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Serenity Alternative Investments Blog - Self-Storage REITS: Heads I Win, Tails You Lose

August 2019

posted by Serenity Alternative Investments Fund I
4yrs ago 191

Serenity Alternative Investments Blog - Self-Storage REITS: Heads I win, Tails You Lose


The self-storage REITs have returned 30% in 2019, riding a wave of multiple expansion driven by a flight to safety within REITs and the broader market. While self-storage is a great business and the self-storage REITs are well run companies, as with any investment valuations sometimes get detached from reality. With fundamentals that continue to be un-inspiring, we are skeptical that the self-storage REITs will be able just justify their lofty valuations over the next 12 months. The chart below shows the price/AFFO (cash flow) multiple for Extra Space Storage (EXR), along with same store revenue growth going back to 2012. As you would imagine, higher multiples tend to be correlated with higher organic growth. That is, until 2019. This year has seen EXR trade to near all-time highs relative to forward cash flow estimates, despite same store “SS” revenue growth that is near the lowest it has been in 7 years. The second chart corroborates this story, showing EXR trading at a 40% premium to it’s consensus NAV. This is a valuation premium that the company has only reached once in the past, when SS revenue growth was closer to 8% and the company’s NAV was growing at 30-40%. It’s currently growing at 3%.


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ALL ALPHAMAVEN CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. CONTENT POSTED BY MEMBERS DOES NOT NECESSARILY REFLECT THE OPINION OR BELIEFS OF ALPHAMAVEN AND HAS NOT ALWAYS BEEN INDEPENDENTLY VERIFIED BY ALPHAMAVEN. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THIS IS NOT A SOLICITATION FOR INVESTMENT. THE MATERIAL PROVIDED HEREIN IS FOR INFORMATIONAL PURPOSES ONLY. IT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY INTERESTS OF ANY FUND OR ANY OTHER SECURITIES. ANY SUCH OFFERINGS CAN BE MADE ONLY IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THE INVESTMENT'S PRIVATE PLACEMENT MEMORANDUM. PRIOR TO INVESTING, INVESTORS ARE STRONGLY URGED TO REVIEW CAREFULLY THE PRIVATE PLACEMENT MEMORANDUM (INCLUDING THE RISK FACTORS DESCRIBED THEREIN), THE LIMITED PARTNERSHIP AGREEMENT AND THE SUBSCRIPTION DOCUMENTS, TO ASK SUCH QUESTIONS OF THE INVESTMENT MANAGER AS THEY DEEM APPROPRIATE, AND TO DISCUSS ANY PROSPECTIVE INVESTMENT IN THE FUND WITH THEIR LEGAL AND TAX ADVISERS IN ORDER TO MAKE AN INDEPENDENT DETERMINATION OF THE SUITABILITY AND CONSEQUENCES OF AN INVESTMENT.