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Why You Should Retain Public Storage (PSA) Stock for Now
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Public Storage (PSA - Free Report) is well-positioned to expand in the self-storage market with its presence in key cities and high brand recognition. Moreover, PSA’s technological advancements and healthy balance sheet are commendable. Its sustainable dividend payouts make it an attractive investment option.
However, softening in demand and operating trends is a key concern. The development boom of self-storage units in many markets is likely to intensify competition and curb pricing power. High interest rates add to its woes.
What’s Aiding PSA?
Public Storage is one of the top owners and operators of storage facilities. The brand stands out as one of the most recognized and established names in the self-storage industry. With a significant market presence in major metropolitan centers, the company is poised to capitalize on the economies of scale apart from benefiting from its brand recognition. PSA is leveraging technology for revenue optimization and cost efficiencies and, as such, has invested in technologies over the past few years.
In addition, Public Storage has been capitalizing on growth opportunities. In September 2023, it acquired Simply Self Storage from BREIT for $2.2 billion. From the beginning of 2021, the company acquired a total of 470 facilities with 38.8 million net rentable square feet for $8.5 billion.
As of Dec 31, 2023, the company had various facilities in development and expansion, which are expected to add 3.6 million net rentable square feet at an estimated cost of $766.2 million. Public Storage expects $500 million in acquisitions and $450 million in development openings in 2024. With solid access to capital, the company is well-poised to take advantage of a potential opportunity.
PSA maintains a strong financial profile characterized by solid credit metrics, including low leverage relative to its total capitalization and operating cash flows. The company concluded 2023 with a net debt and preferred equity to EBITDA of 3.9X and an EBITDA to fixed-charge coverage of 8.3 times. It also enjoys an “A” credit rating from Standard & Poor’s and an “A2” from Moody’s.
The sturdy credit profile and ratings enable the company to access both public and private capital markets to raise capital at favorable rates. As such, the company seems well-poised to take advantage of any potential opportunity.
Furthermore, solid dividend payouts are arguably the biggest enticement for investment in REIT stocks. Public Storage has consistently paid its dividends. While the company has increased its dividend two times in the past five years, encouragingly, its payout has grown 8.12% over the same time period. Looking at the company’s operating environment and financial position compared to that of the industry’s average, its current dividend is expected to be sustainable in the upcoming period.
Shares of this Zacks Rank #3 (Hold) company have increased 1.7% over the past month against its industry's decline of 0.8%. Analysts seem bullish regarding PSA’s FFO growth prospects. The Zacks Consensus Estimate for the company's 2024 FFO per share has been revised marginally upward over the past week.
Image Source: Zacks Investment Research
What’s Hurting PSA?
The self-storage industry continued to experience softening in demand and operating trends through 2023, and this trend is expected to continue in 2024. Particularly, the industry-wide demand from new customers for storage space at the beginning of 2024 was below the level at the beginning of 2023.
Tenants are reverting to more normal move-out behavior with the abatement of the pandemic, and there is upward pressure on vacate trends. To lure tenants into such an environment, management continues to focus on lowering rental rates to new customers and increasing promotional discounting.
Consequently, same-store revenues are likely to be affected, and we estimate only a 0.9% increase in this metric in 2024. Also, we project 2024 weighted average square foot occupancy to be 92.8%, down from 93.3% recorded in 2023.
A high interest rate is a concern for Public Storage. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. The company has a substantial debt burden, and its total debt as of Dec 31, 2023 was approximately $9.1 billion. For 2024, we expect a significant year-over-year increase in the company’s interest expenses.
The Zacks Consensus Estimate for HST’s 2024 FFO per share is pegged at $1.97, which suggests year-over-year growth of 2.6%.
The Zacks Consensus Estimate for IRM’s 2024 FFO per share stands at $4.42, which indicates an increase of 7.3% from the year-ago quarter.
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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Why You Should Retain Public Storage (PSA) Stock for Now
Public Storage (PSA - Free Report) is well-positioned to expand in the self-storage market with its presence in key cities and high brand recognition. Moreover, PSA’s technological advancements and healthy balance sheet are commendable. Its sustainable dividend payouts make it an attractive investment option.
However, softening in demand and operating trends is a key concern. The development boom of self-storage units in many markets is likely to intensify competition and curb pricing power. High interest rates add to its woes.
What’s Aiding PSA?
Public Storage is one of the top owners and operators of storage facilities. The brand stands out as one of the most recognized and established names in the self-storage industry. With a significant market presence in major metropolitan centers, the company is poised to capitalize on the economies of scale apart from benefiting from its brand recognition. PSA is leveraging technology for revenue optimization and cost efficiencies and, as such, has invested in technologies over the past few years.
In addition, Public Storage has been capitalizing on growth opportunities. In September 2023, it acquired Simply Self Storage from BREIT for $2.2 billion. From the beginning of 2021, the company acquired a total of 470 facilities with 38.8 million net rentable square feet for $8.5 billion.
As of Dec 31, 2023, the company had various facilities in development and expansion, which are expected to add 3.6 million net rentable square feet at an estimated cost of $766.2 million. Public Storage expects $500 million in acquisitions and $450 million in development openings in 2024. With solid access to capital, the company is well-poised to take advantage of a potential opportunity.
PSA maintains a strong financial profile characterized by solid credit metrics, including low leverage relative to its total capitalization and operating cash flows. The company concluded 2023 with a net debt and preferred equity to EBITDA of 3.9X and an EBITDA to fixed-charge coverage of 8.3 times. It also enjoys an “A” credit rating from Standard & Poor’s and an “A2” from Moody’s.
The sturdy credit profile and ratings enable the company to access both public and private capital markets to raise capital at favorable rates. As such, the company seems well-poised to take advantage of any potential opportunity.
Furthermore, solid dividend payouts are arguably the biggest enticement for investment in REIT stocks. Public Storage has consistently paid its dividends. While the company has increased its dividend two times in the past five years, encouragingly, its payout has grown 8.12% over the same time period. Looking at the company’s operating environment and financial position compared to that of the industry’s average, its current dividend is expected to be sustainable in the upcoming period.
Shares of this Zacks Rank #3 (Hold) company have increased 1.7% over the past month against its industry's decline of 0.8%. Analysts seem bullish regarding PSA’s FFO growth prospects. The Zacks Consensus Estimate for the company's 2024 FFO per share has been revised marginally upward over the past week.
Image Source: Zacks Investment Research
What’s Hurting PSA?
The self-storage industry continued to experience softening in demand and operating trends through 2023, and this trend is expected to continue in 2024. Particularly, the industry-wide demand from new customers for storage space at the beginning of 2024 was below the level at the beginning of 2023.
Tenants are reverting to more normal move-out behavior with the abatement of the pandemic, and there is upward pressure on vacate trends. To lure tenants into such an environment, management continues to focus on lowering rental rates to new customers and increasing promotional discounting.
Consequently, same-store revenues are likely to be affected, and we estimate only a 0.9% increase in this metric in 2024. Also, we project 2024 weighted average square foot occupancy to be 92.8%, down from 93.3% recorded in 2023.
A high interest rate is a concern for Public Storage. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. The company has a substantial debt burden, and its total debt as of Dec 31, 2023 was approximately $9.1 billion. For 2024, we expect a significant year-over-year increase in the company’s interest expenses.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Host Hotels & Resorts (HST - Free Report) and Iron Mountain (IRM - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for HST’s 2024 FFO per share is pegged at $1.97, which suggests year-over-year growth of 2.6%.
The Zacks Consensus Estimate for IRM’s 2024 FFO per share stands at $4.42, which indicates an increase of 7.3% from the year-ago quarter.
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.