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Public Storage (PSA) Rises 19% in 3 Months: Will the Trend Last?
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Shares of Public Storage (PSA - Free Report) have risen 19% in the past three months compared with the industry’s growth of 15.6%.
One of the top owners and operators of storage facilities in the United States, Public Storage enjoys a presence in all major metropolitan markets of the country. The ‘Public Storage’ brand is a much-recognized and established name in the self-storage industry.
Over the past week, while the Zacks Consensus Estimate for 2024 funds from operations (FFO) per share has remained unchanged at $16.90, the same for 2025 has been revised marginally north to $17.63.
Image Source: Zacks Investment Research
Let us now decipher the factors behind the surge in the stock price and also check whether this trend will last.
Public Storage, carrying a Zacks Rank #3 (Hold) at present, 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, Public Storage remains well-poised to benefit from an approximately 35% stake in Shurgard Self Storage SA. The “Shurgard” brand, used by Shurgard Europe, is a well-established and valuable brand in Europe. We estimate total revenues to increase 4.6% year over year in 2024.
In addition, Public Storage has been capitalizing on growth opportunities. From the beginning of 2022 through Mar 31, 2024, PSA acquired a total of 238 facilities with 16.8 million net rentable square feet for $3.4 billion. During the first quarter of 2024, these facilities contributed NOI of $37.2 million. The company 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.
Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to withstand any challenges and bank on expansion opportunities through acquisitions and developments. The company 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 the first quarter of 2024 with a 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. The sturdy credit profile and ratings enable PSA 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, robust dividend payouts are arguably the biggest enticements for investment in REIT stocks. Public Storage has consistently paid its dividends and continued with its payment even during the pandemic. While the company has increased its dividend two times in the past five years, encouragingly, its payout has grown 10.79% over the same period. Looking at PSA’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. Check Public Storage’s dividend history here.
However, the self-storage industry is continuing to experience a softening in demand and operating trends through 2023 and the first quarter of 2024, and this trend is expected to continue and stabilize in the second half of 2024. Particularly, the industry-wide demand from new customers for storage space as of Mar 31, 2024 was below the level of Mar 31, 2023.
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, 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 Mar 31, 2024 was approximately $9.1 billion.
For 2024, we expect a significant year-over-year increase in the company’s interest expenses. Further, with high interest rates still in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Iron Mountain Incorporated (IRM - Free Report) and Americold Realty Trust, Inc. (COLD - Free Report) . While Americold Realty sports a Zacks Rank #1 (Strong Buy), Iron Mountain has a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Iron Mountain’s 2024 FFO per share of $4.45 indicates an 8% increase year over year.
The Zacks Consensus Estimate for Americold’s 2024 FFO per share is pegged at $1.44, which suggests 13.4% year-over-year growth.
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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Public Storage (PSA) Rises 19% in 3 Months: Will the Trend Last?
Shares of Public Storage (PSA - Free Report) have risen 19% in the past three months compared with the industry’s growth of 15.6%.
One of the top owners and operators of storage facilities in the United States, Public Storage enjoys a presence in all major metropolitan markets of the country. The ‘Public Storage’ brand is a much-recognized and established name in the self-storage industry.
Over the past week, while the Zacks Consensus Estimate for 2024 funds from operations (FFO) per share has remained unchanged at $16.90, the same for 2025 has been revised marginally north to $17.63.
Image Source: Zacks Investment Research
Let us now decipher the factors behind the surge in the stock price and also check whether this trend will last.
Public Storage, carrying a Zacks Rank #3 (Hold) at present, 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, Public Storage remains well-poised to benefit from an approximately 35% stake in Shurgard Self Storage SA. The “Shurgard” brand, used by Shurgard Europe, is a well-established and valuable brand in Europe. We estimate total revenues to increase 4.6% year over year in 2024.
In addition, Public Storage has been capitalizing on growth opportunities. From the beginning of 2022 through Mar 31, 2024, PSA acquired a total of 238 facilities with 16.8 million net rentable square feet for $3.4 billion. During the first quarter of 2024, these facilities contributed NOI of $37.2 million. The company 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.
Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to withstand any challenges and bank on expansion opportunities through acquisitions and developments. The company 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 the first quarter of 2024 with a 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. The sturdy credit profile and ratings enable PSA 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, robust dividend payouts are arguably the biggest enticements for investment in REIT stocks. Public Storage has consistently paid its dividends and continued with its payment even during the pandemic. While the company has increased its dividend two times in the past five years, encouragingly, its payout has grown 10.79% over the same period. Looking at PSA’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. Check Public Storage’s dividend history here.
However, the self-storage industry is continuing to experience a softening in demand and operating trends through 2023 and the first quarter of 2024, and this trend is expected to continue and stabilize in the second half of 2024. Particularly, the industry-wide demand from new customers for storage space as of Mar 31, 2024 was below the level of Mar 31, 2023.
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, 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 Mar 31, 2024 was approximately $9.1 billion.
For 2024, we expect a significant year-over-year increase in the company’s interest expenses. Further, with high interest rates still in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Iron Mountain Incorporated (IRM - Free Report) and Americold Realty Trust, Inc. (COLD - Free Report) . While Americold Realty sports a Zacks Rank #1 (Strong Buy), Iron Mountain has a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Iron Mountain’s 2024 FFO per share of $4.45 indicates an 8% increase year over year.
The Zacks Consensus Estimate for Americold’s 2024 FFO per share is pegged at $1.44, which suggests 13.4% year-over-year growth.
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.