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Should You Hold Onto Public Storage (PSA) Stock Right Now?
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Public Storage (PSA - Free Report) is one of the largest owners and operators of self-storage facilities in the United States. The ‘Public Storage’ brand is the most recognized and established name in the self-storage industry, with its presence across all the major metropolitan markets of the United States.
Thus, PSA is likely to gain from the economies of scale apart from benefiting from brand recognition. It also leverages technology for revenue optimization and cost efficiencies and has invested in technologies in the past few years.
In addition, Public Storage has been capitalizing on growth opportunities. For the nine months ended Sep 30, 2022, the company acquired 44 self-storage facilities comprising 3.2 million net rentable square feet of area for $501.9 million. Following Sep 30, 2022, the company acquired or was under contract to buy 33 self-storage facilities spanning 1.7 million net rentable square feet across six states for $262.6 million.
With one of the strongest balance sheets in the sector and adequate liquidity to withstand any challenges, Public Storage is well-poised to bank on expansion opportunities through acquisitions and developments. Its investment-grade credit ratings render it favorable access to the debt market.
PSA’s current cash flow growth is projected at 39.58% compared with the 9.70% growth estimated for the industry. Its trailing 12-month return on equity (ROE) is 78.38% compared with the industry’s average of 4.65%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
However, Public Storage operates in a highly-fragmented market in the United States, with intense competition from numerous private, regional and local operators. In recent years, supply has been increasing in many markets. This will likely fuel competition for the company, affecting occupancies and curbing its power to raise rents and turn on more discounting.
Occupancy levels are likely to moderate as tenants revert to more normal move-out behavior as the impact of the pandemic abates, leading to upward pressure on vacate trends and resulting in adverse pressure on rate growth in many markets.
Also, rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.
Shares of this Zacks Rank #3 (Hold) company have underperformed the industry it belongs to in the past three months. The company’s shares have declined 2.4%, while the industry has gained 14.1% over this period.
The Zacks Consensus Estimate for VICI Properties’ 2022 funds from operations (FFO) per share has moved 3.2% north to $1.92 over the past two months.
The Zacks Consensus Estimate for STAG Industrial’s 2022 FFO per share has been raised marginally over the past month to $2.21.
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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Should You Hold Onto Public Storage (PSA) Stock Right Now?
Public Storage (PSA - Free Report) is one of the largest owners and operators of self-storage facilities in the United States. The ‘Public Storage’ brand is the most recognized and established name in the self-storage industry, with its presence across all the major metropolitan markets of the United States.
Thus, PSA is likely to gain from the economies of scale apart from benefiting from brand recognition. It also leverages technology for revenue optimization and cost efficiencies and has invested in technologies in the past few years.
In addition, Public Storage has been capitalizing on growth opportunities. For the nine months ended Sep 30, 2022, the company acquired 44 self-storage facilities comprising 3.2 million net rentable square feet of area for $501.9 million. Following Sep 30, 2022, the company acquired or was under contract to buy 33 self-storage facilities spanning 1.7 million net rentable square feet across six states for $262.6 million.
With one of the strongest balance sheets in the sector and adequate liquidity to withstand any challenges, Public Storage is well-poised to bank on expansion opportunities through acquisitions and developments. Its investment-grade credit ratings render it favorable access to the debt market.
PSA’s current cash flow growth is projected at 39.58% compared with the 9.70% growth estimated for the industry. Its trailing 12-month return on equity (ROE) is 78.38% compared with the industry’s average of 4.65%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
However, Public Storage operates in a highly-fragmented market in the United States, with intense competition from numerous private, regional and local operators. In recent years, supply has been increasing in many markets. This will likely fuel competition for the company, affecting occupancies and curbing its power to raise rents and turn on more discounting.
Occupancy levels are likely to moderate as tenants revert to more normal move-out behavior as the impact of the pandemic abates, leading to upward pressure on vacate trends and resulting in adverse pressure on rate growth in many markets.
Also, rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.
Shares of this Zacks Rank #3 (Hold) company have underperformed the industry it belongs to in the past three months. The company’s shares have declined 2.4%, while the industry has gained 14.1% over this period.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties Inc. (VICI - Free Report) and STAG Industrial, Inc. (STAG - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
The Zacks Consensus Estimate for VICI Properties’ 2022 funds from operations (FFO) per share has moved 3.2% north to $1.92 over the past two months.
The Zacks Consensus Estimate for STAG Industrial’s 2022 FFO per share has been raised marginally over the past month to $2.21.
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.