Public Storage (NYSE:PSA)
Real estate investment trusts (REITs) have been all the rage recently, with several companies like Blackstone adding a ton of property to their portfolios. Public Storage (NYSE: PSA), the largest US-based self-storage service, has also been following this trend and ramping up acquisitions in order to put its free cash flow to work. As investors look toward recession-resistant stocks, Public Storage is a top contender, reflected by its 89.47% increase in mentions over the past day. Public Storage is currently trading for around $318, a 12.75% YTD decrease.
Is Public Storage a Good Investment - Positives
With the threat of a recession looming, picking solid stocks has become even more difficult. However, some companies, like Public Storage have shown strength despite this year’s adversity. Here are a few reasons why Public Storage could be the perfect addition to your portfolio this year.
Public Storage owns a lot of property. It boasts 1.8 million customers and operates 2,797 properties with 199 million square feet of rentable space. On top of this, Public Storage operates an international segment through Shurgard Self Storage. Clearly, this model is working as Shurgard’s revenue and net operating income have increased by 18% & 19% respectively.
Once you have a storage unit, it’s difficult to part with. You have to throw away, sell, or move everything you had stored, a time consuming and annoying task. Because of this, people are far more likely to accept an extra couple of dollars per month on their bills rather than deal with the hassle of switching units. People need storage units, so Public Storage can get away with increasing its fees, meaning it’ll be largely unaffected by a recession.
In order to increase its market share, Public Storage has been focusing on acquiring mid-sized self-storage companies. After promising to ramp up purchases in early 2021, the company followed through, acquiring both ezStorage for $1.8 billion and All Storage for $1.5 billion. This added around 11.6 billion square feet of rentable space to PSA’s portfolio.
Public Storage offers investors a reasonable 2.56% dividend. While this figure is unlikely to blow anyone away, it makes a nice addition to an already fairly stable investment.
Public Storage is doing rather well in financial terms. It boasts around $940 million in cash, $7.4 billion in debt, and a free cash flow of around $2.3 billion. This means that Public Storage has a below industry-standard debt to equity ratio of 76%, giving the self-storage company plenty of room to take advantage of any opportunities that crop up in the future.
Is Public Storage a Good Investment - Negatives
Although Public Storage is in a good spot, it’s not perfect. Here are a few reasons why it might be worth holding off on investing in the latest hot REIT.
Investors are currently concerned that Public Storage will not be able to continue its series of acquisitions as rising inflation means it won’t have the same access to low-interest loans it had previously used to fuel its expansion.
Public Storage created PS Business Parks in the 1980s before taking it public in the ‘90s. However, Public Storage has elected to offload its business park assets to Blackstone in a deal worth around $2.7 billion. This means that Public Storage is exchanging around 4% of its annual income for a quick cash injection. While this could be exactly what’s needed if Public Storage wants to continue acquiring assets, a 4% hit to annual revenue is likely to have quite a bit of effect on annual earnings.
Hype Asset of the Day - Conclusion
All in all, Public Storage is a well-performing REIT that shows no signs of trouble. Thanks to its focus on self-storage, It should remain fairly stable, even during a global recession. Public Storage will have to slow acquisitions slightly and it’s unlikely to blow anyone away with crazy growth but if you’re looking for a fairly safe play for the upcoming months, it’s hard to beat Public Storage. If you want to learn about more trending stocks, before anyone else, check out our premium plans. Or alternatively, head over to our FAQ page to learn more about the services offered by HypeIndex.
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