01—Abstract
Summary
Summary of the 10-K filed February 24, 2021. Cited figures are marked; the original filing is the authoritative source.
Public Storage's 2020 10-K shows a REIT whose core self-storage business held up well despite the COVID-19 disruption, though reported earnings declined.
Same-store revenue fell 1.0% to $2.44 billiona and same-store NOI fell 2.3%, driven by reduced late fees, a temporary pause in tenant rate increases, and COVID-related rent restrictions in some localities. Net income allocable to common shareholders was $1.10 billion, or $6.29 per diluted share, down from $7.29. The decline was driven mainly by a $105.8 million swing in foreign currency losses on Euro-denominated debt and higher depreciation.
Management's preferred metric, FFO per diluted share, fell 7.8% to $9.75b, and Core FFO fell 1.3% to $10.61. Management highlighted improving trends in the second half of 2020. Same-store revenue rose 0.8% in Q4 2020, occupancy at year-end was 2.7% higher, and move-outs fell 7.4%.
The company expects continued revenue growth in the first half of 2021, with more uncertainty for the second half given tougher comparisons. Growth initiatives remain active: 131 facilities were acquired over three years, $580.1 millionc of acquisitions were under contract or closed after year-end, and the development pipeline totals $561.4 million. Balance sheet strength is a key takeaway.
Debt was about $2.56 billiond at a weighted average effective rate of 2.4%, with no material maturities until 2022. The company issued $500 million of 0.875% senior notes in January 2021 and redeemed its $300 million Series B preferred shares.
Liquidity of roughly $1.5 billion was expected over the next year against identified needs of about $1.3 billion. Key risks include dependence on Google for customer acquisition (about 64% of new customers), rising marketing costs, California Proposition 13 exposure, and the Hughes family's roughly 13% ownership.
02—Key points
Key Highlights
- Same-store revenue declined 1.0% to $2.44 billion and same-store NOI fell 2.3%, but Q4 2020 same-store revenue rose 0.8% and year-end occupancy was up 2.7%, signaling a recovery trend
- GAAP diluted EPS fell to $6.29 from $7.29, mainly due to a $105.8 million swing in Euro-related foreign exchange losses; FFO per share fell 7.8% to $9.75 and Core FFO fell 1.3% to $10.61
- Portfolio of 2,548 self-storage facilities (175 million net rentable sq ft) across 38 states, with about 70% of same-store revenue from the 20 largest MSAs
- Strong balance sheet: about $2.56 billion of debt at a 2.4% weighted average rate, no material maturities until 2022, and a January 2021 $500 million 0.875% senior note issuance
- Quarterly common dividend of $2.00 per share (about $350 million) declared February 16, 2021, following $8.00 per share in 2020
- Growth pipeline: $580.1 million of acquisitions under contract or closed after year-end, a $561.4 million development pipeline, and a 35% stake in Shurgard and 42% stake in PS Business Parks
- Key risks include growing dependence on Google for customer acquisition (about 64% of new customers), rising marketing costs (up 22.5%), California property tax exposure (about $583 million of NOI), and the Hughes family's ~13% ownership
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 24, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $2.92B$2.86B | +2.1% |
| Operating Expenses | $1.56B$1.43B | +8.8% |
| Interest Expense | $56.28M$45.64M | +23.3% |
| Net Income | $1.36B$1.53B | −11.0% |
| EPS (Basic) | $6.29$7.30 | −13.8% |
| EPS (Diluted) | $6.29$7.29 | −13.7% |
| Shares Outstanding (Basic) | 174.49M174.29M | +0.1% |
| Shares Outstanding (Diluted) | 174.64M174.53M | +0.1% |
05—Questions
Frequently Asked Questions
Why did Public Storage's reported earnings decline in 2020 even though the core business was relatively stable?
The largest driver was a $105.8 million swing in foreign currency results, because Euro-denominated debt generated a $98.0 million translation loss in 2020 versus a gain in 2019. Depreciation rose $40.3 million and G&A rose $21.1 million. Same-store NOI fell only $41.7 million, and investors who focus on operations often look at FFO or Core FFO, which declined much less.
How severely did COVID-19 affect Public Storage's operations?
The impact was real but moderate. Same-store revenue fell 1.0%, and late charges and administrative fees dropped 24.0%. Local governments restricted rate increases in some markets, and the company paused its tenant rate increase program for a period. Self-storage facilities were classified as essential and stayed open. Occupancy rose 1.2% for the year and move-outs fell 7.4%, and management reported that revenue trends improved through the second half of 2020.
What are the main risks to Public Storage's future growth?
Major risks include rising competition from new supply (particularly in markets such as Atlanta, Austin, Dallas, Houston, and New York), higher reliance on Google for customer acquisition, and marketing costs that rose 22.5% in 2020 as keyword bidding intensified. Other risks include a 5.5% expected increase in property taxes for 2021, California's Proposition 13 protections, currency exposure on the Shurgard investment and Euro debt, and the Hughes family's significant voting influence.
Is Public Storage's dividend secure?
The dividend is supported by the company's REIT structure and cash flow. Operating cash flow was $2.04 billion in 2020, and the company expects to retain $250 million to $300 million of operating cash flow after distributions and capital expenditures in 2021. The common dividend is set at the REIT distribution minimum, and preferred dividends of about $180.7 million per year are senior to common dividends. Management has stated that its dividend policy is to distribute only taxable income.
How is Public Storage positioned to fund growth in 2021?
The company reported expected 2021 capital resources of about $1.5 billion, including $257.6 million of cash, $475.7 million of revolver availability, about $496 million in net proceeds from the January 2021 notes, and $250 million to $300 million of retained cash flow. Identified needs of about $1.3 billion include $580.1 million of acquisitions under contract, $373.3 million to complete the development pipeline, and the $300 million Series B preferred redemption. Management noted that current debt and preferred financing costs are historically low.
06—Continue