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Public Storage Delivers Safety With a Nice Yield

Stock (Symbol)

Public Storage (PSA)

Stock Price

$206

Sector
REIT
Data is as of
August 29, 2017
Expected to Report
Oct 26
Company Description
Public Storage is a real estate investment trust (REIT). The Company’s principal business activities include the ownership and operation of self-storage facilities, which offer storage spaces for lease, generally on a month-to-month basis, for personal and business use, ancillary activities, such as merchandise sales and tenant reinsurance to the tenants at its self-storage facilities, as well as the acquisition and development of additional self-storage space. The Company’s segments include Self-Storage Operations, Ancillary Operations, Investment in PS Business Parks, Inc. (PSB) and Investment in Shurgard Europe. Source: Thomson Financial.
Sharek’s Take
David SharekPublic Storage (PSA) owns and operates more than 2600 self-storage facilities in the US and Europe (UK, Sweden, FRance, Germany, Belgum and the Netherlands). As of December 31, 2016 the company had 2348 Public Storage locations, 219 European locations (named Shurgard) and 99 PS Business Parks, which serve the business community. Units are air conditioned and sizes are 5′ x 5′, 5′ x 10′, 5′ x 15′, 10′ x 10′, 10′ x 15′, 10′ x 20′ and 10′ x 25’or more. Last year the company achieved a record 95% occupancy rate. PSA is a Real estate investment trust (REIT) and pays a majority of its profits as dividends. The stock is a good one — with a high safety rating, an Est. LTG of 11% a year, a 3% yield. PSA went public in March 1998  and through 2016 delivered a total return to shareholders of 942% or 13% a year. During the past ten years the stock’s grown at 10% a year — also delivering a 13% a year total return — but management expects growth to moderate over the next few years as its U.S. self-storage growth rate declines. Still, the company can make acquisitions to boost growth. REITs are typically good investments when interest rates are low, as investors flock there for income. With rates up slightly this year, PSA is down. But I feel this is a good buying opportunity for one of the safest stocks in America. I will add Public Storage to the Conservative Growth Portfolio, and it will be the only REIT — which adds diversity to the portfolio. For investment purposes, REITs are more accurately valued using funds from operations (FFO) thus profits are replaced with FFO per share in the charts and tables below.
tOne Year Chart
As you can see PSA has had a down year, and FFO just fell 1% in the latest qtr, with sales up 12%. FFO looks to be poor the next two qtrs (+4%, -1%) then rise nicely the following two qtrs (+7% and +14). As mentioned earlier the Est. LTG is 11% which would be great, but I would take 8%. The P/E isn’t really on earnings, its on funds from operations, thus the stock sells for 20x FFO.
Fair Value
The valuation of PSA was high in 2015-2016 as interest rates were low. Now that rates have increased a little, the valuation has come down — but still the stock was cheaper in the 2007-2010 timeframe. But funds from operations and the dividend are much higher. With this stock well off its highs, I see good value here, but my Fair Value of 22x FFO might prove to be a little optimistic.
Bottom Line
Public Storage has had a nice decade, but a lot of the success was due to rates being low, which made REITs more attractive. Now with rates on the rise, the stock is on the decline, but I feel this is a value. PSA is a very safe stock, gives investors diversity in real estate, carries a nice Est. LTG of 11% a year and pays a 3% yield. Risks include rising minimum wages, higher interest rates and a saturated U.S. expansion market. PSA will be added to the Conservative Growth Portfolio where it will rank 19th of 33 stocks in the Power Rankings. I didn’t put the stock higher because REITs might be weak with rates on the rise.
Power Rankings
Growth Stock Portfolio

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

19 of 33

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