Public Storage (PSA Quick QuotePSA - 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 its presence in all the major metropolitan markets of the country.

Apart from benefiting from brand recognition, the company is likely to gain from economies of scale. Moreover, Public Storage remains poised to benefit from its approximately 35% stake in Shurgard Self Storage SA. The Shurgard brand, used by Shurgard Europe, is a well-established and valuable brand in Europe.

Shares of PSA have outperformed its industry in the past three months. The company’s shares have rallied 13.6%, while the industry has risen 0.9%.

Image Source: Zacks Investment Research

This Zacks Rank #2 (Buy) stock is likely to rally further in the near term on several favorable factors.

Factors That Make Public Storage a Solid Choice:

Expansion Efforts & Technology Investments: Public Storage has been capitalizing on growth opportunities. During the December-end quarter, Public Storage acquired 106 self-storage facilities, comprising 11.5 million net rentable square feet of area, for $2.3 billion. These included a portfolio of 56 properties, spanning 7.5 million net rentable square feet, operated under the brand name of All Storage for $1.5 billion. Following Dec 31, 2021, the company acquired or was under contract to acquire 15 self-storage facilities, spanning 1.2 million net rentable square feet of space across 10 states, for $212.4 million. With access to capital at low interest rates, the company is well-poised to take advantage of a potential opportunity.

The company is also leveraging technology for revenue optimization and cost efficiencies and has invested in technologies over the past few years. Such efforts are likely to further bolster PSA’s competitive edge.

Healthy Asset Fundamentals: The self-storage industry continues to benefit from favorable demographic changes. Specifically, the 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. Demand for self-storage spaces has shot up amid work from home, study from home, elevated home sales, and remodeling and the in-and-out migration of metropolitan markets. Moreover, improved occupancy trends and an increased average length of stay support revenues since more long-term tenants become eligible for rate hikes, thereby reducing the need to replace vacating tenants with new tenants, which lowers promotional expenses and increases its pricing leverage.
 
Balance Sheet Strength & High ROE: Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to withstand the current challenging times and bank on expansion opportunities through acquisitions and developments. The company exited 2021 with $734.6 million of cash and equivalents, up from $257.6 million recorded at the end of 2020. Moreover, the company’s debt maturity schedule is well-laddered and moderates its refinancing risks. The company maintains a strong financial profile characterized by solid credit metrics, including low leverage relative to its total capitalization and operating cash flows, and 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. PSA seems well-poised to take advantage of a potential opportunity.

Public Storage’s Return on Equity is 39.08% compared with the industry’s average of 3.38%. This reflects that the company reinvests more efficiently compared with the industry.

Dividend Payouts: Solid dividend payouts are arguably the biggest enticements for investments in REIT stocks. The successful execution of such growth strategies and efforts to enhance the operating platform have enabled the company to see a 10% CAGR in dividends per share since 2005. Given the company’s financial position compared with that of the industry, its current dividend payout is expected to be sustainable.

Estimate Revisions: Currently, the estimate revision trend for 2022 funds from operations (FFO) per share indicates a favorable outlook for this self-storage REIT. The Zacks Consensus Estimate for its 2022 FFO per share has moved 3.5% north to $15.51 in the past month. The projected FFO per share growth rate for 2022 is 19.95%.

Other Key Picks

Some other key picks from the REIT sector include Prologis, Inc. (PLD Quick QuotePLD - Free Report) , Alexandria Real Estate Equities, Inc. (ARE Quick QuoteARE - Free Report) and Extra Space Storage Inc. (EXR Quick QuoteEXR - Free Report) .

Prologis holds a Zacks Rank of 2 at present. Prologis’ 2022 revenues are expected to increase 8.8% year over year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for PLD’s 2022 FFO per share has been revised marginally upward in the past week to $5.06.

The Zacks Consensus Estimate for Alexandria Real Estate Equities’ 2022 FFO per share has moved marginally north to $8.41 over the past month.

Currently, Alexandria Real Estate Equities carries a Zacks Rank of 2. ARE's long-term growth rate is projected at 7.70%.

The Zacks Consensus Estimate for Extra Space Storage’s 2022 FFO per share has moved marginally north to $7.96 over the past week.

Extra Space Storage's 2022 revenues are expected to increase 14.3% year over year. Currently, EXR 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.