U-Store-It Posts Growth in 4Q, Our Fair Value Estimate Stands

We have reviewed U-Store-It's YSI fourth-quarter earnings release, and we plan no immediate change to our fair value estimate for the firm. As anticipated, the self-storage sector is recovering from recessionary lows. On a year-over-year, same-property basis, U-Store-It's net operating income increased 4.1% due to a 3.2% increase in revenue, which offset a 1.8% growth in operating expense. Though its average physical occupancy level of 76.9% remains submerged below prerecession levels, the rate nonetheless reflects a 110 basis-point improvement from the fourth quarter of 2009, and helped drive a small 1% year-over-year increase in realized annual rent per occupied square foot. We think occupancy levels will continue to advance as an economic recovery takes hold in its operating geographies. However, in our view, rental rate growth will likely prove anemic, due to the highly competitive dynamics of the self-storage sector.