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CORPORATE FOCUSE — Investments & Finance

Despite continued talk that investors are returning to Old Economy stocks, Glendale-based Public Storage Inc., a real estate investment trust that owns and operates self-storage facilities, is still waiting for acknowledgment from Wall Street. The company’s stock has slid downward over the last year despite continued revenue growth, increased earnings and favorable analyst ratings. The shares have been trading around $22, down from a 52-week high of $29.38. The May 1 release of its first-quarter results gave the stock one of its biggest boosts of the year a 56-cent increase, pushing it to $22.94. Public Storage reported net income for the first quarter ended March 31 of $72.6 million (34 cents per share), compared with $61.8 million (34 cents) for the like period a year ago. Earnings per share were diluted because at the beginning of 2000, the company converted 7 million Class B shares, allowing them to participate in earnings for the first time. First-quarter revenues were $176.6 million vs. $148 million. Analysts say the company’s share price is sure to rebound once real estate stocks come back into favor. “They’ll benefit from a general recovery in REITs and start to do better as more investors get interested,” said John Sheehan, associate analyst at A.G. Edwards. “Any volatility in the technology market helps to boost an Old Economy stock like this.” Analysts polled by Zacks Investment Research rate the company a moderate to strong buy. Paul Penney, analyst at Robertson Stevens, said REIT stocks overall have jumped 13.5 percent in value since early March, when tech stocks began to fall. Yet Public Storage stock has increased only 2.1 percent during the same period. “REITs over the last month have had a resurgence as people exited technology stocks,” Penney said. “Public Storage is a specialty REIT though, and the resurgence was really led by office and apartment REITs with more well-known assets.” Penney said people tend to turn to specialty REITs like Public Storage after the more common REITs have peaked. Meanwhile, company management believes the stock is undervalued and is betting big that it will come back. Last year, Public Storage began an aggressive plan to buy back 15 million shares. So far the company has purchased 9 million shares for about $215 million. Compared to the value of the real estate it owns, Public Storage’s shares are selling at a 25 percent discount, according to company President Harvey Lenkin. “Based on the cash flow generated by our property, we felt it was appropriate to make an investment in our own company,” Lenkin said. The company’s 65 million square feet of property holdings are valued at $4.1 billion. That compares to a current market cap of $3.04 billion. Sheehan said part of the reason Public Storage’s stock has languished is that the company took out a $315 million loan at the end of the first quarter, which could dilute future earnings slightly. Company officials have said they took out the loan to fund future developments. Public Storage is in the process of building 43 new facilities nationwide and is still looking for more expansion sites. The company has spent $135 million so far on the latest development effort, and it expects to spend another $127 million to complete construction of the sites. Public Storage has also been aggressively growing over the last several years through acquisitions. In March 1999, the company bought Storage Trust, which boosted its self-storage properties by 237 sites. Recently, it was in negotiations to buy Shurgard Storage Centers, another self-storage REIT based in Seattle, but those negotiations broke down after Shurgard’s board said the company was determined to remain independent. Nonetheless, Penney expects Public Storage to sweeten its bid within the next month. Public Storage is already by far the leader in the self-storage industry, owning outright or partially 1,330 storage centers in 37 states, with a total of 65.3 million square feet. The company has been expanding beyond its self-storage business. Lenkin plans to focus more on the moving business this year as well as on ancillary moving services, such as truck rentals. In March, Public Storage announced it would spin off its truck rental business, PS Orangeco Inc., as a separate company to trade on the Nasdaq.

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