LSI Life Storage Inc

We maintain our Neutral rating on Public Storage (PSA), a real estate investment trust (REIT) operating self-storage facilities, as we anticipate it to perform in line with the broader market.

Public Storage is the largest owner and operator of storage facilities in the U.S. and has significantly increased the scale and scope of its operations through the acquisition of Shurgard Storage Centers that has a considerable presence in the European markets. Although Public Storage currently owns a 49% stake in Shurgard, the size and scope of its operations have enabled it to achieve economies of scale, thereby generating high operating margins and managerial efficiencies.

The ‘Public Storage’ brand is the most recognized and established name in the self-storage industry with a presence in all the major markets across 38 states in the U.S. In addition, the storage facilities of the company have a high visibility and are usually located in heavily populated areas that improve the local awareness of the brand. This provides a significant upside potential for the company.

Public Storage also has one of the strongest balance sheets in the sector, with minimal debt and plenty of liquidity to actively pursue acquisition and development opportunities. Furthermore, a strong financial position of the company enables it to aggressively pursue high marketing expenses to facilitate top-of-the-mind presence among the customers.

However, demand for storage facilities has witnessed a significant fall from its peak level exhibited prior to recession as customers have reduced their discretionary spending. This has comparatively affected the top-line growth of the company. In addition, Public Storage has a significant exposure to Florida, which has been particularly hard-hit by the housing meltdown. Consequently, the demand for self storage facilities is expected to decline in Florida going forward, with fewer home sales and falling new home construction. 

Public Storage presently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Sovran Self Storage Inc. (SSS), one of the competitors of Public Storage.

 
PUBLIC STORAGE (PSA): Free Stock Analysis Report
 
SOVRAN SLF STOR (SSS): Free Stock Analysis Report
 
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