PSA - Public Storage: The Self-Storage Glut Is Coming In 2024
2024-02-19 11:49:19 ET
Summary
- Public Storage has experienced a rebound in its stock price after a decline in 2023 as some investors point to a decrease in real rates, saving commercial property prices.
- The primary driving factor for commercial property prices, including storage REITs like PSA, is real interest rates, while the secondary factor is changes in NOI growth compared to inflation.
- PSA's occupancy and rents are declining, indicating a reversal in storage demand and a potential decline in net operating income as the industry shifts into a glut.
- Assuming PSA's NOI will not rise with inflation in 2024 and beyond due to the glut, the fair-value capitalization rates of its properties may rise to around 7%.
- Such an increase in capitalization rates would dramatically lower PSA's NAV, potentially reversing the stock's gains in recent years.
Over the past year, I've held a bearish view on storage REITs, such as Public Storage ( PSA ). This view was detailed in " Public Storage: Why 'Low Risk' REITs Are The Most Vulnerable Today" last April. At that time, I was among the few bears on Public Storage precisely due to its low-risk profile. While that may seem counterintuitive, my view was that its low risk gave it a high valuation, which naturally gives it greater exposure to changes in interest rates. In simple terms, the percentage stock price change for a stock's dividend yield from 3% to 4% (~25% drop) is more significant than for a stock's dividend to rise by 9% to 10% (~11% drop)....
Public Storage: The Self-Storage Glut Is Coming In 2024