Public Storage Misses Estimates - Analyst Blog

Public Storage (PSA), a top real estate investment trust (REIT) operating self-storage facilities, reported third quarter 2010 FFO (funds from operations) of $1.69 per share, compared with $1.44 in the year-earlier quarter. Fund from operations, 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.

The increase in year-over-year FFO was primarily due to several non-recurring items, excluding which FFO for third quarter 2010 was $1.35 per share compared with $1.30 in the year-ago quarter. Third quarter 2010 recurring FFO missed the Zacks Consensus Estimate by 3 cents.

During the reported quarter, Public Storage recorded an increase in total revenue to $422.8 million from $412.1 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $395 million.

Same-store revenues increased 1.2% year over year to $365.1 million during the quarter, while net operating income climbed 0.2% to $245.7 million. The increase in same-store revenues was primarily due to a 1.6% increase in average occupancy, partially offset by a 0.5% dip in realized rent per occupied square foot. Occupancy in the same-store portfolio was 91.0% at quarter-end versus 89.6% in the prior-year period. Realized annual rent per occupied square foot decreased from $12.73 in the year-earlier quarter to $12.66 in the reported quarter.

Public Storage currently has a 49% stake in Shurgard Europe, which has interests in 188 facilities (10 million net rentable square feet) located in 7 Western European countries. Public Storage is also the managing member of the JV that owns Shurgard Europe.

During the quarter, Public Storage acquired 7 self-storage facilities spanning across 390,000 square feet of space for $27 million. Four of these properties are located in California, while the remaining 3 are located in Hawaii, Illinois and Louisiana. In addition, Public Storage is currently under negotiation to acquire 4 properties in Florida, New Jersey and Ohio for approximately $14.4 million.

At quarter-end, Public Storage had $513.5 million of cash, $102.1 million invested in short-term corporate securities and full availability of $300 million under its line of credit. The company maintained its quarterly dividend of 80 cents per share. Funds from operations available for distribution (FAD) among common shareholders exceeded the regular common distributions by about $67 million during the quarter.

We maintain our Neutral rating on the stock, which presently has a Zacks #3 Rank, translating into a short-term Hold” rating.