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What's in the Cards for Public Storage's (PSA) Q1 Earnings?

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Zacks Equity Research
·5 min read
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Public Storage PSA is slated to release first-quarter 2020 numbers on Apr 30, after the closing bell. The company’s quarterly performance is likely to reflect growth in revenues as well as funds from operations (FFO) per share.

In the last reported quarter, this self-storage real estate investment trust (REIT) reported a negative surprise in terms of FFO per share of 0.70%. Results highlighted the unfavorable impact of higher expenses on its same-store facilities, stemming from elevated marketing expenses, property manager payroll and property taxes. Nevertheless, higher realized annual rent per occupied square foot and uptick in occupancy supported same-store revenues. Additionally, Public Storage benefited from the company’s expansion efforts in the quarter.

Over the trailing four quarters, the company surpassed estimates on one occasion, met in another and missed in the other two, the average negative surprise being 0.17%.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 for this announcement.

Key Factors

Favorable demographic changes, migration and downsizing trend, and declining home ownership and the resultant increase in the number of people renting homes are likely to have spurred demand for self-storage spaces for Public Storage in the first quarter. Thus, the company, with its robust scale and high brand value, is likely to have benefited from the healthy fundamentals in the self-storage industry.

In addition, the company has been capitalizing on growth opportunities. From the beginning of 2013 through Dec 31, 2019, it has acquired 340 facilities, with 23.8 million net rentable square feet from third parties for $3.1 billion. Additionally, it opened newly-developed and expanded self-storage space for $1.6 billion, adding 15.1 million of net rentable square feet. Such acquisition and expansion initiatives are also anticipated to have stoked growth during the period under consideration.

Following Dec 31, 2019, the company acquired or was under contract to acquire 14 self-storage facilities, spanning 1.1 million net rentable square feet, for $245.3 million. Finally, as of Dec 31, 2019, the company had several facilities under development (1.3 million net rentable square feet), with an estimated cost of $209 million, as well as expansion projects (3.1 million net rentable square feet) worth roughly $410 million.These efforts are likely to have continued in the March-end quarter as well, supporting the company’s performance.

As such, revenues are likely to have improved during the January-March period. The Zacks Consensus Estimate for quarterly revenues is currently pinned at $714.2 million, suggesting 3.7% year-over-year growth.

However, Public Storage operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. Further, in recent years, there has been a development boom in a number of markets. Particularly, deliveries are anticipated to have been elevated in the to-be-reported quarter. This is likely to have intensified competition for the company, curbing its power to raise rents and turning on more discounting. Additionally, escalation in property tax and marketing expense are resulting in elevated expense levels, which is another concern.

Prior to the first-quarter earnings release, there is lack of any solid catalyst for becoming optimistic about the company’s prospects. The Zacks Consensus Estimate for the first-quarter FFO per share remained unchanged at $2.58, over the past 30 days. Nevertheless, it calls for an increase of 2.4% year on year.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive 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 odds of a FFO beat. But that’s not the case here. 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 #3 and has an Earnings ESP of -0.39%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

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

SBA Communications Corporation SBAC, set to report quarterly numbers on May 5, has an Earnings ESP of +0.67% and carries a Zacks Rank of 3 currently.

CoreSite Realty Corporation COR, slated to release first-quarter earnings on Apr 30, has an Earnings ESP of +3.19% and carries a Zacks Rank of 3 at present.

Americold Realty Trust COLD, expected to release earnings results around May 7, has an Earnings ESP of +9.74% and currently holds a Zacks Rank #3.

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

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