Public Storage (PSA)

from Barclays Capital Equity Research Public Storage Inc.’s (PSA) 1Q15 core Funds from Operations (FFO)/share of $1.94 was in-line with our estimate and consensus. Reported FFO, which includes $0.03/share of preferred redemption charges, was $1.91 (+9.5% YoY). Storage fundamentals remain healthy, and we think demand is sufficient to absorb rising construction...

Public Storage Inc.’s (PSA) 1Q15 core Funds from Operations (FFO)/share of $1.94 was in-line with our estimate and consensus. Reported FFO, which includes $0.03/share of preferred redemption charges, was $1.91 (+9.5% YoY). Storage fundamentals remain healthy, and we think demand is sufficient to absorb rising construction levels.

Same store net operating income (SSNOI) growth of 8.4% in 1Q15 was an acceleration from 2014’s 6.7% growth. Looking ahead, we now expect SSNOI growth to remain a solid 6.1% in 2015 (5.4% previously); albeit a slowdown from 2014. We think sustaining SSNOI growth of 6%-8% will be difficult given near full occupancy (~95% during peak mid-year quarters) and more difficult expense comps.

We are raising our 2015 FFO/share estimate from $8.62 to $8.64 to reflect our belief that PSA will refinance 2015 preferred redemptions with lower cost debt; this benefit is partially offset by higher G&A expense than we had modeled previously which stems from litigation costs. Our five-year core FFO CAGR is 5.8%.

We maintain our $205 price target (PT) and overweight rating.

Ross L. Smotrich, Barclays Capital Equity Research, www.barcap.com, 212-526-2306, May 7, 2015

Ross L. Smotrich

Ross L. Smotrich joined Barclays Capital in September 2008 and is currently a managing director and senior research analyst following the real estate investment trust and real estate securities sectors. Previously, he had joined Lehman Brothers in June 2008 after 10 years as a senior managing director at Bear Stearns, following four years as a senior equity analyst at Merrill Lynch. Mr. Smotrich has ranked in the Institutional Investor’s “All-America Research Team” survey five times and has twice been named to The Wall Street Journal’s “All-Star Analysts” survey (earnings forecasting). Before moving to sell-side research, Ross was a real estate banker for Chemical Bank doing lending, investment banking and workout. He earned an MBA from Columbia University in finance/real estate and a BA from the University of Pennsylvania in diplomatic history/international economics.