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 presence in all major metropolitan markets of the United States. Further, the company has managed to create a significant presence in the European markets as well through the Shurgard Storage Centers’ acquisition in 2006.
Moreover, the self-storage industry’s fundamentals are likely to be driven by favorable demographic changes, and events like marriages, shifting, death and even divorce. Further, this REIT has the power to adjust its rents quickly to any rate hike due to shorter leasing periods.
In recent times, Public Storage announced the opening of new storage units in Gardena, CA. Specifically, the new storage facility at 16100 S Avalon Blvd. Gardena, CA offers 350 new units for South Bay locals and workers. The company plans to open 800 additional storage units in the three-story facility later. Notably, residents of the thriving and diversifying neighborhoods in Gardena and Carson, as well as other neighboring South Bay cities will be served by this facility.
In fact, the company has been capitalizing on growth opportunities. In fact, since January 2015, 345 self-storage facilities have been acquired, developed or expanded by the company. Particularly, during 2017, the company acquired 22 self-storage facilities, comprising 1.4 million net rentable square feet, for $149.8 million. Following the quarter end, the company acquired or was under contract to acquire two self-storage facilities, spanning 0.2 million net rentable square feet of space, for $18 million. Such acquisitions and expansions bode well for long-term growth.
Public Storage also delivered a decent performance in the recently-reported quarter. The company’s fourth-quarter 2017 core funds from operations (FFO) per share of $2.75 marked 3.8% growth from the prior-year quarter figure of $2.65 and also surpassed the Zacks Consensus Estimate of $2.72. Results mirror an improvement in NOI from both same-store and non-same store facilities. Higher realized annual rent per occupied square foot supported its same-store performance. Moreover, the company benefited from its expansion efforts.
Shares of Public Storage have outperformed the industry it belongs to in the past month. The company’s shares inched up 0.2% against a decline of 3.9% incurred by the industry. Additionally, the stock has seen the Zacks Consensus Estimate for 2018 FFO per share being revised 0.1% upward in two months’ time, reflecting analysts’ bullish sentiments. Given its progress on fundamentals, the stock is likely to keep performing well in the quarters ahead.
However, supply has been high in a number of markets and this adversely affects the company’s pricing power. In fact, the company operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. This limits its power to raise rents and turn on more discounting.
Also, hike in interest rate is a concern for the company. Essentially, rising rates imply higher borrowing cost for the company. Moreover, the dividend payout might become less attractive than yields on fixed income and money market accounts.