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Public Storage (PSA - Analyst Report), a leading real estate investment trust (REIT) operating self-storage facilities, reported third quarter 2012 FFO (funds from operations) of $1.73 per share compared with $1.29 in the year-earlier quarter, representing a year-over-year increase of 34.1%. The surge in reported FFO was primarily due to improved property operations and impact of foreign currency translations.  

Excluding several non-recurring items, FFO for third quarter 2012 was $1.76 per share compared with $1.56 in the year-ago quarter. Recurring FFO for the third quarter of 2012 beat the Zacks Consensus Estimate by 8 cents.

During the reported quarter, Public Storage recorded a 5.8% increase in total revenues to $472.9 million from $445.6 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $450 million.

Same-store revenues increased 4.8% year over year to $412.6 million during the quarter, while net operating income (NOI) climbed 7.9% to $294.1 million. The increase in same-store revenues was primarily due to a 4.5% rise in realized annual rent per occupied square foot to $13.79. Occupancy in the same-store portfolio was 92.5% at quarter-end versus 91.7% in the prior-year period.

Public Storage currently has a 49% stake in Shurgard Europe, which has interests in 189 facilities (10 million net rentable square feet) located in seven Western European countries. Public Storage is also the managing member of the JV that owns Shurgard Europe.

During the reported quarter, same-store revenue in Shurgard Europe decreased 2.0% to $47.0 million due to the continued sovereign debt crisis and concerns over euro. Same-store NOI for Shurgard Europe increased 2.1% year over year to $27.7 million, driven by a 1.3% rise in realized annual rent per occupied square foot to $25.65.

During third quarter 2012, the company acquired four self-storage properties for $56 million cash. Spanning 300,000 net rentable square feet, two of the acquired properties are located in Hawaii, and one each in California and New Jersey. Subsequent to the quarter-end, Public Storage acquired four additional self-storage facilities (409,000 net rentable square feet) in Texas, New York, Georgia, and Arizona for $43 million in cash. The company is currently under contract to acquire two additional properties in Georgia and California for $21 million.

At quarter-end, Public Storage had $535.8 million of cash and cash equivalents. The company maintained its quarterly dividend at $1.10 per share. Funds from operations available for distribution (FAD) among common shareholders exceeded the regular common distributions by about $101.7 million during the quarter.

We maintain our Neutral rating on the stock, which presently has a Zacks #3 Rank, translating into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for Sovran Self Storage Inc. (SSS - Snapshot Report), one of the competitors of Public Storage.

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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