A month has gone by since the last earnings report for Public Storage (PSA). Shares have added about 9.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Public Storage due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Public Storage Q1 FFO Meets, Revenues Beat Estimates
Public Storage's first-quarter 2020 core FFO per share of $2.58 improved 2.0% from $2.53 reported a year ago. The reported figure met the Zacks Consensus Estimate.
Quarterly revenues of $716.1 million increased 3.9% year on year and surpassed the Zacks Consensus Estimate of $711.7 million.
The company’s quarterly performance reflects the favorable impact of higher revenues for its same-store facilities, resulting from higher realized annual rent per occupied square foot. Nevertheless, this is offset by increased cost of operations from its same-store facilities, comprising elevated marketing costs and property tax expenses.
Behind the Headlines
Same-store revenues inched up 1.2% year over year to $609.5 million during the first quarter. This upside was primarily driven by a 0.8% increase in realized annual rent per occupied square foot to $17.43. Moreover, weighted-average square foot occupancy of 93.1% expanded 60 basis points year over year.
However, same-store cost of operations increased 4% year over year to $180.3 million, primarily reflecting a rise in marketing expenses and property taxes. Consequently, the company’s same-store net operating income (NOI) inched up 0.1% to $429.3 million.
Nonetheless, the company’s NOI from non-same store facilities grew on the back of the facilities acquired in 2019 and 2020, and the fill-up of the recently developed and expanded facilities.
During the March quarter, Public Storage acquired nine self-storage facilities, comprising 0.7 million net rentable square feet of area, for $186.2 million. These included two each in California, New York and Tennessee and one each in Indiana, Massachusetts and Nebraska. Following Mar 31, 2020, the company acquired or was under contract to acquire six self-storage facilities, spanning 0.4 million net rentable square feet of space, for $66.8 million.
Finally, as of Mar 31, 2020, the company had several facilities in development (1.4 million net rentable square feet), with an estimated cost of $229 million, as well as expansion projects (2.9 million net rentable square feet) worth $406 million. Public Storage expects to incur the remaining $473 million of development costs related to these projects, mainly over the next 18 to 24 months.
Public Storage exited first-quarter 2020 with $718.4 million of cash and cash equivalents, up from $409.7 million recorded at the end of 2019.
In January, the company completed a public offering of 500 million euros ($552 million) of Euro denominated senior unsecured notes, bearing interest at a fixed rate of 0.875% and slated to mature on Jan 24, 2032.
Public Storage expects year-over-year same-store rental income and net operating income to take a hit for the rest of the year. This is due to the fact that the company has temporarily curtailed its existing tenant rate increase program and witnessed a fall in demand for its self-storage facilities.
The company also apprised of its acquisition plans for the rest of the year. It expects a decline in its scale of acquisitions for the year.
The coronavirus pandemic has also resulted in the company expecting higher operating expenses for the year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Public Storage has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Public Storage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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