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Investing.com -- BMO Capital has shifted its storage REIT preferences, downgrading Public Storage (NYSE:PSA) to Market Perform while upgrading CubeSmart (NYSE:CUBE) to Outperform in a note Friday. 

The bank cited diverging outlooks in regional exposure, growth potential, and macro sensitivity.

While acknowledging PSA’s strong fundamentals, BMO (TSX:BMO) cut its rating following recent outperformance and mounting rent restriction pressures in Los Angeles, PSA’s largest market. 

“LA represents a meaningful 17.0% of SSNOI,” the analysts wrote, warning that “local rent restrictions are expected to increasingly pressure growth through ’25.” 

BMO now expects PSA’s same-store revenue for 2025 to decline 0.1% year-over-year, trimming its prior estimate by 50 basis points.

Beyond regulation risks, BMO noted PSA’s acquisitive strategy carries valuation concerns in a consolidating sector. 

“The risk is PSA is a net acquiror, paying a premium for targets,” analysts said. Despite PSA’s A-rated balance sheet and potential growth from non-same-store assets and development, BMO is taking a “more balanced view on shares.”

In contrast, CubeSmart earned BMO’s top pick status. “We upgrade CUBE to Outperform... and expect management to raise guidance,” the note said. 

BMO is forecasting 2025/26 FFO to come in 110 and 220 basis points above consensus, respectively.

Analysts pointed to CUBE’s urban-focused portfolio, 90% of NOI from top-40 MSAs, as a strength, especially in New York City. 

“Urban residents tend to be stickier,” BMO said, suggesting resilience if economic conditions soften. With a lower leverage ratio and recent acquisition momentum, including the Heitman JV consolidation, CUBE has “balance sheet optionality” for external growth.

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