Back to top

Analyst Blog

Public Storage (PSA - Analyst Report), a leading real estate investment trust (REIT) operating self-storage facilities, reported adjusted FFO (funds from operations) of $1.86 per share, well ahead of the Zacks Consensus Estimate of $1.76 per share and prior-year quarter figure of $1.66 per share.

After taking into account the impact of a number of non-core items, reported FFO came in at $1.86 per share, significantly ahead of $1.50 per share reported in the prior-year quarter.

The surge in FFO per share was primarily due to improved property operations and impact of foreign currency translations. The company also announced a 14% hike in its quarterly dividend rate.

For full year 2012, Public Storage’s adjusted FFO reached $6.68 per share, exceeding the Zacks Consensus Estimate of $6.24 per share and the prior-year figure of $5.93 per share. Including the impact of a number of non-core items, reported FFO came in at $6.31 per share, up from $5.67 per share in the prior year.

During the reported quarter, Public Storage recorded a 6.5% increase in total revenue to $465.5 million from $437.0 million in the year-earlier quarter. Total revenue for the reported quarter was also well ahead of the Zacks Consensus Estimate of $450 million.

For full year 2012, the company achieved a 6.4% year-over-year increase in revenue to $1.8 billion. The figure also surpassed the Zacks Consensus Estimate of $1.75 billion.

Quarter in Detail

Same-store revenues increased 4.9% year over year to $405.1 million during the quarter, while net operating income (NOI) climbed 8.9% to $306.6 million. The increase in same-store revenues was primarily due to a 3.5% rise in realized annual rent per occupied square foot to $13.72. Occupancy in the same-store portfolio was 91.4% at quarter-end versus 89.6% in the prior-year period.

During the reported quarter, same-store revenue in Shurgard Europe decreased 2.5% to $47.2 million. However, same-store NOI for Shurgard Europe increased 0.8% year over year to $28.6 million, driven by a 1.1% rise in realized annual rent per occupied square foot to $26.29.

Acquisition

During fourth quarter 2012, Public Storage acquired 10 self-storage facilities for $82 million in cash. Of the 10 properties, 3 are located in Fla., 2 each in Ga. and Calif. and 1 each in Ariz., N.Y. and Texas.

The properties span 761,000 net rentable square feet of self-storage space as well as additional space that the company plans to convert into 220,000 net rentable square feet of storage space for an additional cost of $15 million.

Liquidity

At year-end 2012, Public Storage had $17.2 million of cash and cash equivalents. As of that date, the company had $133.0 million outstanding on its credit facility. The company repaid this in full on Jan 16, 2013 and financed the repayment with the proceeds generated from the Series W preferred share issuance.

Notably, in Dec 2012, the company made redemptions of 3 preferred series at par aggregating $362.5 million. However, the company recognized $12.0 million in charges related to this redemption. Moreover, subsequent to the quarter-end, the company issued 5.20% Series W preferred shares generating gross proceeds of $500.0 million.

Dividend Raise

Concurrent with its earnings release, Public Storage announced a hike in its quarterly dividend. The increased dividend now stands at $1.25 per share, reflecting an augmentation of 15 cents per share, or 14% from the prior-quarter amount. This dividend will be paid on Mar 28, 2013 to shareholders of record as of Mar 13.

In Conclusion

We are encouraged with the better-than-expected results at Public Storage. We believe that the company is well poised to maintain its growth curve backed by its robust presence in all the major markets in the U.S.

It is the leading owner and operator of storage facilities in the U.S. and has significantly increased the scale and scope of its operations through the acquisition of Shurgard Storage Centers that has a considerable presence in the European markets.

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. In addition, the storage facilities of the company have high visibility and are usually located in heavily populated areas that enhance the local awareness of the brand.

This provides a significant upside potential to the company and we expect the size and scope of its operations to enable it to achieve economies of scale, thereby generating high operating margins in the fourth quarter. However, demand for storage facilities has reduced relatively as customers have trimmed down their discretionary spending, and this remains our concern.

Public Storage currently has a Zacks Rank #3 (Hold). A number of other REITs that are performing well and deserve a look include Hersha Hospitality Trust (HT - Snapshot Report) and DCT Industrial Trust Inc. (DCT - Snapshot Report), both carrying a Zacks Rank #2 (Buy).

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.

Please login to Zacks.com or register to post a comment.