Public Storage PSA 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.
Particularly, PSA has its market share and concentration in major metropolitan centers that have high population levels. As such, apart from benefiting from brand recognition, the company is likely to gain from economies of scale.
Last month, PSA reported fourth-quarter 2022 core funds from operations (FFO) per share of $4.16, increasing 17.5% year over year. The figure surpassed the Zacks Consensus Estimate of $3.99. Results reflected better-than-anticipated top-line growth, aided by an improvement in the realized annual rent per occupied square foot and expansion efforts.
Public Storage’s accretive buyouts to maximize its growth opportunities seem encouraging. In 2022, the company acquired 74 self-storage facilities comprising 4.7 million net rentable square feet of area for $730.5 million. From the beginning of 2020 through Dec 31, 2022, the company acquired 368 facilities, with 31.7 million net rentable square feet, for $6.6 billion.
Following Dec 31, 2022, the company acquired or was under contract to buy eight self-storage facilities spanning 0.5 million net rentable square feet of space across five states for $70.5 million.
On the balance-sheet front, PSA holds one of the strongest balance sheets in the sector with ample liquidity. Its investment-grade credit ratings render its favorable access to the debt market. With solid balance-sheet strength, it is well-poised to capitalize on future growth opportunities.
Public Storage’s current cash flow growth is projected at 96.4% compared with 11.88% growth predicted for the industry. Moreover, this real estate investment trust’s (REIT’s) trailing 12-month return on equity (ROE) highlights its growth potential.
Public Storage’s ROE is 72.77% compared with the industry’s average of 3.77%. This reflects that the company is more efficient in using shareholders’ funds than its peers. With solid balance-sheet strength, the company is well-poised to capitalize on external growth opportunities, which are likely to increase.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for 2023 FFO per share indicates a favorable outlook for the company as it has been revised upward over the past month. Also, shares of Public Storage have gained 3.3% in the quarter-to-date period against its industry’s decline of 2.6%.
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However, Public Storage operates in a highly fragmented market in the United States with intense competition from several private, regional and local operators. This is likely to fuel competition for the company, affecting occupancies, curbing its power to raise rents and turn on more discounting.
Moreover, with the abating of the pandemic’s impact, tenants are reverting to more normal move-out behavior, resulting in upward pressure on vacate trends.
Also, rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities, Inc. ARE and Terreno Realty Corporation TRNO, 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 Alexandria Real Estate Equities’ 2023 FFO per share has moved a cent north to $ 8.95 over the past week.
The Zacks Consensus Estimate for Terreno Realty Corporation’s ongoing year’s FFO per share has been raised a cent over the past month to $ 2.17 .
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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