Self-Storage: Unique Niche in REITs

06/03/2015 7:00 am EST

Focus: REITS

Genia Turanova

Editor, Leeb Income Performance

Our latest featured recommendation is the leading US self-storage REIT that is among the largest landlords in the world, explains Genia Turanova, editor of Leeb Income Performance.

Public Storage (PSA) operates more than 2,250 company-owned locations in the United States and Europe under the Shurgard brand.

It also owns a 42% common equity interest in PS Business Parks (PSB), which owns about 28 million rentable square feet of commercial space.

Public Storage is the leader in one of the most fundamentally attractive niches of the REIT industry. It owns about 5% of the entire US self-storage industry and is almost twice as large as its four next public competitors combined.

This is a business that benefits from an improving economy, while having some recession-resistant qualities. Also, growth in storage demand has exceeded the growth in the US population and there is room for expansion.

The REIT has the ability to generate tremendous amounts of free cash flow, which, in turn, could be used either to reinvest in the business or distribute via dividends.

Over the last 20 years, PSA’s cash flow and dividends per share have each grown at about 9% per year.

In addition, what makes Public Storage especially attractive to us is its lower risk compared to peers: it’s much less leveraged than the average REIT and has a strong balance sheet, with very low debt.

Finally, we like the recent dividend increase and view it as a sign of strength. As the REIT reported results for the quarter ended March 31, 2015, it also announced a whopping 21% dividend increase.

Beginning June 30, Public Storage shareholders of record as of June 15, 2015, will receive $1.70 quarterly for a yield of 3.5%. For growth and growing dividends, buy Public Storage REIT.

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