10-QPeriod: Q1 FY2008

Public Storage Quarterly Report for Q1 Ended Mar 31, 2008

Filed May 12, 2008For Securities:PSAPSA-PRPSA-PFPSA-PGPSA-PHPSA-PIPSA-PJPSA-PMPSA-PNPSA-POPSA-PPPSA-PQPSA-PSPSA-PKPSA-PL

Summary

Public Storage (PSA) reported strong financial performance for the first quarter of 2008, driven by a significant gain from the disposition of an interest in its European operations (Shurgard Europe). Net income surged to $512.3 million, a substantial increase from $59.8 million in the prior year's first quarter. This improvement was primarily attributed to a $341.9 million gain on the Shurgard Europe transaction, alongside lower amortization expenses and improved operating results from domestic self-storage facilities. Operationally, the company saw a 4.2% increase in total rental income, driven by growth in both its stabilized Public Storage Same Store Facilities and the recently acquired Shurgard Same Store Facilities. Despite some economic headwinds and increased competition, the company is actively managing its portfolio to optimize occupancy and rental rates. The deconsolidation of Shurgard Europe is a significant event, shifting its contribution to equity in earnings from real estate entities, which will be reflected from the second quarter onwards.

Key Highlights

  • 1Net income increased significantly to $512.3 million, up from $59.8 million in Q1 2007, largely due to a $341.9 million gain from the Shurgard Europe disposition.
  • 2Total rental income grew by 4.2% year-over-year, reaching $462.8 million, with domestic self-storage rental income up 4.2%.
  • 3The company deconsolidated its Shurgard Europe operations effective March 31, 2008, after selling a 51% interest to an institutional investor.
  • 4Depreciation and amortization expense decreased by $53.9 million year-over-year, mainly due to reduced amortization of intangible assets from the Shurgard Merger.
  • 5Domestic Same Store Facilities showed a 2.5% increase in rental income, with a 3.2% rise in realized annual rent per occupied square foot.
  • 6Shurgard Same Store Facilities in the US demonstrated robust growth, with rental income up 4.7% and occupancy improving.
  • 7Public Storage maintained a strong liquidity position with $726.9 million in cash and cash equivalents at the end of the quarter.

Frequently Asked Questions

The primary driver of the substantial increase in net income was the gain of $341.9 million recognized from the disposition of a 51% interest in Public Storage's European operations (Shurgard Europe). This gain, combined with lower amortization expenses and improved operating results from domestic self-storage facilities, led to a net income of $512.3 million for the quarter.

Effective March 31, 2008, Shurgard Europe was deconsolidated following the sale of a 51% interest. This transaction resulted in a significant gain being recognized in the current quarter's income statement. Going forward, Public Storage's remaining 49% interest in Shurgard Europe will be accounted for using the equity method, with its results reported under 'equity in earnings of real estate entities'.

Public Storage experienced a 4.2% increase in total rental income for the first quarter of 2008. The company noted that domestic Same Store Facilities saw a 2.5% rise in rental income, while the Shurgard Same Store Facilities in the US showed stronger growth. The company anticipates continued growth from its non-stabilized facilities as they improve occupancy levels and rental rates. However, broader economic conditions and competition remain factors that could influence future revenue growth.

Public Storage maintains a strong balance sheet with a low debt-to-total capitalization ratio. The company primarily finances its operations and growth through equity capital, including preferred securities, which offer flexibility and no sinking fund requirements. The company had $726.9 million in cash and cash equivalents at the end of the quarter and has a $300 million revolving credit facility, of which none was drawn at the time of the report. Debt maturities are managed with a strategy to amortize debt rather than refinance it, utilizing operating cash flow or equity issuances.