Public Storage Earnings: Same-Store NOI Growth Should Moderate in Upcoming Quarters

No-moat-rated Public Storage PSA achieved strong same-store NOI growth in the first quarter, but the growth should moderate in the upcoming quarters. The firm reported core funds from operations, or FFO, of $4.08 per share, 11.8% higher than the $3.65 per share FFO during the first 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 16.2% in the first quarter. The company largely maintained its 2023 full-year core FFO guidance of $16.15 to $16.80 per share, representing around 3.5% growth at the midpoint when compared with the 2022 core FFO of $15.92. We are maintaining our $326 fair value estimate for the company after incorporating first-quarter results.

The same-store revenue in the fourth quarter increased by 9.8% on a year-over-year basis in the first quarter, which was lower than the double-digit growth rates in the last seven quarters. We think that the slowdown in growth was largely expected and is reflected in the stock price of the company. Overall, we think that the growth in the self-storage sector will moderate even further in the upcoming quarters after two strong years of growth. The same-store expenses increased by 8.2% in the first quarter compared with the previous year driven by higher marketing, and repair and maintenance expenses. This resulted in same-store direct NOI growth of 10.2% in the current quarter. Management largely kept its 2023 outlook unchanged and guided for same-store revenue growth of 2.75% to 5.00%, same-store expense growth of 4.75% to 6.75%, and same-store NOI growth of 1.50% to 5.10% in 2023. The same-store occupancy rate declined 20 basis points sequentially and 230 basis points on a year-over-year basis as it was recorded at 93.2% for the first quarter.