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Factors to Impact Public Storage (PSA) This Earnings Season

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Public Storage PSA is slated to release second-quarter 2021 earnings on Aug 3, after the bell. Both its quarterly revenues and funds from operations (FFO) per share are likely to display year-over-year increases.

In the last reported quarter, this self-storage real estate investment trust (REIT) reported a surprise of 4.44% in terms of FFO per share. Results reflected an improvement in realized annual rent per available square foot and weighted average square foot occupancy in the reported quarter. The company also benefited from its expansion efforts through acquisitions, development and extensions.

Over the trailing four quarters, the company beat estimates on three occasions and missed in the other, the average surprise being 1.51%.This is depicted in the graph below:

Public Storage Price and EPS Surprise

Public Storage Price and EPS Surprise
Public Storage Price and EPS Surprise

Public Storage price-eps-surprise | Public Storage Quote

Let’s see how things have shaped up prior to this announcement.

Key Factors

During the second quarter, Public Storage is likely to have gained from its solid presence in key cities and high brand value. In addition, the company has been capitalizing on growth opportunities. This self-storage REIT has enhanced its portfolio by 22 million net rentable square feet, or 13%, through $4.3 billion of acquisitions, development, and redevelopment since the start of 2019. Such acquisition and expansion initiatives are also anticipated to have stoked growth during the period under consideration.

In April, Public Storage announced closing the buyout of ezStorage for $1.8 billion. This transaction is immediately accretive to FFO. The acquisition brings in portfolio of 48 properties, encompassing 4.2 million net rentable square feet, to Public Storage’s platform. The move is a strategic fit as these properties are located in regions with solid demand drivers and high barriers for new property development across Washington DC, Virginia, and Maryland.

The self-storage industry continues to gain from favorable demographic changes. Migration and downsizing trend, and increase in the number of people renting homes have escalated the needs of consumers to rent spaces at storage facilities for parking their possessions.

Further, demand for self-storage space is shooting up in the flexible working environment as well as improving housing market, while move-outs remain low amid the health crisis, resulting in improved year-over-year occupancy trends and increased average length of stay. This supports revenue growth because of more long-term tenants becoming eligible for rate hikes, and a lesser need to replace vacating tenants with new tenants that brings down promotional expenses and increases its pricing leverage.

Additionally, Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to withstand any challenges, and bank on expansion opportunities through acquisitions and developments. This is likely to have continued in the second quarter as well.

The Zacks Consensus Estimate for second-quarter revenues from self-storage facilities is currently pinned at $744 million, suggesting an increase from the $716 million witnessed in the prior quarter and $665 million in the year-ago period. Quarterly revenues from ancillary operations are presently projected at $51 million, at par with the prior quarter and up from the $44.7 million registered in the comparable period last year.

The Zacks Consensus Estimate for quarterly revenues is currently pinned at $801.6 million, calling for a 13% year-over-year increase.

Apart from this, Public Storage’s activities during the quarter under review were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the second-quarter FFO per share has been revised 3 cents upward to $2.93 in a month’s time. It also calls for 19.1% year-over-year growth.

However, the company operates in a highly-fragmented market in the United States, with intense competition from numerous private, regional and local operators. Furthermore, there is a development boom of self-storage units in several markets. This high supply is likely to have fueled competition.

Here is what our quantitative model predicts:

Our proven model predicts a surprise in terms of FFO per share for Public Storage this season. The combination of a positive Earnings ESP, and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), increases the chances of a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Public Storage currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.89%.

Other Stocks That Warrant a Look

Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that these too have the right combination of elements to report surprises this quarter:

National Storage Affiliates Trust NSA, scheduled to report quarterly numbers on Aug 3, currently has an Earnings ESP of +2.14% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Life Storage, Inc. LSI, slated to release second-quarter numbers on Aug 3, has an Earnings ESP of +2.53% and carries a Zacks Rank of 3, at present.

OUTFRONT Media Inc. OUT, set to announce quarterly results on Aug 5, currently has an Earnings ESP of +14.29% and carries a Zacks Rank of 3.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Life Storage, Inc. (LSI) : Free Stock Analysis Report

OUTFRONT Media Inc. (OUT) : Free Stock Analysis Report

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