01—Abstract
Summary
Summary of the 10-K filed February 22, 2022. Cited figures are marked; the original filing is the authoritative source.
Public Storage (PSA) closed 2021 with a strong operating year driven by pricing power and an aggressive acquisition program.
Same Store revenues rose 10.5% and Same Store NOI rose 15.4%, driven by an 8.8% increase in realized rent per occupied square foot and a 1.9% gain in average occupancy to 96.3%. Net income allocable to common shareholders was $1,732.4 milliona ($9.87 per diluted share), up from $6.29 in 2020, though the increase was helped by a $209.7 million swing in foreign currency gains and $149.0 million of equity gains from PSB's property sales. Management's preferred measure, FFO, rose 37.0% to $13.36 per diluted share, and Core FFO rose 21.9% to $12.93 per share, which is the better gauge of recurring operating performance.
The company spent heavily on growth during the year. It acquired 232 facilities for $5.1 billionb, including the ezStorage and All Storage portfolios, and funded this mostly with new debt. Notes payable rose to $7.5 billion from $2.5 billion, with a weighted average rate of 1.8%, and the company issued $1.2 billion of new preferred shares while redeeming $1.2 billion.
Liquidity is ample, with $734.6 millionc of cash, a $500 million undrawn revolver, and expected retained cash flow of about $700 million. Management expects continued revenue growth in 2022, with property tax expense up about 5% and centralized management costs rising because of technology investment. Investors should weigh several risks.
Results are concentrated in a small number of high-cost markets, and roughly $649 milliond of NOI comes from California, where Proposition 13 protects the company's property tax base. Growth depends on Google-driven customer acquisition, where about 63% of new customers originated.
The company also holds a 41% stake in PS Business Parks and a 35% stake in Shurgard, and its REIT status depends in part on PSB's qualification. Finally, the 2021 earnings growth was partly non-operating, and the company is exposed to rising interest-rate and refinancing risk on its $7.5 billion debt stack as it refinances the $500 million of notes due in September 2022.
02—Key points
Key Highlights
- Same Store revenue grew 10.5% and Same Store NOI grew 15.4% in 2021, driven by an 8.8% rise in realized rent per occupied square foot and occupancy of 96.3%.
- FFO per diluted share rose 37.0% to $13.36, and Core FFO per share rose 21.9% to $12.93, reflecting stronger recurring operating results.
- GAAP net income per diluted share was $9.87 versus $6.29 in 2020, helped by a $209.7 million foreign currency gain and $149.0 million of PSB equity gains on property sales.
- The company acquired 232 facilities for $5.1 billion in 2021, with notes payable rising to $7.5 billion at a weighted average rate of 1.8%.
- Liquidity is strong, with $734.6 million of cash, a $500 million undrawn revolver, and roughly $700 million of expected retained operating cash flow over the next twelve months.
- Concentration risk remains high: about $649 million of 2021 NOI came from California, where Proposition 13 limits property tax increases.
- Customer acquisition depends heavily on Google, with about 63% of new storage customers sourced through its paid and unpaid search channels.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 22, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $3.42B$2.92B | +17.2% |
| Operating Expenses | $1.81B$1.56B | +16.2% |
| Interest Expense | $90.77M$56.28M | +61.3% |
| Net Income | $1.95B$1.36B | +43.9% |
| EPS (Basic) | $9.91$6.29 | +57.6% |
| EPS (Diluted) | $9.87$6.29 | +56.9% |
| Shares Outstanding (Basic) | 174.86M174.49M | +0.2% |
| Shares Outstanding (Diluted) | 175.57M174.64M | +0.5% |
05—Questions
Frequently Asked Questions
Why did net income per share rise so sharply in 2021?
Diluted EPS rose to $9.87 from $6.29. The largest drivers were a $437.4 million increase in self-storage NOI, a $209.7 million swing to foreign currency gains on Euro-denominated notes, and $149.0 million of equity share gains from PS Business Parks property sales. Depreciation and amortization, which rose $160.2 million, partly offset these gains. Investors should note that the currency and PSB gains are non-recurring, so FFO and Core FFO give a cleaner view of underlying performance.
How is Core FFO different from FFO, and why does it matter?
FFO adds back depreciation and excludes gains on real estate sales. Core FFO further excludes foreign currency gains and losses, preferred share redemption charges, and certain other non-cash or non-recurring items. Core FFO per share was $12.93 in 2021, up 21.9%, compared with FFO per share of $13.36. Core FFO is the more conservative measure because it removes the $0.64 per share currency gain that flatters reported FFO.
Is the $5.1 billion acquisition spending sustainable, and how is it being financed?
The company acquired 232 facilities in 2021, a near-record year, and plans to keep pursuing acquisitions. Financing relied mainly on debt: $5.1 billion of public notes were issued in four offerings, and notes payable rose to $7.5 billion from $2.5 billion. Preferred equity was also used and was largely offset by redemptions. Retained operating cash flow of about $700 million is available. Future acquisition volume depends on seller motivation, and management says it will manage capital costs against its target returns.
What are the biggest risks to Public Storage's future earnings?
Key risks include rising property taxes (expected to grow about 5% in 2022, with California's Proposition 13 protection at risk), increasing competition from new supply, and reliance on Google for customer acquisition, which is growing more expensive. Rising interest rates could affect refinancing of the $500 million of notes due in September 2022 and other debt maturities. Exposure to the Shurgard and PSB investments adds currency and commercial real estate risk, and REIT status depends on PSB's qualification.
Did the company return capital to shareholders in 2021?
Yes. Common dividends totaled $8.00 per share, or about $1.40 billion, and preferred dividends were $186.6 million. The company did not repurchase any common shares in 2021, and its 11.3 million share repurchase authorization remains available. In February 2022 the board declared a $2.00 quarterly common dividend, totaling about $350 million, to be paid in March 2022.
06—Continue