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Factors to Impact Public Storage (PSA) This Earnings Season

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Public Storage (PSA - Free Report) is slated to release fourth-quarter and full-year 2021 results on Feb 22 after market close. Both its quarterly revenues and funds from operations (FFO) per share are likely to have witnessed year-over-year increases.

In the last-reported quarter, this self-storage real estate investment trust (REIT) delivered a surprise of 5.88% in terms of FFO per share. The results reflected an improvement in realized annual rent per available square foot and weighted average square foot occupancy in the reported quarter. The company also benefited from its expansion efforts through acquisitions, developments and extensions.

In the last four quarters, Public Storage surpassed the Zacks Consensus Estimate on all occasions, the average beat being 5.16%. The graph below depicts the surprise history of the company:

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 before this announcement.

Key Factors

In the fourth quarter, PSA is likely to have gained from its solid presence in key cities and high brand value. In addition, the company has been capitalizing on growth opportunities.

During the September-end quarter, the company acquired 27 self-storage facilities, comprising 2.2 million net rentable square feet of area, for $0.3 billion. In April, the company completed the acquisition of the ezStorage portfolio, comprising 48 properties, for $1.8 billion. Subsequent to the third-quarter end, the company acquired or was under contract to acquire 107 self-storage facilities, encompassing 11.8 million net rentable square feet of space across 16 states, for $2.3 billion.

In December, Public Storage closed the acquisition of the All Storage portfolio for $1.5 billion, thereby adding a portfolio of 56 self-storage properties mainly located in the growing Dallas-Fort Worth market. Such acquisition and expansion initiatives are also anticipated to have stoked the company’s growth during the period under consideration.

The self-storage asset category is need-based and recession-resilient in nature. Additionally, the self-storage industry continues to benefit from favorable demographic changes. The migration and downsizing trend and an increase in the number of people renting homes have escalated the needs of consumers to rent space at a storage facility to park their possessions.

Demand for self-storage spaces has also shot up amid the work from home, study from home, elevated home sales, remodeling and migration in and out of metropolitan markets, while move-outs remain low amid the health crisis, resulting in improved year-over-year occupancy trends and an increased average length of stay. This supports revenues because of more long-term tenants becoming eligible for rate hikes and a lesser need to replace vacating tenants with new tenants that lower promotional expenses and increase its pricing leverage.

Public Storage has one of the strongest balance sheets in the sector with adequate liquidity to withstand any challenges and bank on expansion opportunities through acquisitions and developments. This is likely to have continued in the fourth quarter as well.

The Zacks Consensus Estimate for fourth-quarter revenues from self-storage facilities stands at $851 million, suggesting an increase from $841 million witnessed in the prior quarter and $699 million in the year-ago period. Quarterly revenues from ancillary operations are presently projected at $52 million, down from the prior-quarter figure of $54 million but up from $49.6 million registered in the comparable period last year.

The Zacks Consensus Estimate for quarterly revenues stands at $912.3 million, calling for a 21.9% year-over-year increase.

Apart from this, PSA’s activities during the quarter under review were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for fourth-quarter FFO per share has been revised 2 cents upward to $3.44 in a month. It implies 17.4% year-over-year growth.

For full-year 2021, the company projected core FFO per share in the range of $12.50-$12.80. The company’s full-year assumption is backed by 9.5-10.5% growth in same-store revenues, a 0-0.5% rise in same-store expenses and a 13.1-14.7% expansion in same-store net operating income. Further, the company expected $5 billion of acquisitions and $215 million of development openings.

For the full year, the Zacks Consensus Estimate for FFO per share has moved 2 cents north to $12.82 over the past month. The figure indicates a 20.8% increase year over year on revenues of $3.42 billion.

However, the company operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. Furthermore, there is a development boom of self-storage units in several markets. This high supply is likely to have fueled competition.

Here Is What Our Quantitative Model Predicts

Our proven model does not conclusively predict a 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 an FFO beat. However, that is not the case here.

Public Storage currently carries a Zacks Rank #2 and has an Earnings ESP of - 0.17%. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are three stocks from the REIT sector — Pebblebrook Hotel Trust (PEB - Free Report) , Life Storage, Inc. (LSI - Free Report) and National Storage Affiliates Trust (NSA - Free Report) — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

Pebblebrook Hotel Trust, slated to release fourth-quarter earnings on Feb 22, has an Earnings ESP of +15.74% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Life Storage, scheduled to report quarterly numbers on Feb 24, has an Earnings ESP of +0.66% and carries a Zacks Rank of 3.

National Storage Affiliates Trust, slated to report quarterly numbers on Feb 22, has an Earnings ESP of +1.06% and carries a Zacks Rank of 2.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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.