Critical Analysis: Ares Commercial Real Estate (NYSE:ACRE) versus Life Storage (NYSE:LSI)

Life Storage (NYSE:LSI) and Ares Commercial Real Estate (NYSE:ACRE) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their institutional ownership, valuation, analyst recommendations, profitability, dividends, earnings and risk.

Analyst Recommendations

This is a breakdown of recent ratings and recommmendations for Life Storage and Ares Commercial Real Estate, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Life Storage 0 4 5 0 2.56
Ares Commercial Real Estate 0 1 3 1 3.00

Life Storage currently has a consensus target price of $110.22, indicating a potential upside of 18.48%. Ares Commercial Real Estate has a consensus target price of $11.40, indicating a potential upside of 26.95%. Given Ares Commercial Real Estate’s stronger consensus rating and higher probable upside, analysts clearly believe Ares Commercial Real Estate is more favorable than Life Storage.

Valuation & Earnings

This table compares Life Storage and Ares Commercial Real Estate’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Life Storage $574.74 million 7.59 $258.70 million $5.62 16.55
Ares Commercial Real Estate $114.78 million 2.62 $36.99 million $1.34 6.70

Life Storage has higher revenue and earnings than Ares Commercial Real Estate. Ares Commercial Real Estate is trading at a lower price-to-earnings ratio than Life Storage, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Life Storage and Ares Commercial Real Estate’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Life Storage 44.55% 12.33% 6.21%
Ares Commercial Real Estate 9.46% 9.18% 2.21%

Volatility & Risk

Life Storage has a beta of 0.41, indicating that its stock price is 59% less volatile than the S&P 500. Comparatively, Ares Commercial Real Estate has a beta of 1.19, indicating that its stock price is 19% more volatile than the S&P 500.

Dividends

Life Storage pays an annual dividend of $4.28 per share and has a dividend yield of 4.6%. Ares Commercial Real Estate pays an annual dividend of $1.32 per share and has a dividend yield of 14.7%. Life Storage pays out 76.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Ares Commercial Real Estate pays out 98.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Life Storage has increased its dividend for 2 consecutive years and Ares Commercial Real Estate has increased its dividend for 4 consecutive years. Ares Commercial Real Estate is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider and Institutional Ownership

92.0% of Life Storage shares are held by institutional investors. Comparatively, 62.8% of Ares Commercial Real Estate shares are held by institutional investors. 0.9% of Life Storage shares are held by company insiders. Comparatively, 2.2% of Ares Commercial Real Estate shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Summary

Life Storage beats Ares Commercial Real Estate on 10 of the 18 factors compared between the two stocks.

Life Storage Company Profile

Life Storage, Inc. is a self-administered and self-managed equity REIT that is in the business of acquiring and managing self storage facilities. Located in Buffalo, New York, the Company operates more than 750 storage facilities in 28 states and Ontario, Canada. The Company serves both residential and commercial storage customers with storage units rented by month. Life Storage consistently provides responsive service to its 400,000-plus customers, making it a leader in the industry.

Ares Commercial Real Estate Company Profile

Ares Commercial Real Estate Corporation, a specialty finance company, originates and invests in commercial real estate loans and related investments in the United States. It provides a range of financing solutions for the owners, operators, and sponsors of commercial real estate (CRE) properties. The company originates senior mortgage loans, subordinate debt products, real estate preferred equity investments, mezzanine loans, and other CRE investments. Ares Commercial Real Estate Corporation has elected and qualified to be taxed as a real estate investment trust for the United States federal income tax purposes under the Internal Revenue Code of 1986. Ares Commercial Real Estate Management LLC operates as the manager of the company. The company was founded in 2011 and is headquartered in New York, New York.

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