Public Storage PSA is one of the largest owners and operators of storage facilities in the United States. The Public Storage brand is the most recognized and established name in the self-storage industry, with its presence in all the major metropolitan markets of the country.
Apart from benefiting from brand recognition, the company is likely to gain from economies of scale. Moreover, Public Storage remains poised to benefit from its approximately 35% stake in Shurgard Self Storage SA. The Shurgard brand, used by Shurgard Europe, is a well-established and valuable brand in Europe.
Shares of PSA have outperformed its industry in the past three months. The company’s shares have rallied 22.2% compared with the industry's rise of 10.1%.
Image Source: Zacks Investment Research
This Zacks Rank #2 (Buy) stock is likely to rally further in the near term on several favorable factors.
Let’s explore what makes it a solid choice:
Expansion Efforts and Technology Investments: Public Storage has been capitalizing on growth opportunities. During the September-end quarter, the company acquired 27 self-storage facilities, comprising 2.2 million net rentable square feet of area, for $0.3 billion. In April, it completed the acquisition of the ezStorage portfolio, comprising 48 properties, for $1.8 billion. Subsequent to the third-quarter end, the company acquired or was under contract to acquire 107 self-storage facilities, encompassing 11.8 million net rentable square feet of space across 16 states, for $2.3 billion.
This month, Public Storage closed the acquisition of the All Storage portfolio for $1.5 billion. The acquisition expands Public Storage’s platform by adding a portfolio of 56 self-storage properties, covering 7.5 million net rentable square feet, mainly located in the growing Dallas-Fort Worth market. With a solid access to capital at low interest rates, the company is poised to take advantage of a potential opportunity.
The company is also leveraging technology for revenue optimization and cost efficiencies and has invested in technologies over the past few years. Such efforts are likely to further bolster PSA’s competitive edge.
Healthy Asset Fundamentals: The self-storage industry continues to benefit from favorable demographic changes. Specifically, migration and downsizing trend and an increase in the number of people renting homes have escalated the needs of consumers to rent space at a storage facility to park their possessions. Demand for self-storage spaces has shot up amid work from home, study from home, elevated home sales, and remodeling and the in-and-out migration of metropolitan markets. Meanwhile, move-outs remain low amid the health crisis, resulting in improved occupancy trends and increased average length of stay. This supports revenues since more long-term tenants are becoming eligible for rate hikes, thereby reducing the need to replace vacating tenants with new tenants that lowers promotional expenses and increases its pricing leverage.
Balance-Sheet Strength and High ROE: Public Storage exited the third quarter of 2021 with $958.2 million of cash and equivalents and $478.8 million of available borrowing capacity under its revolving line of credit. The company has no material debt maturity until September 2022. Moreover, its debt maturity schedule is well-laddered that moderates its refinancing risk. Public Storage maintains a strong financial profile characterized by solid credit metrics, including low leverage relative to its total capitalization, operating cash flows and enjoys an “A” credit rating from Standard & Poor’s and an “A2” from Moody’s. The sturdy credit profile and ratings enable the company to access both the public and the private capital markets to raise capital at favorable rates. As such, PSA seems poised to take advantage of a potential opportunity.
Public Storage’s Return on Equity or ROE is 34.5% compared with the industry’s average of 2.85%. This reflects that the company reinvests more efficiently compared with the industry.
Dividend Payouts: Solid dividend payouts are arguably the biggest enticements for investment in REIT stocks. Successful execution of such growth strategies and efforts to enhance the operating platform have enabled the company to see a 10% CAGR in dividends per share since 2005. Given the company’s financial position compared with that of the industry, its current dividend payout is expected to be sustainable.
Estimate Revisions: Currently, the estimate revision trend for full-year 2021 and 2022 FFO per share indicates a favorable outlook for this self-storage REIT. The Zacks Consensus Estimate for its 2021 and 2022 FFO per share has moved 1.4% and 4.3% north, respectively, in the past month. The projected FFO per share growth rate for 2021 and 2022 is 20.6% and 12.9%, respectively.
Other Key Picks
Some better-ranked stocks from the REIT sector include Prologis, Inc. PLD, CubeSmart CUBE and Rexford Industrial Realty, Inc. REXR.
Prologis holds a Zacks Rank of 2 at present. 2021 funds from operations (FFO) per share for Prologis will likely increase 8.4% year over year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for PLD’s 2021 FFO per share has been revised marginally upward in two months.
The Zacks Consensus Estimate for CubeSmart’s ongoing-year FFO per share has moved 1.4% north to $2.10 over the past month. Its long-term growth rate is projected at 11.2%.
The Zacks Consensus Estimate for CubeSmart’s 2021 FFO per share suggests an increase of 22.1% year over year. Currently, CUBE carries a Zacks Rank of 2.
The Zacks Consensus Estimate for Rexford Industrial’s ongoing-year FFO per share has moved 3.2% north to $1.63 over the past two months.
The Zacks Consensus Estimate for Rexford Industrial’s 2021 FFO per share suggests an increase of 23.5% year over year. Currently, REXR carries a Zacks Rank of 2.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Public Storage (PSA) : Free Stock Analysis Report
Prologis, Inc. (PLD) : Free Stock Analysis Report
CubeSmart (CUBE) : Free Stock Analysis Report
Rexford Industrial Realty, Inc. (REXR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research