Keith hit the button on Best Idea Long PSA yesterday in RTA HERE, and we had a chance to catch up with management yesterday post-2Q. A few takeaways from the catch-up call that we thought were interesting:
- First, as long-time followers of the self-storage sector know, there is some nuance in reported same store results among the REITs that needs to be understood and is especially pertinent today. PSA is unique in that recently acquired or developed properties enter the same store pool after being "stabilized" for two years, so the 2021 pool includes assets that were stabilized as of 1/1/19. This contrasts with competitors that include the properties in same store results after one full year. This has a couple of effects, most notably that (1) PSA's same store growth is naturally biased downwards somewhat on a relative basis as a full year of above-average NOI growth is not captured, and (2) it raises the importance of the non-same store pool where that growth is captured. It is especially important today, as PSA's non-same store portfolio represents over 10% of total storage NOI and includes the recently acquired ezStorage portfolio, which we think is likely to be exceeding underwriting given the degree of rental rate acceleration. We think the FY21 non-same store NOI guidance is very conservative at $225 to $240 million, and have modeled just under $260 million including some additional acquisition activity in 2H21. We see this as a likely source of future guidance raises
- Regarding the same store occupancy guidance, it is important to consider that the outlook for ~300bps of occupancy reduction by year-end is on a period ending basis and not a weighted average basis over the course of 2H21. Although typical seasonality is for perhaps ~200bps of decline in ending occupancy, we think the guidance is probably conservative and likely to normalize from COVID levels more gradually over time. It is possible there has been a longer-term reset higher in occupancy levels, at least until the next development cycle, albeit with the typical seasonality. In the end, the "deferred" increases in ECRI are likely to overwhelm any declines in occupancy and preserve above-average NOI growth for at least a couple more quarters
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
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