Supply pressures remain a key concern for Life Storage Inc LSI, and leading indicators point toward a deceleration in rents in the near term, according to Bank of America Merrill Lynch.
The Analyst
Analyst Jeffrey Spector downgraded Life Storage from Neutral to Underperform and lowered the price target from $105 to $99.
The Thesis
Revenues in high supply markets are expected to decline further due to three-year development lease-ups, Spector said in the Friday downgrade note.
Developers continue to target high returns and margins given their abundance of equity and debt capital, the analyst said. Due to this, supply continues to spread from primary to secondary markets, he said.
Life Storage has higher exposure to the secondary markets than its peers, Spector said, adding that this exposure poses a risk to the company’s earnings visibility in 2019 and 2020.
While Life Storage expects supply to peak this year, the analyst said it could witness peak supply pressure in 2020, after which it could experience a reacceleration in revenues in 2021.
Price Action
Life Storage shares were down 0.57 percent at $95.01 at the time of publication Friday.
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