Is it Wise to Retain Public Storage Stock in Your Portfolio Now?

Public Storage PSA is one of the most recognized names in the self-storage industry with a high brand value and a presence across key metropolitan markets of the United States. The need-based and recession-resilient nature of the self-storage industry shields it from market volatility, assuring stable revenues. 

Its efforts to leverage technology for operational efficiencies are encouraging. Accretive buyouts, development and expansion activities foster future growth prospects. A strong balance sheet yields financial flexibility.

However, soft industry-wide demand and resultant lower rental rates are concerns. High interest expenses add to its woes.

What’s Aiding PSA?

The ‘Public Storage’ brand is a much-recognized and established name in the self-storage industry, with a presence in all major metropolitan markets of the country. The self-storage asset category is need-based, with low capital expenditure and high operating margins. Amid these tailwinds, PSA is well-poised for future revenue growth. Public Storage is also leveraging technology for revenue optimization and cost efficiencies. Such efforts are likely to bolster the company’s competitive edge. Despite challenges, we estimate total revenues to increase 1.8% and 2.7% year over year in 2025 and 2026, respectively.

Public Storage has been capitalizing on growth opportunities. From the beginning of 2023 through the first quarter of 2025, Public Storage acquired a total of 195 facilities with 14.5 million net rentable square feet for $3.1 billion. During the first quarter of 2025, these facilities contributed a net operating income (NOI) of $35.8 million. As of March 31, 2025, Public Storage had a total of 100 self-storage units spanning 11.8 million net rentable square feet in its newly developed and expanded facilities portfolio. In the first quarter of 2025, the newly developed and expanded facilities contributed NOI of $28.2 million.

PSA concluded the first quarter of 2025 with net debt and preferred equity to EBITDA of 4X and an EBITDA to fixed charges of 6.8 times. It also enjoys an “A” credit rating from Standard & Poor’s and an “A2” from Moody’s. The sturdy credit profile and ratings enable the company to access both public and private capital markets to raise capital at favorable rates. As such, the company seems well-poised to take advantage of any potential opportunity. Moreover, this REIT’s trailing 12-month return on equity (ROE) highlights its growth potential. Public Storage’s ROE is 36.50% compared with the industry’s average of 2.71%.

Furthermore, robust dividend payouts are arguably the biggest enticement for investment in REIT stocks. While the company has increased its dividend two times in the past five years, its payout has grown 12.83% over the same period. Looking at PSA’s operating environment and financial position compared to that of the industry’s average, its current dividend is expected to be sustainable in the upcoming period.

Shares of this Zacks Rank #3 (Hold) company have declined 2.3% over the past three months, narrower than the industry's fall of 5.4%. Analysts seem bullish on it, with the Zacks Consensus Estimate for 2025 core FFO per share having been revised marginally northward over the past week to $16.83.

What’s Hurting PSA?

The self-storage industry has continued to experience soft demand and lower operating trends in the first quarter of 2025. Though demand trends have improved in some markets, stabilization is expected to take time. To lure tenants into such an environment, management continues to focus on lowering rental rates for new customers and increasing promotional discounting. We expect 2025 same-store facility revenues to grow by just 0.1% year over year.

Despite the Federal Reserve announcing rate cuts late in 2024, the interest rate is still high and is a concern for Public Storage. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. 

The company has a substantial debt burden, and its total debt as of March 31, 2025 was around $9.4 billion. The company’s first-quarter 2025 interest expenses increased 6.2% year over year.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are VICI Properties VICI and W.P. Carey WPC, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for VICI’s 2025 FFO per share is pegged at $2.34, suggesting year-over-year growth of 3.5%.

The Zacks Consensus Estimate for WPC’s 2025 FFO per share stands at $4.88, indicating an increase of 3.8% from the year-ago reported figure.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

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This article originally published on Zacks Investment Research (zacks.com).

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