DNY59/iStock Unreleased via Getty Images
RBC Capital initiated coverage on three REITs, with Public Storage (NYSE:PSA) and Extra Space Storage (NYSE:EXR) at Sector Perform, and CubeSmart (NYSE:CUBE) at Outperform.
For Public Storage (PSA), the analysts said the company has the best balance sheet in the storage assets space.
“However, the historical lack of focus on third-party management (3PM) will make the business difficult to scale to a level that will have an impact, and while development could potentially be a differentiator at some point, we think that also needs to get bigger,” the analysts added.
RBC Capital said, it sees operational performance competing on a more heads-up basis with peers going forward.
“With PSA’s large size, it will take years for 3PM to become a significant growth driver, assuming the competitive landscape allows it,” RBC Capital said.
The analysts said PSA has one of the best balance sheets in REITs, but arguably still underlevered.
The price target for PSA was $358.
EXR has some of the highest platform value in REITs given its position as the largest third-party storage manager, the analysts said.
RBC, however, believes the new store additions are unlikely to track above historical levels, which leads to smaller accretion levels given EXR’s larger post-merger size, while increasing competition may pressure 3PM profitability.
“EXR’s higher variable rate leverage profile is partially offset by headwinds from the bridge loan program, and we view the valuation as fair but not necessarily attractive,” the analysts said.
EXR’s price target by RBC Capital is $180.
For CubeSmart (CUBE), RBC Capital said it likes its unique overweight in the NYC area, where the supply headwinds have faded faster than for the broader group, which could lead to continued rent outperformance.
“CUBE’s 3PM business is also among the best in the group, and CUBE’s smaller size makes store additions more meaningful,” the analysts said.
The analysts also said that CUBE has the only geographically distinct portfolio among the storage REITs, and its third-party management platform adds significant value.
“The balance sheet is in excellent shape; low leverage provides acquisition capacity,” RBC Capital added.
RBC Capital gave a price target of $56.
