Unlocking Value in the Self-Storage Industry
A High-Yield Opportunity Amidst Market Volatility
In the wake of the pandemic, Public Storage (NYSE: PSA), a leading self-storage REIT, saw its share price soar to unprecedented heights. However, since then, the stock has experienced a significant correction, plummeting roughly 30% from its peak. Despite this downturn, Public Storage’s operational performance remains strong, with sales growth of 12% over the last two years. The company’s inability to generate sufficient cash amidst a softer self-storage market has led to market disappointment.
A Leadership Advantage
Public Storage boasts an impressive network of facilities, with half of the U.S. population living within a “trade area” of one of its locations. This scale and leadership advantage are complemented by four key factors that make the REIT an attractive investment opportunity.
Rock-Solid Financial Foundation
Public Storage holds the highest credit ratings from Moody’s and S&P Global among U.S. REITs. This solid foundation enables the company to secure funding at attractive rates, fueling its growth initiatives. Since 2019, Public Storage has invested $11.7 billion in its facilities, expanding its portfolio by 36%.
Digital Prowess
As a first-mover in the self-storage industry, Public Storage has successfully implemented a digital operating model. Its mobile app is used by over 2 million customers, offering digital access, live help, and kiosks at each location. This digital transformation has enabled the company to acquire new customers efficiently, with 75% of new customers generated through its digital eRental program.
Superior Cash-Generating Capabilities
Public Storage’s cash-generating capabilities surpass those of its peers. The company creates substantial free cash flows from its existing stores and generates cash from its debt and equity more effectively, as evidenced by its higher cash return on invested capital (ROIC).
Growth Potential
Despite being the largest self-storage provider in the United States, Public Storage holds only a 9% market share, leaving ample room for expansion. The company is poised to continue consolidating the industry through mergers and acquisitions, leveraging its high cash ROIC and best-in-class credit ratings.
Attractive Valuation and Dividend Yield
Public Storage’s current dividend yield of 4.1% is 20% above its 10-year average. The company’s valuation is near a decade-long low, trading at 17 times cash from operations (CFO). This discounted valuation, combined with the company’s growth prospects and best-in-class operations, makes Public Storage an attractive investment opportunity.
A Compelling Investment Case
With its leadership advantage, rock-solid financial foundation, digital prowess, superior cash-generating capabilities, and attractive valuation, Public Storage presents a compelling investment case. As the self-storage industry rebounds, Public Storage is poised to deliver strong returns, making it an attractive addition to any dividend-focused portfolio.
Leave a Reply