Life Storage (LSI) delivered another self-storage beat-and-raise last night with Core FFO of $1.37/share which was +$0.08/share (+6%) vs. Hedgeye and +$0.09/share (+7.2%) vs. Consensus (see Figure 1 below), and took up the FY21 ranges (see Figure 2 below). The one item that stuck out the most to us is that it looks like LSI had the most aggressive portfolio churn in 3Q21 among EXR/PSA/LSI with ending SS occupancy down -110bp q/q to 94.6% vs. -80bp for PSA and -30bp for EXR, and we wonder if that is a function of LSI hitting the gas pedal the hardest on rate growth heading into year-end. LSI had long been viewed as the "also ran" in the group going back to its YSI days, but the reality is that it has dramatically improved its portfolio quality and operations, yet in-place rents of ~$16.57psf remain significantly discounted to peers at a point in the cycle where market rental rate growth continues to accelerate. By extension this means LSI may also be the fastest pure self-storage horse alongside Best Idea Long CUBE heading into FY22. It has taken us a little while to get comfortable with LSI, but we are adding it to our Best Idea Long list and moving PSA to the Long Bench. We have had a nice run with PSA and still think it can be owned here, but see more upside elsewhere in the subsector as 3Q21 results have come in, alongside better Quad 2 style factors as well (specifically leverage and size). We are effectively overweight self-storage with UHAL/CUBE/LSI all on the Best Idea Long list and PSA/EXR on the Long Bench (see Figure 3 below).
Figure 1: LSI 3Q21 Earnings Variances
Figure 2: FY21 Guidance Changes
Figure 3: Hedgeye REITs Position Monitor
Figure 4: REITs 3Q21 Earnings Surprise Tracker
Please e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
