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Public Storage (PSA) Q4 FFO and Revenues Grow Y/Y

Zacks Equity Research
UnitedHealth's (UNH) second-quarter results are expected to be boosted by the revenue growth at UnitedHealthcare and Optum segments and increasing membership.

Public Storage’s PSA fourth-quarter 2018 core funds from operations (FFO) per share of $2.81 improved 2.2% from the prior-year figure of $2.75. The Zacks Consensus Estimate for FFO per share was $2.79.

Results highlight higher realized annual rent per occupied square foot supported the company’s same-store performance. Additionally, Public Storage benefited from its expansion efforts in the reported quarter.

Quarterly revenues of $692.5 million also climbed 3% from the prior-year quarter. The Zacks Consensus Estimate for revenues was $692.7 million.

For full-year 2018, core FFO per share came in at $10.56, 3.2% ahead of the prior-year tally of $10.23. This was backed by 3.2% year-over-year growth in revenues to $2.75 billion.

Behind the Headlines

Same-store revenues advanced 1.2% year over year to $561.9 million during the fourth quarter, while the company’s NOI inched up 0.4% to $438.8 million. The upside in same-store revenues was primarily driven by a 1.8% rise in realized annual rent per occupied square foot to $17.68. Nonetheless, the weighted-average square foot occupancy of 92.6% contracted 50 basis points year over year.

In addition, the company’s NOI from non-same store facilities grew on the back of the 164 self-storage facilities acquired and developed since January 2016.

Portfolio Activity

During the Dec-end quarter, Public Storage bought nine self-storage facilities, comprising 0.6 million net rentable square feet of area, for $73.2 million. Following Dec 31, 2018, the company acquired or was under contract to acquire 14 self-storage facilities, spanning 0.9 million net rentable square feet of space, for $102.4 million.

Finally, as of Dec 31, 2018, the company had several facilities in development (1.7 million net rentable square feet), with an estimated cost of $253 million, as well as expansion projects (3.5 million net rentable square feet) worth roughly $354 million. Public Storage estimates to incur the remaining $322 million of development costs related to these projects, mainly over the next 18 months.

Liquidity

Public Storage exited 2018 with around $361.2 million of cash and cash equivalents, down from $433.4 million recorded at the end of the previous year.

Dividend

On Feb 19, Public Storage’s board of trustees announced a regular quarterly dividend of $2.00 per share. The amount will be paid on Mar 28, to shareholders of record as of Mar 13, 2019.

Shurgard Europe Update

On Oct 15, Shurgard Europe completed an initial public offering. Its shares started trading on Euronext Brussels under the “SHUR” symbol. Shurgard Europe issued 25 million of its common shares to third parties, at a price of €23 per share.

As a result of this offering, Public Storage’s equity interest, consisting of a direct and indirect pro-rata ownership interest in 31.3 million shares, shrunk from 49% to 35.2%. Therefore, even with no share sell off, the company recorded a gain on disposition of $151.6 million in the fourth quarter, which was as if the company had sold a proportionate share of its investment in Shurgard Europe.

In Conclusion

Public Storage is a recognized and established name in the self-storage industry in the United States. Further, a solid balance sheet enables the company to pay sustainable dividends. Also, it is benefiting from strong industry fundamentals and favorable demographics in its markets. Amid these, its acquisition and expansion efforts look promising. However, supply has been rising in a number of its markets. This limits its power to raise rents and turn on more discounting.

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

We, now, look forward to the earnings releases of other REITs like RLJ Lodging Trust RLJ, Senior Housing Properties Trust SNH and Plymouth Industrial REIT, Inc. PLYM, which are slated to report their quarterly numbers in the upcoming days.

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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