It is REIT week and self storage investors have a reason to party. The annual meeting, sponsored by the National Association of Real Estate Investment Trusts (NAREIT), opened in New York on Tuesday just in time for investors to celebrate the strong performance that the U.S. Real Estate Investment Trust (REIT) industry has posted so far this year. And self storage is leading the pack. Nearly all major property types posted double-digit gains, but self storage companies outshined with an 18.4 percent return. In the last 12 months, self storage REITs returned 29 percent.
Property stocks are currently the darlings of the investment business. As of May 31, the total return of the FTSE NAREIT All Equity REITs index, which tracks 120 REITs with a combined market capitalization of $415.5 billion, was up 14.1%. In comparison, the Standard & Poor's 500-stock index rose 7.8% and the Dow Jones Industrial Average rose 9.8% during the first five months.
National Real Estate Investor reports: "Top self-storage owners are now moving full steam ahead with solid balance sheets and a formidable plan for growth as occupancies and rents show signs of improving.” The group of publicly traded self-storage REITs is a small club by REIT standards. Combined, the four largest self-storage REITs, Extra Space Storage Inc. (NYSE: EXR), Public Storage (NYSE: PSA), Sovran Self Storage Inc. (NYSE: SSS) and U-Store-It Trust (NYSE: YSI), account for a total market capitalization of about $23 billion, a minute fraction of the $413 billion equity REIT industry.
With self storage out in front, the REIT industry has sustained an improving trend this year, driven by a largely increased inflow of funds as institutional investors allocated more capital to the industry. This has helped the group generate market-beating returns. Investors looking for high dividend yields also favored the REIT sector. Solid dividend payouts are arguably the biggest enticement for REIT investors as the U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends to shareholders. The dividend yield for the FTSE NAREIT All REIT Index by the end of first quarter 2011 was 4.2% compared to 3.4% for the 10-year U.S. Treasury Note.
Some might be surprised that the not-so-glamorous self storage industry is reaping the REITs rewards. But the reason is simple and it’s tied into the housing market. More people are choosing to rent than buy and more people are losing their homes. Due to a double-dip in housing, limited office space and a shift from home-ownership to multi-family rentals, downsizing has become inevitable. And as downsizing ensues, people move their belongings into self storage, now enjoying the top spot in the REIT world.
Sources Used:
Pruitt, A.D. “REIT Week’s Reason to Party.” Wall Street Journal. June 8, 2011.
“REIT Industry & Stock Outlook – June 2011.” Yahoo Finance. June 8, 2011.
Olick, Diane. “And the REIT Winner Is – Storage? CNBC.com. June 8, 2011.