Public Storage (PSA - Free Report) 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 nation. Further, the company has managed to create a significant presence in the European markets as well, through the Shurgard Storage Centers’ acquisition in 2006.
Moreover, the self-storage industry’s fundamentals are likely to be driven by favorable demographic changes, and events like marriages, shifting, death and even divorce. Also, due to shorter leasing periods, this REIT has the power to adjust its rents quickly to any rate hike.
In recent times, Public Storage announced opening of new units in Plano, TX. Specifically, the company unveiled nearly 900 storage units at a new self-storage facility in the rapidly growing region of North Dallas.
In fact, the company has been efficiently capitalizing on growth opportunities. Since the beginning of 2015 through Sep 30, 2017, the company has acquired a total of 86 facilities, with 6.2 million net rentable square feet from third parties for around $679.6 million. Further, since Jan 1, 2013, Public Storage has opened newly developed and redeveloped self-storage space for a total cost of $831.2 million, which added around 7.5 million of net rentable square feet.
Following the third-quarter 2017 closure, the company acquired or was under contract to acquire eight self-storage facilities, spanning 0.5 million net rentable square feet of space, for $67.8 million. Such acquisitions and expansions bode well for the company’s long-term growth. The company also has one of the strongest balance sheets in the sector, with adequate liquidity to actively pursue acquisitions and developments.
Public Storage also delivered a decent performance in the recently-reported quarter. The company’s core funds from operations (FFO) per share of $2.61 marked 3.2% growth from the prior-year quarter figure of $2.53. Results mirror an improvement in net operating income (NOI) from both same-store and non-same store facilities. Higher realized annual rent per occupied square foot supported the company’s same-store performance.
Shares of Public Storage have outperformed the industry it belongs to in the past three months. The company’s shares logged in a gain of 4.2% compared with growth of 3% recorded by the industry. Moreover, the Zacks Consensus Estimate for current-year FFO per share has been revised 0.1% upward in a month’s time, reflecting analysts’ bullish sentiments. Given its progress on fundamentals, the stock is likely to keep performing well in the quarters ahead.
Nonetheless, supply has been rising in a number of markets and this adversely affects the company’s pricing power. In fact, the company operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. This limits its power to raise rents and turn on more discounting.
Also, hike in interest rate is a concern for the company. Essentially, rising rates imply higher borrowing cost for the company. Moreover, the dividend payout might become less attractive than yields on fixed income and money market accounts.
Public Storage currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the REIT space are Cedar Realty Trust (CDR - Free Report) , Extra Space Storage (EXR - Free Report) and Regency Centers Corporation (REG - Free Report) . All three stocks carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cedar Realty’s FFO per share estimates for 2017 remained unchanged at 54 cents in a month. Its share price has increased 20.9% in the past six months.
Extra Space Storage’s current-year FFO per share estimates inched up 0.5% to $4.33 over the past month. Its shares have rallied 12.0% over the last six months.
Regency Centers’ FFO per share estimates for full-year 2017 remained unchanged at $3.67 during the same time frame. Over the past six months, the company’s shares have gained 9.4%.
Note: All EPS numbers presented in this report represent funds from operations (FFO) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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