Key Takeaways: Best Idea Long PSA reported a solid beat-and-raise for 2Q21 as expected, with revised FY21 guidance coming in essentially on top of our revised expectations presented HERE. Core FFO of $3.15 topped Hedgeye by $0.20/share (+7%) and the Street by +7.5%, with SSRev and and SSNOI up +10.8% and +21.7% respectively (see Figure 1 below). It is hard to find something not to like in this print, some thoughts as follows:
- 2Q21 marked the first quarter of positive roll-up up +2.7% (i.e. move-in rates above rates for customers moving out) since 2Q15, speaking to the degree and speed with which street rates have accelerated. This is an extremely bullish metric - move-in rates up +47.6% y/y (!!!) dramatically outpaced the increase in average move-out rates up +11.6% y/y, hence the positive roll-up. Annual contract rent PSF up +8.8% y/y points to high-single-digit to low-double-digit revenue growth over 2H21
- We need to hear more on the call tomorrow, but we think FY21 SSExp guidance for flat to up +1% is likely very conservative given a -10.9% y/y decline YTD in direct cost of operations. PSA noted it expects a reduction in hours worked over the balance of the year at the property level but higher headcount rolling up to centralized management costs, and it would take an enormous "overhead" increase to offset reductions in property payroll and marketing spend and turn SSExp positive for the year. Share-based comp allocated to the same-store pool likely is not large enough a line item to move the needle. More info is needed and hopefully provided on the call, however, our view is that it is likely a conservative stance, which makes some sense given that this is the first year PSA is providing guidance
- We love the ~$400 million increase in expected acquisition activity for the year - PSA should be flexing its sector-best balance sheet and taking advantage of its cost of capital to drive external growth. The current trend in street rates and NOI growth likely will result in higher stabilized yields than underwritten, well-above the ~4% needed to make the deals "pencil"
- FY21 Core FFO guidance was revised up +4.8% at the midpoint to a range of $11.90 to $12.30 vs. Hedgeye at $12.20 and the Street at $11.88 coming into the 2Q21 print. Our first cut at revising FY21 estimates has our model above $12.40, but more to come. More importantly, and similar to other self-storage Long CUBE, numbers in FY22 and beyond need to come up street-wide
Figure 1: PSA 2Q21 Earnings Variances
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Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
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