Public Storage Raises Rates And Gets a Stock Price Hike Corporate Focus By SHELLY GARCIA, Senior Reporter Exceptionally strong financial performance in fiscal 2001, some clever investing strategies and a renewed interest in safe investments has sent the share price for Public Storage Inc. to near record levels. Shares in the Glendale-based operator of personal storage facilities have risen 9 percent since the beginning of the year, to the $37 range from about $33.83 on Jan. 2. On March 28, the stock closed at $37.01. The price hike reflects a growing interest in real estate investment trusts, the sector to which Public Storage belongs, as a result of the losses suffered in technology and other sectors once preferred for their high growth rates. “These are the anti-dot-coms,” said Jeff Donnelly, vice president with Wachovia Securities in Boston. “REITs have done very well, but Public Storage has done exceptionally well.” Public Storage has attracted a larger portion of the investment community, particularly institutional investors, as growth stocks have faltered and many have turned to strategies that minimize risk. REITs have historically been considered safe investments with modest returns. But analysts say Public Storage also showed an especially strong ability to manage its business over the past year, a factor in its rising share price. “Clearly, the company reported pretty strong numbers, stronger than their peers, and certainly met our expectations,” said John Sheehan, an analyst with A.G. Edwards & Sons in St. Louis. For its fiscal year ended Dec. 31, 2001, Public Storage reported a 9-percent increase in net income to $324.2 million or $1.51 per share, compared to $297 million or $1.41 per diluted share for the 2000 fiscal year. The increase resulted from higher rental rates along with what analysts refer to as clever use of the company’s cash holdings. Michael Mueller, director of CIBC World Markets Corp., said, “Since they started, they bought over one half billion dollars (worth of stock) back, the vast majority at much lower stock prices. It really helped prop up earnings.” The economic slowdown that affected many businesses beginning in mid-2001 did not affect Public Storage, a business that analysts describe as recession-resistant, if not recession-proof. Bad economies often drive up storage use as people seek to store items instead of moving to larger homes or apartments. Good economies can increase the demand for storage because they are often accompanied by job relocations and home remodeling, factors that often necessitate temporary storage facilities. In 2000, Public Storage realized its facilities were running at near full capacity, so the company decided to discontinue its discounting and raise its rental rates at the same time. “One of our goals was to find out whether the laws of supply and demand worked,” said Harvey Lenkin, president of Public Storage. “We wanted to see if we could increase rental rates, and we believed that the inherent strength of our business was good enough to allow us to generate higher levels of rental revenue.” Instead of discounting, Public Storage bumped up its advertising by more than $6 million. (The company declined to discuss its total advertising budget.) The bold move resulted in some decline in occupancy in 2001, to 87.3 percent for the fourth quarter of 2001 from 90.9 percent a year earlier. However, with an 11.1-percent increase in rents to $12.30 per square foot in the fourth quarter, the added income more than made up for the loss in occupancy. Public Storage, with some 1,384 properties nationwide, is the largest storage rental facility company in the industry and perhaps the only one with a recognized brand name. Public Storage has been running television advertising since 1986, but the company stepped up its efforts in the past year and a half, Lenkin said. “In a market like L.A. where we have 160 locations, we have a sufficient number of properties to spread the cost of television, and other firms don’t have that,” he added. The advertising campaign is part of a plan to boost occupancy while keeping its current rental rates higher than in past years. Lenkin said the company is also continuing to work on its price formula in an effort to restore occupancy rates to previous levels. “The combination of virtually removing our discounts in the latter part of the year along with the increase in rental rates was a little more than the markets could bear,” Lenkin said. “We have to find the proper balance.” Summary Business: Public storage facilities Headquarters: Glendale CEO: B. Wayne Hughes Market Cap: $4.2 billion Dividend Yield: 4.2% Total Liabilities: $261.7 million P/E Ratio: 24.6 Long-Term Debt: None *From same store facilities
