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Public Storage (PSA)·Q2 2017 Earnings Summary

Executive Summary

  • Q2 2017 GAAP results were pressured by foreign exchange losses: diluted EPS was $1.59 vs $1.61 last year as net income to common fell by $4.1M; FX loss of $25.4M on euro-denominated debt offset strong storage NOI growth and higher equity earnings .
  • Operationally solid: Same Store revenues +3.3% YoY on realized rent/occupied sq ft +4.4%, while Non Same Store NOI +$6.1M driven by recent acquisitions/development; Core FFO/share rose 4.6% to $2.51, highlighting underlying strength despite FX noise .
  • Cost pressures emerged: Same Store cost of operations +5.4% YoY led by property taxes (+4.5%) and advertising/selling (+41.7%), modestly compressing Same Store gross margin by 70bps to 73.2% .
  • Capital and dividend actions as potential stock catalysts: issued $280M 5.150% Series F preferred; redeemed $460M 5.90% Series S; Board declared $2.00 quarterly common dividend; robust development pipeline (3.9M sf) with $376M remaining over ~18 months .

What Went Well and What Went Wrong

What Went Well

  • Core FFO/share increased 4.6% YoY ($2.51 vs $2.40) with stronger underlying operations after excluding FX, redemption accounting and other items .
  • Same Store revenue growth of 3.3% YoY driven by realized annual rent/occupied sq ft +4.4%; REVPAF +3.4% indicating pricing power and mix advantages .
  • Non Same Store NOI rose $6.1M YoY as the company benefited from 292 facilities acquired, developed or expanded since January 2015 .

What Went Wrong

  • GAAP diluted EPS declined to $1.59 from $1.61, primarily due to a $34.1M YoY increase in FX translation losses on euro debt (Q2 loss $25.4M), overshadowing operating strength .
  • Same Store occupancy dipped 90bps YoY to 94.5% (weighted average), modestly pressuring gross margin (-70bps to 73.2%) .
  • Operating costs increased faster than revenues (+5.4% vs +3.3%), led by property taxes (+4.5%) and advertising/selling (+41.7%), flagging near-term margin pressure .

Financial Results

MetricQ2 2016Q1 2017Q2 2017
Total Revenues ($USD Millions)$634.2 $645.5 (derived from H1 2017 $1,309.9 minus Q2 $664.3) $664.3
Operating Income ($USD Millions)$336.9 $326.7 (derived from H1 2017 $683.3 minus Q2 $356.6) $356.6
Net Income Allocable to Common ($USD Millions)$280.8 $281.1 (derived from H1 2017 $557.8 minus Q2 $276.7) $276.7
Diluted EPS ($)$1.61 $1.61 (derived: H1 $3.20 minus Q2 $1.59) $1.59
FFO per Share ($)$2.34 $2.34 (derived: H1 $4.65 minus Q2 $2.31) $2.31
Core FFO per Share ($)$2.40 $2.37 (derived: H1 $4.88 minus Q2 $2.51) $2.51

Segment breakdown (self-storage):

Segment Metric ($USD Millions)Q2 2016Q1 2017Q2 2017
Same Store Revenues$532.2 $537.1 $550.0
Same Store Cost of Operations$139.7 $149.0 $147.3
Same Store NOI$392.5 $388.1 (calc: $537.1 - $149.0) $402.7
Non Same Store Revenues$62.2 $70.6 (calc: H1 $144.8 - Q2 $74.2) $74.2
Non Same Store Cost of Operations$18.0 $23.0 (calc: H1 $46.9 - Q2 $23.9) $23.9
Non Same Store NOI$44.2 $47.6 (calc: $70.6 - $23.0) $50.3

KPIs (Same Store portfolio):

KPIQ2 2016Q1 2017Q2 2017
Weighted Avg Occupancy (%)95.4% 93.1% 94.5%
Realized Annual Rent per Occupied Sq Ft ($)$16.26 $16.81 $16.97
REVPAF ($ per Available Sq Ft)$15.50 $15.63 $16.03
Property Taxes ($USD Thousands)$54,101 $56,237 $56,557
Advertising & Selling Expense ($USD Thousands)$5,721 $6,790 $8,104
Gross Margin (%)73.7% 73.1% 73.2%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal Revenue/FFO GuidanceFY/QuarterNot providedNot providedMaintained (no formal guidance)
Common DividendQ3 2017 payable Sep 28, 2017$2.00/share (prior quarter)$2.00/share declared Jul 26, 2017Maintained
Preferred Capital ActionsQ2 2017N/AIssued $280M 5.150% Series F (Jun 2); Called $460M 5.90% Series S (redeemed Jul 26)Capital structure optimization
Development PipelineNext ~18 monthsPrior disclosed pipeline3.9M sf in development ($468M), 1.7M sf expansions ($191M); $376M remaining spend expected primarily over next ~18 monthsAffirmed/updated project spend cadence

Earnings Call Themes & Trends

Note: The Q2 2017 earnings call transcript exists (July 27, 2017) but full text was not retrievable via internal tools; see event listing link for reference .

TopicPrevious Mentions (Q4 2016, Q1 2017)Current Period (Q2 2017)Trend
FX and OI&E impactsFX gains benefited Q4 2016 GAAP results FX loss of $25.4M weighed on GAAP EPS in Q2 Volatility; headwind in Q2
Same Store Pricing vs OccupancyQ4 2016: pricing strength with occupancy stable; Q1 2017 occupancy seasonally lower Pricing strength continues (rent/occupied +4.4%), occupancy -90bps YoY Pricing power sustained; occupancy modestly softer
Operating Cost PressuresProperty taxes, repairs & maintenance rising in Q4 2016 Property taxes +4.5%; advertising +41.7% Cost inflation elevated
Growth from Acquisitions/DevelopmentLarge Non Same Store contributions in 2016 Non Same Store NOI +$6.1M YoY; 292 assets since Jan 2015 Continued external growth
Capital Markets ActivityMultiple preferred issuances/redemptions in 2016 Issued Series F $280M; redeemed Series S $460M Ongoing optimization
Dividend Policy$2.00 declared in Feb 2017 $2.00 declared Jul 26, 2017 Stable payout

Management Commentary

  • “The decrease [in net income allocable to common shareholders] is due primarily to a $34.1 million increase in foreign exchange translation losses associated with our euro denominated debt partially offset by a $16.3 million increase in self-storage net operating income and a $9.8 million increase in equity in earnings of real estate entities.”
  • Same Store dynamics: “Revenues for the Same Store Facilities increased 3.3%… due primarily to higher realized annual rent per occupied square foot. Cost of operations… increased by 5.4%… due primarily to increased property taxes, repairs and maintenance and advertising and selling costs.”
  • External growth: “The increase in net operating income for the Non Same Store Facilities is due primarily to the impact of 292 self-storage facilities acquired, developed or expanded since January 2015.”
  • Capital program: “At June 30, 2017, we had various facilities in development (3.9 million net rentable square feet) estimated to cost $468 million and various expansion projects (1.7 million net rentable square feet) estimated to cost $191 million… The remaining $376 million of development costs… expected to be incurred primarily in the next 18 months.”
  • Distributions: “On July 26, 2017, our Board of Trustees declared a regular common quarterly dividend of $2.00 per common share.”

Q&A Highlights

  • The Q2 2017 earnings call took place July 27, 2017; transcript access via internal tools was unavailable due to a database inconsistency. Reference event page for the call details .
  • As a result, detailed Q&A themes and verbatim management responses cannot be provided here. All other commentary in this recap reflects the company’s official Q2 2017 press release and financial tables .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2017 EPS and Revenue could not be retrieved due to a rate limit error. As a result, estimate comparisons are unavailable; values would normally be retrieved from S&P Global.
  • Implication: Focus investor assessment on Core FFO trajectory (+4.6% YoY) and operational KPIs (pricing, occupancy, cost trends) until consensus data can be refreshed .

Key Takeaways for Investors

  • Underlying operations remain strong: Core FFO/share +4.6% YoY to $2.51 despite FX headwinds; Same Store revenue growth and pricing power continue .
  • Watch occupancy and cost inflation: Same Store occupancy modestly softer (-90bps YoY), and property tax/advertising increases pressured margins (-70bps gross margin YoY) .
  • GAAP EPS noise from FX: $25.4M FX loss reduced GAAP EPS; this non-operational item masked storage NOI strength—frame valuation on Core FFO rather than GAAP EPS near term .
  • External growth contributing: Non Same Store NOI +$6.1M YoY, with continued acquisition/development momentum underpinning forward NOI expansion .
  • Capital optimization and dividend stability: New preferred issuance and redemption lower cost of capital over time; $2.00 quarterly dividend maintained—income profile remains intact .
  • Robust pipeline: 3.9M sf in development and 1.7M sf expansions with $376M remaining spend over ~18 months—provides visibility into future supply additions and returns .
  • Near-term trading lens: Expect stock narrative to center on margin management vs. cost inflation and FX noise; any clarity on occupancy stabilization and ad spend ROI could be positive catalysts once call details are available .