Is it Wise to Retain Public Storage Stock in Your Portfolio Now?

Public Storage PSA is one of the most recognized names in the self-storage industry with a high brand value and a presence across key metropolitan markets of the United States. The need-based and recession-resilient nature of the self-storage industry shields it from market volatility, assuring stable revenues. Its efforts to leverage technology for operational efficiencies are encouraging. Accretive buyouts, development and expansion activities foster future growth prospects. A strong balance sheet yields financial flexibility.However, softer industry-wide demand and resultant lower rental rates are concerns. High interest expenses add to its woes.What’s Aiding PSA?The ‘Public Storage’ brand is a much-recognized and established name in the self-storage industry, with a presence in all major metropolitan markets of the country. The self-storage asset category is need-based, with low capital expenditure and high operating margins. Amid these tailwinds, PSA is well-poised for future revenue growth. Public Storage is also leveraging technology for revenue optimization and cost efficiencies. Such efforts are likely to bolster the company’s competitive edge. We estimate total revenues to increase 3.9% year over year in 2024.Public Storage has been capitalizing on growth opportunities. From the beginning of 2022 through Sept. 30, 2024, Public Storage acquired a total of 243 facilities with 17.2 million net rentable square feet for $3.5 billion. During the nine months that ended Sept. 30, 2024, these facilities contributed net operating income (NOI) of $118.3 million. As of Sept. 30, 2024, it had several facilities in development and expansion spanning around 4 million net RSF. With solid access to capital, the company is well-poised to take advantage of any potential opportunity.PSA concluded the third quarter of 2024 with net debt and preferred equity to EBITDA of 3.9X and an EBITDA to fixed charges of seven 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 public and private capital markets to raise capital at favorable rates.While the company has increased its dividend two times in the past five years, its payout has grown 12.42% 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 experienced softer demand and lower operating trends through 2023 and the first nine months of 2024. Although demand trends are improving toward the September-October period in some markets, stabilization will take time. To lure tenants into such an environment, management continues to focus on lowering rental rates to new customers and increasing promotional discounting. Management expects its same-store facilities revenues to decline yearly. For 2024, we estimate rent per occupied square foot to decrease 1.3% year over year.Despite the Federal Reserve announcing rate cuts in recent times, the interest rate is still high and 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 Sept. 30, 2024, was around $9.15 billion. For 2024, we expect a substantial year-over-year increase in the company’s interest expenses.Also, shares of this Zacks Rank #3 (Hold) company have declined 10.5% over the past three months, wider than the industry's fall of 5.8%.Image Source: Zacks Investment ResearchStocks to ConsiderSome better-ranked stocks from the broader REIT sector are Welltower WELL 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 Welltower’s 2024 FFO per share is pegged at $4.30, suggesting year-over-year growth of 18.1%.The Zacks Consensus Estimate for Terreno Realty’s 2024 FFO per share stands at $2.42, indicating an increase of 9.01% from the year-ago reported figure.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.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Public Storage (PSA): Free Stock Analysis Report Terreno Realty Corporation (TRNO): Free Stock Analysis Report Welltower Inc. (WELL): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks