Public Storage: Sold on Craig’s List!

by REIT Wrecks on December 17, 2008

Storage REITs were the best performing REIT sector in 2008, which isn’t saying much. Apparently, some people thought storage would be a recession-proof investment last year, but those people weren’t counting on a recession like this one. With the economy completely upside down, never mind in a recession, storage will likely be one the first expenditures that tapped-out consumers cut from their budgets in 2009. Indeed, rather than paying to store unwanted household items, most people are already choosing to hock them on Ebay and Craigslist instead.

As of last Thursday though, the storage sector had dropped only 14.59 percent over the last year, compared to an index of equity REITs, which was down 49.16 percent in 2008 (according to the National Association of Real Estate Investment Trusts). In comparison, Industrial REITs were down 81.11 percent, Hotel & Leisure REITs were down 66.57 percent, and Retail REITs were down 66.34 percent. This has been the second consecutive year of losses for the wrecked REITs. In 2007, they fell almost 16 percent.

The reason for sector’s better performance, comparatively, is that there just aren’t many publicly-traded storage REITs, and the largest of those, Public Storage Inc., (PSA) has virtually no debt. Obviously, that is very attractive in this environment, and PSA’s share price has been relatively stable as a result. Public Storage, which is a fully integrated, self-administered and self-managed real estate investment trust, is also well-run. The Company operates storage facilities in 38 states and seven European nations. The company currently has interests in 2,017 storage facilities, with 127 million rentable square feet of space in the US.

In Q3, the Company beat earnings estimates by 9 cents, reporting EPS of $1.37. Funds From Operations for the quarter was $1.09, which was somewhat lighter than expected but more than ample for dividend coverage. Accordingly, the Company declared a special dividend of $0.60 per common share, on top of the regular common dividend of $0.55 per common share. The dividends are payable on December 30, 2008 to shareholders of record as of December 15, 2008.

However, while analysts and investors were lauding PSA’s almost debt-free virtues, and the Company’s Board of Trustees were busy authorizing special dividends, longtime Chairman B. Wayne Hughes and two children (who serve as company directors) couldn’t even wait for the record date to sell off significant chunks of their holdings.

Together, the three of them sold over 5.4 million Public Storage shares on the open market for proceeds of about $342 million. The trades were executed at prices between $55.67 and $72.65 per share. The trio started selling on Nov. 12, just after their blackout period ended, and continued selling through Dec. 8, only seven short days before the December 15th record date. How come they didn’t wait just a few days more to collect that juicy payout?

The self storage business is often cited as a possible beneficiary of the housing bust, but I just don’t see it, and evidently Hughes and his sons don’t either. Why on earth would you want to spend $150 a month to store your spare dining room furniture after you’ve lost your house and all of your savings?

As of December 8th, Hughes still owned just over one million shares directly, but his overall holdings are down significantly from the previous quarter. I would have loved to be his broker; the commissions on those trades will surely make for a nice holiday season. If it were possible, it would have been much cheaper for Hughes and his sons to sell it all on Craigslist, just like all of their customers.

Click here for a full list of Storage REITs, including current dividend yields.

REIT list

Disclosures: None at the time of this writing.


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