The self-storage asset category is need-based and recession-resilient by nature and generates high operating margins, given its low capital-expenditure requirements.
Moreover, the self-storage industry continues to benefit from favorable demographic changes. Amid the flexible working environment, the demand for self-storage space has risen. Therefore, given the favorable self-storage industry fundamentals, Public Storage ( PSA Quick Quote PSA - Free Report) , a renowned self-storage real estate investment trust (REIT) in the United States, is well-poised for growth. The company operates in major metropolitan markets, with nearly half the U.S. population living within a Public Storage trade area. Thus, apart from benefiting from brand recognition, PSA is likely to gain from the economies of scale. Public Storage’s accretive buyouts to maximize its growth opportunities seem encouraging. 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. On the balance-sheet front, PSA holds one of the strongest balance sheets in the sector with ample liquidity. Its investment-grade credit ratings render it favorable access to the debt market. With solid balance-sheet strength, it is well-poised to capitalize on future growth opportunities. Further, 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 several private, regional and local operators. PSA’s development and refurbishment pipeline, although encouraging for long-term growth, exposes the company to operational risks associated with increasing construction costs, entitlement delays and failure to fulfill government requirements. Also, rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate. Analysts seem bearish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for 2022 funds from operations (FFO) per share does not indicate a favorable outlook for the company as it has been unchanged over the past two months. Shares of Public Storage have gained 1.5% in the quarter-to-date period compared with its industry’s growth of 6.7%. Image Source: Zacks Investment Research Stocks to Consider
Some better-ranked stocks from the REIT sector are
VICI Properties ( VICI Quick Quote VICI - Free Report) , Lamar Advertising ( LAMR Quick Quote LAMR - Free Report) and Equity Commonwealth ( EQC Quick Quote EQC - Free Report) . The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is currently pegged at $1.91. VICI carries a Zacks Rank #2 (Buy) at present. The Zacks Consensus Estimate for Lamar Advertising’s 2022 FFO per share presently stands at $7.34. LAMR carries a Zacks Rank of 2, currently. The Zacks Consensus Estimate for Equity Commonwealth’s ongoing year’s FFO per share is pegged at 16 cents, presently. EQC sports a Zacks Rank #1 (Strong Buy) currently. You can see . the complete list of today’s Zacks #1 Rank stocks here 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.