01—Abstract
Summary
Summary of the 10-K filed March 1, 2010. Cited figures are marked; the original filing is the authoritative source.
Public Storage (PSA) reported 2009 results that reflect a weak operating environment but a very strong balance sheet.
Net income allocable to Public Storage shareholders was $834.6 milliona, though this was flattered by a $72.0 million non-cash benefit from repurchasing preferred partnership units below carrying value and a $16.3 million pro-rata benefit from PSB preferred repurchases. Net income was $790.5 million versus $973.9 million in 2008, a decline driven mainly by the absence of the $344.7 million gain on the 2008 Shurgard Europe transaction. Total revenues fell 5.6% in self-storage rental income, and Same Store revenues declined 3.2%, with realized rent per occupied square foot down 2.8% and occupancy down 0.9% to 88.7%.
Same Store NOI fell 3.9%b. Management expects revenue in Q1 2010 to be lower than Q1 2009. The balance sheet is conservative.
Notes payable were $518.9 millionc against total assets of $9.8 billion, with the Company's debt ratio about 4% versus a 50% covenant limit. Cash and equivalents were $763.8 million at year-end. The Company is redeeming its 10% Equity Shares, Series A on April 15, 2010 for about $205.2 million, using cash on hand.
Operating cash flow was $1.11 billiond, and distributions to common shareholders were $2.20 per share for 2009, with the Board declaring a $0.65 quarterly dividend for 2010 (up 18%). The key risks for investors are the Shurgard Europe exposure and the Hughes Family's influence. The Company holds a 49% stake in Shurgard Europe, a $272.3 million equity investment plus a $561.7 million loan due March 2013 at 9.0%, and it has commitments of up to EUR 185 million in additional loans and $66.4 million in equity contributions.
Shurgard's joint venture debt maturities in July 2010 and May 2011 raise refinancing concerns. The Hughes Family owns about 17.3% of common shares and may hold up to 47.66% under the declaration of trust, which gives it significant influence over shareholder votes.
02—Key points
Key Highlights
- Largest U.S. self-storage operator: 2,010 domestic facilities (127 million net rentable sq ft) in 38 states under the Public Storage brand, plus 188 facilities in Europe via the 49% Shurgard Europe interest.
- Same Store revenue down 3.2% and NOI down 3.9% in 2009; realized rent per occupied sq ft fell 2.8% to $12.71 and occupancy averaged 88.7%, down 0.9 points.
- Strong liquidity: $763.8 million cash at year-end 2009, $518.9 million total notes payable (debt ratio about 4% vs. 50% covenant limit), and an undrawn $300 million revolver.
- Net income of $790.5 million in 2009 vs. $973.9 million in 2008, reflecting the non-recurring 2008 Shurgard Europe gain of $344.7 million; diluted EPS $3.47 vs. $4.18.
- Shurgard Europe exposure: $561.7 million loan (9.0% interest, matures March 2013), $272.3 million equity investment, and up to EUR 185 million in additional loan commitments expiring March 31, 2010; joint venture debt of about EUR 224 million matures in 2010 and 2011.
- Dividend increased to $0.65 per common share for Q1 2010 (up 18%), with the Equity Shares, Series A redemption of $205.2 million set for April 15, 2010.
- Governance concentration: Hughes Family owns about 17.3% of common shares and may own up to 47.66% under the declaration of trust, with cumulative voting rights (since corrected by a February 2010 charter amendment).
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 1, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $1.62B$1.72B | −5.7% |
| Interest Expense | $29.92M$43.94M | −31.9% |
| Net Income | $834.62M$935.18M | −10.8% |
| EPS (Basic) | $3.48$4.19 | −16.9% |
| EPS (Diluted) | $3.47$4.18 | −17.0% |
| Shares Outstanding (Basic) | 168.36M168.25M | +0.1% |
| Shares Outstanding (Diluted) | 168.77M168.68M | +0.1% |
05—Questions
Frequently Asked Questions
Why did net income fall so sharply in 2009?
Most of the decline came from the $344.7 million gain recorded in 2008 on the sale of a 51% interest in Shurgard Europe, which did not recur. Same Store NOI also fell 3.9% and interest and other income dropped with lower cash yields. Partly offsetting this were lower depreciation and amortization (down $71.4 million), a $30.3 million gain on PSB's equity offering, and a $27.9 million 2008 incentive compensation charge that did not recur. Net income allocable to common shareholders was $586.0 million, or $3.47 diluted EPS, versus $705.8 million and $4.18 in 2008.
Is the dividend safe, and what is the outlook for 2010?
The Board declared a $0.65 quarterly common dividend on February 26, 2010, up from $0.55, and management says future dividends will be set by REIT distribution requirements and the taxable income of common shareholders. Management expects revenue for Q1 2010 to be lower than Q1 2009 and says it is unclear how much the pressure will affect revenue beyond Q1. Property tax expense is expected to grow about 3.5%, and G&A is expected to run $8 million to $10 million per quarter. The Company also expects minimal intangible amortization in 2010.
How exposed is Public Storage to Shurgard Europe?
Exposure is significant. The Company holds a 49% equity stake with a $272.3 million book value, a EUR 391.9 million ($561.7 million) loan due March 2013, and commitments to lend up to EUR 185 million (about $265 million) and to contribute up to $66.4 million of equity. Shurgard Europe's same-store revenue fell 3.6% in 2009, and its joint ventures face refinancing of about EUR 117 million in July 2010 and EUR 107 million in May 2011. The filing notes that the loan may not be fully refinanced and that the Company may need to negotiate extensions or exercise lender rights if Shurgard cannot repay.
How strong is the balance sheet and what is the leverage risk?
Leverage is very low. Notes payable were $518.9 million at December 31, 2009, about 5.7% of total book equity, and the Company's debt ratio was about 4% against a 50% limit set in its senior preferred share terms. 2010 scheduled debt maturities are only $12.7 million. The Company has $763.8 million in cash and no revolver borrowings. The main capital-structure use of cash is the $205.2 million Equity Shares, Series A redemption on April 15, 2010, and about $873 million of preferred shares are callable. The Company has also bought back preferred and debt securities at discounts during the 2008-2009 market dislocation.
What does the Hughes Family's ownership mean for public shareholders?
B. Wayne Hughes, the Chairman, and his family owned about 17.3% of common shares at December 31, 2009. The declaration of trust allows the family to own up to 47.66% and permits cumulative voting for trustees, which gives it substantial influence over trustee elections, amendments to organizational documents, and extraordinary transactions such as takeover attempts, even where those actions may not benefit other shareholders. The Company also has a license arrangement with a Hughes-controlled entity that operates 52 self-storage facilities in Canada under the Public Storage name, with a right of first refusal on those operations.
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