Self-storage: A booming REIT sector worth considering
Rent growth has moderated, but it remains at record highs. In such a scenario, consumers tend to prefer smaller apartments whose rents are affordable rather than larger homes in high demand localities.
This is where self-storage real estate investment trusts (or REITs) such as Public Storage (PSA) come in. The self-storage facilities offered by these REITs help to keep properties secure. Moreover, since these facilities are located in prominent locations with proximity to malls, offices, and multifamily neighborhoods, consumers have the convenience of accessing their properties easily.
Public Storage is expected to ride high in its growth trajectory backed by its self-storage net operating income. The company’s expansion and development activities are encouraging to analysts, who expect it to reap the benefits in upcoming quarters. According to analysts, Public Storage is expected to report rises in its adjusted funds from operation (or AFFO) of 6.3%, 3.9%, 4.8%, and 7.4%, respectively in 2Q17, 3Q17, 4Q17, and 1Q18.
If we look at its past performance, we’ll see that Public Storage has been able to maintain its profit level consistently. The company reported AFFO growth of 12% in 2012, 20.6% in 2013, 8.7% in 2014, and 10% in 2016 and 2017.
How did the company start 2017?
In 1Q17, Public Storage reported earnings per share (or EPS) of $1.62, which missed consensus estimates by 1.7%. Its results, however, came in 16.5% higher than its 1Q16 results. This upswing in year-over-year profit was driven by a rise in self-storage net operating income, lower foreign exchange translation losses, and lower charges associated with the Emerging Issues Task Force (or EITF).
PSA’s funds from operations (or FFO) missed analysts’ estimates by 1.3%. However, its FFO came in 11.4% higher than its 1Q16 results.
Investors weren’t encouraged by the company’s 1Q17 results. Its share price fell 1.7% on April 28, 2017, one day after it released its earnings.
Public Storage and Extra Space Storage occupy almost 9% of the iShares Cohen & Steers REIT ETF (ICF). ICF’s broadly diversified portfolio in terms of geography and products ensures a cushion against industrial and macroeconomic headwinds as well as volatility in the market.
In this series, we’ll look into Public Storage’s growth outlook. We’ll also discuss its balance sheet leverage capability, shareholder rewards, valuations, and the effect of higher interest rates and government policies on its performance.