Following the public storage REIT group is about as exciting as watching paint dry, except for the fact that the group has outperformed the S&P 500 for more than a decade. In fact, the largest name in the group, Public Storage (PSA), has returned 17% annually for the last 20 years.
Last July, I was very bullish on Extra Storage Space (EXE). Extra Storage is the second-largest publicly traded self-storage REIT and the stock has been an absolute monster.
Public Storage is the largest self-storage REIT in the United States, and the stock has hardly slowed down since the company went public.
The storage REITs are feasting on several favorable trends. First, Americans are pack rats, and will pay virtually anything to store their stuff. Second, the industry is extremely fragmented. According to the Self Storage Almanac, the top 10 operators own only 13% of the storage facilities. Mom-and-pop operators make up the rest of the industry, making the industry ripe for consolidation. Third, low interest rates have made it very attractive to build new facilities. Fourth, the lack of buildable space in major cities has made it difficult for all but the most sophisticated players to develop self-storage sites.
PSA finished the third quarter with rentable space of 147 million net rentable square feet in 2,266 facilities across 38 states. Revenue grew 6.7% to $511.8 million. The company reported net income of $273.5 million or $1.58 per share. PSA reported funds from operations per share of $2.33, $0.02 ahead of Street estimates.
The strong results were driven by a 60 basis-point increase in average occupancy - to 95.3%, and a 6% increase in rent per occupied square foot - to $16.19.
In the third quarter, the company completed three new facilities and various expansion projects for $31 million. PSA has a development pipeline in excess of $500 million and is expected to add four million square feet.
Public Storage will report fourth-quarter and fiscal 2015 earnings after the close tonight. Analysts are expecting funds from operations of $2.42 per share on revenue of $575 million. For the year, analysts are projecting sales of $2.23 billion and FFO of $8.78 per share. Next year, investors are looking for FFO of $9.50.
Most analysts have turned cautious on the shares, as some have complained of slowing growth and high valuation. But, with its highly predictable cash flow and over 95% occupancy, it's hard to argue that Public Storage should not trade at a premium.