01—Abstract
Summary
Summary of the 10-K filed February 26, 2014. Cited figures are marked; the original filing is the authoritative source.
Public Storage (PSA) closed 2013 as a self-storage REIT with record results: revenues rose to $1.98 billiona (up 7.6% in self-storage rental income), net income allocable to common shareholders was $844.7 million, and diluted FFO per share reached $7.53 (up 19.3%), or $7.44 on a Core FFO basis (up 11.4%).
Growth was driven mainly by $1.2 billionb of third-party acquisitions (121 facilities, the largest annual volume in at least six years) and a 5.3% rise in same-store revenue on higher occupancy (93.3%) and realized rent per occupied square foot (+3.8%). Same-store net operating income grew 8.2%, and the company also raised its quarterly common dividend to $1.40 in Q4, bringing the 2013 total to $5.15 per share. The balance sheet remains conservative, with debt of only about $839 million against roughly $9.9 billion in total assets, and a Debt Ratio near 6% versus a 50% covenant limit.
However, funding is becoming more strained: the company bridged acquisitions with a $700 millionc one-year term loan maturing December 2014, management says 2014 capital commitments exceed expected resources, and new preferred stock now costs about 6.5% versus 5.2% earlier in 2013. Management expects to address the gap through common or preferred issuance, new debt, or joint ventures, and it does not currently plan to repurchase shares.
Key risks flagged in the filing include the Shurgard Europe exposure (a $428 milliond shareholder loan, about half of which was sold to the JV partner in January 2014 at face value, plus FX exposure), reliance on the Hughes family (15.8% ownership with a charter allowing up to 35.66%), REIT-qualification risk tied to PSB, and rising healthcare and property tax costs. Management expects property tax growth of 4.5% to 5% in 2014.
02—Key points
Key Highlights
- Revenue reached $1.98 billion in 2013, up about 7.6% from $1.84 billion in 2012, with self-storage rental income up 7.6% to $1.85 billion.
- Diluted FFO per share was $7.53, up 19.3% from $6.31; Core FFO per share was $7.44, up 11.4% from $6.68.
- The company acquired 121 self-storage facilities for about $1.2 billion, more than in the prior six years combined, and expanded its development pipeline to $196 million (1.8 million sq ft).
- Same-store revenue grew 5.3% and same-store NOI grew 8.2%, driven by occupancy of 93.3% (up 1.5 points) and realized rent per occupied sq ft of $14.13 (up 3.8%).
- Balance sheet is conservative: debt of $839 million, a Debt Ratio of about 6% versus a 50% limit, and an 'A' senior debt rating from S&P (preferred ratings A3/BBB+/A).
- Capital needs are rising: a $700 million term loan matures December 2014, 2014 commitments exceed expected resources, and new preferred issuance now requires roughly 6.5% coupons versus 5.2% earlier in 2013.
- Quarterly common dividend increased to $1.40 in Q4 2013, for total 2013 distributions of $5.15 per share (up from $4.40), and the company has not repurchased shares since 2009.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Public Storage kept $0.54.
- Revenue$1.96B100.0%
- Cost of revenue−$559.8M28.5%
- Gross profit$1.41B71.5%
- Operating costs−$454.1M23.1%
- Operating income$951.1M48.4%
- Interest, other & tax$106.4M5.4%
- Net income$1.06B53.8%
Where FY2013 revenue went
$1.96B- Operating income: $951.1M, 48% of revenue
- Cost of revenue: $559.8M, 28% of revenue
- Operating costs: $454.1M, 23% of revenue
Kept 48% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 26, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $1.96B$1.84B | +6.6% |
| Cost of Revenue | $559.76M— | — |
| Gross Profit | $1.41B— | — |
| Operating Expenses | $1.01B— | — |
| Operating Income | $951.10M$871.98M | +9.1% |
| Interest Expense | $6.44M$19.81M | −67.5% |
| Net Income | $1.06B$943.03M | +12.1% |
| EPS (Basic) | $4.92$3.93 | +25.2% |
| EPS (Diluted) | $4.89$3.90 | +25.4% |
| Shares Outstanding (Basic) | 171.64M170.56M | +0.6% |
| Shares Outstanding (Diluted) | 172.69M171.66M | +0.6% |
05—Questions
Frequently Asked Questions
How much did Public Storage grow in 2013, and what drove it?
Revenue rose to $1.98 billion from $1.84 billion. Growth came mainly from same-store revenue up 5.3% (from higher occupancy and rent per square foot) and from the $1.2 billion of acquisitions in 2013. Diluted FFO per share increased 19.3% to $7.53, partly due to lower preferred distributions and FX gains.
Is Public Storage's balance sheet at risk?
Leverage is low: debt is about $839 million and the Debt Ratio is around 6%, far below the 50% covenant. The more pressing issue is near-term refinancing and funding. A $700 million term loan due December 2014 and 2014 capital commitments exceeding expected resources mean the company will need to issue equity or preferred shares, take on debt, or form joint ventures, and preferred financing has become more expensive.
What are the main exposures in Shurgard Europe and PS Business Parks?
PSA holds a 49% stake in Shurgard Europe (book value $424 million) and a €311 million ($428 million) shareholder loan. In January 2014, the JV partner bought 51% of the loan for $216 million and the maturity was extended to 2019. Results are exposed to euro/dollar moves, and Shurgard Europe's bank loan matures in November 2014 and must be refinanced. PSA also owns about 42% of PS Business Parks (market value about $1.1 billion), and its REIT status depends partly on PSB's qualification.
Does the Hughes family have significant influence over the company?
Yes. The Hughes family owned about 15.8% of common shares at year-end 2013, and the declaration of trust allows them to hold up to 35.66%, while other holders are generally capped at 3%. This gives the family substantial influence over trustee elections, charter amendments, and takeover outcomes.
Is the dividend sustainable?
The company has paid distributions since 1981 and raised the quarterly common dividend to $1.40 in Q4 2013. Management's policy is to distribute only taxable income as required under REIT rules. Common distributions ($887 million in 2013) and preferred distributions ($204 million, with about $207.6 million annually expected) are funded by operating cash flow of $1.43 billion, although management's 2014 retained cash flow outlook is about $250 million after distributions and capex.
06—Continue