01—Abstract
Summary
Summary of the 10-K filed February 25, 2015. Cited figures are marked; the original filing is the authoritative source.
Public Storage (PSA) reported a strong 2014, with net income allocable to common shareholders of $908.2 milliona, or $5.25 per diluted share, up from $4.89 in 2013.
Total revenues rose 10.8% to $2.195 billionb, driven by self-storage. Same-store revenue grew 5.4%, with realized rent per occupied square foot up 4.8% and same-store occupancy rising to 93.9% on average. FFO per diluted share reached $7.98 (up 6.0%), and Core FFO per share was $8.09 (up 8.7%).
The company remains the largest U.S. self-storage operator, with 2,250 domestic facilities in 38 states, plus a 49% stake in Shurgard Europe and a 42% stake in PS Business Parks. The balance sheet is conservative. Debt was only $64.4 millionc at year-end (a Debt Ratio of about 0.5%), down from $839 million in 2013, after the company repaid its $750 million bridge financing with preferred stock.
Preferred equity grew to $4.325 billiond, and the company funds growth mainly through preferred shares rather than conventional debt. Cash from operations was $1.61 billion, against $1.2 billion of distributions paid. Key watch items for investors include foreign currency exposure: the stronger dollar at about $1.14/EUR is expected to reduce 2015 equity earnings from Shurgard Europe by roughly 14% ($4.7 million).
Development spending is also rising, with a $411 million pipeline, and the Hughes family holds about 15.5% of common shares. Management expects continued revenue growth in 2015, property tax growth of 4-5%, and about $80 million of capital expenditures.
02—Key points
Key Highlights
- Net income allocable to common shareholders rose to $908.2 million ($5.25 diluted EPS) from $844.7 million ($4.89) in 2013.
- FFO per diluted share grew 6.0% to $7.98; Core FFO per share rose 8.7% to $8.09.
- Same-store revenue increased 5.4%, driven by a 4.8% rise in realized rent per occupied square foot and higher average occupancy (93.9% vs. 93.3%).
- Total debt fell to $64.4 million from $839 million, after bridge financing was repaid with $762.5 million of preferred issuance at a 6.11% average coupon.
- A $411 million development pipeline (3.5 million net rentable sq ft) is expected to be largely funded in 2015, and 44 facilities were acquired in 2014 for about $431 million.
- Shurgard Europe equity earnings face a strong-dollar headwind, estimated at roughly $4.7 million (14%) in 2015 at current exchange rates.
- The Hughes family controls about 15.5% of common shares and can hold up to 35.66% under the declaration of trust, which may limit minority shareholder influence.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Public Storage kept $0.53.
- Revenue$2.18B100.0%
- Cost of revenue−$613.3M28.2%
- Gross profit$1.56B71.8%
- Operating costs−$508.6M23.4%
- Operating income$1.06B48.5%
- Interest, other & tax$94.6M4.3%
- Net income$1.15B52.8%
Where FY2014 revenue went
$2.18B- Operating income: $1.06B, 48% of revenue
- Cost of revenue: $613.3M, 28% of revenue
- Operating costs: $508.6M, 23% of revenue
Kept 48% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 25, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $2.18B$1.96B | +10.8% |
| Cost of Revenue | $613.32M$559.76M | +9.6% |
| Gross Profit | $1.56B$1.41B | +11.3% |
| Operating Expenses | $1.12B$1.01B | +10.7% |
| Operating Income | $1.06B$951.10M | +11.0% |
| Interest Expense | $6.78M$6.44M | +5.2% |
| Net Income | $1.15B$1.06B | +8.7% |
| EPS (Basic) | $5.27$4.92 | +7.1% |
| EPS (Diluted) | $5.25$4.89 | +7.4% |
| Shares Outstanding (Basic) | 172.25M171.64M | +0.4% |
| Shares Outstanding (Diluted) | 173.14M172.69M | +0.3% |
05—Questions
Frequently Asked Questions
How much debt does Public Storage carry, and how does it finance growth?
Public Storage had only $64.4 million of notes payable at December 31, 2014, a Debt Ratio of about 0.5% against a 50% limit set in its preferred share governing documents. The company relies mainly on perpetual preferred shares, which have no maturity or sinking fund and do not carry financial covenants. It used a $750 million bank bridge loan in late 2013 and repaid it by September 2014 with preferred issuance. Management says it may issue a modest amount of medium- to long-term debt in 2015.
Is the 2014 earnings growth sustainable?
Part of the 2014 gain was one-time. Equity earnings from PS Business Parks included $36.5 million of its gain on sale, and foreign currency and other items moved results. Core FFO growth of 8.7% is a better gauge of underlying performance. Ongoing drivers include higher rents on existing tenants, continued fill-up of newly acquired and developed facilities (which can take 24 to 36 months to stabilize), and reduced promotional discounts. Management expects revenue growth to continue in 2015, though the stronger dollar will reduce Shurgard Europe earnings.
What are the main risks to the dividend?
Common distributions were $5.60 per share in 2014, up from $5.15, and the Board declared a $1.40 quarterly dividend in February 2015. Distributions are set by REIT requirements, which mandate paying out substantially all taxable income. Risks include a failure to maintain REIT status, which would trigger corporate-level taxes; a decline in self-storage demand from economic weakness; rising operating costs such as property taxes (expected to grow 4-5%); and higher preferred dividends of about $254 million per year, which are paid ahead of common shareholders.
How concentrated is the business, and what is the exposure outside the U.S.?
About 93% of 2014 revenues came from domestic self-storage, with the company holding about 6% of U.S. self-storage square footage. About 71% of same-store revenue came from the 20 largest metropolitan areas. Non-U.S. exposure is limited to a 49% equity stake in Shurgard Europe ($395 million book value), which carries euro currency risk, joint-venture consent constraints, and roughly €407.5 million of debt. Shurgard's refinancing needs are modest: €35 million is due annually in 2015-2017.
What should investors watch in the coming year?
Key items include whether development yields meet the company's risk-adjusted targets given the $411 million pipeline and about $256 million of additional expected spending not yet under contract; whether occupancy gains continue, since management expects the year-over-year occupancy gap to narrow; the possible issuance of debt, a change from its historical preferred-only approach; the redemption of $270 million of preferred shares in 2015 (Series O and P); and the effect of the strong dollar on Shurgard Europe earnings. Control by the Hughes family is also a governance consideration.
06—Continue