Public Storage Earnings: Fundamentals Held Up Relatively Well, but Growth Is Beginning To Moderate

No-moat-rated Public Storage PSA achieved decent results in the second quarter as the firm reported core funds from operations, or FFO, of $4.28 per share, 7.3% higher than the $3.99 per share FFO during the second quarter of 2022. If we exclude the contribution from the company’s equity investment in PS Business Parks, which was sold in July 2022, then core FFO grew by 11.5% in the second quarter. The company has increased the bottom end of its 2023 full-year core FFO guidance to $16.40-$16.80 per share, representing around 4.25% growth at the midpoint when compared with the 2022 core FFO of $15.92. The fundamental performance of the company held up relatively well during the second quarter. However, we think that the growth in the self-storage sector will moderate in the upcoming quarters after two exceptionally strong years of growth. We are reducing our fair value estimate for Public Storage to $317 per share from $326 as we slightly moderate our long-term expectations for the sector.

The same-store revenue in the second quarter increased by 6.3% on a year-over-year basis in the second quarter, which is solid but substantially lower than the growth rates achieved in the past few quarters. Same-store expenses increased by 5.2% in the second quarter compared with the previous year, driven by higher marketing, and repair and maintenance expenses. This resulted in same-store NOI growth of 6.6% in the current quarter. Management has guided for same-store revenue growth of 3.25%-5.00%, same-store expense growth of 4.75-6.75%, and same-store NOI growth of 2.20%-5.10% in 2023. The same-store occupancy rate increased by 20 basis points sequentially, but was down 200 basis points on a year-over-year basis as it was recorded at 93.7% for the second quarter.