Public Storage (PSA)

Total return at 5 years: 6.1%/year = 1.7% appreciation + 4.4% dividend. The target price ($314) is ex-dividend; the $66 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $473 · Multiples $309) exceeds the market price ($289).

Today — fairly valued: at $289 trades ~6.6% below its value discounted to today (~$309); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($314) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$200.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($289) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-7.1%/year) than we project (3.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$2.2 bn of owner earnings in year 5 (vs ~$3.8 bn of our base case). It recalculates if the DCF assumptions are edited.

A REIT is valued on price/Core-FFO (not P/E: the accounting depreciation of the property is not an economic cost). ⚠️ The real cash is AFFO (owner earnings), substantially lower than Core FFO —it subtracts recurring capex and non-cash straight-line rent—, and the dividend consumes almost all of the AFFO. It returns capital via dividend; it may issue equity to fund development. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

A REIT is valued on P/Core-FFO (not P/E: property depreciation is not economic). Unlike PLD, self-storage contracts are month to month (with no material straight-line rent to subtract) → AFFO (owner earnings, subtracting only guided maintenance capex of ~$175M/year) runs at ~94% of Core FFO, a reasonably clean cash view. Same-store NOI has been flat to slightly negative (-0.5% in 2025, with occupancy and property taxes under pressure); the path starts weak (+0.7%, anchored in the 2026 guidance of $16.75-17.05 per share) and gradually reaccelerates to +4.0% by year 5 as the acquired ($3.9bn in 2023-2025, NOI +34.2%) and developed ($1.7bn, NOI +15.6%) facilities finish stabilizing (typically 3-4 years) — a rebound from a trough, not a reacceleration from a healthy rate. Core FFO per share reaches ~$19.60 by year 5; the multiple compresses toward ~16× (base). Dividend $12.00/share, stable since 2023 (payout ~75% of estimated AFFO). Leadership was completely renewed in 2026 (new CEO/Chairman/CFO under 'PS4.0') — execution risk to watch.

Today's multiple compresses on its own going forward as the metric per share grows. The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $314 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $289, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $314 in 5 years plus $66 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $309. Against the current market price ($289), the margin of safety is 6.6% (trades below the maximum → there is margin) and the total return at that price would be 6.1% annually.

• Multiple vs. the group. ~17× Core FFO — with no evident discount.
• Growth vs. multiple. The multiple compresses slightly (17×→16×) while Core FFO recovers from a weak trough — the market already pays for a moderate recovery.
• Margin of safety. Base +2%/year price (+6% with dividend) — a modest return, with no clear margin of safety at today's price.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✕ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (144%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Balance sheet quality (IG rating). 'A' rating from S&P / 'A2' from Moody's, Total Debt/Total Assets ~19% (against a 65% maximum), and Adjusted EBITDA/Interest Expense ~12× (against a 1.5× minimum).
• Value creation (incremental return). The return on recent investments (acquisitions/development) is still below the 10% bar while they stabilize (typically 3-4 years) — not a negative signal in itself, but it does not yet confirm value creation either.
• Cash quality (AFFO vs. Core FFO). Unlike PLD, self-storage's month-to-month leases do not generate material straight-line rent — estimated AFFO (~94% of Core FFO) is closer to reported Core FFO, a cleaner cash view.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The engine of a self-storage REIT is facility NOI (occupancy × rent rate) plus ancillary operations. PSA grows via: (1) same-store NOI, today flat/slightly negative (−0.5%) while oversupply digests and property taxes rise (+5.3%), with 2026 comparable-store revenue guidance starting negative (−2.2%); (2) acquired properties ($3.9 billion in 2023–2025, NOI +34.2%) and developed properties ($1.7 billion cumulative cost, NOI +15.6%) still stabilizing; (3) ancillary operations (insurance with ~77% margin, third-party management, bridge loans), higher-margin and capital-light. GAAP earnings/EPS is misleading (real-estate depreciation is not an economic cost) → valued by Core FFO / AFFO.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Growth is real: occupancy × rental rate plus portfolio expansion (acquisitions/development). There is no material distorting monetary/inflationary component.
• Growth engine. Same-store NOI flat/slightly negative (−0.5%) today, with 2026 comparable-store revenue guidance starting negative (−2.2%); the growth engine going forward is acquired properties (NOI +34.2%) and developed properties (NOI +15.6%) still stabilizing.
• Sustainability. Core FFO per share grows just ~1.8% today; the base projects a gradual recovery to ~4% by year 5 as recent investments mature — not guaranteed if demand stays soft.

• Relevant in 10 years (recurrence). Self-storage is a structural service (moves, household downsizing, small businesses that need storage); demand is recurring though cyclical. Month-to-month leases give flexibility to the tenant, not the operator.
• Pricing power. Historically positive (rent rising consistently), but weakened today: new-tenant rental rates fell -6.5% and same-store NOI is flat/slightly negative — pricing power is on pause.
• Moat and its direction. Narrow and stable: scale and the conservative balance sheet are real, but the sector remains 78% fragmented among regional operators — barriers to entry are lower than in other REITs.
• Cyclicality / sensitivity. Sensitive to the housing/moving cycle and to new construction supply (recent oversupply still being digested); also rate-sensitive like any REIT.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Portfolio quality (occupancy + same-store NOI)Occupancy 92.0% · same-store NOI +-0.5%
• ✓Dividend coverage (payout over AFFO)75% of AFFO

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Conservative leverage. Conservative leverage: Total Debt/Total Assets ~19% (against a maximum permitted of 65%) and Adjusted EBITDA/Interest Expense ~12× (minimum required 1.5×); PSA has historically financed growth with equity and preferreds rather than debt, a distinctive trait in the sector over decades.
• Credit quality (A rating). S&P 'A' rating, one of the few REITs at that level — the lowest cost of capital in the sector.
• Payout on AFFO. ~75% of estimated AFFO — more comfortable than PLD's ~97%, thanks to month-to-month leases with no material straight-line rent to correct for.
• Leadership transition. CEO, Chairman, and CFO all new in 2026 — not a solvency risk, but an execution risk for near-term strategy; 2026 Core FFO guidance was reaffirmed in the first result under new management (April 27, 2026 8-K).

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. No active founder control of management; Tamara Hughes Gustavson (founding family) owns ~9.9%, the largest individual holding, but with no executive role. The remaining ownership is passive institutional.
• Capital allocation. Stable dividend (~75% of estimated AFFO, no increase in three years) plus reinvestment in acquisitions and development. Buybacks are nearly nil. The discipline is reasonable, but the stagnant dividend suggests caution rather than confidence in growth.
• Integrity / candor. Leadership was completely renewed in 2026 (the corporate transformation initiative) in a planned and pre-announced manner; 2026 Core FFO guidance was reaffirmed in the first result under new management (April 27, 2026 8-K), an early signal of continuity.

• There is no clear source of discount: This is not a forced-seller situation nor a lack-of-coverage situation.
• The flat/slightly negative same-store NOI and revenue deceleration are already reflected in market expectations, with no evidence of excessive punishment of a broken business.
• The complete leadership turnover (the corporate transformation initiative) could generate near-term noise unrelated to the value of the business, but there is no evidence of market over-reaction.

This is a case of 'caution: maybe it's not cheap, just appears so': no clear source of missing buyers or motivated sellers is identified. The business is quality (sector leader, conservative balance sheet) but trades at a multiple that already reflects that quality — no evident margin of safety at this price. The 1Q-2026 earnings 8-K (April 27, 2026) reaffirmed 2026 Core FFO per share guidance ($16.35–$17.00) and comparable-store revenue growth guidance, with the comparable-store revenue guidance starting negative (−2.2%) — consistent with this model's year-1 trajectory (Core FFO $16.43/share), no reason to re-anchor. The same release announced the pending National Storage Affiliates acquisition.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +2%/year (+10% total): the margin of safety protects the downside. The bull (+10%/year, +62% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Soft demand / oversupply. Soft demand / oversupply: same-store NOI flat-to-negative (−0.5%), occupancy under pressure, rent rates on new leases falling (−6.5%) as the self-storage sector digests excess development from the past decade; 2026 comparable-store revenue guidance starts negative (−2.2%).
• Rising property tax. +5.3% in 2025, FY26 guidance trending higher — compresses the operating margin faster than revenue.
• Leadership transition. Complete leadership renewal in 2026 (new CEO, Chairman, and CFO under the corporate transformation initiative) — generic execution risk from any simultaneous transition of three key positions, with no evidence in the filing of specific stumbling blocks beyond the appointments themselves.
• Reliance on Google. More than half of new customers arrive via paid/organic search on Google, which also makes it easier for smaller operators to compete for the same terms.
• Third-party bridge loans. New program (2024), not yet tested through a full credit cycle; risk of losses if borrowers default.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC barely matches the 10% bar (the market's opportunity cost), no excess return.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 4% at a multiple/growth of 4.9 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -7% vs our 4%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -3%/yr, bull-scenario ceiling +6%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: efficient scale, cost advantage, intangibles, switching costs → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -7%, within what we project (4%) — the story squares with the numbers.