Public Storage’s Q4 Results Largely in Line With Our Expectations

No-moat-rated Public Storage’s PSA fourth-quarter results were largely in line with our expectations as the firm reported core funds from operations of $4.16 per share, 18% higher than the $3.54 during the fourth quarter of 2021. Core FFO increased approximately 22% after removing the contribution of the company’s equity investment in PS Business Parks, which was sold in July 2022. The self-storage sector has started to moderate after two strong years of growth. The company gave 2023 core FFO guidance of $16.10-$16.80 per share, representing growth of 3.3% at the midpoint when compared with 2022. We are maintaining our $326 fair value estimate as we incorporate fourth-quarter results.

Same-store revenue in the fourth quarter increased 13.0% year over year due to higher rental rates, partially offset by lower occupancy. Same-store expenses increased 4.1% compared with the year-ago quarter, resulting in same-store net operating income growth of 15.8%. Annual contract rent per occupied square foot was flattish on a sequential basis, reflecting the normalization of demand for self-storage properties. Management has guided for same-store revenue growth of 2.5%-5.0%, same-store expense growth of 4.75%-6.75%, and same-store NOI growth of 1.2%-5.1% in 2023.

The period-end occupancy rate was reported at 92.4% in the fourth quarter, down 100 basis points sequentially and 240 basis points lower than the fourth quarter of 2021. We expect occupancy rates to remain under some pressure in the upcoming quarters. The company had to increase its promotional discount by 81% in the current quarter compared with the previous year when occupancy was high. The average annual rental rate on new move-ins was also 5% lower than the previous year in the fourth quarter.