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Why You Should Retain Public Storage Stock in Your Portfolio Now
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Public Storage (PSA - Free Report) is well-positioned to grow in the self-storage market with its presence in key cities and high brand recognition. Accretive buyouts, development and expansion activities, backed by a strong balance sheet, bode well for growth.
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 concern. The development boom of self-storage units in many markets is likely to intensify competition and curb pricing power, affecting margins.
Shares of this Zacks Rank #3 (Hold) company have risen 23.7% over the past three months, outperforming the industry's growth of 16.5%.
Image Source: Zacks Investment Research
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.
Public Storage has been capitalizing on growth opportunities. From the beginning of 2022 through June 30, 2024, PSA acquired a total of 240 facilities with 17 million net rentable square feet for $3.4 billion. During the first half of 2024, these facilities contributed NOI of $78.1 million. Following June 30, 2024, the company acquired or was under contract to acquire three self-storage facilities with 0.2 million net rentable square feet for $24.2 million. With solid access to capital, the company is well-poised to take advantage of any potential opportunity.
Public Storage 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 second quarter of 2024 with net debt and preferred equity to EBITDA of 3.9X and an EBITDA to fixed charges of 7.2 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, PSA seems well-poised to take advantage of any potential opportunity.
Solid dividend payouts are arguably the biggest enticement for investment in REIT stocks. While the company has increased its dividend two times in the past five years, its payout has grown 10.79% 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.
What’s Hurting PSA?
The self-storage industry is continuing to experience a softening in demand and operating trends through 2023 and the first half of 2024, and this trend is expected to continue for the rest of 2024. Particularly, the industry-wide demand from new customers for storage space during the first half of 2024 was lower than the previous year's comparable period.
To lure tenants into such an environment, management continues to focus on lowering rental rates to new customers and increasing promotional discounting. As a result, same-store revenues are likely to be affected, and we estimate a 0.6% decrease in this metric in 2024.
The Zacks Consensus Estimate for Lamar Advertising’s 2024 FFO per share of $8.09 indicates an 8.3% increase year over year.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share is pegged at $2.67, which suggests 1.9% 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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Why You Should Retain Public Storage Stock in Your Portfolio Now
Public Storage (PSA - Free Report) is well-positioned to grow in the self-storage market with its presence in key cities and high brand recognition. Accretive buyouts, development and expansion activities, backed by a strong balance sheet, bode well for growth.
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 concern. The development boom of self-storage units in many markets is likely to intensify competition and curb pricing power, affecting margins.
Shares of this Zacks Rank #3 (Hold) company have risen 23.7% over the past three months, outperforming the industry's growth of 16.5%.
Image Source: Zacks Investment Research
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.
Public Storage has been capitalizing on growth opportunities. From the beginning of 2022 through June 30, 2024, PSA acquired a total of 240 facilities with 17 million net rentable square feet for $3.4 billion. During the first half of 2024, these facilities contributed NOI of $78.1 million. Following June 30, 2024, the company acquired or was under contract to acquire three self-storage facilities with 0.2 million net rentable square feet for $24.2 million. With solid access to capital, the company is well-poised to take advantage of any potential opportunity.
Public Storage 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 second quarter of 2024 with net debt and preferred equity to EBITDA of 3.9X and an EBITDA to fixed charges of 7.2 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, PSA seems well-poised to take advantage of any potential opportunity.
Solid dividend payouts are arguably the biggest enticement for investment in REIT stocks. While the company has increased its dividend two times in the past five years, its payout has grown 10.79% 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.
What’s Hurting PSA?
The self-storage industry is continuing to experience a softening in demand and operating trends through 2023 and the first half of 2024, and this trend is expected to continue for the rest of 2024. Particularly, the industry-wide demand from new customers for storage space during the first half of 2024 was lower than the previous year's comparable period.
To lure tenants into such an environment, management continues to focus on lowering rental rates to new customers and increasing promotional discounting. As a result, same-store revenues are likely to be affected, and we estimate a 0.6% decrease in this metric in 2024.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Lamar Advertising (LAMR - Free Report) and Cousins Properties (CUZ - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Lamar Advertising’s 2024 FFO per share of $8.09 indicates an 8.3% increase year over year.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share is pegged at $2.67, which suggests 1.9% 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.