Why Is Public Storage (PSA) Down 22.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Public Storage (NYSE:PSA). Shares have lost about 22.7% 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 its most recent earnings report in order to get a better handle on the important drivers.

Public Storage Q4 FFO & Revenues Miss Estimates, Up Y/Y

Public Storage's fourth-quarter 2019 core FFO per share of $2.84 improved 1.1% from the year-ago quarter tally of $2.81. However, the reported figure missed the Zacks Consensus Estimate of $2.86 by 0.7%.

Quarterly revenues of $717.5 million climbed 3.62% year on year but missed the Zacks Consensus Estimate of $720.2 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, property manager payroll 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 the company’s expansion efforts in the reported quarter.

Core FFO per share for 2019 came in at $10.75, up from the prior year’s 1.8%. Total revenues for the year came in at $2.85 billion, marking a 3.4% increase year on year.

Behind the Headlines

Same-store revenues inched up 1.1% year over year to $598.1 million during the fourth quarter. This upside was primarily driven by a 0.6% increase in realized annual rent per occupied square foot to $17.66. Moreover, weighted-average square foot occupancy of 93.1% expanded 60 basis points year over year.

However, same-store cost of operations flared up 4.6% year over year to $135.8 million, primarily reflecting rise in marketing expenses and property manager payroll as well as uptick in property taxes. Consequently, the company’s same-store net operating income (NOI) inched up 0.1% to $462.3 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.

Portfolio Activity

During the December-end quarter, Public Storage acquired 12 self-storage facilities, comprising 0.9 million net rentable square feet of area, for $121.1 million. These included three facilities in South Carolina, two each in Indiana, North Carolina and Washington and one each in Arizona, Texas and Virginia. Following Dec 31, 2019, the company acquired or was under contract to acquire 14 self-storage facilities, spanning 1.1 million net rentable square feet of space, for $245.3 million.

Finally, as of Dec 31, 2019, the company had several facilities in development (1.3 million net rentable square feet), with an estimated cost of $209 million, as well as expansion projects (3.1 million net rentable square feet) worth $410 million. Public Storage estimates to incur the remaining $477 million of development costs related to these projects, mainly over the next 18 months.

Liquidity

Public Storage exited fourth-quarter 2019 with $409.7 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.

VGM Scores

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 lowest 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Public Storage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.