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Public Storage PSA has been banking on growth opportunities through a series of acquisitions, of late. This has made the company well poised to benefit from the robust industry fundamentals and favorable market demographics. However, stiff competition in the self-storage industry has compelled the company to keep its pricing down, affecting the top line.
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 United States. Further, the company has managed to create a significant presence in the European markets as well.
Public Storage has a strong balance-sheet position, led by $338.4 million of cash and cash equivalents as of Jun 30, 2018. This provides the company with adequate liquidity to undertake expansion through new developments and strategic acquisitions. Since the beginning of 2013 through Jun 30, 2018, the company acquired 276 facilities with 19.4 million net rentable square feet from third parties for around $2.5 billion. Further, the company opened newly-developed and expanded self-storage space for a total cost of $1.1 billion, adding approximately 10 million net rentable square feet of space over this period. Such acquisitions and expansions bode well for long-term growth.
Furthermore, shares of Public Storage have outperformed the industry it belongs to in the past six months. The company’s shares have appreciated 12.8%, while the industry registered growth of 8.2% during the same time frame.
Nonetheless, the company has a significant development and refurbishment pipeline. In fact, as of Jun 30, 2018, it had several facilities in development (2.2 million net rentable square feet), with an estimated cost of $315 million, as well as expansion projects (3.9 million net rentable square feet) worth roughly $364 million.
Public Storage estimates to incur the remaining $445 million of development costs related to these projects mainly over the next 18 months. Though this looks encouraging, the pipeline increases operational risks and exposes the company to rising construction costs, entitlement delays and failure to fulfill government requirements. In addition, self-storage spaces are not usually pre-leased and new assets generally take time to generate yields.
The self-storage industry faces intense competition and with increased supply, the company’s power to raise rent gets reduced. Also, the recent interest-rate hike is a concern for the company. Rising rates imply higher borrowing cost for the company, which, in turn, affects its ability to purchase or develop real estate.
Public Storage currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
A few better-ranked stocks from the real estate space include NorthStar Realty Europe Corp. NRE, VICI Properties Inc. VICIand Whitestone REIT WSR. All three stocks carry a Zacks Rank of 1.
NorthStar Realty’s Zacks Consensus Estimate for 2018 funds from operations (FFO) per share has been revised 5.5% upward over the past 60 days. Its shares have returned 30.7% in the past six months.
VICI Properties’ FFO per share estimates for the current year increased 1.4% in the past 60 days. Its shares have gained 2.1% in the past six months.
Whitestone REIT’s FFO per share estimates for 2018 have inched up 0.8% over the past 60 days. Its shares have appreciated 7.9% over the past six months.
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