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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 presence in all major metropolitan markets of the country.
Apart from benefiting from brand recognition, the company is likely to gain from economies of scale. Public Storage remains well poised to benefit from its approximately 35% stake in Shurgard Self Storage SA. In fact, the Shurgard brand, used by Shurgard Europe, is a well-established and valuable brand in Europe.
Shares of Public Storage have outperformed its industry in three months’ time. The company’s shares have rallied 12.4%, while the industry has gained 4.3%.
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This Zacks Rank #2 (Buy) stock is likely to rally further in the near term on a number of 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 June-end quarter, the company acquired 84 self-storage facilities, comprising 7.0 million net rentable square feet of area, for $2.3 billion. In April, the company completed the acquisition of the ezStorage portfolio, comprising 48 properties, for $1.8 billion. This transaction is immediately accretive to FFO. The move is a strategic fit as the properties, which are across Washington DC, Virginia, and Maryland, are located in regions with solid demand drivers and high barriers for new property development. There are also scopes for expansion. Public Storage’s in-house development team will increase the portfolio’s square footage by 10% through development opportunities at eight of these sites.
Following Jun 30, 2021, the company acquired or was under contract to acquire 36 self-storage facilities, spanning 3.0 million net rentable square feet of space across 15 states, for $466.6 million. With solid access to capital at low interest rates, the company is well poised to take advantage of a potential opportunity.
Furthermore, the industry is characterized by fragmented ownership and only around 30% of the total self-storage square footage is under REIT ownership, with Public Storage and Extra Space Storage EXR enjoying notable shares of the market. This creates ample scope for consolidation at some level in the future, and with a solid scale, decent balance sheet strength and technological advantage, Public Storage is strongly positioned to compete for acquisitions.
The company is also leveraging technologies for revenue optimization and cost efficiencies, and has also invested in technologies over the past few years.
Healthy Asset Fundamentals: The self-storage industry continues to benefit from favorable demographic changes. Migration and downsizing trend, and 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. Further, demand for self-storage spaces has shot up amid the work-from-home and study-from-home waves, elevated home sales and remodeling, and migrations in and out of metropolitan markets, while move-outs remain low amid the health crisis. This is resulting in improved year-over-year occupancy trends and increased average length of stay. This supports revenue growth because of more long-term tenants becoming eligible for rate hikes, and a lesser need to replace vacating tenants, which lowers promotional expenses and increases the company's pricing leverage.
Balance Sheet Strength and High ROE: Public Storage exited second-quarter 2021 with $480.8 million of cash and equivalents, and $474.9 million of available borrowing capacity on its revolving line of credit. The company has no material debt maturity until September 2022. The company’s debt maturity schedule is well-laddered and moderates its refinancing risk. It maintains a strong financial profile characterized by solid credit metrics, including low leverage relative to its total capitalization and operating cash flows, plus enjoys an A credit rating from Standard & Poor’s and an A2 credit rating 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, the company seems well poised to take advantage of a potential opportunity.
Additionally, Public Storage’s Return on Equity or ROE is 31.12% compared with the industry’s average of 2.68%. This reflects that the company reinvests more efficiently compared to the industry.
Dividend Payouts: Solid dividend payouts are arguably the biggest enticement for investment in REIT stocks. In fact, the 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 trend in estimate revisions for full-year 2021 funds from operations (FFO) per share indicates a favorable outlook for this self-storage REIT. The Zacks Consensus Estimate for the current-year FFO per share moved 3.96% north over the past month. The projected FFO per share growth rate for 2021 is 16.3%.
Other Key Picks
The Zacks Consensus estimate for OUTFRONT Media Inc.’s OUT 2021 FFO per share has moved 3.4% north to 90 cents over the past month. The company carries a Zacks Rank of 2, currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Rexford Industrial Realty, Inc. REXR carries a Zacks Rank of 2, at present. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised 4.8% upward to $1.54 over the past two months.
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.
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Public Storage (PSA) : Free Stock Analysis Report
Extra Space Storage Inc (EXR) : Free Stock Analysis Report
Rexford Industrial Realty, Inc. (REXR) : Free Stock Analysis Report
OUTFRONT Media Inc. (OUT) : Free Stock Analysis Report
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