2 Self-Storage REITs Aggressively Raising Dividends
The global self-storage market reached above $48 billion in 2020, even as the early days of the pandemic applied some pressure to the industry.
Much of the self-storage business takes place in the U.S., with the region accounting for more than 90% of the self-storage market.
The market is expected to continue to grow as more people require space to store their extra possessions. With supply for the housing market remaining very tight, it is difficult for people who are looking for a bigger home to store their belongings.
NYSE:EXR), which owns, operates and develops self-storage properties. The REIT has an interest in nearly 1,200 locations, more than three-quarters of which are wholly owned, spread out over 40 states, Washington, D.C. and Puerto Rico. Extra Space Storage has a market capitalization of $25.1 billion, annual revenue of $1.3 billion and an occupancy rate of 95.3% in its most recent quarter.
Extra Space Storage paused its dividend growth during 2020 due to the Covid-19 pandemic, keeping the distribution steady for seven consecutive quarters.
With more clarity, dividend growth has surged recently. The REIT announced its most recent dividend increase on Feb. 16. The $1.50 declared dividend represented a 20.5% increase on a sequential basis and a 58% raise from the prior year. This is also the third increase in the past five quarters. The last decade had seen the dividend compound at more than 16% per year. The REIT 's dividend growth streak stands at 13 years.
The stocks annualized dividend of $6.00 equates to a 3.2% dividend yield today, which is slightly below the 10-year average yield of 3.3%. Extra Space Storages yield is also more than twice that of the S&P 500 Index.
The midpoint for company guidance for funds from operation (FFO) for 2022 is $7.83, giving Extra Space Storage a projected payout ratio of 77%. This is higher than the long-term average payout ratio of 68%, but still reasonable for what REITs usually pay.
With the stock trading at $187, Extra Space Storage has a forward price-FFO ratio of 23.9. Shares have typically traded with an average price-FFO ratio of just over 21 over the last decade.
Extra Space Storages stock is trading with a slight premium to its historical valuation, but the REIT's occupancy rate is very high. Dividend growth did pause during the beginning of the pandemic, but the REIT has aggressively raised its distributions in the near-term. This provides some evidence that Extra Space Storages business is strong enough to handle adverse conditions and then ramp up dividend growth when conditions normalize. This may make Extra Space Storage an attractive option for investors looking for one of the larger names in the space.
National Storage Affiliates
The second name for consideration is National Storage Affiliates Trust (NYSE:NSA). The REIT, founded in 2013, is smaller than Extra Space Storage, but is a leading operator of self-storage properties in its own right. National Storage Affiliates is valued at $5.3 billion and generated revenue approaching $590 million last year. Occupancy soared 360 basis points to 95.5% in the most recent quarter, demonstrating that the REIT's offerings are in high demand from consumers.
National Storage Affiliates focuses on acquiring and operating properties in the 100 largest metropolitan areas, primarily in the U.S., but also in Puerto Rico as well. In total, National Storage Affiliates has more than 870 properties in 39 states and Puerto Rico. In addition, the REIT manages nearly 180 properties that are owned through National Storage Affiliates real estate ventures.
Unlike many in the market, National Storage Affiliates often raises its dividend every quarter. This has been the case since its founding. Sequential dividend growth isnt just a token raise either as the five-year compound annual growth rate is 8.2%.
The dividend was held steady from the fourth quarter of 2019 through the third quarter of 2020 as National Storage Affiliates assessed the pandemics impact on its business. The very next quarter, growth returned.
On Feb. 24, National Storage Affiliates announced that it was raising its dividend 11.1% for the March 31 payment date. This marks the largest quarter-over-quarter increase since the REIT's first ever dividend increase in 2013. The REIT has a seven-year dividend growth streak.
Based on the $2.00 annualized dividend, National Storage Affiliates has a yield of 3.4%. This is below the five-year average yield of 3.9%, but nearly 200 basis points better than what the S&P 500 Index is offering at the moment.
Leadership has guided towards FFO of $2.71 for 2021, implying a payout ratio of 74%. The payout ratio over the last half-decade is 80%.
National Storage Affiliates trades at $58 as of the writing of this article. Using guidance, the REIT has a forward price-FFO ratio of 21.4. This is just above the stocks five-year average price-FFO ratio of 20.8.
Shares of National Storage Affiliates are trading with a multiple very close to the medium-term average. The REIT is on the young side and has not experienced a severe recession, though its performance during the Covid-19 pandemic is encouraging. The stock offers a very generous yield that looks to be safe from a dividend cut. The sequential dividend growth is an added bonus and is even on the aggressive side. Investors looking for a smaller self-storage name might find these qualities attractive.
This article first appeared on GuruFocus.
