The self-storage market is making space for Public Storage (NYSE: PSA), with increased consumer demand, new assets and development plans and an investment in tech contributing to company growth.
The Glendale-based real estate investment trust as of June 30 owned 2,649 self-storage facilities in 39 states with 184 million net rentable square feet. In the second quarter, the company reported net income of $346 million ($1.97 per share), compared to $246 million ($1.41 a share) a year ago. Quarterly revenues increased 16.3 percent year over year to $829 million.
“Business is excellent,” Chief Executive Joseph Russell said on an Aug. 4 earnings call.
“Move-in rates are up 27 percent from where they were in 2019, and there is little evidence that pricing strength is abating. A meaningful wave of new first-time customers is using storage based on a combination of traditional and nontraditional reasons.”This year, the company welcomed nearly 700,000 new customers, Russell said. Many of these incoming renters “having never used self-storage before. Demand has been strong for several quarters with upward pressure tied to vibrant home sales up 34 percent year-over-year.” During the call, Russell also praised his company’s ongoing multiyear commitment and investment in technology, singling out the online eRental platform and this year’s launch of the PS storage app, giving customers a new tool to access their property via smartphone.
Ki Bin Kim, a Truist Security analyst, told Marketplace that the self-storage industry has boomed during the pandemic. In the last year, rents hit record levels, Kim said, as occupancy rates surged. Kim attributed the COVID-era climb in demand to what he calls the three “D’s” – “Death, divorce, dislocation. And we’ve just seen more of that happen in the last year.” New assets Acquisitions and expansion have contributed immensely to Public Storage’s corporate strategy as Russell in his earnings call noted nearly $3 billion of new assets by June 30, including April’s $1.8 billion purchase of ezStorage, which added 48 more properties to the Public Storage portfolio. “The integration and performance of those assets has exceeded expectations,” Russell said. “The company’s development and redevelopment pipeline continue to grow, up $150 million this quarter.” By quarter’s end, the REIT acquired or was under contract to assume 36 self-storage facilities, covering 3 million net rentable square feet of space across 15 states, at a cost of $467 million.During the second quarter, Public Storage opened two newly developed facilities and added several expansion projects, totaling $40 million. Public Storage also had several facilities in development totaling 1.9 million net rentable square feet at a cost of $308 million. Expansion at existing facilities will total 2.4 million net rentable square feet at a cost of $353 million. The company expects to incur another $411 million of development costs during the next 18 to 24 months.
Upbeat analystsAnalysts think Public Storage is on the right track for growth and will continue to benefit from the chaos surrounding the pandemic.
UBS analyst Michael Goldsmith calculated 95 percent occupancy over the next three years from 94.5 percent in the last year and 93.5 percent in 2019 with the expectation that demand for self-storage will continue to remain strong. He gives Public Storage a “neutral” rating because the REIT’s expected strong growth is already baked into its stock valuation.However, the analyst envisions industry tailwinds for the company’s operations, with long-term same-store revenue growth of 3 percent, growth from acquisitions of $2.7 billion next year and then $800 million per year after that.
Goldsmith sees scaling potential for Public Storage as the REIT has the second most access to top 20 metropolitan markets and the most exposure to top 50 metro statistical areas with 87 percent of its sites in these markets.
Raymond James analyst Jonathan Hughes believes the self-storage REIT will capitalize on business brought on by the virus.
“Concerns over the Delta – and also Lambda – variant that could potentially delay the return to normalcy … is good for self-storage,” Hughes wrote in his report.He added that fundamentals could surpass expectations for years to come.
Public Storage Accommodates Growing Demand
