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Public Storage (PSA) Closes All Storage Buyout, Boosts Portfolio

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Public Storage (PSA - Free Report) recently announced the expansion of its portfolio by closing the All Storage acquisition for $1.5 billion. This transaction is expected to be immediately accretive to funds from operations (FFO) with the accretion speeding up through stabilization.

The acquisition expands Public Storage’s platform by bringing in the portfolio of 56 self-storage properties, encompassing 7.5 million net rentable square feet, mainly located in the growing Dallas-Fort Worth market.

The move is a strategic fit as the properties are located in regions with solid demand drivers. The 52 properties in Dallas-Fort Worth add major locations to the new, high-growth submarkets along with complementary locations in Public Storage’s current submarkets.

According to Mike McGowan, PSA’s senior vice president of acquisitions, “Dallas-Fort Worth’s business, consumer and resident friendly nature drive strong demographic and economic growth that generates outsized demand for self-storage.”

With the addition of the portfolio and the additional properties recently closed or under contract, the company’s Dallas-Fort Worth presence now comprises nearly 200 locations and 17 million net rentable square feet.

Public Storage has fortified its presence in key cities on acquisitions and expansion efforts. Since 2019, this self-storage REIT has enhanced its portfolio by adding 36 million net rentable square feet, or 22%, through $7.1 billion of acquisitions, development and redevelopment, including the properties under contract.

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 its presence across all the major metropolitan markets of the nation. Apart from benefiting from brand recognition, PSA is likely to gain from the economies of scale.

Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to withstand any market turbulence and bank on expansion opportunities through acquisitions and developments.

The self-storage asset category is basically need-based and recession-resilient in nature. It has low capital expenditure requirements and generates high operating margins. Additionally, the self-storage industry continues to benefit from favorable demographic changes. Specifically, migration and downsizing trend, and an increase in the number of people renting homes have escalated the needs of consumers to rent space at a storage facility to park their possessions.

Further, demand for self-storage spaces has shot up amid work from home, study from home, elevated home sales, remodeling and the in-and-out migration in metropolitan markets, while move-outs remain low amid the health crisis, resulting in improved year-over-year occupancy trends and an increased average length of stay. These have supported revenues as more long-term tenants are becoming eligible for rate hikes, and a lesser need to replace the vacating tenants with new tenants that lower promotional expenses and increase pricing leverage.

Shares of Zacks Rank #2 (Buy) Public Storage have outperformed its industry in six months. The company’s shares have rallied 16%, while the industry has gained 1.3%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment ResearchImage Source: Zacks Investment Research

Other Stocks to Consider

Some other key picks from the REIT sector include Extra Space Storage Inc. (EXR - Free Report) , CubeSmart (CUBE - Free Report) and Rexford Industrial Realty (REXR - Free Report) .

Extra Space Storage holds a Zacks Rank of 2 at present.  The 2021 FFO per share for Extra Space Storage is expected to increase 28.4% year over year.

The Zacks Consensus Estimate for EXR’s 2021 FFO per share has been revised marginally upward in a week.

The Zacks Consensus Estimate for CubeSmart’s ongoing-year FFO per share has moved 2% north to $2.08 over the past month. Its long-term growth rate is projected at 9.8%.

The Zacks Consensus Estimate for CubeSmart’s 2021 FFO per share suggests an increase of 20.9% year over year. Currently, CUBE carries a Zacks Rank of 2.

Rexford Industrial holds a Zacks Rank of 2 at present. The long-term growth rate for Rexford Industrial Realty is projected at 12.8%.

The Zacks Consensus Estimate for REXR’s 2021 FFO per share has been revised 1.2% upward in a month to $1.63.

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.