We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Expansion Efforts Aid Public Storage (PSA): Should You Hold?
Read MoreHide Full Article
Healthy self-storage industry’s fundamentals, driven by favorable market demographics, continue to drive Public Storage’s (PSA - Free Report) growth. Further, the company has been undertaking acquisitions to generate maximum returns from this upbeat market trend. However, there is a development boom of self-storage units in many markets, at present. This is likely to intensify competition for the company.
One of the largest owner and operator of storage facilities in the United States, Public Storage has an extensive presence in all major metropolitan cities. In addition, the Public Storage brand provides a competitive edge to the company over other industry competitors.
Moreover, the company remains well poised to benefit from the European markets’ robust fundamentals through its 35.2% stake in Shurgard Self Storage SA. In fact, the “Shurgard” brand, used by Shurgard Europe, is a well-established and valuable brand in the continent.
In addition, the company has been capitalizing on growth opportunities. In fact, since the beginning of 2013 through Dec 31, 2018, the company acquired 296 facilities, with 20.6 million net rentable square feet, from third parties for around $2.7 billion. Additionally, the company opened newly-developed and expanded self-storage space for a total cost of $1.2 billion, adding approximately 11.3 million net rentable square feet over this period.
Following Dec 31, 2018, the company acquired or was under contract to acquire 14 self-storage facilities, spanning 0.9 million net rentable square feet of space, for $102.4 million. Such acquisitions and expansions bode well for long-term growth.
Moreover, Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to actively pursue acquisitions and developments. The company exited 2018 with around $361.2 million of cash and cash equivalents. In addition, solid dividend payouts are arguably the biggest enticement for investment in REIT stocks and given the company’s financial position and lower debt-to-equity ratio compared to that of the industry, its current dividend payout is expected to be sustainable.
However, in recent years, supply has been high in a number of markets. Further, deliveries are expected to remain elevated in 2019 as well. This is a concern as high supply affects the company’s pricing power. In fact, it operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. This limits the company’s power to raise rents and turn on more discounting.
The company has a significant development and refurbishment pipeline. In fact, as of Dec 31, 2018, the company had several facilities in development (1.7 million net rentable square feet), with an estimated cost of $253 million, as well as expansion projects (3.5 million net rentable square feet) worth roughly $354 million. Public Storage estimates to incur the remaining $322 million of development costs related to these projects over the next 18 months.
Though this is encouraging, the substantial 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.
Some better-ranked stocks in the real estate industry include Alexandria Real Estate Equities, Inc. (ARE - Free Report) , Boston Properties, Inc. (BXP - Free Report) and PS Business Parks, Inc. . Each of these stocks carries a Zacks Rank #2 (Buy), at present.
Alexandria Real Estate Equities’ Zacks Consensus Estimate for current-year funds from operations (FFO) per share moved up a cent to $6.96 in a month’s time.
Boston Properties’ Zacks Consensus Estimate for 2019 FFO per share inched up 0.4% over the last 30 days to $6.92.
PS Business Parks’ Zacks Consensus Estimate for the ongoing year’s FFO per share moved 0.3% north over the last 30 days to $6.60.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
Image: Bigstock
Expansion Efforts Aid Public Storage (PSA): Should You Hold?
Healthy self-storage industry’s fundamentals, driven by favorable market demographics, continue to drive Public Storage’s (PSA - Free Report) growth. Further, the company has been undertaking acquisitions to generate maximum returns from this upbeat market trend. However, there is a development boom of self-storage units in many markets, at present. This is likely to intensify competition for the company.
One of the largest owner and operator of storage facilities in the United States, Public Storage has an extensive presence in all major metropolitan cities. In addition, the Public Storage brand provides a competitive edge to the company over other industry competitors.
Moreover, the company remains well poised to benefit from the European markets’ robust fundamentals through its 35.2% stake in Shurgard Self Storage SA. In fact, the “Shurgard” brand, used by Shurgard Europe, is a well-established and valuable brand in the continent.
In addition, the company has been capitalizing on growth opportunities. In fact, since the beginning of 2013 through Dec 31, 2018, the company acquired 296 facilities, with 20.6 million net rentable square feet, from third parties for around $2.7 billion. Additionally, the company opened newly-developed and expanded self-storage space for a total cost of $1.2 billion, adding approximately 11.3 million net rentable square feet over this period.
Following Dec 31, 2018, the company acquired or was under contract to acquire 14 self-storage facilities, spanning 0.9 million net rentable square feet of space, for $102.4 million. Such acquisitions and expansions bode well for long-term growth.
Moreover, Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to actively pursue acquisitions and developments. The company exited 2018 with around $361.2 million of cash and cash equivalents. In addition, solid dividend payouts are arguably the biggest enticement for investment in REIT stocks and given the company’s financial position and lower debt-to-equity ratio compared to that of the industry, its current dividend payout is expected to be sustainable.
However, in recent years, supply has been high in a number of markets. Further, deliveries are expected to remain elevated in 2019 as well. This is a concern as high supply affects the company’s pricing power. In fact, it operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. This limits the company’s power to raise rents and turn on more discounting.
The company has a significant development and refurbishment pipeline. In fact, as of Dec 31, 2018, the company had several facilities in development (1.7 million net rentable square feet), with an estimated cost of $253 million, as well as expansion projects (3.5 million net rentable square feet) worth roughly $354 million. Public Storage estimates to incur the remaining $322 million of development costs related to these projects over the next 18 months.
Though this is encouraging, the substantial 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.
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
Some better-ranked stocks in the real estate industry include Alexandria Real Estate Equities, Inc. (ARE - Free Report) , Boston Properties, Inc. (BXP - Free Report) and PS Business Parks, Inc. . Each of these stocks carries a Zacks Rank #2 (Buy), at present.
Alexandria Real Estate Equities’ Zacks Consensus Estimate for current-year funds from operations (FFO) per share moved up a cent to $6.96 in a month’s time.
Boston Properties’ Zacks Consensus Estimate for 2019 FFO per share inched up 0.4% over the last 30 days to $6.92.
PS Business Parks’ Zacks Consensus Estimate for the ongoing year’s FFO per share moved 0.3% north over the last 30 days to $6.60.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
See Latest Stocks Today >>