Public Storage (PSA)

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See all Bulls Reasons Bulls: Reasons To Buy Largest provider of public self-storage space in U.S. and Europe 0% agree Largest provider of public self-storage space in U.S. and Europe Public Storage is the largest provider of public self-storage space in the United States and Europe. View or Edit Reason 0 votes 0% agree Barrier Entries 0% agree Barrier Entries Future Competitors can easily enter the market, but due to high construction costs rapid expansion is relatively difficult. View or Edit Reason 0 votes 0% agree Widely recongnized brand in the public self-storage industry 0% agree Widely recongnized brand in the public self-storage industry Public Storage is a widely recongnized brand in the public self-storage industry. View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Integration costs have caused a decline in net income 0% agree Integration costs have caused a decline in net income Integration costs have caused a decline in net income. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Under operational metrics, consider adding one more. The most useful for this industry is revenue... more [Dismiss] [Done] See All Suggestions

Top Contributors Ashwak Hauter Jane Jiang Related Articles Public Storage (PSA) Amerco (UHAL) Economy of scale Market penetration Real estate investment trust

Despite its lead, PSA faces significant competition from both large and small private companies in self-storage. Even combined, PSA and its next 10 competitors only make up 12% of the self-storage market. But this relatively low penetration of the market also means that PSA has plenty of room to expand, and indeed the company has been very active in gaining market share through mergers, acquisitions, and further development of its own properties. In 2006, a merger with European self-storage leader Shurgard strained the company with a 31% loss in net income due to integration costs, but the benefits of the merger may make up the difference quickly: PSA's new presence in the developing European market has high potential for growth.

[edit] History and Business Overview

Established in 1972, Public Storage is now the largest owner and operator of self-storage space in the United States.

• In 2006, PSA maintained an ownership interest in 2,003 self-storage facilities and directly owned 1,490 self-storage facilities--an estimated 126.4 million rentable square feet in the United States. **It also held 160 storage facilities in 7 European countries, an additional 8.4 million rentable square feet.
• PSA generated 2006 annual revenue of 1.3 billion and a net income of 314 million.
• Merger with Shurgard: The Public Storage merger with Shurgard has strengthened its portfolio and increased its revenue. But integration costs have caused a temporary decline in net income of 31% from fiscal year 2005's net income of 456 million. See Shurgard Merger, below.
• Hughes Family: Chairman of the Board Wayne Hughes and his family own approximately 26.7% of PSA's stock, giving the family a significant amount of control in matters submitted to a vote of the shareholders (e.g. director elections, organizational document amendments, and other transactions including takeover attempts). There are certain restrictions in the company's documents that may limit future change; currently no shareholder may acquire more than 25% of the outstanding share in the common stock.

[edit] Self-Storage Facilities

Rental income from self-storage facilities for personal and business use accounted for the majority of PSA's profits in 2006, US$ 1.2 million. All the self-storage facilities in the United States operate under the Public Storage brand name, while PSA's facilities in Europe operate under the Shurgard brand name.

• Domestic Self-Storage Operations: PSA's domestic self-storage operation are 90% of total 2006 revenue. Rental income for PSA's domestic self-storage operations has grown from $951M in 2005 to $1.2B in 2006. This 24% increase is due to the addition of acquired and newly developed facilities, improvement in rental income rates, and improved performance in current facilities.

• European Self-Storage Operations: PSA generated 59 million in revenue from its 160 acquired Shurgard facilities. PSA is planning to continue expanding in Europe; in the last three months of 2006, the company opened 6 facilities.

[edit] Ancillary Operations

Ancillary operations generated 109 million in 2006 revenue. Ancillary operations include:

• Tenant reinsurance operations: PSA reinsures policies against losses to goods stored by tenants in the self-storage facilities through a non-affiliated insurance broker.

• Sale of merchandise at self-storage facilities: Through its subsidiaries, PSA sells locks, boxes, and packing supplies to customers and to the public.

• Containerized storage operations: PSA has closed many of its containerized storage facilities since 2002. It now has 13 facilities located in eight states and three industrial facilities with an aggregate of 244,000 net rentable square feet used by the continuing containerized storage operations.

• Truck rentals: In selected locations, PSA provides trucks on-site for local, short-term rentals to customers and the general public. PSA also acts as an agent for long-distance rentals from national truck companies.

• Commercial property operations: PSA owns six commercial facilities with 520,000 net rentable square feet, and has just over 1 million net rentable square feet of commercial space located at certain self-storage facilities. PSA also has a 44% interest in PS Business Parks, which in 2006 owned and operated approximately 18.7 million net rentable square feet of US commercial space.

• Property management: PSA also manages facilities owned by third-party owners and by affiliates for a fee.

[edit] Interest and other Income

Interest and other income generated about 31 million in 2006, almost double the previous year's 16 million. The growth comes from higher interest rates on invested cash balances, as well as from significantly larger average invested cash balances.

[edit] Shurgard Merger

PSA's merger with Shurgard Storage Center Inc. was finalized on August 22, 2006 for about $5.3 billion and an assumption of Shurgard's $2 billion in debt. Through the merger, PSA acquired 487 self-storage facilities in the United States and 166 facilities located in Western Europe. This merger is PSA's first opportunity to gain shares in the relatively new European self-storage market. In the US, PSA has replaced all Shurgard names with the Public Storage nameplate, but in Europe the company hopes to continue the growing brand recognition that the Shurgard nameplate commands. As of 2006, PSA is the largest self-storage operator in both the US and Europe.

[edit] Acquisition Joint Ventures

PSA also grows by acquiring facilities from third parties. Aside from the Shurgard merger, PSA spent a total of US$ 618 million from 2004-6 to acquire 89 self-storage facilities. However, most acquisition activity stopped around 2006, as the Shurgard mreger forced the company to focus instead on integration between the two giants.

[edit] Trends, Risks, and Forces

[edit] Exposure to property tax

As a real estate operator, Public Storage is sensitive to fluctuations in property tax. If PSA's properties are assessed or reassessed unfavorably by tax authorities, PSA may have to cope with a significant increase in property tax--an event that could have serious consequences on PSA's profitability.

[edit] Economy of scale advantage

High profit margins from relatively low administrative and maintenance costs mean that the bigger PSA gets, the more it benefits--larger profits can be reinvested into expansion (either through mergers or acquisitions) and redevelopment, yielding more rentable property and even larger profits.

PSA is the largest provider of self-storage space in the industry, bigger than its largest four competitors combined. The size and scope of PSA operations have given the company a strong position in the cycle of growth that economies of scale yield.

[edit] Effects from real estate slowdown

Self-storage facilities tend to have greater occupancy rate when residential moves are high. When the real estate market cools down, decreased rates of residential moving often reduces self-storage use, slowing down Shurgard's profits as well.

[edit] REIT re-qualification risk

PSA and Shurgard have both qualified as a Real Estate Investment Trust in the past, enabling the company to benefit from little to no corporate income tax in return for distributing 90% of its REIT taxable income to its shareholders. In the event that either PSA or Shurgard fail to qualify as a REIT, its income will be subject to federal income tax at the regular corporate rates, causing a blow to profits. In addition, PSA would be forced to wait five years to regain REIT status.

If Shurgard fails to qualify as a REIT, PSA would be subject to corporate tax liabilities that are required in the event of a sale of assets like that of the Shurgard merger. Should the company continue to exhibit disqualifying activities after the merger, it may even lose its REIT status. REIT qualifications are dependent on a range of complex organizational and operational requirements and are worth considering before investing.

[edit] Exposure to California slowdown

By itself, California makes up a full one-fifth of PSA's total US properties, so slow operations in California can signficantly hurt the company's profits. The state's budget problems have resulted in rising property taxes on both commercial and private properties, hurting PSA both by making the company pay more taxes on its real estate, and by cooling the real estate market and thus the amount of demand for self-storage.

California legislation mandating the provision of medical insurance for the employees and families by all California businesses could also adversely affect PSA's bottom line.

[edit] Threat of litigation

Like all in the self-storage industry, Public Storage must constantly confront various claims, complaints, and other legal actions with the risk of litigation. As of 2006, PSA is facing five pending lawsuits still in the court system. These cases cover a range of complaints, from storage misrepresentations to employment conditions to unfairness in company acquisitions. Most plaintiffs only seek monetary damages, impacting only the company's bottom line. But in the event of a high-profile consumer mistreatment case, Public Storage's public image may be significantly negatively impacted, reducing business traffic and seriously hurting the company.

[edit] Competition

Despite its current role as the clear industry leader in net size, market capitalization, income, and market share, PSA faces significant (if scattered) competition from many small private facilities. Fellow large self-storage companies also are not without their threats.

Public Storage's fellow REIT companies Sovran Self Storage (SSS) and U-Store-It Trust (YSI) have a relatively small US presence, but focus on slightly different markets than Public Storage (which covers 38 states but is somewhat concentrated in California and the West Coast). By contrast, Sovran Self Storage is only present in 22 states, but has a greater concentration on the East Coast, Texas, and Florida; meanwhile U-Store-It Trust covers 27 states and focuses on Illinois and New Jersey. U-Store-It also has a high concentration of locations in California, where it competes more directly with Public Storage.

Amerco subsidiary U-haul is also a main competitor of Public Storage, but unlike Public, U-Haul only derives a small percentage of its revenue from self-storage facilities. Over half of U-Haul revenue comes from rentals of its moving equipment and products--a segment which only accounts for 8% of Public Storage's total revenue. Still, despite their small number, U-Haul's storage facilities have high occupancy rates, unlike smaller competitors like Sovran Self Storage (SSS).

Public Storage's market share of the total self-storage market is unusually small for an industry leader--instead, the self-storage market is dominated by small private companies. The self-storage industry contains about 43,000 facilities in the United States and the ten largest operators only make up 12% of the industry.

 Public Storage

	Select All  |  Select None Metrics Variable Rate Debt Fixed Rate Debt Number of Properties Rentable Square Feet subject to expiring leases in current year Rental Revenue Same Property Rental Revenue Same Property Termination Income Occupancy Total Real Estate Termination Revenue Rental Revenue per Square Foot Annual Dividend to Common Share Holders Revenue Operating Income Net Income Total Debt Rentable Square Feet Cancel

	Select All  |  Select None Companies AMB Property (AMB) Alexandria Real Estate Equities (ARE) Biomed Realty Trust (BMR) DCT Industrial Trust (DCT) Digital Realty Trust (DLR) EastGroup Properties (EGP) EXTRA SPACE STORAGE (EXR) First Industrial Realty Trust (FR) PMC Commercial Trust (PCC) ProLogis (PLD) Sovran Self Storage (SSS) U-Store-It Trust (YSI) Public Storage (PSA) Cancel

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Company	Data From	Revenue	Total Debt	Operating Income	Rentable Square Feet	Net Income
AMB Property (AMB)	2007	$670M	$3.5B	$297M	118M	$314M
ProLogis (PLD)	2007	$6.21B	$10.5B	$1.14B	209M	$1.07B
Public Storage (PSA)	2007	$1.82B	$1.07B	$458M	136M	$458M
Sovran Self Storage (SSS)	2007	$194M	$567M	$39.2M	22.7M	$39.2M
U-Store-It Trust (YSI)	2007	$229M	$1.03B	$38.5M	26.1M	($13.1M)

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[edit] References

1. ↑ ^{1.0 1.1 1.2 1.3} AMB,2007,10-K.Item-6,Page-36
2. ↑ AMB,2007,10-K.Item-7,Page-38
3. ↑ ^{3.0 3.1 3.2 3.3} PLD,2007,10-K.Item-6,Page-31
4. ↑ PLD,2007,10-K.Item-2,Page-24
5. ↑ ^{5.0 5.1 5.2 5.3} PSA,AR-2007,Item-6,Page-31
6. ↑ PSA,AR-2007,Item-2,Page-24
7. ↑ ^{7.0 7.1 7.2 7.3} SSS,2007,10-K.Item-6,Page-17
8. ↑ SSS,2007,10-K.Item-2,Page-13
9. ↑ ^{9.0 9.1 9.2} YSI,2007,10-K.Item-6,Page-34
10. ↑ YSI,2007,10-K.Item-7,Page49
11. ↑ YSI,2007,10-K.Item-6,Page-35