10-QPeriod: Q3 FY2007

Public Storage Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 9, 2007For Securities:PSAPSA-PRPSA-PFPSA-PGPSA-PHPSA-PIPSA-PJPSA-PMPSA-PNPSA-POPSA-PPPSA-PQPSA-PSPSA-PKPSA-PL

Summary

Public Storage (PSA) reported solid results for the third quarter of 2007, demonstrating resilience despite a challenging economic backdrop. Total revenues saw a substantial increase, driven by strong performance in both Same Store Facilities and contributions from recently acquired properties, including those from the Shurgard merger. The company successfully managed operating expenses, leading to an increase in Net Operating Income (NOI). While depreciation and amortization expenses rose due to the Shurgard acquisition, the company's strategic focus on increasing occupancy and optimizing rental rates across its expanded portfolio appears to be paying off. Financially, PSA strengthened its balance sheet by issuing new preferred stock and managing its debt effectively. The company maintained a strong liquidity position, with ample cash generated from operations to cover distributions, capital expenditures, and debt service. The outlook remains positive, with management focused on continued integration of Shurgard assets, operational efficiencies, and strategic growth initiatives to drive long-term shareholder value.

Key Highlights

  • 1Total revenues increased significantly due to the Shurgard merger and improved same-store performance.
  • 2Net income saw a substantial rise, driven by operational improvements and foreign currency exchange gains.
  • 3The company maintained a strong liquidity position, with healthy cash flow from operations.
  • 4Depreciation and amortization expenses increased due to the Shurgard acquisition's impact on intangible assets.
  • 5Management is focused on integrating Shurgard assets, optimizing occupancy, and controlling costs.
  • 6PSA continues its strategy of financing growth through equity, primarily preferred stock, to maintain financial flexibility.
  • 7The company's European operations are showing strong growth and are being integrated with U.S. operating strategies.

Frequently Asked Questions

The significant increase in revenue was primarily driven by the successful integration and improved operational performance of the self-storage facilities acquired in the merger with Shurgard Storage Centers, Inc., alongside continued growth in the company's Same Store Facilities.

The Shurgard acquisition led to an increase in depreciation and amortization expenses, primarily due to the amortization of intangible assets acquired in the merger. Additionally, general and administrative expenses were impacted by integration costs in the prior year, which have now significantly decreased.

Public Storage continues to prioritize financing its growth through equity, particularly preferred stock, to maintain financial flexibility and manage its REIT distribution requirements. The company maintains a strong liquidity position and has managed its debt effectively, with a focus on paying down debt rather than refinancing, and has a low debt-to-capitalization ratio.

Management is actively working to close the occupancy gap between the newly acquired Shurgard properties and existing Public Storage facilities. This involves strategic pricing, promotional discounts, and increased marketing efforts, with the goal of stabilizing tenant bases and achieving historical move-out rates, which is expected to lead to improved rental rate growth.