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Public Storage Q1 FFO Misses on Cold Winter

Zacks Equity Research

Self-storage real estate investment trust (:REIT) – Public Storage (PSA) – reported core FFO (funds from operations) of $1.80 per share, missing the Zacks Consensus Estimate of $1.86 per share. Results reflect higher expenses tied to snow removal and utilities in the cold weather as well as increased property tax expense. Nevertheless, aided by an increase in revenue, core FFO per share registered a 9.1% rise from $1.65 reported in the prior quarter.

After taking into account the impact of a number of non-core items, reported FFO came in at $1.74 per share, representing an uptick of 10.8% from the year-ago figure of $1.57 per share.

During the reported quarter, Public Storage recorded a 10.3% year-over-year increase in total revenue to $519.6 million. The revenue figure marginally exceeded the Zacks Consensus Estimate of $514 million.

Quarter in Detail

Same-store revenues increased 5.1% year over year to $440.6 million during the quarter, while net operating income (:NOI) climbed 5.6% to $301.1 million. The increase in same-store revenues was primarily due to a 4.3% rise in realized annual rent per occupied square foot to $14.41 and a 90 basis points (bps) year-over-year increase in weighted average square foot occupancy to 93.2% as of Mar 31, 2014.

Furthermore, same-store revenues in Shurgard Europe moved up 1.3% to $52.4 million. Same-store NOI for Shurgard Europe also climbed 1.3% from the prior-year quarter to $29.9 million. Though realized annual rent per occupied square foot fell 2.9% to $26.77, it was offset by a 660 bps rise in weighted average square foot occupancy in the same-store portfolio to 86.1%.

Public Storage accomplished 2 new development facilities and one expansion project (adding 335,000 net rentable square feet of space) at a cost of around $40 million. As of Mar 31, 2014, Public Storage had development and expansion projects in its pipeline worth an estimated cost of $195 million ($38 million already incurred through the end of the first quarter). These projects would add approximately 1.9 million net rentable square feet of storage space.


Public Storage exited first-quarter 2014 with around $101.1 million of cash and cash equivalents, up from $19.2 million of cash and cash equivalents at year-end 2013.


Concurrent with its earnings release, Public Storage announced a quarterly dividend of $1.40 per share. The dividend will be paid on Jun 30, 2014 to shareholders of record as of Jun 13.

In Conclusion

While the FFO estimate miss in the first quarter due to weather associated expenses is not encouraging, we believe that Public Storage has one of the strongest balance sheets in the sector with adequate liquidity. Public Storage as a brand is widely recognized in the self-storage industry and the company’s acquisition initiatives helped it carve a niche in the U.S and European market. Backed by this, we believe the company is well poised to maintain its growth curve going forward.

Public Storage also owns a 42% common equity interest in PS Business Parks Inc. (PSB), which owns and operates commercial space, primarily flex, multi-tenant office and industrial space.

Public Storage currently has a Zacks Rank #3 (Hold). We now look forward to the other REITs which are scheduled to report next week. These include HCP, Inc. (HCP) and Kimco Realty Corporation (KIM). Both these stocks carry the same rank as 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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