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BofA Upgrades Self-Storage REITs

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Jayson Derrick
·2 min read
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The U.S. is poised to enter a recession amid the growing coronavirus pandemic, but this outlook is favorable for self-storage companies, according to BofA Securities.

The Analyst

Jeffrey Spector upgraded Life Storage Inc (NYSE: LSI) from Neutral to Buy with a price target lowered from $126 to $117.

The analyst also upgraded Public Storage (NYSE: PSA) from Neutral to Buy with a price target lifted from $254 from $267.

The Thesis

Self-Storage REIT companies offer investors exposure to a "relatively defensive sector" within the broader real estate segment for three reasons, Spector wrote in a note. These include:

  • Demand for storage space is mostly sticky during recessions and higher during more severe recessions.

  • Existing users will stay in place so occupancy rates will remain stable and offer cash flow and stability.

  • Demand for storage will become "more of a necessity" today versus in the past.

Life Storage: 'Rent Now' Initiative

Life Storage's "Rent Now" initiative lets customers reserve and execute a lease without human interactions, Spector wrote. This move would be well accepted amid current demands for "social distancing" and result in a reduction in payroll expenses at the company level.

Life Storage was better positioned to manage marketing expenses compared to its peers in 2019 and this should play out throughout 2020.

Public Storage: Liquidity And Minimal Debt

Spencer said Public Storage boasts "ample" liquidity along with "minimal" debt, which makes it well-positioned to operate throughout any downturn. Specifically, the company has $400 million in cash on hand with minimal debt obligations in 2020.

The company's recent move to withdraw a $1.2 billion offer to acquire Australia-based NSR gives it even more liquidity to seek out future M&A opportunities.

LSI and PSA Price Action

Shares of Life Storage were trading higher by more than 10% at $77.68, while shares of Public Storage were higher by more than 4% at $167.72.

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