Key Takeaways: Following CUBE's and EXR's blowout 2Q21 results, the bar has been set much, much higher for Best Idea Long PSA, which reports its 2Q results after the close this Tuesday, 8/3. Specifically, both of PSA's main public competitors more than doubled FY21 SSRev and SSNOI expectations between the end of April and this past week to ~10% and a mid-teens percentage, respectively. PSA with its inaugural guidance last quarter started in a similar place, and we have updated our numbers (Figure 1 below) to level set expectations heading into the print. In short, we expect a modest beat on the quarter, but more importantly at least a 5-6% raise at the midpoint on FY21 Core FFO guidance:
- Pricing should be excellent with realized in-place rents likely up in the high-single-digit range - similar to CUBE and EXR more flexibility on ECRI should be driving existing customer rents towards street rates along with an elongating average length of stay
- Occupancy is a swing factor - we have PSA increasing weighted average occupancy to the 96-97% range which would be near or at all time highs for the company
- We look for greater ability to charge late fees to begin driving SS other property revenue back towards the quarterly run-rate in the mid-$20 million range. This is a similar tailwind effect to reversal of bad debt seen in the residential subsector
- PSA provided detailed property tax expense guidance in the supplemental and 10-Q - given the relative important of this expense line item, any update/trimming could be a source of upside. The provided dollar amounts were explicit and likely slightly conservative we would think
- We still have net debt/EBITDA trending to a sub-4x level by year end versus a long-term target in the 4-5x range, leaving additional balance sheet capacity - we believe it is possible that PSA accelerates external growth further, notwithstanding the $2.7 billion acquisition already consummated this year
- Taken together and as can be seen below, we look for a modest ~$0.02/share Core FFO beat on 2Q21 (Factset at $0.02) but importantly updated FY21 Core FFO guidance that triangulates around the $12.20/share level, corresponding to a 5-6% Core FFO guidance raise. Anything below that would probably be viewed by the market as a disappointment. Given the Bullish Trade/Trend/Tail, any weakness following the report, driven by conservatism or otherwise, is a buying opportunity
Figure 1: PSA Pre-2Q21 Variance Table
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Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
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