Can the REITs Provide Repeatable Dividends?

24 May 2013 by

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In the middle of February, a Wall Street Journal article came out explaining how “self storage facilities are now the biggest ticket properties in commercial real estate.” An excerpt from the article states:

Cap rates on storage space were near 7% – and were as high as 9% during the commercial real estate downturn in 2009 – and were generally several percentage points higher than cap rates on most other types of commercial real estate.

Coming out of the Great Recession, with job markets , housing markets and consumer confidence all coming back, self storage facilities are beginning to see the light at the end of the tunnel. Many storage operators are seeing at least 80% occupancy. The industry is beginning to consolidate with many of the REIT’s and bigger operators purchasing the smaller chains and mom and pop shops.

Four publicly traded REIT’s make up the $34 billion self storage REIT sector. Comparatively, the mall, health care, apartment and office sector are much bigger than the self storage REIT sector but the self storage sector is growing faster. This is due, in large part, to the $26 billion Public Storage REIT. Public Storage has shares trading at about $150 and recently increased its quarterly dividend. Since 2007 the dividend has more than doubled!

Extra Space, CubeSmart (formerly U-Store-It) and Sovran (Uncle Bobs Self Storage) are all growing in terms of number of facilities, revenue and net income. As a result, they are also increasing their dividends to shareholders.

After the self storage boom in the 2000’s the sectors growth has slowed considerably. As of now, there is minimal competition for the REIT’s and even less new competition because supply is being added at a conservative pace. This creates a wave of opportunities for investors who want the good returns generated by the REIT’s.

It appears the market is steadily heating up and the REIT’s are in a good position to take advantage of this. With occupancy rates growing and the REIT’s purchasing smaller facilities, revenues and income should continue to increase as well leading to solid returns for investors.

SSF Team

SSF Team

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SSF Team

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