Consider the perfect income-producing rental property: self-storage facilities. There are tons of units to rent per property, the tenants don't actually live there but still pay by the month, and it's pretty easy to gauge whether your rents are within industry standards with a quick Internet search. Sweet, indeed, but there may be an even better way to play this investment market gem: self-storage real estate investment trusts.
These REITs are doing quite well, probably having benefited from the foreclosure crisis and the need for storage that arises from that situation. That trend would be in addition to the fact that, despite the recent economic downturn, Americans still seem to have too much stuff, and generally loathe parting with it.
According to The Wall Street Journal, storage REITs enjoyed a 35.4% return in 2011, compared to a mere 8% for all other REITs, and part of the reason for that is the higher rate of foreclosures. In addition, the industry did not suffer nearly as much as other commercial rentals during the recession, many of which saw their revenues drop precipitously.
The industry darling is Extra Space Storage (NYS: EXR) , which has seen its stock value rise over 40% in the last year. The proud owner of over 880 storage facilities, this REIT has found success putting up new, modern-looking buildings in high-population areas. Extra Space has expanded quickly, and has been able to increase rents and bump up its occupancy rate. As large as this REIT is, it is second to industry leader Public Storage (NYS: PSA) , which controls over 2,000 self-storage facilities in 38 U.S. states. Its stock value has risen nearly 25% over the past year, despite a slightly disappointing fourth-quarter report. However, management noted that it was able to increase rents nearly 3% last year, which will continue to boost revenue into the current year.
Sovran Self Storage (NYS: SSS) , which operates storage facilities under the name Uncle Bob's Self Storage, reported a 16% revenue increase last year over the year previous, noting particular gains in the Northeast. CubeSmart (NYS: CUBE) has been trading near its 52-week high of $12.39 for a few weeks now, but posted the smallest return of the four REITs. The company has shown a 15% rise in just this calendar year, however, after staying virtually flat for most of the past year.
In addition to helping storage facilities stay informed of what the competition is up to, the Internet has also helped heighten awareness of the industry among consumers, which brings in more business. There is strong evidence that the industry will be able to continue increasing rents this year and into the future, due to decreased competition.
Most REITs are using acquisitions to grow, instead of building new facilities, This consolidation, which caused much activity in 2011, is expected to continue. Add in the fact that, as with all REITs, 90% of the profit must be returned to shareholders, and you've got a recipe for investing success.
REITs are great for many reasons, but are of particular interest to dividend-loving investors. If you would like to scout a few more excellent income-producing stocks to add to your portfolio, check out our free report here.
At the time this article was published Fool contributor Amanda Alix owns no shares in the companies mentioned above.The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.