Public Storage (PSA -1.1%) and Extra Storage Space (EXR -0.7%) are lower after each lost their Buy ratings at Jefferies.
Analyst Omotayo Okusanya boosted full year 2014 and 2015 FFO per share estimates for EXR to $2.48 and $2.72, respectively, but still, the 2015 expectation represents just 10% annualized growth, the lowest since 2010. The price target remains at $53.
The 2014 and 2015 core FFO per share estimates for PSA are lowered to $8.04 and $8.56, respectively, with the 2015 number representing just 7% growth, also the lowest since 2010. The PSA price target is cut to $175 from $185.
Adjusted FFO per share of $0.98 was up from $0.84 a year ago, with boosted occupancy and rental rates more than offsetting increases in property taxes, snow removal, and utilities. CEO David Rogers notes Sovran (SSS -2.3%) had fewer move-outs than in recent winters.
Same store revenue grew 8.3% Y/Y thanks to a 310 basis point rise in occupancy, a 3.4% increase in rental rates, and strong growth in insurance commissions. Same store operating expenses grew 6.4%.
Six properties acquired thus far in 2014 for $86.7M, and another 17 are under contract with a combined purchase price of $120.7M.
Guidance is boosted, with revenue expected to rise 6.5-7.5% in Q2 and 6-7% on the year. Operating costs including property taxes are expected to rise 6-7% in Q2 and 5-6% for the year. NOI is expected to rise 6.5-7.5% in Q2 and the same for the year. FFO per share should be $1.03-$1.05 in Q2 and $4.25-$4.29 for the year.
"Public Storage's (PSA) earnings sensitivity to topline growth (due to low leverage) external growth (due to size) and refinance potential (all preferreds already refiananced) is among the lowest in the sector," says analyst Andrew Rosivach, cutting the stock to a Sell with price target of $157. "Finally the relative multiple of PSA to REITs is near peak levels."
Peers? Sovran Self Storage (SSS), CubeSmart (CUBE), Extra Storage Space (EXR).
Working today - and for the whole month of January - as the broader market sells off are the REITs. The sector - both the equity REITs and mREITs - had been punished in 2013 as rates moved higher starting last May, but another four basis point decline this morning brings the 10-year Treasury yield down to 2.66% after starting the year at about 3%.
At least for the mREITs, nearly all put in what may turn out to be major bottoms late in 2013 amid jitters over year-end tax-loss selling and the commencement of the taper - sell the rumor, buy the news ... indeed.
Mortgage REITs: Annaly (NLY +1.1%) +7.4% YTD, American Capital (AGNC +1.3%) +9.1%, Invesco (IVR +0.5%) +6.7%, Anworth (ANH +0.6%) +10.9%, Apollo Residential (AMTG +0.7%) +9.1%, AG Mortgage Investment (MITT +0.6%) +5.6%.
"We think the shares have pulled back too much on overblown concerns regarding slowing earnings growth," says analyst Omotayo Okusanya, upping Public Storage (PSA) to a Buy with $175 price target. "Our PT implies a total return of ~20%, including the 3.7% dividend yield."
The analyst cuts Highwoods Properties (HIW) to Hold with price target of $38 (from $42). "While we like the HIW story longer-term, we expect performance in 2014 to be more modest given limited near-term catalysts, and fair valuation at 12.4x FFO versus Suburban Office REIT peers at 11.9x FFO."
Wells Fargo downgrades two more REIT sector players, removing Buy ratings on Sovran Self Storage (SSS) and CubeSmart (CUBE) after nice runs (relative to the sector) for both.
In addition to valuation for SSS, Wells notes headwinds for same-store results and the team's FFO growth estimate for 2014 at 8.5% vs. consensus 9.3%. Also in the peer-group is Hold-rated Public Storage (PSA), which Wells expects will grow FFO just 7.3% this year.
The upgrades: Brandywine Realty Trust (BDN +0.8%) and Federated Realty Investment (FRT +0.4%) to Buy at ISI, CommonWealth REIT (CWH +0.3%) to Hold and Liberty Property Trust (LRY +2%) to Buy at Stifel, Extra Storage Space (EXR +1.7%) to Hold at BMO (BMO earlier downgraded PSA), and American Realty Capital (ARCP +0.3%) to Buy at CapitalOne.
The downgrades: Cedar Realty Trust (CDR -0.5%) to Sell at BAML, and Parkway Properties (PKY -1.4%) to Sell at Citi.
"To the frustration of investors, management remains vague on the initial yield on the $1.1B of activity this year," says BMO Capital, cutting the stock to a Sell with $140 price target. One of the largest REITs with a "pristine" balance sheet, PSA has historically traded at a premium to its peers, but the company's balance sheet and acquisition strategy have begun to look like everyone else's - so why wouldn't its valuation.
Public Storage is engaged in the acquisition, development, ownership and operation of self-storage facilities which offer storage spaces for lease, generally on a month-to-month basis, for personal and business use.