CubeSmart Vs. Life Storage: Which REIT Is The Better Buy?

After the large sell-off of real estate investment trust (REIT) stocks in 2022, now could be one of the best times to buy REITs since the pandemic crash of 2020. REIT prices are down and yields are up. But how do investors know which REITs to buy?

Here are two of the leading self-storage REITs, compared by eight different measures to help determine which is the better buy between CubeSmart CUBE and Life Storage Inc LSI.

Size and Diversity: CubeSmart is a self-storage REIT with over 1,300 storage facilities in 39 states across the U.S. Life Storage is a Buffalo-based self-storage REIT with 1,150 self-storage facilities in 37 states. (Slight edge to CubeSmart.)

Long-Term Performance: Over the past five years, and without reinvesting dividends, Life Storage has a total return of 100.23%, while CubeSmart has a total return of 60.26%. (Big edge to Life Storage.)

Recent Performance: Over the past five trading days, CubeSmart stock is down 5.32%, while over the same period, Life Storage stock is down 6.82%. Over the past month, CubeSmart is up 2.33% while Life Storage is down 2.80%. (Edge to CubeSmart.)

Most Recent Quarterly Operating Results: Both companies have reported excellent third quarter operating results within the past week. CubeSmart reported funds from operations (FFO) of $0.66 per share. Net operating income (NOI) showed a 15.4% increase year-over-year. Revenue was up 12.2% over the previous year’s Q3. Same store occupancy averaged 94.4%.

Life Storage reported FFO of $1.74. NOI increased by 18.4% year-over-year. Revenue was up 32% from Q3, 2021. Same store occupancy for Q3 averaged 93.1%. (Edge to Life Storage.)

Current Dividend Yield: The current dividend yield for CubeSmart is 4.35. The current dividend yield for Life Storage is 4.32. (No substantial difference.)

Dividend Growth: Over the past five years, CubeSmart has raised its dividend four times for a total increase of 43%. Over the past five years, Life Storage has raised its dividend five times for a 62% total increase. (Edge to Life Storage.)

Dividend Coverage by FFO: CubeSmart’s annual forward FFO is $2.51 and its forward annual dividend is $1.72. Therefore, the dividend payout ratio to the FFO is 68.5%, which is above the 35%-55% payout range that is usually cited as ideal for a REIT.

Life Storage’s forward annual FFO of $6.42 covers the forward dividend yield of $4.32, with a payout ratio of 68.3%, also above the ideal range. (No substantial difference.)

FFO Multiple (Price/FFO): Price/FFO is a measure of the stock’s current price to its next fiscal year consensus of funds from operation. The forward P/FFO for CubeSmart is currently 15.77. The forward P/FFO for Life Storage is 16.00. (No substantial difference.) 

So, which is the better REIT to buy, CubeSmart or Life Storage? Let’s sum it up. On two measures, size and diversity and recent performance, the edge goes to CubeSmart. But on the three measures of long-term performance, most recent operating results and dividend growth, the edge goes to Life Storage. On current dividend yield, dividend coverage by FFO and P/FFO, there were no substantial differences. 

So, by a 3-2 measure, Life Storage seems to be the better REIT to purchase. In addition, the measures by which Life Storage held an advantage are really more important than the ones that favor CubeSmart. As for dividend paid, Life Storage was recently priced at $103.16, while CubeSmart was only $39.48. But the yields are similar.

Both REITs had excellent quarterly results and could be poised for appreciation, especially if the Fed eases back off its three-quarter interest rate hikes. But if stock price is no obstacle, and long-term appreciation and dividend growth are important to you, Life Storage is likely the better REIT to buy.

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