Bank Of America Upgrades Life Storage On Greater Supply Visibility

Although Life Storage Inc LSI may continue to record decelerating top line growth, improved supply visibility and better expense control may allow the company to generate growth in funds from operations in 2020, according to BofA Securities.

The Analyst

Bank of America analyst Jeffrey Spector upgraded Life Storage from Underperform to Neutral, raising the price target from $102 to $111.

The Thesis

While Life Storage may face supply pressures and decelerating same store revenues, its supply exposure is much lower than was earlier anticipated, Spector said in the upgrade note.

The company’s new supply under construction as a percentage of existing stock was 2.7% for the third quarter of 2019 versus 3.9% a year earlier, the analyst noted. He explained that this means that the secondary markets were experiencing only slightly higher supply than the primary markets in Life Storage’s local markets.

“We are upgrading LSI on greater visibility into the supply pipeline around its stores, as well as on the better than initially expected supply story,” Spector wrote.

Citing three-year development lease-ups, the analyst said that the company’s high supply markets could continue to suffer a decline in revenues. He added, however, that BofA’s proprietary webscraping data indicated that there had been “pockets of improvement” in rates in certain markets, which had offset the weakness in other markets.

Price Action

Shares of Life Storage were up 1.36% to $109.72 at the time of publishing on Monday.