Public Storage (NYSE:PSA) reported its third-quarter 2023 earnings, highlighting strong occupancy trends and a successful digital transformation amidst lower demand from home buyers due to rising mortgage rates. The company also reported a core FFO of $4.33 per share, representing a 5.6% growth year-over-year, and raised their core FFO range to $16.60-$16.85.
Key takeaways from the call include:
- Public Storage reported better-than-expected occupancy trends, driven by strong move-in volume and customer behavior.
- Over 60% of customers are using their online leasing platform, with the company boasting 1.4 million app users.
- The company is actively acquiring properties, including the $2.2 billion Simply Self Storage portfolio, and has a pipeline of nearly $1 billion in development.
- Public Storage expects cap rates to trend higher due to the change in the cost of capital.
- The company plans to launch a tenant insurance platform next month, which could have a larger addressable market than third-party management.
- Public Storage has invested $80 million in its properties in the Southern California region through its Property of Tomorrow program.
- The company sees opportunities for expansion through development and redevelopment as the lending environment for construction loans becomes more constrained.
- Public Storage has raised about $2.2 billion in cash, earning a little over 5% and resulting in a $15 million benefit in the quarter.
- The company plans to refinance a $700 million U.S. note and a euro note in 2024, depending on tenor and interest rates at the time.
Public Storage's executives expressed optimism about the macro economy and cited a strong third-quarter GDP print. They also noted that they have not seen any new or emerging stress from existing customers and emphasized the importance of the macro economy continuing to perform well.
The company also discussed its focus on development and redevelopment projects, stating that it is a vibrant opportunity with high returns on invested capital. They believe that the current environment, where others are retrenching, presents even better opportunities for them to source and compete for land sites and work on property entitlement and development processes.
Public Storage also addressed the outlook for same-store revenue, acknowledging that growth rates had moderated throughout the year and that move-in rates had been softer than expected. They anticipated negative same-store revenue growth in the fourth quarter and mentioned that they would provide more detailed guidance for 2024 in February.
Finally, the company discussed the supply question, mentioning that the amount of new supply varied by market but overall, they expected deliveries to decrease in the coming years. They highlighted the recent acquisition of Simply Storage and mentioned that they had seen good results in terms of integration and synergy. They also mentioned running sales promotions during holidays to drive customer demand and that they planned to refinance their debt maturities in 2024.
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