Self-storage has been an appealing asset class for investors looking for consistent returns in an expanding market over the past decade. And Public Storage (NYSE: PSA), the largest self-storage real estate investment trust (REIT), with ownership or interest in 2,548 properties in 38 states, has been a popular investment option. But dwindling performance for the company may leave investors wondering if Public Storage is still a buy today. Let's take a closer look at where the company stands right now and if it's a buy in the current market.
Lackluster results but impeccable standing
Like most other commercial real estate operators, 2020 was a tough year. Increased expenses relating to COVID-19 protocols, the inability to evict nonpaying tenants, and decreased rental rates from oversupply pressures and reduced demand all pushed revenues down 1% year over year.
This, coupled with the company's European presence, which resulted in a $105.8 million decrease in net income relating to high foreign currency exchange gains and losses with its Euro-denominated debt, meant investors saw a $1.00 decrease in net income per diluted common share from 2019 to 2020. Funds from operations (FFO) also decreased 7.8% year over year.
Despite lackluster performance over the past year, Public Storage has some favorable indicators on its side, including its extremely low debt-to-EBITDA ratio of 1.2 times and high credit rating of A (S&P) and A2 (Moody's (NYSE: MCO)).
Public Storage's financial standing is hard to compare and compete with, not just in the self-storage industry but among all REITs. This, coupled with their stable dividend payout of $2.00 per quarter and payout ratio of 77%, mean the company is in a great financial position to maintain its portfolio, debt obligations, and shareholder obligations without concern.
The biggest challenge facing the company moving forward is growth. 2020's economic challenges are on the way to recovery, but the self-storage industry is still battling years of overdevelopment, putting not just Public Storage but all self-storage REITs in a tough spot. Most REITs rely on continued expansion to improve their financial performance year over year, but self-storage operators need to monitor and balance the supply and demand of storage facilities in the given market to ultimately improve revenues.
Following year-end 2020, Public Storage acquired or is under contract to acquire 40 self-storage facilities across 18 states with 3.5 million net rentable square feet, for a total of $580.1 million. These acquisitions include 12 newly developed facilities that are expected to close as they're completed throughout 2021.
Is Public Storage a buy today?
Share prices for Public Storage have recovered from the March 2020 market crash, meaning Public Storage isn't a value buy at the moment. However, its massive portfolio presence and impeccable financial standing means it's still a buy for investors looking for safety over growth or returns.
The future of the storage industry does seem to be improving, but operators, including Public Storage, have to carefully monitor developments to keep themselves from digging the same oversupply hole again, and investors need to be aware of that risk. Considering investors can achieve around a 3% return, investors who decide to purchase shares in Public Storage are likely doing so for the company's portfolio, financial strength, and historical consistency.