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

Zacks Equity Research
·5 min read

Public Storage PSA is slated to release third-quarter 2020 numbers on Nov 4, after the closing bell. The company’s quarterly results might display year-over-year declines in revenues and funds from operations (FFO) per share.

In the last reported quarter, this self-storage real estate investment trust (REIT) reported a negative surprise of 2.38% in terms of FFO per share. The company’s quarterly results reflected the unfavorable impact of lower realized annual rent per occupied square foot, reduced late charges and administrative fees, as well as rise in on-site property manager payroll and elevated marketing expenses.

Over the trailing four quarters, the company met estimates on one occasion, and missed in the other three, the average negative surprise being 0.86%.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

In the third quarter, Public Storage is likely to have benefited from its solid presence in key cities and high brand value. In addition, the company has been capitalizing on growth opportunities. From the beginning of 2013 through Jun 30, 2020, it has acquired 355 facilities with 24.9 million net rentable square feet from third parties for $3.3 billion. In addition, it opened the newly-developed and expanded self-storage space for a total cost of $1.7 billion, adding 15.7 million net rentable square feet. Such acquisition and expansion initiatives are also anticipated to have stoked growth during the period under consideration.

Moreover, Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to withstand current challenging times and bank on expansion opportunities through acquisitions and developments. This is likely to have continued in the third quarter as well.

However, the pandemic has been wreaking havoc and the self-storage market too has not been immune to its impact. There is a substantial reduction in demand for self-storage spaces. This is reducing move-in volumes despite lower move-in rental rates. Furthermore, stress on customers’ financial capacity will likely result in rent collection issues.

As such, with high infection rates in a number of markets and government restrictions, same-store rental income and net operating income are likely to bear the brunt. Also, advertising expenditure is likely to remain elevated for maintaining a high occupancy level.

Moreover, the company operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. In addition, there is a development boom of self-storage units in several markets. This high supply is likely to have fueled competition, curbed its power to raise rents and turned on more discounting during the quarter under consideration.

The Zacks Consensus Estimate for quarterly revenues is currently pinned at $723 million, suggesting a 0.9% year-over-year decline.

Nevertheless, Public Storage’s activities during the quarter under review were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the third-quarter FFO per share has been revised a cent upward to $2.60 in a week’s time. However, it calls for a 4.8% year-over-year fall.

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 -0.56%.

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:

Lexington Realty Trust LXP, set to report quarterly numbers on Nov 5, currently has an Earnings ESP of +1.33% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

National Storage Affiliates Trust NSA, slated to release third-quarter earnings on Nov 5, has an Earnings ESP of +1.94% and carries a Zacks Rank of 3 at present.

Ventas, Inc. VTR, scheduled to announce earnings results on Nov 6, has an Earnings ESP of +2.03% and a Zacks Rank of 3 at present.

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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Public Storage (PSA) : Free Stock Analysis Report
 
Ventas, Inc. (VTR) : Free Stock Analysis Report
 
Lexington Realty Trust (LXP) : Free Stock Analysis Report
 
National Storage Affiliates Trust (NSA) : Free Stock Analysis Report
 
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Zacks Investment Research