Public Storage (PSA)·Q3 2017 Earnings Summary

Executive Summary

• Core FFO per share increased 3.2% year over year to $2.61, while GAAP diluted EPS declined to $1.61 due to hurricane-related losses, higher preferred allocations from redemption activity, and foreign currency losses; total revenues rose to $686.4M (+3.5% YoY).
• Same-store performance was resilient: revenues +2.4% YoY, realized annual rent per occupied square foot +3.4% to $17.52, and gross margin improved to 73.9%; occupancy moderated 80 bps YoY to 94.5%.
• Management recorded $7.8M casualty loss and $5.2M incremental tenant reinsurance losses tied to Hurricanes Harvey and Irma; these items were excluded from Core FFO. The company expects approximately $10.0M of capex to repair damage and does not expect insurance proceeds given losses below deductibles.
• Capital markets actions support balance sheet flexibility: $1.0B senior notes issued (2.370% due 2022, 3.094% due 2027), $300M Series G preferred issued, and $462.5M Series T preferred redeemed; dividend maintained at $2.00 per common share.
• S&P Global consensus estimates were unavailable due to system limits; beat/miss vs Street cannot be assessed this quarter. (Estimates unavailable via S&P Global)

What Went Well and What Went Wrong

What Went Well

• Core FFO per share rose to $2.61 (from $2.53), driven by +$15.7M self-storage NOI, with same-store revenues +2.4% and non-same-store contribution +$5.1M. “Revenues for the Same Store Facilities increased 2.4%… due primarily to higher realized annual rent per occupied square foot.”
• Pricing power intact: realized annual rent per occupied square foot increased 3.4% to $17.52; REVPAF up 2.6% to $16.56, supporting margin expansion to 73.9%.
• External growth and development: seven facilities acquired in Q3 ($47.3M), eight additional facilities acquired/under contract post-quarter ($67.8M), and nine developments/expansions completed ($144.5M); $378M remaining development spend expected primarily over next 18 months.

What Went Wrong

• GAAP diluted EPS fell to $1.61 (from $1.78) as hurricanes and preferred redemptions increased non-operating charges; foreign exchange translation losses on euro debt also rose.
• Occupancy softened: weighted average occupancy declined 80 bps YoY to 94.5% and period-end occupancy fell to 93.2% (from 94.2%).
• Operating cost headwinds: property taxes +4.5% YoY; repairs & maintenance and payroll increased; advertising & selling expense up 16.9% YTD.

Financial Results

Segment breakdown (self-storage):

KPIs (same-store portfolio):

Non-GAAP notes: FFO/Core FFO exclude depreciation and certain items (e.g., FX, preferred redemption accounting, hurricane losses); see reconciliations.

Guidance Changes

No formal revenue/EPS margin guidance was provided in the press release.

Earnings Call Themes & Trends

Transcript retrieval failed due to a database inconsistency; themes below reflect press release and prior-quarter press releases.

Management Commentary

• “Revenues for the Same Store Facilities increased 2.4%… due primarily to higher realized annual rent per occupied square foot. Cost of operations… increased by 1.6%… due primarily to increased property taxes, repairs and maintenance and payroll.” (Press release)
• “We recorded an aggregate $7.8 million casualty loss… We expect to incur approximately $10.0 million of capital expenditures to complete the repair of hurricane damage… we do not expect to receive any insurance proceeds.” (Press release hurricane update)
• “The increase in net operating income for the Non Same Store Facilities is due primarily to the impact of 321 self-storage facilities acquired, developed or expanded since January 2015.” (Press release)
• Capital markets update: “$1.0 billion… senior notes… 2.370% due 2022… 3.094% due 2027… Issued $300 million Series G Preferred… Redeemed $462.5 million 5.75% Series T Preferred.” (Press release)
• Dividend policy: “Board… declared a regular common quarterly dividend of $2.00 per common share… payable on December 28, 2017.” (Press release)

Q&A Highlights

Transcript for Q3 2017 was unavailable due to a database inconsistency; call Q&A themes and specific management responses could not be retrieved.

Estimates Context

• S&P Global consensus estimates for Q3 2017 revenue and EPS could not be retrieved due to system limits; as a result, beat/miss vs Street estimates cannot be assessed this quarter. (Estimates unavailable via S&P Global)

Key Takeaways for Investors

• Core fundamentals remain solid with pricing power and margin expansion; core FFO grew to $2.61 despite hurricane and FX headwinds.
• Watch occupancy and cost inflation: occupancy remains below prior-year levels and property taxes/maintenance costs continue to rise, potentially moderating same-store NOI growth.
• One-time storm impact largely excluded from Core FFO; expect ~$10M recovery capex and some ongoing operational normalization in affected markets.
• Balance sheet optionality enhanced by $1.0B senior notes issuance and preferred capital actions; dividend sustained at $2.00, supporting income-oriented thesis.
• External growth acceleration through acquisitions and development completions should support forward NOI, but ramp timing and occupancy in development assets (e.g., lower occupancy in developed facilities) warrant monitoring.
• FX volatility tied to euro-denominated debt remains a non-operating swing factor for GAAP EPS; core metrics provide cleaner operating trend signals.
• Near term: limited estimate visibility due to unavailable S&P Global consensus; medium term: continued rent growth and development pipeline execution underpin the thesis, with cost discipline a key lever for margin resilience.

Sources

• Q3 2017 8-K and press release, including selected financial data, NOI reconciliations, same-store/non-same-store operating metrics, hurricane update, capital markets, and dividend declaration.
• Q2 2017 8-K and press release for prior-quarter trend context.
• Q1 2017 8-K and press release for prior-quarter trend context.