PSA Zooms Ahead of Estimates

Public Storage ( PSA - Analyst Report ) , a top real estate investment trust (REIT) operating self-storage facilities, reported fourth quarter 2011 FFO (funds from operations) of $1.50 per share, compared with $1.33 in the year-earlier quarter. Fund from operations, 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.

Excluding several non-recurring items, FFO for fourth quarter 2011 was $1.66 per share compared with $1.45 in the year-ago quarter. Recurring FFO for fourth quarter 2011 exceeded the Zacks Consensus Estimate by 7 cents.

For full year 2011, Public Storage reported FFO of $5.67 per share, compared with $4.72 in the previous year. Recurring FFO for fiscal 2011 was $5.93 per share compared with $5.22 in 2010. Fiscal 2011 recurring FFO surpassed the Zacks Consensus Estimate by 15 cents.

During the reported quarter, Public Storage recorded a healthy increase in total revenues to $444.7 million from $417.8 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $422 million. For full year 2011, the company reported total revenues of approximately $1.75 billion compared to $1.64 billion in the previous year.

Total same-store revenues increased 5.0% year-over-year to $382.3 million during the quarter, while net operating income climbed 6.1% to $278.7 million. The increase in same-store revenues was primarily due to a 1.3% increase in average occupancy and a 3.4% rise in realized annual rent per occupied square foot. Occupancy in the same-store portfolio was 90.2% at quarter-end versus 89.0% in the prior-year period. Realized annual rent per occupied square foot increased from $12.79 in the year-earlier quarter to $13.22 in the reported quarter.

Public Storage currently has a 49% stake in Shurgard Europe, which has interests in 188 facilities (10 million net rentable square feet) located in 7 Western European countries. Public Storage is also the managing member of the JV that owns Shurgard Europe.

During the quarter, Public Storage acquired 2 self-storage facilities spanning across 155,000 square feet of rentable space for $16.0 million. The properties were located in California and Texas. The company also acquired the remaining ownership interests in 2 consolidated partnerships for $6.3 million in cash. In addition, during the reported quarter Public Storage entered into a contract to acquire a portfolio of 6 self-storage properties (2 in Florida and 1 each in California, Massachusetts, New Jersey and Pennsylvania) for an aggregate purchase price of $42 million in cash.

With superior quarterly and fiscal results that witnessed a healthy increase in both revenues and earnings, the company increased its quarterly dividend for first quarter 2012 by 16% to $1.10 per share. Funds from operations available for distribution (FAD) among common shareholders exceeded the regular common distributions by $113.2 million during the quarter. At year-end 2011, Public Storage had $139.0 million of cash compared to $456.3 million in the year-ago period.

We maintain our ‘Neutral’ rating on the stock, which presently has a Zacks #2 Rank, translating into a short-term ‘Buy’ rating. We also have a ‘Neutral’ recommendation and a Zacks #2 Rank for Sovran Self Storage Inc. ( SSS - Snapshot Report ) , one of the competitors of Public Storage.