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What's in the Cards for Public Storage's (PSA) Q3 Earnings?

Zacks Equity Research

Public Storage PSA is slated to release third-quarter numbers on Oct 29, after market close. 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) delivered a positive surprise in terms of FFO per share. Results highlighted higher realized annual rent per occupied square foot that supported the company’s same-store performance.

The company has a decent surprise history. It exceeded estimates in three of the preceding four quarters, resulting in an average positive surprise of 0.46%. This is depicted in the graph below:

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 are shaping up for this announcement.

Factors to Consider

Public Storage is one of the largest owners and operators of storage facilities in the United States. The ‘Public Storage’ brand is the most recognized and established name in the self-storage industry, with presence in all major metropolitan markets of the United States.

Notably, favorable demographic changes, healthy job market and rising incomes, 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 in the period under consideration. Thus, Public Storage is likely to have benefited from favorable fundamentals in the self-storage industry, with its robust scale and high brand value.

Moreover, since the beginning of 2013 through Jun 30, 2019, the company acquired 318 facilities with 22.1 million net rentable square feet from third parties, for approximately $2.9 billion. Additionally, it opened newly-developed and expanded self-storage space for a total cost of $1.5 billion, adding around 13.9 million net rentable square feet. These acquisition and expansion initiatives are also anticipated to have stoked growth in the third quarter.

Following Jun 30, 2019, the company acquired or was under contract to acquire 10 self-storage facilities, spanning 0.8 million net rentable square feet of space, for $86.5 million. Also, as of Jun 30, 2019, it had several facilities in development (1.1 million net rentable square feet), with an estimated cost of $189 million, as well as expansion projects (2.7 million net rentable square feet) worth roughly $332 million. Such efforts are likely to have continued in the September-end quarter as well, boosting the company’s performance.

As such, revenues are likely to have grown in the quarter. The Zacks Consensus Estimate for revenues is currently pinned at $732.9 million, depicting nearly 3.8% growth. Also, the Zacks Consensus Estimate for the third-quarter FFO per share is pinned at $2.74, indicating an uptick of 1.5% year over year.

In addition, Public Storage’s activities during the July-September period were adequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for the quarter’s FFO per share moved marginally north, over the past two months.

Nevertheless, Public Storage operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. In addition, in recent years, supply has been increasing in a number of markets. Particularly, deliveries are expected 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.

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.

Although Public Storage carries a Zacks Rank of 2, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks That Warrant a Look

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:

Ventas, Inc. VTR, scheduled to release earnings on Oct 25, has an Earnings ESP of +0.96% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Digital Realty Trust, Inc. DLR, slated to report third-quarter results on Oct 29, has an Earnings ESP of +2.61% and currently carries a Zacks Rank of 3.

Apartment Investment and Management Company AIV, set to report quarterly results on Oct 31, has an Earnings ESP of +0.6% and carries a Zacks Rank of 3, currently.

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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