Is European Operations Still a Concern for Public Storage?
Self-storage real estate investment trust (:REIT) Public Storage (PSA) has been capitalizing on growth opportunities in the upscale U.S. markets. An improving economy has resulted in higher product usage and modest pricing power. However, lack of new supply has essentially helped the company to lower its marketing expenses, promotional discounts and raise the prices to new customers. Hence, this increased demand and modest new supply offers ample scope for the company to augment its bottom line going forward.
Moreover, Public Storage seems focused on diversifying its business, to avert risks associated with a single operation, Hence, along with its storage operations, as of Jun 30, 2014, the company had 42% common equity interest in PS Business Parks Inc, (PSB) – a REIT that has commerical properties – with approximately 29.7 million square feet of of commercial space, primarily flex, multi-tenant office and industrial space. Additionally, we believe that the company has one of the strongest balance sheets in the sector with adequate liquidity and virtually all of the book value of its real estate facilities are unencumbered.
Encouragingly, in July, Public Storage reported core FFO (funds from operations) of $1.97 per share in the second quarter, which rose 9.4% from the year-ago figure and came in line with the Zacks Consensus Estimate. This was aided by a significant increase in revenues.
Although the U.S. Portfolio operating performance benefitted Public Storage’s results, continuous decline in European assets’ realized annual rent per occupied square foot is a matter of concern. In fact, the company’s European operations were under stress due to a tough economic environment, increased VAT taxes on self-storage and consistently high unemployment level in the last quarters.
Over the last 60 days, the Zacks Consensus Estimate for 2014 and 2015 FFO per share each moved north by 3 cents to $8.00 and $8.52 per share, respectively.
To gain deeper insight into Public Storage, you can refer to our updated research report, which was issued on Sep 30, 2014.
Investors interested in the REIT industry may also look at updated research reports on UDR Inc. (UDR) and Liberty Property Trust (LPT), which have been issued on the same date.
Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.
Read the Full Research Report on PSA
Read the Full Research Report on UDR
Read the Full Research Report on PSB
Read the Full Research Report on LPT
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