10-QPeriod: Q2 FY2010

Public Storage Quarterly Report for Q2 Ended Jun 30, 2010

Summary

Public Storage (PSA) reported its second quarter results for the period ending June 29, 2010. The company's net income allocable to common shareholders saw a significant decrease compared to the prior year, primarily driven by foreign currency exchange losses related to its Euro-denominated note receivable from Shurgard Europe. While the core self-storage business, representing 92% of revenues, experienced improving trends with same-store revenue declines narrowing to 0.2% year-over-year, the overall net income was heavily impacted by these currency fluctuations. Despite the reported net income decrease, Public Storage demonstrated continued strategic activity, acquiring 31 new self-storage facilities for $198 million, primarily in Southern California, and having an active pipeline for further acquisitions. The company maintained a strong liquidity position with substantial cash on hand and available credit, positioning it to fund operations and strategic growth initiatives. Management highlighted its confidence in maintaining REIT status and meeting distribution requirements, underscoring a focus on shareholder value.

Financial Statements
Beta
Revenue$407.51M
Interest Expense$7.28M
Net Income$125.04M
EPS (Basic)$0.36
EPS (Diluted)$0.36
Shares Outstanding (Basic)168.80M
Shares Outstanding (Diluted)169.63M

Key Highlights

  • 1Net income allocable to common shareholders decreased significantly in both the three-month ($60.8M vs. $135.5M) and six-month ($95.6M vs. $295.0M) periods ended June 30, 2010, largely due to foreign currency exchange losses on the Shurgard Europe note receivable.
  • 2Same-store revenue decline narrowed to 0.2% for the three months ended June 30, 2010, and 1.2% for the six months, indicating a stabilization and improvement from prior periods, though still showing year-over-year decreases.
  • 3The company acquired 31 self-storage facilities for $198 million in the first six months of 2010, primarily in Southern California, and has a pipeline for further acquisitions.
  • 4Public Storage maintained a strong liquidity position with approximately $474 million in cash and $95 million in short-term investments, along with a $300 million line of credit.
  • 5Operating expenses for same-store facilities increased by 2.2% and 0.7% for the three and six months, respectively, primarily driven by higher property taxes and repairs and maintenance, partially offset by reduced advertising spend.
  • 6Equity in earnings from Shurgard Europe increased significantly, with net operating income up 7.7% and 6.7% for the three and six months, respectively, indicating improved performance in its European operations.
  • 7The company continues to operate as a REIT and expects to meet its distribution requirements to shareholders, with $367.6 million in distributions paid in the first six months of 2010.

Frequently Asked Questions

The primary reason for the significant decrease in net income is a substantial foreign currency exchange loss of $49.2 million in the second quarter and $84.0 million year-to-date. This loss is related to the revaluation of the Euro-denominated note receivable from Shurgard Europe due to fluctuations in the USD to Euro exchange rate.

The core self-storage business, which represents the majority of revenues, is showing signs of stabilization. Same-store revenue declines have narrowed, with a 0.2% decrease year-over-year for the three months ended June 30, 2010, and a 1.2% decrease for the six months. Occupancy levels are improving, though rental rates per occupied square foot are still lower than the prior year, reflecting a challenging economic environment that is gradually improving.

Public Storage is actively pursuing growth through acquisitions, having acquired 31 facilities in the first half of 2010 for $198 million, with a focus on Southern California. They also have a pipeline of potential acquisitions. The company is managing its capital carefully, maintaining strong liquidity with significant cash reserves and access to credit, and continues to pay substantial dividends to shareholders to maintain its REIT status.

Shurgard Europe's performance has improved. For the three months ended June 30, 2010, equity in earnings from Shurgard Europe increased by $1.75 million compared to the prior year, driven by higher net operating income from its same-store properties and improvements in unstabilized facilities, even after accounting for unfavorable exchange rate movements.