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Public Storage Q3 FFO Beats, Hikes Div

Zacks Equity Research

The leading real estate investment trust (:REIT) operating self-storage facilities - Public Storage (PSA) - reported core FFO (funds from operations) of $1.92 per share, beating the Zacks Consensus Estimate of $1.90 per share by 1.1% and the prior-year quarter core FFO of $1.76 per share by 9.1%.

Results were aided by improved property operations leading to a surge in net operating income and acquisition of 56 self-storage facilities since Jan 2012. In addition, the company announced a 12% hike in its quarterly dividend rate.

After taking into account the impact of a number of non-core items, reported FFO came in at $2.00 per share, representing an uptick of 15.6% from the year-ago figure of $1.73 per share.

During the reported quarter, Public Storage recorded a 7.3% year-over-year increase in total revenue to $512.0 million. The revenue figure also exceeded the Zacks Consensus Estimate of $504 million.

Quarter in Detail

Same-store revenues increased 5.5% year over year to $441.0 million during the quarter, while net operating income (:NOI) climbed 7.2% to $316.2 million. The increase in same-store revenues was primarily due to a 4.0% rise in realized annual rent per occupied square foot to $14.46. Weighted average square foot occupancy in the same-store portfolio also increased 140 basis points (bps) to 94.4% as of Sep 30, 2013 from 93.0% as of Sep 30, 2012.

On the other hand, during the reported quarter, same-store revenues in Shurgard Europe decreased 2.4% year over year to $48.0 million. Same-store NOI for Shurgard Europe fell 3.5% from the prior-year quarter to $28.3 million. This was due to a fall in weighted average square foot occupancy in the same-store portfolio (down 210 bps to 81.5%) and a smaller decline in realized annual rent per occupied square foot (down 0.2% to $26.70).

Acquisitions and Expansion

During third-quarter 2013, Public Storage acquired 29 storage facilities (spanning a 2.2 million net rentable square feet) for $371 million in cash. These facilities are positioned in California, Florida, Massachusetts, Rhode Island, and Texas. This leads the total tally of acquisitions year to date through Sep 30, 2013 to 32 facilities (2.5 million net rentable square feet) for $392 million.

Moreover, the company has already purchased 44 storage facilities (2.8 million net rentable square feet) for $324 million in October and is under contract to buy another 44 facilities (2.7 million square feet) for $430 million. These acquisitions are expected to close in Dec 2013. These 88 facilities help extend the company’s property portfolio with assets in California, Colorado, Florida, Georgia, North Carolina, South Carolina, Texas, and Virginia.

Public Storage also accomplished the expansion to its Bronx, N.Y. facility adding 209,000 net rentable square feet at a cost of around $20 million.    

As of Sep 30, 2013, Public Storage had development and expansion projects in its pipeline worth an estimated cost of $188 million ($46 million already incurred at the end of the third quarter). These projects would add approximately 1.6 million net rentable square feet of self-storage space.


Public Storage exited the quarter with nearly $57.0 million of cash and cash equivalents, up from $17.2 million at year-end 2012.

Dividend Raise

Concurrent with its earnings release, Public Storage announced a quarterly dividend of $1.40 per share, reflecting a 12% increase over the prior quarter. The dividend will be paid on Dec 30, 2013 to shareholders of record as of Dec 13, 2013.

In Conclusion

We are encouraged with the better-than-expected results at Public Storage. Moreover, the dividend hike boosts investors’ confidence in the stock. The company’s ongoing acquisition initiatives helped it carve a niche in the U.S and the European market. Furthermore, the ‘Public Storage’ brand is widely recognized in the self-storage industry. Backed by this, we believe the company is well poised to maintain its growth curve going forward.

Public Storage also owns a 43% 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 #2 (Buy). A number of other REITs that are also performing well and deserve a look include Getty Realty Corp. (GTY) and Parkway Properties Inc. (PKY), both carrying a Zacks Rank #1 (Strong 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.

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