No More Moats in Self-Storage Stocks
After a recent rating change, we see no moats among self-storage stocks, but demand for self-storage remains strong.
After taking a deeper dive into the self-storage industry, focusing on how the efficient scale moat source applies to competitive dynamics, we have downgraded Public Storage’s (PSA) economic moat rating to none from narrow. Peer Extra Space Storage (EXR) already has a no-moat rating. The main reasons for Public Storage’s rating change were (1) moaty qualities related to intangible assets were identified in only 25% of the portfolio, while switching costs were determined to be too small to retain tenants; (2) new supply can easily challenge the company’s presence in less densely populated areas; and (3) occupancy is decreasing as competition pressures market share. Our fair value estimates stand at $229 per share for Public Storage and $85 per share for Extra Space.
The main differentiator between the self-storage companies we cover is that Public Storage focuses on a development strategy and owns or manages its own facilities, whereas Extra Space relies on acquisitions for rapid growth. Extra Space owns or has partial ownership in 1,000 facilities (750 owned and 250 joint venture) and manages 350 third-party facilities.
Brad Schwer does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.