A month has gone by since the last earnings report for Public Storage (PSA - Free Report) . Shares have lost about 5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Public Storage due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Public Storage Q3 FFO Lags Estimates, Expenses Flare Up
Public Storage’s third-quarter 2019 core FFO per share of $2.73 improved 1.1% from the prior-year figure of $2.70. However, the reported figure missed the Zacks Consensus Estimate by a penny.
Quarterly revenues of $729.3 million climbed 3.3% from the prior-year quarter but narrowly missed the Zacks Consensus Estimate of $732.9 million.
The company’s lower-than-expected FFO per share reflects the unfavorable impact of higher expenses in the quarter for its same-store facilities, resulting from elevated marketing expenses and property taxes. Nevertheless, higher realized annual rent per occupied square foot and uptick in occupancy supported its same-store revenues. Additionally, Public Storage benefited from its expansion efforts in the reported quarter.
Behind the Headlines
Same-store revenues inched up 1.1% year over year to nearly $611.2 million during the third quarter. This upside was primarily driven by a 0.7% increase in realized annual rent per occupied square foot to $17.82. Weighted-average square foot occupancy of 94.2% expanded 40 basis points year over year.
However, same-store cost of operations also flared up 6.4% year over year to $170.9 million, primarily reflecting rise in marketing expenses as well as uptick in property taxes. Consequently, the company’s same-store NOI edged down 0.9% to $440.4 million.
Nonetheless, the company’s NOI from non-same store facilities grew on the back of the facilities acquired in 2018 and 2019, and the fill-up of the recently-developed and expanded facilities.
During the September-end quarter, Public Storage bought 10 self-storage facilities, comprising 0.8 million net rentable square feet of area, for $110.7 million. These included two each in Georgia and Massachusetts, and one each in Florida, Indiana, Minnesota, North Carolina, Tennessee and Texas. Following Sep 30, 2019, the company acquired or was under contract to acquire eight self-storage facilities, spanning 0.6 million net rentable square feet of space, for $69.6 million.
Finally, as of Sep 30, 2019, the company had several facilities in development (1.3 million net rentable square feet), with an estimated cost of $219 million, as well as expansion projects (2.4 million net rentable square feet) worth roughly $313 million. Public Storage estimates to incur the remaining $348 million of development costs related to these projects, mainly over the next 18 months.
Public Storage exited third-quarter 2019 with around $541.4 million of cash and cash equivalents, up from the $361.2 million recorded at the end of 2018.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
Currently, Public Storage has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, Public Storage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.