everything that ailed the apartment space — housing, supply — is actually really good for the storage space. If you have higher GDP growth, more employment, housing recovery, that’s all stuff that drives storage demand, so even though the stocks are expensive, we think their fundamentals are going to remain very strong for the coming year or two,” Toti said.
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