Summary Business:

Mini-warehouse self-storage facilities




Bradley Wayne Hughes

Market Cap:

$3.58 billion Dividend Yield: 2.9 %

Total Liabilities:

$789.8 million P/E Ratio: 21.1

Long-Term Debt:

$156 million

The wavering economy may be working in Public Storage Inc.'s favor. In downturns, people tend to be more mobile, prompting a greater need for storage facilities.

Glendale-based Public Storage is the nation's largest storage company, operating 1,369 mini-warehouse self-storage buildings in 37 states, primarily urban areas.

"If anything, an unsure economy adds to changing lives by companies downsizing and dot-coms going bust," said A.G. Edwards & Sons analyst John Sheehan, whose St. Louis-based firm has given Public Storage a "buy" rating.

Trading last week near its 52-week high of $29.85 a share, Public Storage stock has seen more than a 21 percent increase since the start of the year and has risen 24 percent since June 2000.

Over the past year, the real estate investment trust has been following a slow and steady growth track.

The company reported net income of $43.1 million (34 cents per diluted share) for the first quarter ended March 31, compared with $45.2 million (34 cents) in the like year-earlier quarter. First-quarter revenues were $197.8 million vs. $176.5 million in the first quarter of 2000.

Self-storage properties generate about 90 percent of the company's sales. Public Storage also owns more than 40 percent of the publicly traded company PS Business Parks, which rents commercial and industrial storage space. It also rents and transports portable self-storage units; rents trucks and sells related moving items.

More expansion throughout its nationwide system is planned. It is developing 62 mini-warehouse projects that combine containerized storage and self-storage space in the same location. Opening dates are scheduled throughout the first quarter of 2003 at an estimated cost of $393.2 million.

Company officials said they had identified most of the "appropriate" sites for the locations, lowering development costs in 2002 and beyond to less than $125 million per year.

Besides being in the storage business, Public Storage's status as a REIT may be a reason for investors' interest in its stock. REITs are corporations that combine the capital of many investors to invest in real estate projects and are showing higher returns than some other stock sectors. Sheehan said REITs such as Public Storage have risen in popularity among investors because of their stable dividend yield. Under federal law, REITs are required to pay out 90 percent of their taxable income to shareholders. In return, they are not required to pay corporate federal taxes.

"As the market gets more and more volatile, REITs are becoming more and more popular. A lot of investors seem to feel like it is better to get a relatively safe, solid return. REITs don't provide as high a return as a technology stock when it's hot, but it's less risky. If a REIT's stock price goes down, you still have the dividends to help balance it out."

Sheehan said the self-storage industry also is attractive to investors these days.

"On the surface, to investors, self-storage is a pretty simple thing to own and operate, and it's a concept investors can understand," he said. "Even if the economy is shaky, we have a mobile society. People still move. They still get divorced. Their lives still change."

Sheehan said Public Storage's stable management team headed by founder Bradley Wayne Hughes and company President Harvey Lenkin also makes the company attractive to investors.

A stock repurchase of approximately 21 million shares as of May 9 has cost the company about $523 million.

"We think that is a very good use of our capital," said Lenkin, a 23-year company veteran, pointing out that he and other Public Storage executives believe the company's stock is still undervalued.

Lenkin said the company's current attractiveness on Wall Street might be a result of investors considering Public Storage to be somewhat immune to the wavering economic climate.

"I also would like to think there is some recognition of the fact we've entered into some ancillary areas that support our core business, like truck rentals and moving services," Lenkin said.

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