Public Storage (PSA-PK)| Daily Alert May 20
Public Storage, Inc. 4.75% Fixed Rate, Cumulative Preferred; Par 25.00; Call Date 12/20/24; Yield to Call 1.62%; Pay Cycle 3e; Exchange NYSE; Ratings, Moody’s A3, S&P BBB+; CUSIP 74460W578
Public Storage, Inc. (PSA) is a real estate investment trust (REIT) and the world’s largest owner and operator of self-storage facilities. Based in Glendale, California, the company has thousands of locations across the U.S. and Europe, with more than 170 million net rentable square feet of properties.
The REIT has demonstrated strong but conservative growth, with moderate debt leverage. Earnings and profitability measures have been sound, as confirmed by PSA’s solid credit ratings.
The public storage sector has largely escaped the major challenges posed by the pandemic and the economic downturn during 2020 and early this year. PSA reported 4Q 2020 funds from operations of $449.3 million or $2.57 per share. Core or adjusted funds from operations (AFFO) totaled $2.93 per share, beating analysts’ $2.85 estimates. AFFO benefited from improved occupancy and a modest increase in net operating income (NOI) from the prior-year 4Q period.
Square foot occupancy was 95.2% as of 12/31/20, up from 93.1% on 12/31/19, while NOI rose 1.3%. This preferred is fixed rate and callable on or after 12/20/24. Dividends are taxed as ordinary income, given the REIT’s tax status.
This issue’s solid investment grade ratings—plus PSA’s strong credit metrics—make it a suitable investment for low-risk tax-deferred portfolios. Buy at $28.00 or below for 1.37% yield to call.
Martin Fridson, CFA, Income Securities Investor, isinewsletter.com, 800-472-2680, May 2021
*Pizza Pizza Royalty Corp. (PZA.TO)
Pizza restaurant chain Pizza Pizza has not been as big a beneficiary of the lockdowns due to the COVID-19 pandemic as might have been expected. While the share price is up 28% over the last year, it is still down over the last five years.
Same store sales growth (SSSG), or revenues from restaurants that have been open for at least 12 months (which is regarded as the most important performance metric), fell 12.5% in 2020, with the 645 Pizza Pizza outlets in Ontario and Eastern Canada down 13.4% and the 104 Pizza 73 outlets in Alberta down 8.1%. With 23 restaurants closing in 2020, total sales fell 11.8%, to $488.3 million. Competition from restaurant delivery apps such as DoorDash and Skipthedishes has hurt Pizza Pizza sales, but more important is the closure of its outlets in entertainment and sporting venues and the absence of on-premise dining.
Despite SSSG falling 13.3% in the first quarter due to the renewed lockdowns in Ontario and Alberta, the share price is actually up 15% this year, and management raised the payout by 10%, to $0.066 a month.
With the vaccination program rolling out, and with declines in SSSG having stabilized around 13%-14%, Pizza Pizza seems to have weathered the most severe crisis it is likely to face. With a payout ratio of 84%, the dividend is sustainable, and the stock becomes a Buy as a play on recovery from the pandemic, with some protection from its high yield.
Gavin Graham in Gordon Pape’s Income Investor, buildingwealth.ca, 1-888-287-8229, May 27, 2021
Hanesbrands Inc. (HBI)| Daily Alert May 21
Winston-Salem, N.C.-based Hanesbrands designs, manufactures and sells innerwear and activewear apparel worldwide. Products include underwear, socks, T-shirts, sweatshirts, and bras. Brands include Hanes, Champion, Bonds, Maidenform, DIM, Bali, Playtex, Bras N Things, L’eggs, Just My Size, and Wonderbra.
The company on Tuesday reported quarterly revenue and profit that topped analysts’ estimates, but the stock fell more than 14% at one point because management offered lower sales and earnings guidance for the rest of the year. The company expects 2021 adjusted earnings of $1.51 to $1.59 per share, and sales of $6.2 billion to $6.3 billion, compared to Wall Street’s forecast for EPS of $1.61 and sales of $6.71 billion. Management outlined a three-year growth strategy for its Champion brand that it says should add increase compound annual sales growth by 6% per year through 2024.
Revenue in the most recent quarter grew 25.4% from one year ago, and over the past 12 months, sales have totaled $6.86 billion. Hanesbrands generated $1.43 in free cash flow per share over the past 12 months, which is comfortably higher than $0.60 in annual dividends.
Stock purchases by insiders buttress the bullish case on Hanesbrands. A member of the board of directors and a division president bought more than $350,000 worth of company stock on Thursday.
John Dobosz, Forbes Dividend Investor, newsletters.forbes.com, 212-367-3388, May 14, 2021
Preferred Apartment Communities, Inc. (APTS)| Daily Alert May 28
Preferred Apartment Communities isn’t quite what the name seems. The REIT, which owns 117 properties in 13 states—primarily in the Sun Belt—does specialize in Class A multifamily properties. But it also deals in grocery-anchored shopping centers, as well as Class A office buildings.
As you’d guess from the portfolio, APTS has struggled mightily ever since COVID spread across the States. Over the past four quarters, Preferred Apartment’s “core” funds from operations (FFO, an important measurement of REIT profitability) has dropped by between 11% and 42%, depending on the quarter.
Management saw the writing on the wall early on, electing to cut the dividend by 33%, to 17.5 cents per share, as of its June 2020 payout.
Preferred Apartment Communities is paring down what could be the weakest link of its portfolio going forward: office buildings. In mid-April, the company said it would sell off seven office properties and an office real estate loan to Highwoods Properties (HIW) for $717.5 million.
The transaction will allow APTS to focus on two property types instead of three, with plans to continue growing its Class A suburban multifamily portfolio. The company also expects to redeem some of its preferred shares.
The immediate downside is a drag on Core FFO, with the company reducing its 2021 guidance from a range of 81 to 89 cents per share to a range of 73 to 83 cents per share. However, the company notes that “this may be offset to some extent based on the use of the proceeds, the timing of redeployment of proceeds, and G&A savings.” More important to us, however, is even at this lower guidance, APTS shares are trading at just about 12 times expected FFO—a fairly reasonable price for a 7%-plus yield.
And prior to COVID, Preferred Apartment Communities was a rare bird in that it upped its payouts every six months, rather than every year. Management has some difficult waters to navigate for now, but they have investor income in mind, and that the payout will resume its growth as finances allow.
Brett Owens, Contrarian Outlook, BNK Invest Inc., 500 North Broadway, Suite 265, Jericho, NY 11753 USA, 516-620-4294, May 21, 2021