01—Abstract
Summary
Summary of the 10-K filed February 26, 2013. Cited figures are marked; the original filing is the authoritative source.
Public Storage (PSA) reported a strong 2012 with net income allocable to common shareholders of $669.7 milliona, or $3.90 per diluted share, up from $3.29 in 2011.
Total revenues rose 6.3% to $1.83 billionb, driven by a 4.9% increase in same-store self-storage revenue and improved occupancy (91.8% weighted average, up from 91.2%). Management's FFO per share rose 11.3% to $6.31, and Core FFO per share rose 12.6% to $6.68. Domestic self-storage generated 93% of revenues, and the company's 2,078 U.S. facilities remain the largest self-storage portfolio in the country.
The balance sheet is conservative. Debt was about $469 millionc, equal to roughly 4% of total assets on the company's Debt Ratio measure, and nearly all of it is due in 2013 or later in modest amounts. The company funds growth mainly with perpetual preferred shares, issuing about $1.7 billion in 2012 and another $500 million in January 2013 (Series W, 5.20%).
It redeemed roughly $2.0 billiond of higher-coupon preferreds, which lowers its cost of capital. Dividends rose to $4.40 per share for 2012, and the Board declared a 13.6% increase to $1.25 per quarter in February 2013. Key risks for investors include the European exposure through the 49% stake in Shurgard Europe and a $411 million loan to it, which matures in February 2015 and sits behind a bank loan that must be repaid first.
Other risks include California concentration (about one-fifth of U.S. properties), possible loss of REIT status, the Hughes family's 15.9% ownership and its influence over governance, and the impact of property tax increases. Development is picking up, with a $169 million pipeline, though management cautions that future development volume is uncertain.
02—Key points
Key Highlights
- Net income allocable to common shareholders rose to $669.7M ($3.90 diluted EPS) from $561.7M ($3.29) in 2011.
- FFO per diluted share grew 11.3% to $6.31; Core FFO per share grew 12.6% to $6.68.
- Same-store revenues increased 4.9% to $1.60B, with weighted average occupancy up to 91.8% from 91.2%.
- Low leverage: Debt Ratio of about 4% of total assets; $133M revolver balance repaid in January 2013; $186M senior notes due March 2013.
- Dividend raised 13.6% to $1.25 per quarter (declared February 21, 2013), following $4.40 paid in 2012.
- Equity in earnings from PSB fell to $10.6M from $27.8M, and Shurgard Europe's $411M loan carries refinancing and FX risk.
- Portfolio of 2,078 U.S. self-storage facilities in 38 states, plus a 49% stake in Shurgard Europe and roughly 41% of PS Business Parks.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 26, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $1.84B$1.74B | +6.1% |
| Operating Income | $871.98M$762.81M | +14.3% |
| Interest Expense | $19.81M$24.22M | −18.2% |
| Net Income | $943.03M$823.84M | +14.5% |
| EPS (Basic) | $3.93$3.31 | +18.7% |
| EPS (Diluted) | $3.90$3.29 | +18.5% |
| Shares Outstanding (Basic) | 170.56M169.66M | +0.5% |
| Shares Outstanding (Diluted) | 171.66M170.75M | +0.5% |
05—Questions
Frequently Asked Questions
How much of Public Storage's revenue comes from self-storage, and how strong is the core business?
Domestic self-storage generated about 93% of 2012 revenues. Same-store revenue rose 4.9% and same-store NOI rose 7.9%, with cost of operations down 1.7%, led by lower repairs and media advertising. Same-store gross margin improved to 70.6% from 68.7%.
Is the company's debt level a risk for investors?
Debt is low. Total debt was about $469 million at year-end 2012, including the $133 million revolver balance that was repaid in January 2013. The company reports a Debt Ratio of roughly 4% against a 50% limit set in its preferred share governing documents, and it does not plan to issue significant new debt. Most real estate is unencumbered, with roughly $7.0 billion of net book value in unencumbered facilities.
What are the main risks tied to the Shurgard Europe investment?
Public Storage holds a 49% equity interest (book value about $411 million) and a $411 million loan to Shurgard Europe. The loan matures in February 2015 and is subordinate in practice to a bank loan that requires heavy principal paydowns until November 2014. Euro exchange-rate moves affect both the investment and the loan. Shurgard Europe is also expected to see revenue declines in early 2013, and the company does not expect cash distributions from it for the foreseeable future.
Why does Public Storage use preferred stock instead of debt, and what does that mean for shareholders?
Preferred shares are perpetual, have no maturity or sinking fund, and contain no covenants, which gives the company flexibility and avoids refinancing risk. Dividends can also count toward REIT distribution requirements. Preferred shares carry higher coupons than conventional debt, so the company has been redeeming higher-rate series and replacing them with lower-rate issues. Preferred distributions fell to $205 million in 2012 from $225 million in 2011. Preferred holders have a claim ahead of common shareholders, and common dividends are paid only after preferred distributions.
What could threaten the dividend or REIT status?
The company says it distributes taxable income to keep its REIT status. If it failed to qualify, it would face regular corporate taxes for the year of failure and the following four years, and it would be ineligible to re-elect REIT status until the fifth year after failure. Other threats include California property tax changes, such as a possible repeal of Proposition 13, and rising operating costs such as property taxes, which management expects to grow about 4% in 2013. The Hughes family's 15.9% ownership and the company's governance provisions also limit outside shareholders' ability to influence control transactions.
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