Self-Storage Stocks: High Dividends but High Valuations

Let’s take a look at Extra Space Storage Inc, ticker EXR, today. Now this is a REIT, real estate investment trust, with more than 1,900 self storage facilities. It has about 1.4 million units and 150 million square feet. The company has both self-storage unit sizes, as well as outdoor parking spaces for vehicles. It serves both residential and commercial customers. The market capitalization is over $23 billion as of April 2023.
The Price to earnings ratio is relatively high at 24. If we compare that to Public Storage, ticker PSA, it has a PE ratio of 13. A high PE ratio indicates a more expensive stock.
It is notable how high the dividend yield is. It’s over 4%.
Extra Space recently purchased Life Storage for $12.7 billion. Life Storage owns 1,000 facilities and 75 million square feet, so it is about half the size of Extra Space.
I’ve read some analyst reports that argue that the growth self-storage has experienced in the last two to three years is primarily the result of COVID19 factors. The market has learned the hard way about pricing a stock based on covid growth if you look at companies like Zoom and Peloton. There is also a concern about oversupply in the self-storage space. Additional capacity is still coming onto the market as we speak. In addition, the rates for self storage can be exorbitant. Have you seen how much a small storage locker costs? If there is a supply glut, pricing is going to get rocked.
I am going to argue that Extra Space Storage is overvalued. I believe interest rates will continue to rise and the domestic economic environment will continue to weaken. Extra Space Storage will underperform in this environment.
EXR is an excellent stock, don’t get me wrong, but this doesn’t mean it is not overpriced.