This REIT subsector has been a strong performer during the past few years, and Milligan feels that there continues to be "a several-year runway for double-digit NAV growth in the backdrop of limited new supply."
Although he initiated industry giant Public Storage PSA at Hold, he still expects the entire sector to outperform the MSCI Equity REIT Index (RMZ).
The three Buy rated equity self-storage REITs are CubeSmart CUBE, Extra Space Storage, Inc. EXR and Sovran Self Storage Inc SSS.
Tale Of The Tape: Past Year
Tale Of The Tape: Past 5 Years
A look back shows that the recent outperformance by self-storage REITs was no fluke.
Another Top Pick
Additionally, Baird reiterated small-cap specialty mREIT Jernigan Capital Inc JCAP at Outperform, while noting it higher risk due to its recent IPO.Dean Jernigan is a former CEO of CubeSmart and is now spearheading an effort to selectively lend to private developers and self-storage operators in order to build new facilities.
Jernigan offers a participating loan product designed to address the lack of new supply, which essentially allows JCAP a 50 percent JV ownership stake at property stabilization.
Baird Sector Overweight Rationale
Investor Takeaway
While Baird noted that self-storage REITs are pricey relative to other subsectors, a fragmented industry full of "mom and pop" operators," strong self-storage fundamentals and the ability to raise rentals in a growing economy make this group of companies attractive moving forward.
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