01—Abstract
Summary
Summary of the 10-K filed February 25, 2020. Cited figures are marked; the original filing is the authoritative source.
Public Storage (PSA) reported a solid but slowing 2019 in its 10-K filed February 25, 2020.
Total revenues rose 3.3% to $2.85 billiona and net income allocable to common shareholders fell to $1.27 billion ($7.29 diluted EPS) from $1.49 billion ($8.54) in 2018. The decline is mostly due to non-recurring 2018 gains tied to the Shurgard IPO and the West London sale, plus a $30.7 million share-based compensation charge tied to the CEO/CFO retirements, which flattered 2018. Core operating metrics were steady but decelerating: Same Store revenue grew only 1.4%, same-store NOI rose 0.2%, and same-store cost of operations rose 5.0%, driven by property taxes (+4.6%) and marketing spend (+47.2%).
FFO per diluted share increased 1.2% to $10.58b, and Core FFO per share rose 1.8% to $10.75. Management signaled continued moderate revenue growth for 2020, with rent growth coming mainly from annual increases to existing tenants, and expects further cost pressure from marketing, wages, and property taxes. The balance sheet remains conservative: debt rose to $1.9 billion (about 21% of book equity) at an average rate near 2.9%, and the company issued EUR 500 million of 0.875% notes in January 2020.
Development pipeline is $619.2 millionc, and the company's disclosed capital resources of roughly $1.7 billion exceed identified needs of about $722.6 million. Key investor risks flagged include the November 2020 California Proposition 13 ballot initiative (about $42 million of property tax expense on roughly $580 million of California NOI), growing dependence on Google for customer acquisition (about 59% of new customers), and a non-binding proposal to acquire National Storage REIT in Australia.
02—Key points
Key Highlights
- Total revenues grew 3.3% to $2.85 billion in 2019, while net income allocable to common shareholders declined to $1.27 billion ($7.29 diluted EPS) from $1.49 billion ($8.54) largely due to 2018 one-time gains
- FFO per diluted share rose 1.2% to $10.58; Core FFO per share increased 1.8% to $10.75
- Same Store revenue growth slowed to 1.4% (realized rent per occupied sq ft +1.1%), and same-store NOI grew only 0.2% as cost of operations rose 5.0%
- Same-store marketing expense jumped 47.2% and property taxes rose 4.6%, pressuring margins; gross margin fell to 73.2% from 74.1%
- Balance sheet remains conservative: $1.9 billion of debt (about 21% of book equity), a $500 million undrawn credit facility, and a EUR 500 million 0.875% senior note issue in January 2020
- Key risks: a potential November 2020 California ballot initiative could remove Proposition 13 protections, exposing ~$580M of California NOI to substantial property tax increases; about 59% of new customers come via Google
- Pending strategic optionality: a non-binding proposal to acquire National Storage REIT (Australia) at A$2.40 per share; no assurance a deal will be reached
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 25, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $2.86B$2.76B | +3.5% |
| Operating Expenses | $1.43B$1.38B | +4.1% |
| Interest Expense | $45.64M$32.54M | +40.3% |
| Net Income | $1.53B$1.72B | −11.2% |
| EPS (Basic) | $7.30$8.56 | −14.7% |
| EPS (Diluted) | $7.29$8.54 | −14.6% |
| Shares Outstanding (Basic) | 174.29M173.97M | +0.2% |
| Shares Outstanding (Diluted) | 174.53M174.30M | +0.1% |
05—Questions
Frequently Asked Questions
Why did reported net income per share decline in 2019 if operations improved?
Diluted EPS fell to $7.29 from $8.54 mainly because 2018 included about $183 million of one-time gains (Shurgard's IPO-related gain and the West London property sale) and a $30.7 million share-based compensation charge tied to executive retirements. Core operating results, measured by FFO, still grew, with FFO per share up 1.2%.
How healthy is the same-store portfolio's growth outlook for 2020?
Management expects moderate revenue growth in 2020, driven mainly by annual rent increases to long-term tenants. Growth is constrained by softer demand, lower move-in rates, and new supply in markets such as Atlanta, Austin, Chicago, Dallas, Denver, Houston, Miami, New York, and Portland. Management also expects continued increases in marketing, wage, and property tax costs.
What is the financial risk from the California Proposition 13 initiative?
Roughly $580 million of 2019 NOI came from California properties, with about $42 million of property tax expense. If a split-roll initiative passes on the November 2020 ballot, commercial and self-storage properties could be reassessed at current values, potentially causing a substantial increase in property taxes and reducing cash flow and net income. The outcome and timing remain uncertain.
Is Public Storage's dividend and balance sheet at risk?
The common dividend was $8.00 per share annually ($2.00 quarterly, about $350 million per quarter declared February 21, 2020). Retained operating cash flow has been about $200 to $300 million per year, and debt is low relative to capitalization, with average interest near 2.9% and no substantial principal due until 2022. Preferred dividends total roughly $208 million per year. The company has an A/A2 senior debt rating and expects to remain conservatively capitalized.
06—Continue