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Public Storage Q2 FFO Meets and Revenues Beat Estimates

Zacks Equity Research

Aided by a significant increase in revenues, Public Storage (PSA) reported core FFO (funds from operations) of $1.97 per share, which rose 9.4% from the year-ago figure and came in line with the Zacks Consensus Estimate.

After taking into account the impact of a number of non-core items, reported FFO came in at $1.99 per share, representing an uptick of 8.7% on a year-over-year basis.

During the reported quarter, this self-storage real estate investment trust (:REIT) recorded a 10.8% year-over-year increase in total revenue to $538.0 million. The revenue figure also exceeded the Zacks Consensus Estimate of $533 million.

Inside the Headlines

Same-store revenues increased 5.3% year over year to $452.8 million during the second quarter, while net operating income (:NOI) climbed 6.9% to $326.0 million. The increase in same-store revenues was primarily due to a 4.6% rise in realized annual rent per occupied square foot to $14.52 and a 70 basis points (bps) year-over-year increase in weighted average square foot occupancy to 94.7% as of Jun 30, 2014.

Furthermore, same-store revenues in Shurgard Europe moved up 3.2% to $53.4 million in the quarter. Same-store NOI for Shurgard Europe also climbed 6.1% from the prior-year quarter to $30.1 million. Though realized annual rent per occupied square foot fell 3.8% to $26.49, it was offset by a 730 bps rise in weighted average square foot occupancy in the same-store portfolio to 85.6%.

As of Jun 30, 2014, Public Storage had development and expansion projects in its pipeline worth an estimated cost of $242 million ($61 million already incurred through the end of the second quarter). These projects would add approximately 2.1 million net rentable square feet of storage space.

In the first half of 2014, Public Storage bought five self-storage facilities in North Carolina and one in Texas for around $37 million, Also, in July, the company purchased 19 assets in Florida, three in Maryland and one each in Virginia, New Jersey and North Carolina for about $240 million.


Public Storage exited second-quarter 2014 with around $388.0 million of cash and cash equivalents, up from $101.1 million at the end of first quarter 2014.


Concurrent with its earnings release, Public Storage announced a quarterly dividend of $1.40 per share. The dividend will be paid on Sep 30, 2014 to shareholders of record as of Sep 15.

In Conclusion

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. Considering the current economic environment, we do not expect any robust turnaround in this unit’s performance in the near term.

Public Storage currently has a Zacks Rank #4 (Sell). We now look forward to the other REITs that are scheduled to report next week. These include HCP, Inc. (HCP), Federal Realty Investment Trust (FRT) and Regency Centers Corporation (REG).

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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