Alex Pettee, CFA
Storage REITs: Hedge Inflation With Dividend Growth
Self-Storage REITs stumbled into the pandemic with challenged fundamentals and an outlook for near-zero growth amid oversupply challenges, but catalyzed by housing market strength, self-storage demand has suddenly become insatiable.
While no longer trading at the compelling valuations that we discussed before the 80% total returns in full-year 2021, we see value in targeted opportunities within the storage REIT sector.
Like a phoenix rising from the ashes, storage REITs have delivered an incredible turnaround over the last eighteen months. Forward-looking indicators and industry commentary suggest that the positive momentum should continue into 2022.
Residential REITs have historically been one of the most effective inflation hedges across all asset classes, and self-storage REITs are no exception, resulting from short lease terms and "sticky" demand.
More broadly, we believe that the sector's strong balance sheets, low cap-ex profile, inflation-hedging lease structure, and above-average external growth potential warrant a premium multiple and overweight positioning within a balanced REIT portfolio.