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Dividend Sleuthing: Public Storage

Mar. 07, 2021 4:14 PM ETPublic Storage (PSA)24 Comments


  • Public Storage is the largest owner of self-storage facilities in the U.S., and it owns a stake in two REITs, spinoff PS Business Parks and a European company, Shurgard.
  • From one storage unit in 1972, to a fast-growing real estate investment trust, to a mature sector leader, Public Storage has plateaued, resulting in a flat dividend since 2017.
  • The company has avoided a fight with Elliott Management by agreeing to place two Elliott representatives on the company's board (called "trustees").
  • The company has low debt and is one of only two REITs with a Standard & Poor's credit rating of A. The Public Storage Investor Day is May 3, 2021.
  • Looking for a helping hand in the market? Members of Margin of Safety Investing get exclusive ideas and guidance to navigate any climate. Learn More »

Self-Service Storage

Public Storage (NYSE:NYSE:PSA) is the largest owner of self-storage facilities in the U.S., with 2,548 facilities and 175 million rentable square feet in 38 states (2020 10-K, p.5).

PSA benefits from scale, which makes it competitive on price. Its nationwide presence and familiar orange logo give it very valuable name recognition. PSA has made significant investments in customer-friendly Internet technology for online advertising and for making reservations.

Public Storage's dominance is reflected in the company's position as the largest real estate investment trust in the Self-Storage sub-sector of the FTSE Nareit All REITs Index, with an equity market capitalization of $39.786 billion as of 1/31/21. This was considerably more than the combined equity market cap of the other five self-storage REITs in the index.

PSA's strength is complemented by two other investments. PSA owns 42% of PS Business Parks, Inc. (NYSE:PSB), an industrial-focused REIT that offers flex space in multi-tenant buildings in multi-building business parks for manufacturing, product assembly or distribution, typically with adjoining office space. PSA also has a 35% interest in a European business, Shurgard Self Storage SA ("SHUR" on Euronext Brussels).

Public Storage's experienced management team is led by CEO Joseph D. Russell, Jr., 60.

Brief History

Public Storage has a dominant self-storage market position and an A credit rating. Founder Wayne Hughes hated debt and grew the business during the heyday of private investing. Rather than bonds, PSA uses mostly preferred stock that is perpetual but callable, giving PSA maximum flexibility to issue new shares when advantageous. Here's a capsule history of the company:

  • 1972--Opened first self-storage facility in California as a partnership of founders Wayne Hughes and Ken Volk.
  • 1977--Formed first of many real estate limited partnerships, raising $200,000 to $300,000 annually from 200,000 institutional and individual investors, for a total of $3

This article was written by

Dividend Sleuth profile picture
I am a retired dividend investor focused on total shareholder return through a diversified equity portfolio that is designed around quality, growth and relative safety.


Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article is for informational purposes only (not a solicitation to buy or sell stocks). Ted is not a registered investment adviser. Kirk Spano is an RIA. Investors should do their own research or consult a financial adviser to determine what investments are appropriate for individual selection. This article expresses my opinions and I cannot guarantee that the information/results will be accurate. Investing in stocks involves risk and could result in losses.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (24)

Miguel Lorca profile picture
@Dividend Sleuth - nice article. I owned PSA for years and got really used to those double digit dividend increases. Recently I saw a chance to buy WPC. So I sold PSA and switched over to a higher yield. Time will tell if this was a good move because I like both companies.
Dividend Sleuth profile picture
@Miguel Lorca, thank you for your comment. I understand your decision. Four years with no increase is noteworthy. WPC and JNJ are my two oldest holdings, from mid-2009. i continue to be impressed with WPC's diversity and discipline.
BM Cashflow Detective profile picture
I only recently bought shares in Public Storage.

In response to a letter from Elliott Associates, Public Storage has already issued a statement that it will continue to take decisive action to drive sustainable value creation.

Public Storage has lagged behind its competitors in terms of performance since the beginning of the year, but the other way around, due to the likely initiatives of Elliott Associates, there could still be some potential for surprises lurking behind the scenes. This investment requires stoic patience in anticipation of future changes.

If the current stock valuation is maintained, I see a possible annual total return of 8% to 10% over the next 3 years. In the next 5 years the results could possibly get even better.

But it should also be remembered that public storage is one of the most profitable and efficient companies out there.

$PSA [TTM ROC (Joel Greenblatt) 862.49% / still good 5-year forward PEG ratio of 1.75 = 492.85% actual ROC reduced by premium surcharge due to the priced in growth prospects with 369.64%].

According to my categorization it is a “Super Magic Formula stock 2nd class” (from ROC 60%) without additional leverage (up to PEG ratio 2.00).

The very high actual ROC is particularly evident in comparison to Apple.

$AAPL [TTM ROC (Joel Greenblatt) 211.34% / poor 5-year forward PEG ratio of 2.02 = 104.63% actual ROC reduced by premium surcharge due to the priced in growth prospects with 106.71%].

Since the allocation of my total assets consists of over 99% of stocks, the stocks of Public Storage basically have the function of bonds in my portfolio. And in this context I am more than satisfied with this admixture.
Dividend Sleuth profile picture
@BM Cashflow Detective, thank you for your comment. You've done some good homework and it sounds like PSA is fulfilling a "bond-like" role, with possible upside (through potential appreciation and potential dividend increases). It doesn't have bond-like guarantees, of course, but that's the price of admission to the common stock arena.
BM Cashflow Detective profile picture
@Dividend Sleuth

But bond-like guarantees are still unreasonably overrated in times of over-indebted states and inflation.

Bond-like guarantees also contain bond-like risks, such as possible long-term inflation, hyperinflation and currency reform. Theoretically maybe a "New Dollar" with an exchange rate of 10 to 1. Of course the same with the "New Euro".

That's why I like stock-like guarantees. They are true and real assets. And the real guarantee is "increasing through cash flow". These are real guarantees to my liking. A bit of volatility is tolerable in this regard very well. :-))
Bought PSA in 2017 for $208, sold in 2018 for $220 and thought I got a good deal. It went up to $260s and every time driving by their sites (we have a lot of them in my country!) I banged my head up against steering wheel - how could I be so stupid!
Bought again in 2020 for $180 and 170… and removed it from my watch list… away from any temptation may come in my head.
Anyway, it’s not about PSA.
There was a service road not too far from my house. Several years ago they started developing that area – built a couple of hotels, something else… One day I saw another construction site with a little address sign. I looked it up on internet – a new medical center. Ok, good!
For over a year I have been walking or riding my bike along that street watching the new building coming up and when it was about to be finished I said to myself: “That’s the ugliest medical center I ever saw in my life!”
A week later - a big sign right on the front wall above the entrance – CubeSmart Self Storage. I said to myself: “That’s the most beautiful self-storage I ever saw in my life!” Went home, checked CUBE stock price and bought for $24, added at 27… and removed it from my watch list… away from any temptation may come in my head.
Dividend Sleuth profile picture
@mbkeng, great stories. Thank you for sharing them with us. You have developed a Philosophy of Buy & Hold Investing that would make Peter Lynch proud. I hope you didn't crack the steering wheel. :-)
Steve Rasher profile picture
@Dividend Sleuth Ted, thanks for the article. I have owned $CUBE for some time and just recently bought some more before its latest runup. Smaller but, I believe, a bit more nimble. Also, it recently increased its dividend. Steve
Dividend Sleuth profile picture
@Steve Rasher, thank you for your comment. CUBE continues to grow and strengthen its position. It's that sort of development that prompted Elliott Management to take their action to try to reclaim some of PSA's nimbleness, I believe.
Steve Rasher profile picture
@Dividend Sleuth Yes, I understand. But why buy $PSA, a huge battleship that is always fighting the law of big numbers and will take a good bit of time to turn in the right direction, when you can buy an existing nimble competitor that recently increased its dividend, continues to grow, and, as a result, since last May is up around 40%? Steve
Dividend Sleuth profile picture
@Steve Rasher, you raise a good question. I want everyone to know I'm not advocating that anyone buy PSA. I'm watching to see what happens with their interaction with Elliott Management. I would need to see some commitment to growing earnings, FFO and the dividend. I'm interested in PSA because of its stability and its rare A credit rating. At age 70, my main concern is relative dividend safety. PSA isn't there yet, and may not get there. I'm a bit heavy with REITs. I have a full position in FRT, CPT, WPC and HTA, plus a half position in PLD. My priority is to fill the other half of PLD, so in addition to the other things I would want from PSA, it would need to drop below $200 for me to be interested. I think everyone should be aware of it, as well as SPG. But it's important to be aware of both pros and cons. :-)
RoseNose profile picture
Thanks for the honest article and asking the ?s that need to be asked. I have been watching it for years solely because of its "A" credit rating. I guess it enjoys keeping it there since 2017 with no dividend raises. Too pricey for me, but still quality bond like 3-4% yield. Best to you Ted !
Dividend Sleuth profile picture
@RoseNose, thank you for your comment. We watch and wait! Best to you, always!
I think the competitors of PSA are in better shape. It may be a bit "fat" today - dont know the reasons.
Dividend Sleuth profile picture
@Croogie, thank you for your comment. Hunger is a motivator. Elliott Management may have drawn the same conclusion and decided to "seize the day."
Shaine profile picture
I have several of PSA preferreds.
Dividend Sleuth profile picture
@Shaine, thank you for your comment. I'm a former holder of one of the preferred issues. They have used more bonds lately. The last one had an interest rate of less than 1%. That sort of situation makes groups like Elliott Management ask, "Why not borrow more?"
Mister Doom profile picture
@Shaine me too and there are lots of them. PSA-L my last one.
@Dividend Sleuth Great article, $PSA seems a bit rich for me at this price level. . . . , From your experience, what is your take on the price performance of a stock when activist hedge fund managers make a PR presence and board seat demands? Is it safe to assume the hedge fund is interested in a 20-25% plus increase in their stake?
Dividend Sleuth profile picture
@Hugh Arhue, I appreciate your kind words. I'm sure they have, or will, identify a target price that they think would be where PSA should be trading now. If they are successful in accomplishing the changes they have described, perhaps they would become long-term shareholders rather than looking for a quick profit. That would seem to be a good approach for a REIT.
Thanks for the article. It led me to wonder why it hasn't made it through my screener. Zero dividend increase in years is why. Probably not a big deal to younger investors, but as a retiree this is no bueno for me, but I'll keep it on my radar.
Dividend Sleuth profile picture
@Mark335, thank you for your comment. I'm a former holder of the common and preferred shares. The flat dividend is an obstacle for me to get back in. I'm watching with interest Elliott Management's involvement.
Ol' Hickory profile picture
Dividend safety looks good, but no growth and the modest current yield make it unattractive. That said, opportunities today aren’t exactly plentiful.
Dividend Sleuth profile picture
@NWdividend, thank you for your comment. I concur with all four of your points. I guess that's why I keep a watch list. Maybe I should call it a Waiting List. :-)
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