Any marriage between Public Storage (NYSE:PSA) and Shurgard Storage Centers (NYSE:SHU) will have to wait a bit longer, it seems. There's nothing much to report from either company on that front (link opens PDF file). However, Public Storage did report fourth-quarter and fiscal 2005 earnings Monday night, and the results continue to impress.
For the year, Public Storage grew total revenues by 4.9%, same-store net operating income by 7.2%, and funds from operations (FFO) per share by 23%. The company generated this growth by collecting higher revenue in its existing units. The company's $2 dividend remains well-covered at 54% of the company's FFO. It's important to adjust the company's FFO numbers for maintenance capital expenditures, but that 54% is a good initial judge of the company's dividend.
On the financing side of the business, Public Storage has an open authorization to repurchase its common shares, but the company has been more focused on redeeming its preferred shares, then issuing new preferred shares at lower rates. The company plans to do more redemptions of preferred shares next year, when some of its existing preferred shares become callable.
For a REIT, the company carries a relatively large cash balance of $493.5 million. On the conference call, the company mentioned that this cash, along with some of its operating cash flow, will be used for the preferred redemption, as well as for the building, acquisition, and expansion of facilities.
Investors may have concerns that the competition in the public storage REIT market is beginning to heat up. Extra Space Storage (NYSE:EXR) and U-Store-It Trust (NYSE:YSI) have both gone public in the last two years. However, it appears that Public Storage is still finding ways to maximize shareholder value through selective acquisitions and reduced costs. Furthermore, Public Storage will remove a competitor if its acquisition of Shurgard comes to fruition. Given that Public Storage only yields 2.8%, I don't consider this REIT's shares cheap. Nevertheless, I'm impressed with how the company returns value to shareholders.
Further REIT-minded Foolishness:
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Nathan Parmelee has no financial stake in any of the companies mentioned. The Motley Fool has an iron-clad disclosure policy.
