10-QPeriod: Q2 FY2011

Public Storage Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 8, 2011For Securities:PSAPSA-PRPSA-PFPSA-PGPSA-PHPSA-PIPSA-PJPSA-PMPSA-PNPSA-POPSA-PPPSA-PQPSA-PSPSA-PKPSA-PL

Summary

Public Storage (PSA) reported strong performance for the quarter and six months ended June 30, 2011. Net income attributable to common shareholders saw a substantial increase, driven by improved operations, a significant positive swing in foreign currency exchange, and enhanced earnings from Shurgard Europe. Funds from Operations (FFO) also demonstrated robust growth, exceeding prior-year periods due to similar factors. The company's core domestic self-storage segment, which constitutes 91% of revenue, showed positive trends in rental income for same-store facilities, with occupancy and realized rent per square foot showing year-over-year improvements. This recovery from the 2008-2009 recessionary pressures indicates a strengthening demand for self-storage. PSA also continues to actively manage its capital structure, including recent preferred securities issuance and plans for debt redemption, positioning the company for continued growth and operational stability.

Financial Highlights

32 data points
Beta

Revenue

$434.42M

Net Income

$206.44M

47.5% Net Margin

EPS (Diluted)

$0.77

Total Assets

$9.27B

Cash & Equivalents

$144.49M

Free Cash Flow

$317.64M

Financial Statements
Beta
Revenue$434.42M
Operating Income$279.57M
Interest Expense$5.93M
Net Income$206.44M
EPS (Basic)$0.78
EPS (Diluted)$0.77
Shares Outstanding (Basic)169.49M
Shares Outstanding (Diluted)170.40M

Key Highlights

  • 1Net income attributable to common shareholders increased significantly by 70.7% for the quarter and 184.0% for the six months ended June 30, 2011, compared to the prior year periods.
  • 2Funds From Operations (FFO) per diluted common share rose by 51.1% for the quarter and 70.4% for the six months ended June 30, 2011, reflecting strong operational performance.
  • 3Same-store rental income for the domestic self-storage segment increased by 4.0% for the quarter and 3.7% for the six months ended June 30, 2011, indicating a recovery in demand.
  • 4The company reported a significant positive swing in foreign currency exchange, contributing $10.5 million in gains for the quarter and $41.7 million for the six months, compared to losses in the prior year.
  • 5Public Storage continued its acquisition strategy, adding 6 facilities in the first six months of 2011 for $37.5 million, and has a pipeline for further acquisitions.
  • 6The company successfully raised approximately $487.5 million in gross proceeds from the issuance of preferred securities in July 2011.
  • 7Management expects improving operating trends in the self-storage segment to continue, driven by positive occupancy and rental rate trends.

Frequently Asked Questions

The substantial increase in net income and FFO was primarily driven by a significant positive swing in foreign currency exchange rates (from losses to gains), improved operating performance in both same-store and other self-storage facilities, and increased equity in earnings from Shurgard Europe, largely due to its acquisition of joint venture partner interests.

The self-storage market is showing signs of recovery and improvement. Rental income for same-store facilities has been trending positive year-over-year since Q3 2010, with increases in both occupancy and realized rent per occupied square foot. This indicates a positive trend following the recessionary pressures experienced since late 2008.

Public Storage maintains a low debt-to-capitalization ratio and primarily finances growth through permanent equity capital (retained cash flow and equity issuances). They also utilize preferred securities as a form of leverage. The company has access to a $300 million credit line and recently issued $487.5 million in preferred securities. They continue to acquire facilities and have a strategy of repaying debt at maturity rather than refinancing.

The filing mentions several risks, including general real estate ownership risks, economic downturns impacting tenant health, competition, difficulties integrating acquired properties, international operations risks (especially currency fluctuations), regulatory changes, the risk of failing to qualify as a REIT, data security breaches, and challenges in raising capital at a reasonable cost.