Mizuho starts coverage on self-storage REITs, calls Extra Space top choice

Investing.com -- Mizuho Securities initiated coverage on the U.S. self-storage REIT sector, expressing long-term optimism about the space’s structural advantages but cautioning that industry fundamentals are likely to stay soft through 2025.

The firm named Extra Space Storage (NYSE:EXR) Inc its top pick with an Outperform rating, citing platform advantages, diversified operations, and a stronger near-term growth profile. Public Storage (NYSE:PSA), National Storage Affiliates (NYSE:NSA), and CubeSmart (NYSE:CUBE) were all initiated at Neutral.

“We are constructive on the subsector on a longer-term basis,” analyst said given the sector’s high NOI margin, low CapEx needs, and numerous demand drivers.

“In the short-term, we expect Storage industry fundamentals to remain challenged due to supply&demand headwinds, and current valuation appears fair given limited visibility,” analysts added, pointing to structural tailwinds like the "four Ds"—death, divorce, disaster, and dislocation—as well as decluttering trends.

However, Mizuho said near-term sector performance is likely to remain muted due to continued supply pressures and subdued housing turnover, which is dampening demand.

The firm’s 2026 FFO growth estimates are below consensus, as it expects the recovery in rates and occupancy to be gradual and uneven.

Despite recent underperformance, valuations appear “relatively fair,” trading around 17 times AFFO—below the five-year average. Mizuho sees catalysts emerging if mortgage rates decline and if fundamentals begin to trough in the second half of 2025.

Extra Space stood out for its “track record of operational outperformance” and earnings resilience, with the firm noting additional revenue streams from third-party management and bridge lending programs.

While Neutral-rated names may lag near term, Mizuho noted that a sector-wide rebound in demand and pricing power could provide broader upside.