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

Zacks Equity Research

Public Storage PSA is slated to release first-quarter numbers on May 1, after market close. The company’s funds from operations (FFO) per share, as well as revenues are anticipated to display year-over-year improvement in the quarter.

In the last reported quarter, this self-storage real estate investment trust (REIT) delivered better-than-expected performance in terms of FFO per share, recording a positive surprise of 0.72%. 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. In fact, it exceeded estimates in each of the preceding four quarters, resulting in an average positive surprise of 0.95%. This is depicted in the graph below:

Public Storage Price and EPS Surprise

Public Storage Price and EPS Surprise | Public Storage Quote

Let’s see how things are shaping up for this announcement.

Factors to Consider

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.

The company is likely to benefit from favorable fundamentals in the self-storage industry. Favorable demographic changes, improving job market and rising incomes, migration and downsizing trend, and declining home ownership and the resultant increase in the number of people renting homes will likely spur demand for self-storage spaces.

In addition, acquisition and expansion initiatives are anticipated to stoke growth. In fact, since the beginning of 2013 through Dec 31, 2018, the company acquired 296 facilities with 20.6 million net rentable square feet from third parties for around $2.7 billion. Additionally, the company opened newly-developed and expanded self-storage space for a total cost of $1.2 billion, adding approximately 11.3 million net rentable square feet over this period.

Moreover, 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. Also, 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. Such efforts are likely to have continued in the first quarter, boosting the company’s performance.

Amid these, Public Storage is likely to have benefited from the steady demand in the self-storage industry, as well as growth in revenues and NOI. The Zacks Consensus Estimate for revenues is pegged at $690.3 million, depicting 3% growth. Also, the Zacks Consensus Estimate for FFO per share for the first quarter is pinned at $2.52, indicating an uptick of 1.6% year over year.

However, in recent years, there is a development boom of self-storage units in many markets. This is a concern as high supply affects the company’s pricing power. In fact, the company operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. This limits its power to raise rents and turn on more discounting.

Here is what our quantitative model predicts:

Public Storage has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Public Storage is +0.75%.

Zacks Rank: Public Storage carries a Zacks Rank #3, currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Here are a few other 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:

Alexandria Real Estate Equities, Inc. ARE, scheduled to release earnings on Apr 29, has an Earnings ESP of +0.3% and currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Welltower, Inc. WELL, scheduled to release earnings on Apr 30, has an Earnings ESP of +0.09% and a carries a Zacks Rank of 3.

Mack-Cali Realty Corporation CLI, slated to report first-quarter results on May 1, has an Earnings ESP of +1.21% and holds a Zacks Rank of 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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