The National Storage REIT (ASX: NSR) share price could be overvalued according to one leading broker.
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Who's bearish on National Storage?
According to a note out of Goldman Sachs this week, its analysts have retained their sell rating but lifted the price target on the self-storage operator's shares slightly to $1.57.
This follows the release of the company's trading update and guidance for FY 2021 last week.
That update revealed that National Storage now has a total of 206 centres across Australia and New Zealand following the acquisition of 17 centres and the development of two more in FY 2021.
Management also advised that its combined Australian and New Zealand same centre occupancy has lifted to 85.7%, from 78.9% at the end of June.
Also improving is its same centre revenue per available square metre (REVPAM) metric. At the end of November, its REVPAM was up 6.2% since the end of June to $207.
Finally, in respect to its guidance, the company is expecting to deliver earnings per share at the upper end of the guidance range of 7.7 cents per share to 8.3 cents per share.
What did Goldman Sachs think of this update?
While the broker was pleased with aspects of this update, there wasn't enough detail to allow it change its view.
Goldman explained: "Although occupancy and REVPAM have both improved relative to the comparable metric at June 30, NSR's disclosure is not sufficient to estimate the effective rate – given REVPAM is just for the Australian 2018 same centre portfolio (in-line with disclosure in its June 30 presentation) and the occupancy provided in this update is the combined same centre portfolio for both Australia and New Zealand."
"We also note the increase in occupancy must be viewed in the context of higher rates of discounting, but there is also not enough disclosure to accurately estimate the prevailing rate of discounting in the portfolio. However, for illustrative purposes, if we assume the occupancy and REVPAM are for the total portfolio, we estimate the effective rate declined by roughly 2%," it added.
Valuation concerns.
Goldman Sachs' main issue is its current valuation, which it appears to believe is excessive compared to its peers.
"At the A$1.57 TP, NSR offers a 12-month total return of -18% (vs. coverage average +1%) and it is trading at a 23x FY22E FFO multiple versus our coverage at 17x. We remain Sell rated and see more attractive opportunities on relative valuation and upside in our small caps and alternatives coverage," it concluded.
Goldman Sachs' preferred pick in the space is Charter Hall Social Infrastructure REIT (ASX: CQE). Its analysts have a conviction buy rating and $3.35 price target on its shares.
