Aided by an increase in revenues, Public Storage (PSA) reported better-than-expected earnings in third-quarter 2014. The company’s core FFO (funds from operations) of $2.11 per share in the quarter rose 9.9% from the year-ago figure.
After considering the impact of a number of non-core items, reported FFO came in at $2.08 per share, representing an uptick of 4% on a year-over-year basis. Both the FFO per share and core FFO per share exceeded the Zacks Consensus Estimate of $2.07 per share.
During the reported quarter, this self-storage real estate investment trust (REIT) recorded an 11.6% year-over-year increase in total revenue to $571.6 million. The revenue figure also exceeded the Zacks Consensus Estimate of $546 million.
Inside the Headlines
Same-store revenues increased 5.5% year over year to $476.0 million during the third quarter, while net operating income (NOI) climbed 7.3% to $347.2 million. The increase in same-store revenues was primarily due to a 5.3% rise in realized annual rent per occupied square foot to $15.25 and a 30 basis points (bps) year-over-year increase in weighted average square foot occupancy to 94.7%. The company also experienced an increase in NOI from non-Same Store Facilities, propelled by the acquisition of 152 self-storage facilities since 2013.
Furthermore, same-store revenues in Shurgard Europe moved up 3.3% to $52.9 million in the quarter. Same-store NOI for Shurgard Europe climbed 3.6% from the prior-year quarter to $31.2 million. Though realized annual rent per occupied square foot fell 3.7% to $25.78, it was offset by a 580 bps rise in weighted average square foot occupancy in the same-store portfolio to 87.1%.
As of Sep 30, 2014, Public Storage had development and expansion projects, worth an estimated cost of $342 million, in its pipeline. These projects would add approximately 3.0 million net rentable square feet of storage space.
In the third quarter of 2014, Public Storage bought 25 self-storage facilities – 19 in Florida, 3 in Maryland and 1 each in North Carolina, New Jersey and Virginia, encompassing 1.8 million net rentable square feet – for a total of $239 million. Moreover, following the quarter end, the company acquired 10 self-storage facilities for approximately $98 million in cash.
Liquidity
Public Storage exited third-quarter 2014 with around $98.3 million of cash and cash equivalents, down from $388.0 million at the end of second-quarter 2014.
Dividend
Concurrent with its earnings release, Public Storage announced a quarterly dividend of $1.40 per share. The dividend will be paid on Dec 30, 2014 to shareholders of record as of Dec 15.
In Conclusion
We are encouraged with better-than-expected earnings at Public Storage, thanks to the superior performance of its U.S. portfolio. The company’s acquisition initiatives helped it carve a niche in the U.S. and European markets. However, the continuous decline in European assets’ realized annual rent per occupied square foot remains a cause of concern.
Public Storage currently has a Zacks Rank #2 (Buy). Presently, we look forward to other REITs that are scheduled to report next week. These include HCP, Inc. (HCP), Vornado Realty Trust (VNO) and Regency Centers Corp. (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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