Here Are The Moves From Cantor Fitzgerald's 'Self-Storage Shuffle'

On June 19, Cantor Fitzgerald analyst Gaurav Mehta published a research note, "Self Storage Shuffle: Upgrading SSS to BUY, Downgrading PSA to HOLD."

Additionally, Mehta updated FFO per share and NAVs for the four largest self-storage REITs:

• CubeSmart CUBE - Buy; $4 billion cap, 2.65 percent yield
• Extra Space Storage EXR - Hold; $8.1 billion cap, 3.4 percent yield
• Public Storage PSA - Hold; $33.3 billion cap, 3.5 percent yield
• Sovran Self Storage SSS - Buy; $3.2 billion cap, 3.3 percent yield

The Cantor Fitzgerald update includes: "1Q financials, revised valuation metrics, and takeaways from meetings with the management teams at REITWeek 2015; as well as Cantor Fitzgerald key takeaways from the recently announced $1.4 billion Extra Space acquisition of SmartStop Self Storage, which are discussed below.

Related Link: REIT Juggernaut Extra Space Storage Announces $1.4 Billion Acquisition

Tale Of The Tape - Past Year

The self-storage sector has been one of the strongest REIT sectors during the past 12 months.

The MSCI REIT Index (RMZ) is a good proxy for broader equity REIT performance.

Self-Storage Industry - 5 Year Outperformance

Cantor Fitzgerald - Self-Storage: The Big Picture

On a go forward basis, Cantor Fitzgerald views self-storage fundamentals as being "attractive," and demand is driven in part by population growth trumping new supply due to muted development from 2009 to 2014.

Mehta also identified, "sophisticated revenue management systems and technology advantages," as well as short-term leases, as being positives for the industry "in a rising interest rate environment."

The self-storage "big four" trade at premium valuations, which implies that at least some of the industry good news is already baked into the shares.

Cantor Fitzgerald - Sovran (Uncle Bobs): Upgrade Hold To Buy, PT Raised $91 To $102

• The new SSS target price represents a potential ~13 percent upside from its June 18 close of $90.31 per share
• The Cantor Fitzgerald $102 PT is based upon "… net asset value (NAV) per share of $84.20, 10-year unlevered internal rate of return (IRR) of 7.8% (20bps lower), IRR based capitalization rate of 6.06% (34bps lower), and applied NAV premium of 21.0% (unchanged)."

Cantor Fitzgerald - Public Storage: Downgrade Buy To Hold, PT Raised $0.50 To $199.50

• The new PSA target price represents a potential ~7 percent upside from its June 18 close of $192.46 per share
• The Cantor Fitzgerald $199.50 PT is based upon "… net asset value (NAV) per share of $154.80, 10-year unlevered internal rate of return (IRR) of 7.0% (10bps lower), IRR based capitalization rate of 5.38% (10bps lower), and applied NAV premium of 28.8% (2.75% lower)."

Cantor Fitzgerald - CubeSmart: Rated Buy, PT Increased From $24 To $27

• The new CUBE target price represents a potential ~11.8 percent upside from its June 18 close of $24.15 per share
• The Cantor Fitzgerald $27 PT is based upon "… net asset value (NAV) per share of $21.70, 10-year unlevered internal rate of return (IRR) of 7.6% (30bps lower), IRR based capitalization rate of 5.67% (28bps lower), and applied NAV premium of 22.9% (3.5% higher)."

Cantor Fitzgerald - Extra Space: Rated Hold, PT Increased From $60.50 To $70.50

• The new EXR target price represents a potential upside of just 1.4 percent from its June 18 close of $69.55 per share
• The Cantor Fitzgerald $70.50 PT is based upon "… net asset value (NAV) per share of $55.10, 10-year unlevered internal rate of return (IRR) of 7.1% (10bps lower), IRR based capitalization rate of 5.28% (13bps lower), and applied NAV premium of 27.5% (2.2% higher)."

Notably, in each case, the Cantor Fitzgerald price targets for these self-storage REITs represent significant premiums to NAV, ranging from 21 to 28.8 percent.

Cantor Fitzgerald On EXR Acquisition Of SmartStop
Cantor Fitzgerald views this transaction as a positive for Extra Space, highlights included:

Cantor Fitzgerald - SmartStop Acquisition: Supports Growth Thesis

"Overall, the transaction implies continued external growth in the sector as large public REITs continue to maintain dominance driven by revenue management systems and technology."

1. "The portfolio has opportunities for operational improvements driven by occupancy upside - SmartStop is 87.4% occupied vs. EXR's portfolio at 92.5% as of 1Q:15.
2. Third-party platform expansion and associated fee income.
3. Accretive to adjusted FFO/sh.
4. [Cantor Fitzgerald] currently estimates accretion of 3.6% to 2016 adjusted FFO/sh.
5. It expands the company's asset base (economies of scale)."