Public Storage PSA recently announced closing of the first phase of the previously-announced newly built, high-quality Beyond Self Storage portfolio acquisition. The move comes as part of its opportunistic growth strategy.
In the first phase, 24 existing properties, spanning 2.3 million net rentable square feet, built since 2016, with an average occupancy of roughly 35% are being added to Public Storage’s portfolio. In total, the Beyond Self Storage portfolio acquisition involves 36 properties with 3.6 million net rentable square feet of space, for which Public Storage has agreed to shell out $528 million.
The second phase will bring in 12 properties with 1.3 million net rentable square feet to Public Storage’s portfolio. These properties are presently under various stages of development and their acquisition will take place upon completion in 2021.
Public Storage has fortified its presence in key cities on acquisitions and expansion efforts. From the beginning of 2013 through Sep 30, 2020, the company has acquired 359 facilities with 25.1 million net rentable square feet from third parties for $3.4 billion. Also, it opened the newly-developed and expanded self-storage space for a total cost of $1.7 billion, adding 15.9 million net rentable square feet.
Moreover, since the beginning of 2019, Public Storage has enhanced its asset base by 13.9 million net rentable square feet, or 9%, through $1.9 billion of acquisitions, development, and redevelopment, including properties currently under contract. With a solid access to capital at low interest rates, the company is well poised to take advantage of a potential opportunity.
The company has emerged as 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. As such, apart from benefiting from brand recognition, it is likely to gain from economies of scale.
Public Storage maintains a robust financial profile characterized by solid credit metrics, including low leverage relative to its total capitalization and operating cash flows. It also has 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. Thus, it is well poised to take advantage of a potential opportunity.
However, Public Storage operates in a highly fragmented market in the nation with stiff competition from numerous private, regional and local operators. In addition, there is a development boom of self-storage units in many markets. This high supply is likely to intensify competition, curb its power to raise rents and turn on discounting.
Public Storage currently carries a Zacks Rank #3 (Hold). The company’s shares have gained 12.1%, outperforming the industry’s rally of 7.1% over the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
Extra Space Storage Inc.’s EXR Zacks Consensus Estimate for 2020 funds from operations (FFO) per share has moved up 1.6% to $5.06 over the past week. The company currently carries a Zacks Rank of 2 (Buy).
Innovative Industrial Properties, Inc.’s IIPR FFO per share estimate for the current year has been revised upward by 5.8% to $5.11 over the past two months. The company carries a Zacks Rank of 2, currently.
City Office REIT, Inc.’s CIO Zacks Consensus Estimate for ongoing-year FFO per share has moved 2.6% north to $1.20 in a month’s time. The company holds a Zacks Rank of 2 at present.
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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