$Public Storage(PSA-N)$ Balance Sheet 'Underlevered,' 3rd-Party Management Segment to Take Time, RBC Says

Public Storage (PSA) has one of the best balance sheets among real estate investment trusts, or REITs, but it could benefit from raising leverage slightly more for better capital efficiency, RBC Capital Market said in a note emailed Tuesday.

Analysts said that while the company is the top owner of storage assets in the US, its lack of focus on third-party management has made it hard to scale significantly. Unlike CubeSmart (CUBE) and Extra Space Storage (EXR), Public Storage only started focusing this area in 2019.

The company currently manages 260 third-party stores and has 115 more under contract, which is fewer than Extra Space Storage's 1,423 and CubeSmart's 879 stores. Although Public Storage is adding stores at a similar rate as the other two, it is doing so with lower-cost options. Given Public Storage's large size, it will take years for third-party management to significantly boost growth, depending on market conditions, the analysts said.

The analysts said their core funds from operations per share projections for 2024, 2025, and 2026 are slightly lower than the consensus, by 0.2%, 0.5%, and 0.3%, respectively. For 2025, they expect a 3.5% growth, similar to their forecast for CubeSmart and slightly higher than Extra Space Storage.

RBC initiated Public Storage at sector perform with a $358 price target.

Price: 355.65, Change: +4.14, Percent Change: +1.18