It's tough to quibble with Public Storage's (NYSE:PSA) results in any given quarter. The business is well-managed, fairly predictable, and quite likely to grow over time. Unfortunately, that's hardly a secret to Wall Street.
After looking at the first-quarter numbers that the company posted last week, and listening to its earnings call, it's clear to me that Public Storage remains on track for more growth. For the quarter, the company's total revenues were up 9.8%, and its funds from operations (FFO) increased by 19% to $0.94 per diluted share, from $0.79 per share last year. About $0.05 per share of that increase came from retained free cash flow and increases in interest income from higher interest rates.
From a balance-sheet perspective, Public Storage remains healthy, continuing to rely on financing from preferred equity issuances. The company also continues to redeem preferred issues with higher, callable dividend rates, replacing them with new issues that have lower dividend rates. It's difficult to object to this practice, but from an investor's perspective, it makes sense to treat the preferred issues like debt.
Any mention of Public Storage is incomplete without referencing its pending acquisition of Shurgard Storage Centers (NYSE:SHU), which it now expects will close by the end of the third quarter. As a part of the acquisition, the company recently issued new preferred shares, and it expects it will need to raise more capital to fund the cash portion of the acquisition. Along with Public Storage's acquisitions and the redevelopment of its existing properties, the Shurgard acquisition is an important part of future FFO growth for the company.
As much as I like Public Storage, I continue to wait and see if there is any kind of misstep in the acquisition of Shurgard, or a downturn for REITs in general. I'm not thrilled with the company's current valuation, but all it takes is a jittery market and a little trouble with an acquisition to create a good opportunity.
Investors interested in the storage REIT market should also add U-Store-It Trust (NYSE:YSI) to their list of companies to follow; that company recently brought in a new CEO, Dean Jernigan, to right the ship. It will take time for Mr. Jernigan to correct the dire situation at U-Store-It, but his past experience as founder and CEO of Storage USA suggests that he has a decent shot at pulling it off.
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Nathan Parmelee has no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.
