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The leading real estate investment trust (REIT) operating self-storage facilities - Public Storage (PSA - Analyst Report) - reported core FFO (funds from operations) of $1.80 per share, beating the Zacks Consensus Estimate of $1.77 per share by 1.7% and the prior-year quarter core FFO of $1.62 per share by 11.1%.

Results were aided by improved property operations leading to a surge in net operating income. In addition, the acquisition of 24 self-storage facilities in 2012 contributed to the rise.

After taking into account the impact of a number of non-core items, reported FFO came in at $1.83 per share, representing an uptick of 32.6% from the year-ago figure of $1.38 per share.

During the reported quarter, Public Storage recorded a 6.5% year-over-year increase in total revenue to $485.4 million. The revenue figure also exceeded the Zacks Consensus Estimate of $478 million.

Quarter in Detail

Same-store revenues increased 5.1% year over year to $420.1 million during the quarter, while net operating income (NOI) climbed 8.4% to $297.6 million. The increase in same-store revenues was primarily due to a 3.4% rise in realized annual rent per occupied square foot to $13.85. Occupancy in the same-store portfolio also increased 180 basis points (bps) to 94.9% as of Jun 30, 2013, from 93.1% as of Jun 30, 2012.

During the reported quarter, same-store revenues in Shurgard Europe decreased 3.0% year over year to $46.4 million. Same-store NOI for Shurgard Europe fell 6.9% from the prior-year quarter to $25.6 million. While the company experienced a 0.9% year-over- year increase in realized annual rent per occupied square foot to $26.23, it was offset by a 320 bps year-over-year decline in occupancy levels to 80.2% at the end of the second quarter 2013.


During second-quarter 2013, Public Storage acquired 1 self-storage facility for about $8 million in cash. The facility is positioned in Arizona and comprises 80,000 net rentable square feet of self-storage space.

Furthermore, the company incurred $20 million in costs for the completion of its expansion activities to existing self-storage facilities. This led to an addition of around 293,000 net rentable square feet of storage space.

In Q3, Public Storage plans to close the acquisition of 29 self-storage facilities for approximately $374 million in cash. Around $101 million of these acquisitions have already been closed as of Aug 1, 2013. In total, these facilities would add 2.3 million net rentable square feet to the company’s portfolio with properties in Florida (21), Massachusetts (5), California (2) and Rhode Island (1).

As of Jun 30, 2013, Public Storage’s development pipeline of projects for extending existing self-storage facilities as well as developing new ones had an estimated cost of $198 million ($74 million already incurred at Q2 end). These projects would add approximately 1.4 million net rentable square feet of self-storage space.


Public Storage exited the quarter with $410.9 million of cash and cash equivalents, up from $398.3 million as of Mar 31, 2013 and $17.2 million at year-end 2012.


Concurrent with its earnings release, Public Storage announced a quarterly dividend of $1.25 per common share. The dividend will be paid on Sep 30, 2013 to shareholders of record as of Sep 13, 2013.

In Conclusion

We are encouraged by the better-than-expected results at Public Storage. Moreover, the company’s ongoing acquisition initiatives helped it carve a niche in the U.S and the European market. Furthermore, the ‘Public Storage’ brand is widely recognized in the self-storage industry. Backed by this, we believe the company is well poised to maintain its growth curve going forward.

However, the company’s significant construction pipeline and tough competition from peers exert pressure on its near-term profitability. It also owns a 41% common equity interest in PS Business Parks Inc. (PSB - Analyst Report), which owns and operates commercial space, primarily flex, multi-tenant office and industrial space.

Public Storage currently has a Zacks Rank #3 (Hold). A number of other REITs that are also performing well and deserve a look include Extra Space Storage Inc. (EXR - Snapshot Report) and Prologis Inc. (PLD - Analyst Report), both carrying a Zacks Rank #2.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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