Public Storage (NYSE:PSA) PSA is slated to release third-quarter 2021 earnings on Nov 1, after the bell. Both its quarterly revenues and funds from operations (FFO) per share are likely to display year-over-year increases.
In the last reported quarter, this self-storage real estate investment trust (REIT) delivered a surprise of 7.51% in terms of FFO per share. Results reflected an improvement in realized annual rent per available square foot and weighted average square foot occupancy. The company also benefited from its expansion efforts through acquisitions, development and extensions.
The company beat estimates in all of the trailing four quarter, the average surprise being 3.98%.This is depicted in the graph below:
Let’s see how things have shaped up prior to this announcement.
Key Factors
During the third quarter, Public Storage 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 June-end quarter, the company acquired 84 self-storage facilities, comprising 7.0 million net rentable square feet of area, for $2.3 billion. In April, the company completed the acquisition of the ezStorage portfolio, comprising 48 properties, for $1.8 billion. Following Jun 30, 2021, the company acquired or was under contract to acquire 36 self-storage facilities, spanning 3.0 million net rentable square feet of space across 15 states, for $466.6 million. Such acquisition and expansion initiatives are also anticipated to have stoked the company’s growth during the period under consideration.
The self-storage industry continues to gain from the favorable demographic changes. Migration and downsizing trends, and increase in the number of people renting homes have spurred the needs of consumers to rent spaces at storage facilities for parking their possessions.
Further, demand for self-storage spaces has shot up amid the work from home, study from home, elevated home sales and remodeling and the 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 increased average length of stay. This supports revenue growth owing to more long-term tenants becoming eligible for rate hikes, and a lesser need to replace vacating tenants with new tenants that lowers the promotional expenses and increase its pricing leverage.
Additionally, 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 third quarter as well.
The Zacks Consensus Estimate for the third-quarter revenues from self-storage facilities is currently pinned at $801 million, suggesting an increase from the $777 million witnessed in the prior quarter and $684 million in the year-ago period. Quarterly revenues from ancillary operations are presently projected at $51 million, slightly down from the prior-quarter figure of $52 million and up from the $46.71 million registered in the comparable period last year.
The Zacks Consensus Estimate for quarterly revenues is currently pinned at $836.4 million, calling for a 14.5% year-over-year increase.
Apart from this, 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 2 cents upward to $3.23 in a month’s time. It also calls for 22.8% year-over-year growth.
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 predicts 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 chances of a FFO beat. 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 of 2 and has an Earnings ESP of +0.69%.
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 too have the right combination of elements to report surprises this quarter:
Camden Property (NYSE:CPT) Trust CPT, scheduled to report third-quarter earnings on Oct 28, currently has an Earnings ESP of +0.19% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Life Storage (NYSE:LSI), Inc. LSI, slated to release quarterly numbers on Nov 2, has an Earnings ESP of +0.21% and carries a Zacks Rank of 2, at present.
Ventas Inc (NYSE:VTR). VTR, scheduled to report quarterly numbers on Nov 5, currently has an Earnings ESP of +1.28% and carries a Zacks Rank of 3.
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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