Public Storage's (PSA) Q2 FFO And Revenues Miss Estimates

Public Storage’s (NYSE:PSA) second-quarter 2017 funds from operations (“FFO”) per share of $2.31 missed the Zacks Consensus Estimate of $2.56. The figure was also down 1.3% from the year-ago tally of $2.34.

Quarterly revenues of $664.3 million also fell short of the Zacks Consensus Estimate of $674.2 million. Nevertheless, revenues managed to grow 4.8% from the year-ago period.

Results reflect a fall in weighted-average square foot occupancy in the same-store portfolio for the reported quarter. However, higher realized annual rent per occupied square foot supported its results. Also, the company benefited from its expansion efforts.

Public Storage Price, Consensus and EPS Surprise

Public Storage Price, Consensus and EPS Surprise | Public Storage Quote

Note: The EPS numbers presented in the above chart represent funds from operations (“FFO”) per share.

Behind the Headlines

Same-store revenues advanced 3.3% year over year to $550.0 million during the second quarter, while net operating income (“NOI”) climbed 2.6% to $402.7 million. The increase in same-store revenues was primarily driven by a 4.4% rise in realized annual rental income per occupied square feet to $16.97. However, the weighted-average square foot occupancy of 94.5% contracted 90 basis points year over year.

In addition, the company’s NOI from non-same store facilities enhanced on the back of 292 self-storage facilities acquired, developed or expanded since Jan 2015.

Portfolio Activity

In the reported quarter, Public Storage bought three self-storage facilities, comprising 0.2 million net rentable square feet, for $11.6 million. Following the quarter end, the company acquired or was under contract to acquire seven self-storage facilities, spanning 0.4 million net rentable square feet, for $47.1 million.

Finally, as of Jun 30, 2017, the company had several facilities in development (3.9 million net rentable square feet), with an estimated cost of $468 million, as well as expansion projects (1.7 million net rentable square feet) worth roughly $191 million. Public Storage projects to incur the remaining $376 million of development costs related to these projects mainly over the next 18 months.

Liquidity

Public Storage exited second-quarter 2017 with around $358.3 million of cash and cash equivalents, up from $183.7 million at the end of the prior year.

Dividend

On Jul 26, Public Storage’s Board of Trustees declared a quarterly dividend of $2.00 per share. The amount will be paid on Sep 28 to shareholders of record as of Sep 13, 2017.

In Conclusion

We are discouraged with the lower-than-expected performance of Public Storage in the second quarter. However, higher realized annual rent per occupied square foot is a positive. Notably, the company is a recognized and established name in the self-storage industry in the U.S., and its acquisition and expansion efforts look encouraging. However, rising supply in a number of its markets is a headwind. Rate hike also remains a concern for the company.

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

In addition, the stock has declined 6.1% year to date, underperforming the 3.7% gain of the industry it belongs to.

Let us now look forward to the earnings releases of AvalonBay Communities, Inc. (NYSE:AVB) , Alexandria Real Estate Equities, Inc. (NYSE:ARE) and Extra Space Storage Inc. (NYSE:EXR) , all of which are expected to report quarterly figures in the next week.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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