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Is it Wise to Hold On to Public Storage (PSA) Stock Now?

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  • PSA-PM

Public Storage’s PSA high brand value, solid operating platform and healthy balance-sheet strength position it well for long-term growth. However, development boom of self-storage units in many markets is a concern.

This self-storage REIT 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 United States. Thus, apart from benefiting from brand recognition, the company is likely to gain from economies of scale.

In addition, Public Storage has been capitalizing on growth opportunities. During 2020, it acquired 62 self-storage facilities, comprising 5.1 million net rentable square feet for $796.1 million. Following Dec 31, 2021, the company acquired or was under contract to acquire 40 self-storage facilities, spanning 3.5 million net rentable square feet of space across 18 states, for $580.1 million.

Moreover, as of Dec 31, 2020, the company managed 92 facilities for third parties, and were under contract to manage 25 additional facilities, including 24 facilities that are currently under construction. With solid access to capital at low interest rates, the company is well poised to take advantage of a potential opportunity.

Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to withstand the current challenging times, and bank on expansion opportunities through acquisitions and developments. The company exited 2020 with $257.6 million of cash and equivalents, and $475.7 million of available borrowing capacity on its revolving line of credit. The company has no material debt maturity until September 2022. Further, the company’s debt maturity schedule is well laddered that moderates its refinancing risk.

Shares of this Zacks Rank #3 (Hold) company have outperformed its industry in three months’ time. The company’s shares have rallied 17.9%, while the industry has gained 11%. Moreover, the trend in estimate revisions for 2021 funds from operations (FFO) per share indicates a favorable outlook for the company. The Zacks Consensus Estimate for the same witnessed marginal upward revision over the past month. Therefore, given the progress on fundamentals and upward estimate revisions, the stock has a decent upside potential.

However, Public Storage operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators.

In addition, in recent years, supply has been increasing in a number of markets. Particularly, the REIT continues being impacted by the construction of new facilities that has been most prominent in Atlanta, Austin, Charlotte, Chicago, Dallas, Denver, Houston, Miami, Minneapolis, New York and Portland. This is likely to fuel competition for the company, affecting occupancies, curbing its power to raise rents and turn on more discounting.

Public Storage witnessed a decrease in move-out activity in recent quarters due to the transitory factors associated with the pandemic. However, such factors are likely to moderate as tenants revert to more normal move-out behavior as the impact of the pandemic abates. This might strain move-out trends, and lead to negative pressure on revenues.

Stocks to Consider

Crown Castle International Corp’s CCI Zacks Consensus Estimate for 2021 FFO per share has moved marginally north to $6.73 over the past month. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Extra Space Storage’s EXR Zacks Consensus Estimate for first-quarter 2021 FFO per share moved 8.8% north to $1.48 in two months’ time. The stock currently carries a Zacks Rank of 2.

Global Net Lease, Inc. GNL has a Zacks Rank of 2 at present. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised 4% upward to $2.10 in the past two months.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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