Public Storage (PSA) Q2 FFO, Revenue Miss Estimates

Public Storage’s (NYSE:PSA) second-quarter 2016 funds from operations (“FFO”) per share came in at $2.34, falling short of the Zacks Consensus Estimate of $2.38. Revenues of $634.2 million also missed the Zacks Consensus Estimate of $641.3 million.

However, results improved from the prior-year quarter with FFO per share registering a growth of 8.8% and revenues increasing 7.7%.

The year-over-year improvement reflected an increase in net operating income (“NOI”) from both same-store and non-same store facilities.

Behind the Headlines

Same-store revenues inched up 6% year over year to $521.3 million during the second quarter, while NOI climbed 6.6% to $385.3 million. The increase in same-store revenues was primarily driven by a 6.1% rise in realized annual rental income per occupied square feet to $16.39. The weighted-average square foot occupancy of 95.3% as of Jun 30, 2016, slipped 10 basis points year over year.

Moreover, the company’s NOI from non-same store facilities enhanced because of 296 self-storage facilities acquired, developed or expanded since Jan 2013.

Portfolio Activity

In second-quarter 2016, Public Storage bought 12 self-storage facilities, comprising 0.9 million net rentable square feet, for $99 million. Following the quarter end, the company acquired or was under contract to acquire 21 self-storage facilities, spanning 1.7 million net rentable square feet, for $169 million.

Finally, as of Jun 30, 2016, the company had several facilities in development (4.1 million net rentable square feet), with an estimated cost of $510 million, as well as expansion projects (0.9 million net rentable square feet) worth an estimated $121 million. The company expects to incur the remaining $403 million of development costs related to these projects in the rest of 2016 and 2017.

Liquidity

Public Storage exited second-quarter 2016 with around $260.1 million of cash and cash equivalents, up from $104.3 million at the prior-year end.

Dividend Update

On Jul 27, 2016, Public Storage’s Board of Trustees declared a quarterly dividend of $1.80 per share. The amount will be paid on Sep 29 to shareholders of record as of Sep 14.

In Conclusion

Public Storage has a strong brand image and is a recognized name in the self-storage industry. Acquisition initiatives are also likely to boost growth. However, stiff competition in the self-storage industry, a large development pipeline and any rise in interest rates may pose a challenge to the company.

PUBLIC STORAGE Price, Consensus and EPS Surprise

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Public Storage currently has a Zacks Rank #3 (Hold).

We now look forward to the earnings releases of The Macerich Co. (NYSE:MAC) , Highwoods Properties Inc. (NYSE:HIW) and Mack-Cali Realty Corp. (NYSE:CLI) which are scheduled 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. All EPS numbers presented in this write up represent FFO per share.