Jefferies analyst Jonathan Petersen downgraded self-storage REITs CubeSmart ( NYSE: CUBE ) and LifeStorage ( NYSE: LSI ) to Hold on Tuesday due to prospects for lower rent and declining web traffic. Overall, he cuts the self-storage sector to Market-Weight as rents drop and the growth outlook moderates.
"We see the cooling housing market as a demand headwind, since housing turnover is a key driver for storage demand," the analyst wrote in a note to clients.
Petersen downgraded CubeSmart ( CUBE ) due to higher supply growth in its markets relative to peers and higher operating expenses. The lower rating for LifeStorage ( LSI ) also reflects weaker demand and increased operating costs.
His top picks in the sector are Public Storage ( PSA ), for its solid balance sheet and upside potential from leasing up its non-same-store pool, and National Storage ( NSA ) due to its attractive valuation and its lower exposure to supply growth this year and next.
Self-storage REITs are mostly in the red in Tuesday afternoon trading. CubeSmart ( CUBE ) -2.9% , LifeStorage ( LSI ) -2.6% , Public Storage ( PSA ) -2.8% , and National Storage Affiliates ( NSA ) -2.5% .
Petersen's Hold rating on CubeSmart ( CUBE ) compares with the SA Quant rating of Buy and the average Wall Street rating of Buy. It's the same with LSI, Quant rating stands at Buy as does its average Wall Street rating .
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For a contrasting view, SA contributor Leo Nelissen sees CubeSmart ( CUBE ) as a rapidly growing player with pricing power and attractive growth markets.
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CubeSmart, LifeStorage cut to Hold at Jefferies as self-storage prospects dim