Public Storage’s (PSA - Free Report) high brand value, solid operating platform and healthy balance-sheet strength position it well for long-term growth. However, the company is not immune to the coronavirus pandemic’s adverse impact on its business.
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.
It has also been capitalizing on growth opportunities. From the beginning of 2013 through Jun 30, 2020, the company has acquired 355 facilities with 24.9 million net rentable square feet from third parties for $3.3 billion. In addition, it opened the newly-developed and expanded self-storage space for a total cost of $1.7 billion, adding 15.7 million net rentable square feet. Following Jun 30, 2020, the company has acquired or was under contract to acquire five self-storage facilities, spanning 0.3 million net rentable square feet of space for $33.3 million.
Moreover, Public Storage’s robust balance-sheet position gives it a strong footing. The company exited second-quarter 2020 with $1.3 billion of cash and equivalents. As of Jun 30, 2020, Public Storage had a borrowing capacity of $480.7 million under its revolving line of credit. In addition, it has no significant principal payments on debt until 2022. Moreover, the company’s debt maturity schedule is well laddered. Consequently, it has adequate liquidity to withstand the current crisis and capitalize on expansion opportunities through acquisitions and developments.
However, amid the coronavirus pandemic, there is a substantial reduction in demand for self-storage space. This is resulting in decline in move-in volumes, despite lower move-in rental rates. Furthermore, stress on customers’ financial capacity will likely result in rent-collection issues.
As such, with high infection rates in a number of markets and government restrictions, same-store rental income and net operating income are likely to bear the brunt in the near term. Operating expenses will likely flare up, while advertising expenditure might remain elevated for maintaining a high occupancy level.
Furthermore, 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. This is likely to fuel competition for the company, curb its power to raise rents and turn on more discounting.
Further, the estimate revision trend does not indicate a favorable outlook as the Zacks Consensus Estimate for funds from operations (FFO) per share moved marginally downward to $10.35 for 2020 and witnessed no change for 2021 in the past month.
Also, shares of this Zacks Rank #4 (Sell) company have lost 12.8% in the past year compared with the 5.8% decline recorded by the industry.
Stocks to Consider
Alpine Income Property Trust, Inc.’s (PINE - Free Report) Zacks Consensus Estimate for the ongoing-year FFO per share moved 14.4% north to $1.19 in the past month. The stock currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
City Office REIT, Inc.’s (CIO - Free Report) FFO per share estimate for 2020 moved up 4.6% to $1.14 in the past month. The stock currently carries a Zacks Rank of 2.
Duke Realty Corporation’s (DRE - Free Report) Zacks Consensus Estimate for the current year’s FFO per share moved 2.8% north to $1.49 in a month’s time. The stock currently carries a Zacks Rank of 2.
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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