While the inflation slightly declined in July from the 40-year high level, it remains elevated. Inflation still being uncomfortable to policymakers, the aggressive interest rate hike might continue, with better-than-expected economic data making the case stronger for the Fed.
While the rising short-term interest rates may have no significant implication for Real Estate Investment Trusts (REITs), as they are not reflective of strengthening economic conditions, the high inflation should bode well for them. REITs have historically outperformed well during periods of above-average inflation because they benefit from the rising prices of their properties.
Investors’ interest in REITs is evident from Vanguard Real Estate ETF’s (VNQ) 10.3% gains over the past month.
Moreover, demand for industrial REITs is also witnessing an uptrend, thanks to the rising need for logistics infrastructure given the growing e-commerce market. According to REIT firm Jones Lang LaSalle Incorporated (JLL), 74% predicted a 5% or more yearly growth in warehouse demand over the next three years.
Public Storage (PSA)
PSA primarily acquires, develops, owns, and operates self-storage facilities. This Real Estate Investment Trust (REIT) is a member of the S&P 500 and FT Global 500.
On August 4, 2022, Joe Russell, President, and CEO, said, “As we approach our 50th Anniversary this month, I want to commend the Public Storage team, past and present, for delivering exceptional performance utilizing our industry-leading platform and digital customer experience, multi-factor external growth, and balance sheet strength. We are well positioned as we look to the future.”
PSA’s total revenues came in at $788.94 million for the second quarter ended June 30, 2022, up 15.9% year-over-year. Its rental income came in at $765.08 million, up 15.7% year-over-year. Also, its net operating income came in at $608.61 million, up 18.7% year-over-year.
PSA’s revenue is expected to increase 20.4% year-over-year to $4.11 billion in 2022. Its EPS is expected to increase 17% per annum for the next five years. Moreover, it surpassed EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 11.2% to close the last trading session at $355.27.
PSA’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability, Sentiment, and Quality. It is ranked first among 20 stocks in the REITs – Industrial industry. Click here to see the additional ratings for PSA (Growth, Value, and Momentum).
Extra Space Storage Inc. (EXR)
EXR is a self-administered and self-managed REIT and a member of the S&P 500. The company currently operates around 1,906 self-storage stores in 40 states, Washington, D.C., and Puerto Rico.
On August 2, 2022, Joe Margolis, EXR’s CEO, said, “We continue to find accretive investments through our deep industry relationships and expand our diversified portfolio. We achieved FFO growth of 29.9%, allowing us to increase our annual FFO guidance for the second time this year.”
The company expects its core FFO per share to be in the range of $8.30 to $8.50 for the year ending December 2022.
For the second quarter ended June 30, 2022, EXR’s total revenues came in at $474.99 million, up 25.4% year-over-year. Its property rental came in at $408.04 million, up 26.9% year-over-year. Moreover, its net income came in at $232.13 million, up 38.2% year-over-year, while its EPS came in at $1.73, up 38.4% year-over-year.
Street expects EXR’s revenue to increase 17.8% year-over-year to $1.58 billion in 2022. Its EPS is expected to grow 6% per annum for the next five years. It surpassed EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 21.9% to close the last trading session at $215.05.
Under the POWR Ratings, EXR has a B grade for Growth, Stability, and Sentiment. EXR is ranked #2 in the REITs – Industrial industry. Click here to see the additional POWR Ratings for EXR (Value, Momentum, and Quality).
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PSA shares were trading at $352.44 per share on Thursday afternoon, down $2.83 (-0.80%). Year-to-date, PSA has declined -0.87%, versus a -9.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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