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KeyBanc Downgrades Public Storage, But Don't Hold Your Breath For A Reply

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Public Storage's (PSA) CEO Ron Havner on Q3 2016 Results - Earnings Call Transcript (Seeking Alpha)

Everybody loves a winner.

However, on Wall Street it is not so much "what you have done for me lately," but far more a case of what will a company be able to deliver in the future.

On December 4, KeyBanc analyst Todd M. Thomas downgraded venerable self-storage REIT sector stalwart Public Storage (NYSE: PSA) from Hold to Underweight with a $170 PT. This represented an 8.7 percent downside from the previous close of $186.13, which was not too far off from PSA's 52-week high of $190.19 in late November.


In a sense, the logic that was put forth is that Public Storage is a victim of its own success. Here is his note:

"PSA is at a relative disadvantage to the other REITs in the sector given: 1) peak occupancy levels; 2) relatively less investment opportunities; and 3) what we view to be a full valuation.

"Occupancy peaked in PSA's portfolio at 95.1 percent during 2Q14 and ended 3Q14 at 93.8 percent. We suspect there may be modest occupancy upside from current levels, but the probability that occupancy inflects from a revenue tailwind to headwind is higher today than it has been at any other point during this cycle.

"Importantly, the stock trades at a 4.8 percent implied cap rate, which is 30 bps and 80 bps lower than the sector's and REITs' implied cap rates of 5.1 percent and 5.6 percent, respectively. Our $170 downside price target reflects a 5.2 percent implied cap rate."

Related Link: Why The Self Storage REIT Sector Continues To Outperform

CEO Prepared Remarks Given On Q3 Earnings Call

Public Storage CEO Ron Havner is a man of few words:

"As we reported yesterday, we had pretty good Q3. Trends are positive. Our development pipeline is expanding nicely. We will take down about $400 million plus of acquisitions this year, so it's turning out to be a pretty good 2014. With that, we'll open it up for questions."

Not So Bold Prediction

Investors should not expect a whole lot of feedback from Public Storage management prior to the release of earnings for Q4 and FY 2014.

However, Havner has been known to refer to Public Storage as the "Coca Cola" of the REIT sector, reflecting on its strong brand, fortress balance sheet and A investment grade rating -- the highest of any publicly traded real estate company.

A Chart Investors Should Consider


Bottom Line

Basically, KeyBanc feels all of the good news is already baked into the cake.

However, investors should not confuse a laconic style and lack of detailed guidance with weakness. While CEO Havner plays his cards close to the vest, year in and year out Public Storage has proven that it is a company built for the long haul.

This is one REIT that investors might consider putting on their shopping list, and consider any sell-off as an opportunity to buy into a "blue-chip" REIT at a less frothy valuation.

Latest Ratings for PSA

Sep 2016KeyBancMaintainsUnderweight
Aug 2016Evercore ISI GroupUpgradesSellHold
Aug 2016Bank of AmericaDowngradesBuyNeutral

View More Analyst Ratings for PSA
View the Latest Analyst Ratings

Posted-In: KeyBanc Ron HavnerLong Ideas REIT Downgrades Analyst Ratings Trading Ideas Real Estate


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