As the U.S. Federal Reserve continues pumping hundreds of billions into the repo markets, investors are pouring capital into cash-churning assets.
Interest rates may be low as a result of intervention from the Federal Reserve after the Global Financial Crisis, and stock prices may be continuing to rise, but real estate continues to fly under the radar in a lot of sectors...
The best way to get the benefits of strong yield and price upside is to invest in real estate investment trusts (REITs). These alternative assets provide investors with cash-churning real estate properties that produce strong dividends and significant appreciation upside...
Typically, investors think of commercial real estate or retail centers when they think of REITs. But there's one growing sector that is poised for big gains based on rising demand and demographic shifts across the United States.
I'm talking about the "self-storage" industry.
Self-storage is an appealing industry due to low overhead costs, light construction costs, and reliable cash flow in the form of rent.
According to the annual SSA Self Storage Demand Study, at least 9.4% of American households rent a self-storage unit. And nearly 20% of all self-storage properties fall under the ownership of the largest American self-storage REITs.
I'm referring to the two best self-storage REITs to buy right now. Let's begin...
Self-Storage REITs to Buy No. 2
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Life Storage Inc. (NYSE: LSI) is a self-administered and self-managed equity REIT based in Buffalo, N.Y. With a $5.36 billion market capitalization, the firm is continuing to grow at a breakneck pace.
The company owns more than 850 self-storage facilities in 29 states and Ontario, Canada. It even has facilities in 18 of the fastest-growing 25 markets in the United States.
LSI boasts more than 450,000 customers - a figure that easily makes it the largest provider in the space. The fundamentals continue to support the industry.
Companies like Life Storage target retired and millennial Americans who are looking to live in high-end urban-chic communities, according to PWC.
Growth in the sector has increased cash flow and allowed the firm to return more money to investors. And given the structure of the REIT, it provides specific tax advantages that allow it to pass through profits in the form of higher dividends.
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On Jan. 2, the company hiked its quarterly dividend by 7% from $1 to $1.07. That means the REIT will pay out $4.28 for every unit annually to shareholders.
In a statement, CEO Joe Saffire said that the company's strong operating results, 2020 outlook, and financial position made it possible to hike its quarterly payout.
Life Storage has a Money Morning Stock VQScore™ of 4.8, making it a "Strong Buy" now.
Given its breakout potential, I think it could rise to $150 per share - a figure that represents a possible upside of 35% from Monday's closing price.
Self-Storage REITs to Buy No. 1
Jernigan Capital Inc. (NYSE: JCAP) provides debt and equity capital to private developers, owners, and operators of self-storage facilities.
The company has been transitioning its business model from specialty finance to an owner-operator model that will help it maximize shareholder value. This means that the firm now engages in financing with the goal to eventually own the properties that it funds.
The fundamentals for a company like Jernigan are very favorable. With the U.S. population aging and more Americans moving to secondary cities and more urban environments, storage companies will see an uptick in available customers.
Facilities are easy to construct and open in a short period, which means the firm can bring new operations online quickly. Low overhead costs make it a favorable business no matter the economic conditions. In addition, advancements in technology like cloud computing, online payment systems, and temperature control will drive down costs in the future, pushing margins higher.
Jernigan's management team expects to have a very big 2020. During the firm's Q3 2019 earnings call, management said it expects developer buyouts in the space to increase, thus driving up the size of its portfolio.
The firm will also work with its external advisers to shift toward its owner-operator model and drive more value through management.
Jernigan also has a VQScore of 4.8, indicating it's a "Strong Buy."
With that, I project that the REIT could rise to $30 from today's levels. That figure represents a potential upside of 60%.
Tack that potential return on top of a 7.46% dividend, and you have a market-crushing investment that is flying under the radar right now.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.