Will Expansion Moves Aid Public Storage Amid Supply Strains?
Self-storage REIT Public Storage PSA has been capitalizing on growth opportunities, of late. Recently, the company unveiled a new facility in Richmond, TX, that will offer more than 1,200 climate-controlled storage units and serve the growing Houston suburb. These units, with a range of prices, will satisfy personal and business requirements. The facility marks the company’s seventh in the Houston area this year.
In fact, since the beginning of 2015 through Sep 30, 2017, Public Storage has acquired a total of 86 facilities with 6.2 million net rentable square feet from third parties for around $679.6 million. In addition, since Jan 1, 2013, the company has opened newly developed and redeveloped self-storage space for a total cost of $831.2 million, which added around 7.5 million net rentable square feet.
Moreover, following the third-quarter 2017 closure, the company acquired or was under contract to acquire eight self-storage facilities, spanning 0.5 million net rentable square feet of space, for $67.8 million. Such acquisitions and expansions bode well for this self-storage REIT’s long-term growth.
As a matter of fact, Public Storage 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 nation.
Further, the company has managed to create a significant presence in the European markets as well, through the Shurgard Storage Centers’ acquisition in 2006. Also, the self-storage industry’s fundamentals will likely be driven by favorable demographic changes, and events like marriages, shifting, death and even divorce. The company also has one of the strongest balance sheets in the sector, with adequate liquidity to actively pursue acquisitions and developments.
However, supply has been rising in a number of markets which has an adverse impact on the company’s pricing power. In fact, Public Storage operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. This limits its power to raise rents and turn on more discounting.
In addition to the above, hike in interest rate can also pose a challenge for the company. Essentially, rising rates imply higher borrowing cost for the company. Additionally, the dividend payout might become less attractive than yields on fixed income and money market accounts.
Public Storage currently carries a Zacks Rank #3 (Hold). In the past six months, shares of the company have outperformed the industry. While the stock has edged down 0.7%, the industry has incurred loss of 2.2% during this period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Better-ranked stocks in the REIT space include Franklin Street Properties FSP, Columbia Property Trust CXP and MedEquities Realty Trust MRT. All three carry a Zacks Rank of 2 (Buy).
Franklin Street Properties’ Zacks Consensus Estimates for 2017 FFO per share remained unchanged at $1.05 over the past month. Its share price has moved down 0.3% in three months’ time.
Columbia Property Trust’s FFO per share estimates for the current year have climbed 1.8% to $1.15 in a month’s time. The stock has gained 7.2% over the past three months.
MedEquities Realty’s FFO per share estimates for 2017 inched up 0.9% to $1.12 over the past two months. Its shares have lost 7.7% during the past three months.
Note: All EPS numbers presented in this report represent funds from operations (FFO) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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