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Here's Why Public Storage (PSA) is an Apt Portfolio Pick Now
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Public Storage (PSA - Free Report) is a recognized and established name in the self-storage industry, with its presence in all the major metropolitan markets of the United States.
Analysts seem bullish on this Zacks Rank #2 (Buy) stock. The Zacks Consensus Estimate for the company’s 2024 funds from operations (FFO) per share indicates a favorable outlook as it has been raised marginally over the past two months to $16.92.
Shares of PSA have rallied 10.3% in the past month outperforming the industry's growth of 8.4%. Given its solid footprint, brand recognition, accretive buyouts and development and expansion activities, backed by a strong balance sheet, the stock is likely to keep performing well in the quarters ahead.
Image Source: Zacks Investment Research
What Makes Public Storage a Solid Pick?
Solid Footprint and Strong Brand Recognition: Public Storage has its market share and concentration in major metropolitan centers that have the highest population levels. As such, apart from benefiting from brand recognition, the company is likely to gain from economies of scale. Moreover, the company remains well poised to benefit from an approximately 35% stake in Shurgard Self Storage SA. In fact, the “Shurgard” brand, used by Shurgard Europe, is a well-established and valuable brand in Europe.
Healthy Industry Fundamentals: The self-storage asset category is basically need-based and recession-resilient in nature. This asset class 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 trends and an increase in the number of people renting homes have escalated the need for consumers to rent space at a storage facility to park their possessions.
Technology Investments: The company is also leveraging technology for revenue optimization and cost efficiencies and, as such, has invested in technologies over the past few years. Approximately 60% of customers utilized its eRental and Rent by Phone process during 2023. Such efforts are likely to further bolster the company’s competitive edge.
Acquisitions & Development: Public Storage has been capitalizing on growth opportunities. Since the beginning of 2022, the company has acquired a total of 238 facilities with 16.8 million net rentable square feet for $3.4 billion. Following Mar 31, 2024, the company acquired or was under contract to buy four self-storage facilities across four states with 0.3 million net rentable square feet, for $34.6 million.
As of Mar 31, 2024, PSA had several facilities in development and expansion, which are expected to add 3.7 million net rentable square feet at an estimated cost of $783.0 million. The company expects $500 million in acquisitions and $450 million in development openings in 2024. With solid access to capital, it is well-poised to take advantage of a potential opportunity.
Balance Sheet Strength: PSA has one of the strongest balance sheets in the sector, with ample liquidity. The company maintains a strong financial profile characterized by solid credit metrics, including low leverage relative to its total capitalization and operating cash flows. It concluded the first quarter of 2024 with net debt and preferred equity to EBITDA of 3.9X and an EBITDA to fixed charges of 7.8 times. It also enjoys an “A” credit rating from Standard & Poor’s and an “A2” from Moody’s. With enough financial flexibility, PSA is well-poised to capitalize on future growth opportunities.
Moreover, its trailing 12-month return on equity (ROE) is 36.17% compared with the industry’s average of 3.14%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Dividend Payment: Solid dividend payouts are arguably the biggest enticement for investment in REIT stocks. Public Storage has consistently paid its dividends, even during the pandemic. In February 2023, it announced an increase in its regular quarterly dividend from $2 per share to $3. This marked a hike of 50%. The annualized common dividend payment now equates to $12 per share.
While the company has increased its dividend two times in the past five years, encouragingly, its payout has grown 9.58% over the same 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.
Image: Bigstock
Here's Why Public Storage (PSA) is an Apt Portfolio Pick Now
Public Storage (PSA - Free Report) is a recognized and established name in the self-storage industry, with its presence in all the major metropolitan markets of the United States.
Analysts seem bullish on this Zacks Rank #2 (Buy) stock. The Zacks Consensus Estimate for the company’s 2024 funds from operations (FFO) per share indicates a favorable outlook as it has been raised marginally over the past two months to $16.92.
Shares of PSA have rallied 10.3% in the past month outperforming the industry's growth of 8.4%. Given its solid footprint, brand recognition, accretive buyouts and development and expansion activities, backed by a strong balance sheet, the stock is likely to keep performing well in the quarters ahead.
Image Source: Zacks Investment Research
What Makes Public Storage a Solid Pick?
Solid Footprint and Strong Brand Recognition: Public Storage has its market share and concentration in major metropolitan centers that have the highest population levels. As such, apart from benefiting from brand recognition, the company is likely to gain from economies of scale. Moreover, the company remains well poised to benefit from an approximately 35% stake in Shurgard Self Storage SA. In fact, the “Shurgard” brand, used by Shurgard Europe, is a well-established and valuable brand in Europe.
Healthy Industry Fundamentals: The self-storage asset category is basically need-based and recession-resilient in nature. This asset class 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 trends and an increase in the number of people renting homes have escalated the need for consumers to rent space at a storage facility to park their possessions.
Technology Investments: The company is also leveraging technology for revenue optimization and cost efficiencies and, as such, has invested in technologies over the past few years. Approximately 60% of customers utilized its eRental and Rent by Phone process during 2023. Such efforts are likely to further bolster the company’s competitive edge.
Acquisitions & Development: Public Storage has been capitalizing on growth opportunities. Since the beginning of 2022, the company has acquired a total of 238 facilities with 16.8 million net rentable square feet for $3.4 billion. Following Mar 31, 2024, the company acquired or was under contract to buy four self-storage facilities across four states with 0.3 million net rentable square feet, for $34.6 million.
As of Mar 31, 2024, PSA had several facilities in development and expansion, which are expected to add 3.7 million net rentable square feet at an estimated cost of $783.0 million. The company expects $500 million in acquisitions and $450 million in development openings in 2024. With solid access to capital, it is well-poised to take advantage of a potential opportunity.
Balance Sheet Strength: PSA has one of the strongest balance sheets in the sector, with ample liquidity. The company maintains a strong financial profile characterized by solid credit metrics, including low leverage relative to its total capitalization and operating cash flows. It concluded the first quarter of 2024 with net debt and preferred equity to EBITDA of 3.9X and an EBITDA to fixed charges of 7.8 times. It also enjoys an “A” credit rating from Standard & Poor’s and an “A2” from Moody’s. With enough financial flexibility, PSA is well-poised to capitalize on future growth opportunities.
Moreover, its trailing 12-month return on equity (ROE) is 36.17% compared with the industry’s average of 3.14%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Dividend Payment: Solid dividend payouts are arguably the biggest enticement for investment in REIT stocks. Public Storage has consistently paid its dividends, even during the pandemic. In February 2023, it announced an increase in its regular quarterly dividend from $2 per share to $3. This marked a hike of 50%. The annualized common dividend payment now equates to $12 per share.
While the company has increased its dividend two times in the past five years, encouragingly, its payout has grown 9.58% over the same 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.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are SL Green Realty Corp. (SLG - Free Report) and OUTFRONT Media Inc. (OUT - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for SLG’s 2024 FFO per share stands at $7.33, which indicates an increase of 48.4% from the year-ago period’s actual.
The Zacks Consensus Estimate for OUTFRONT Media’s 2024 FFO per share is pegged at $1.71, which suggests 4.27% year-over-year growth.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.