On Friday, Scotiabank updated its financial outlook for Public Storage (NYSE:PSA), leading to an increase in the price target for the company's shares. The new target is set at $314, up from the previous $289, while the firm maintained a Sector Perform rating on the stock.
The adjustment comes after the analyst's review of the second quarter performance, which indicated weaker pricing, although this was somewhat balanced by higher occupancy rates.
The forecast for fiscal year 2024 same-store revenue (SSREV) for Public Storage was slightly lowered to a decrease of 0.3%, a revision from an earlier prediction of a 0.1% decline. This revision is expected to result in a decrease of 0.9% to the fiscal year 2024 funds from operations per share (FFOPS) estimates for the company.
Despite the downward revision in SSREV and FFOPS estimates, the price target increase for Public Storage is attributed to an upward adjustment in the applied valuation multiple, from 16.5x to 18.0x. This change reflects a more optimistic valuation approach by the analyst.
In addition to the price target change for Public Storage, Scotiabank also adjusted its price target for Extra Space Storage (NYSE:NYSE:EXR) to $159 from the previous $140, similarly due to an increase in the applied multiple from 16.5x to 19.0x.
The analyst further revised the 2025 FFOPS multiple premium to REITs price target methodology. The new approach suggests a premium of 0.5x for Public Storage and 1.5x for Extra Space Storage, compared to the previous methodology that indicated a ten-year average premium to REITs of 1.5x and 2.5x, respectively.
This change in methodology indicates a more conservative view of the premium that these companies' FFOPS should command relative to the broader REIT sector.
In other recent news, Public Storage reported a steady first quarter of 2024, meeting market expectations. The company experienced an increase in customer demand and a reacceleration of revenue growth in key markets such as Washington, D.C., Baltimore, and Seattle.
However, the firm noted a slight 1.2% decrease in core FFO from Q1 2023, while same store revenue saw a minor increase of 0.1%. Public Storage anticipates record development deliveries and acquisitions in the second half of 2024, backed by a strong capital and liquidity position.
Despite a 11% decrease in move-in rates during the quarter, Public Storage observed longer customer stays than pre-pandemic levels and expects move-out activity to remain stable. The company plans to focus on solar power investments and technology to lower utility expenses and enhance customer interaction.
Public Storage is optimistic about its financial outlook for the remainder of 2024, with positive trends expected to boost the financial performance in the second half of the year. The company has not provided specific details on its expansion plans into Canada but has earmarked $500 million for acquisitions in 2024.
InvestingPro Insights
Following Scotiabank's recent price target revision for Public Storage (NYSE:PSA), InvestingPro data reveals key financial metrics that align with the firm's outlook. With a market capitalization of $53.51 billion and a P/E ratio that stands at 27.58, Public Storage shows significant market presence and valuation. The company's revenue growth over the last twelve months as of Q1 2024 has been steady at 6.02%, indicating a consistent performance despite the slight downward revision in fiscal year 2024 estimates.
InvestingPro Tips highlight Public Storage as a prominent player in the Specialized REITs industry, with a track record of maintaining dividend payments for 44 consecutive years, which may reassure investors looking for stable income. Moreover, the company's shares are trading near their 52-week high, showcasing investor confidence in its market position. For readers seeking deeper insights, there are additional InvestingPro Tips available, providing a comprehensive analysis of Public Storage's financial health and stock performance.
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