Public Storage (PSA) Q2 FFO Lags Estimates on Rent & Cost Woes

Public Storage's PSA second-quarter 2020 core funds from operations (FFO) per share of $2.46 slipped 6.8% from the prior-year quarter’s $2.64. The reported figure also missed the Zacks Consensus Estimate of $2.52.

Quarterly revenues of $709.3 million edged down 0.2% year on year. However, the top-line figure surpassed the Zacks Consensus Estimate of $704.9 million.

The company’s quarterly results reflect 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. Nevertheless, Public Storage benefited from its expansion efforts during this period.

Behind the Headlines

Same-store revenues declined 3% year over year to $597.4 million during the second quarter. This downside primarily resulted from a 2% decrease in realized annual rent per occupied square foot to $17.10, along with reduced late charges and administrative fees. Yet, weighted-average square foot occupancy of 94.2% expanded 20 basis points year over year.

Same-store cost of operations rose 6.7% year over year to $183.4 million, mainly reflecting a 20.7% increase in on-site property manager payroll and 36.9% rise in marketing expenses. Consequently, the company’s same-store net operating income (NOI) dropped 6.8% to $414 million.

Nonetheless, the company’s NOI from non-same store facilities increased on the back of the facilities acquired in 2019 and 2020, as well as the fill-up of the recently-developed and expanded facilities.

Portfolio Activity

During the June-end quarter, Public Storage acquired six self-storage facilities, comprising 0.4 million net rentable square feet of area, for $67.1 million. These included four facilities in Ohio, and one in California and Florida. Following Jun 30, 2020, the company acquired or was under contract to acquire five self-storage facilities, spanning 0.3 million net rentable square feet of space, for $33.3 million.

Finally, as of Jun 30, 2020, Public Storage had several facilities in development (1.1 million net rentable square feet), with an estimated cost of $195 million, as well as expansion projects (2.7 million net rentable square feet) worth $361 million. It expects to incur the remaining $403 million of development costs related to these projects, mainly over the next 18 to 24 months.

Balance Sheet Position

Public Storage exited second-quarter 2020 with $1.3 billion of cash and equivalents, up from the $409.7 million recorded at the end of 2019.

Dividend Update

On Aug 3, the company announced a regular quarterly dividend of $2 per common share. The dividend will be paid on Sep 30, to shareholders of record as of Sep 15, 2020.

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

Public Storage Price, Consensus and EPS Surprise

Public Storage Price, Consensus and EPS Surprise

Public Storage price-consensus-eps-surprise-chart | Public Storage Quote

We, now, look forward to the earnings releases of other REITs like Kimco Realty Corporation KIM, Ventas, Inc. VTR and Simon Property Group, Inc. SPG. While Kimco and Ventas are scheduled to release earnings on Aug 7, Simon Property will report on Aug 10.

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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