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Public Storage (PSA) Q3 FFO Beats on Occupancy Gains, Low Costs

Zacks Equity Research
·4 min read

Public Storage's PSA third-quarter 2020 core funds from operations (FFO) per share of $2.63 surpassed the Zacks Consensus Estimate of $2.60. Quarterly revenues of $730.7 million exceeded the Zacks Consensus Estimate $723 million.

Results reflect an increase in occupancy in the reported quarter. The company also benefited from its expansion efforts through acquisitions, development and extensions. Moreover, it witnessed a decrease in on-site property manager payroll, utility expense, in addition to moderation of growth in property tax and marketing expenses. However, results were adversely impacted by lower realized annual rent per occupied square foot, reduced late charges and administrative fees.

Public Storage’s core FFO per share slipped 3.7% from the prior-year quarter’s $2.73, while revenues inched up 0.2% year one year.

Behind the Headlines

Public Storage’s same-store revenues declined 2.7% year over year to $611.5 million during the third quarter. This downside primarily resulted from a 2.7% decrease in realized annual rent per occupied square foot to $17.26, along with reduced late charges and administrative fees. Nonetheless, weighted-average square foot occupancy of 95.5% expanded 130 basis points year over year.

Same-store cost of operations edged down 0.1% year over year to $175.7 million, mainly reflecting a 5.5% decrease in on-site property manager payroll, a 9.2% fall in utility expense, along with moderation of growth in property tax and marketing expenses. Consequently, the company’s same-store net operating income (NOI) dropped 3.7% to $435.8 million.

Nonetheless, the REIT’s NOI from non-same store facilities increased on the back of the facilities acquired in 2019 and 2020, as well as the fill-up of the recently-developed and expanded facilities.

Portfolio Activity

During the September-end quarter, Public Storage acquired four self-storage facilities, comprising 0.2 million net rentable square feet of area, for $29.1 million. These included two in Minnesota and one in Colorado and Utah. Following Sep 30, the company acquired or was under contract to acquire 54 self-storage facilities, spanning 4.9 million net rentable square feet of space, for $686.9 million.

Finally, as of Sep 30, 2020, Public Storage had several facilities in development (1.2 million net rentable square feet), with an estimated cost of $217 million, as well as expansion projects (2.5 million net rentable square feet) worth $347 million. It expects to incur the remaining $387 million of development costs related to these projects, mainly over the next 18-24 months.

Balance Sheet Position

Public Storage exited third-quarter 2020 with $293.95 of cash and equivalents, down from the $409.7 million recorded at the end of 2019.

Dividend Update

On Oct 23, the company announced a regular quarterly dividend of $2 per common share. The dividend will be paid on Dec 30, to shareholders of record as of Dec 15, 2020.

Public Storage currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Public Storage Price, Consensus and EPS Surprise

Public Storage Price, Consensus and EPS Surprise
Public Storage Price, Consensus and EPS Surprise

Public Storage price-consensus-eps-surprise-chart | Public Storage Quote

We, now, look forward to the earnings releases of other REITs like Simon Property Group, Inc. SPG, Ventas, Inc. VTR and Taubman Centers, Inc. TCO. While Ventas is scheduled to release earnings on Nov 6, Simon Property and Taubman Centers will report on Nov 9.

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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