Public Storage (PSA)·Q4 2016 Earnings Summary

Executive Summary

• Q4 delivered solid year-end metrics: FFO/share rose 12.6% YoY to $2.77 and Core FFO/share rose 8.2% YoY to $2.65, driven by higher self‑storage NOI and FX gains; diluted EPS increased to $2.03 from $1.74 YoY .
• Same Store revenue grew 4.6% and Same Store NOI grew 5.1% YoY on higher realized rent per occupied sq. ft., while occupancy was essentially flat; cost inflation was most evident in property taxes and advertising/selling .
• Sequentially, total revenue declined seasonally (Q4 $651.4m vs Q3 $663.1m), but net income/EPS increased, aided by a $23.6m FX gain and stronger Same Store NOI in Q4; FFO/share stepped up to $2.77 from $2.51 in Q3 .
• Capital allocation remained active: 23 facilities acquired in Q4 ($159m), development pipeline of ~$520m (4.2m sq. ft.) plus ~$140m of expansions (1.1m sq. ft.), with ~$430m spend largely over the next 18 months; dividend declared at $2.00/share for March 30, 2017 .
• Consensus estimates from S&P Global were unavailable at run time; we therefore do not present beat/miss versus Street for Q4 2016 (S&P Global consensus data unavailable due to quota).

What Went Well and What Went Wrong

• What Went Well

  • Same Store growth: “Revenues for the Same Store Facilities increased 4.6% … due primarily to higher realized annual rent per occupied square foot,” lifting Same Store NOI by $20.6m in Q4 .
  • FFO momentum: FFO/share rose to $2.77 (vs $2.46 YoY) and Core FFO/share to $2.65 (vs $2.45 YoY), underscoring durable cash generation .
  • Portfolio expansion: 23 facilities (1.8m sq. ft.) acquired in Q4 for $159m; robust development/expansion pipeline supports future growth .

• What Went Wrong

  • Operating cost pressure: Same Store cost of operations increased 2.7% YoY in Q4, led by higher property taxes, repairs/maintenance, and advertising/selling expenses .
  • Non Same Store occupancy softness: Non Same Store portfolio occupancy at year‑end was 84.6% (vs 88.2% prior year), with developed facilities at 58.6% as they lease‑up, pressuring near‑term NOI yields .
  • Seasonal revenue dip: Total revenue stepped down sequentially (Q4 $651.4m vs Q3 $663.1m), reflecting typical seasonality and higher Q4 marketing spend .

Financial Results

Overall financials (consolidated)

Same Store operating KPIs

Revenue mix and selected income statement detail

Same Store YoY change detail (Q4 2016 vs Q4 2015)

Non Same Store snapshot (Q4 2016)

Dividend and payout

Notes: S&P Global consensus estimates were unavailable at run time; estimate comparison columns are intentionally omitted (S&P Global data unavailable).

Guidance Changes

PSA did not issue explicit revenue/FFO/EPS guidance in the press release; dividend and pipeline disclosures updated .

Earnings Call Themes & Trends

Note: We were unable to retrieve the full transcript via the document tool; see the posted webcast/transcript link for reference .

Management Commentary

• “For the three months ended December 31, 2016, net income allocable to our common shareholders was $352.8 million or $2.03 per diluted common share… due primarily to a $32.0 million increase in self‑storage net operating income and a $23.3 million increase in foreign exchange translation gains associated with our euro denominated debt.”
• “Revenues for the Same Store Facilities increased 4.6%… due primarily to higher realized annual rent per occupied square foot. Cost of operations… increased by 2.7% … due primarily to increased property taxes, repairs and maintenance and advertising and selling costs…”
• “During the three months ended December 31, 2016, we acquired 23 self‑storage facilities… for $159 million… At December 31, 2016, we had various facilities in development (4.2 million net rentable square feet) estimated to cost $520 million and various expansion projects… estimated to cost $140 million. The remaining $430 million… is expected to be incurred primarily in the next 18 months.”
• “For the three months ended December 31, 2016, funds from operations (‘FFO’) was $2.77 per diluted common share… Core FFO per share $2.65.”

Q&A Highlights

The call transcript was not retrievable via our document tools; please refer to the posted webcast/transcript link for specifics and Q&A exchanges and the company’s event page listing for Feb 23, 2017 .

Estimates Context

• Street consensus (S&P Global) for FFO/EPS/Revenue could not be accessed at this time due to a data quota limit; as a result, we do not present beat/miss analysis versus consensus for Q4 2016 (S&P Global consensus data unavailable).
• Given reported results (FFO/share $2.77; Core FFO/share $2.65; diluted EPS $2.03), estimate models may need to adjust for the sizable positive FX item ($23.6m) in Q4 and for higher advertising/property tax expense trends exiting 2016 .

Key Takeaways for Investors

• Core operating momentum remains healthy: Same Store revenue +4.6% and NOI +5.1% YoY in Q4, powered by pricing rather than occupancy, supporting durable cash flow quality .
• Q4 EPS/FFO benefitted from a $23.6m FX gain; exclude this when assessing run‑rate profitability into 2017 .
• Cost inflation—especially property taxes and marketing—needs monitoring; management leaned into seasonal advertising in Q4 as reflected in +10.6% YoY spend .
• Capital deployment runway is significant: ~$430m remaining development spend over ~18 months plus ongoing acquisitions ($159m in Q4), setting up external growth contributions .
• Dividend coverage is solid: FAD $449.5m vs $347.4m distributions (77.3% payout) and dividend maintained at $2.00 per share for Q1 2017 payment .
• Non Same Store lease‑up should convert to incremental NOI as occupancy improves from 84.6%, though near‑term yields are dampened by lower developed‑facility occupancy .
• Seasonality remains a factor: sequential revenue step‑down in Q4 is typical; watch for spring/summer leasing to re‑accelerate occupancy and rate growth .