2025 Storage Outlook_ Cautious on Initial Guidance; Optimistic on 2H Recovery

Key Points Industry Overview - Self Storage Sector: The report focuses on the self-storage sector, specifically analyzing the outlook for 2025. - Cautious Optimism: The overall outlook for the sector into 2025 is cautiously positive, with expectations for a recovery in the second half of the year. - Housing Market Recovery: The recovery in the housing market is seen as a key driver for the self-storage sector, as increased demand for housing will lead to increased demand for storage. Company Analysis - CubeSmart (CUBE): Downgraded to Hold due to weaker-than-expected move-in rates and softening ECRIs. The company's predominantly urban portfolio may not benefit as much from the housing recovery as its peers. - Extra Space Storage (EXR): Maintained at Buy, with a positive outlook due to its strong position in the market and potential for earnings growth. - National Storage Affiliates (NSA): Maintained at Buy, with a positive outlook due to its exposure to secondary and tertiary markets, which are well-positioned to benefit from the housing market recovery. - Public Storage (PSA): Maintained at Buy, with a positive outlook due to its strong balance sheet and revenue management platform. Key Metrics - Move-in Rates: Expected to return to positive growth in 2025, with a base case scenario of ~3% growth for EXR and PSA, and slightly lower growth for CUBE. - ECRIs: Expected to remain stable in 2025, with a base case scenario of ~22.5% for PSA, 17.5% for EXR, and 17.6% for CUBE. - Occupancy: Expected to improve in 2025, with a base case scenario of ~1% growth for PSA, EXR, and CUBE. Risks - Economic Downturn: A worsening economic environment could negatively impact the housing market and, consequently, the self-storage sector. - Oversupply: Excessive supply of self-storage facilities could lead to lower occupancy rates and rental rates. - Rising Interest Rates: Higher interest rates could increase the cost of capital for self-storage companies and potentially lead to lower demand for housing. Conclusion The self-storage sector is expected to recover in 2025, driven by a recovering housing market. However, there are risks that could impact the sector, including an economic downturn, oversupply, and rising interest rates.