10-QPeriod: Q2 FY2013

Public Storage Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 5, 2013For 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 second quarter and first half of 2013, driven by robust same-store net operating income (NOI) growth. Total revenues increased, and net income allocable to common shareholders saw a significant jump, primarily due to improved self-storage NOI and favorable foreign currency exchange movements. The company continues its aggressive growth strategy through both acquisitions and development. It anticipates closing on a substantial portfolio of 29 self-storage facilities in the upcoming quarter for approximately $374 million. The development pipeline remains active, targeting an additional 1.4 million square feet of space. This expansion, coupled with the stability of its existing "same store" portfolio, positions PSA for continued operational strength. The company also highlighted its strong balance sheet and conservative capital structure, emphasizing its reliance on preferred equity and retained earnings for growth.

Financial Highlights

31 data points
Beta

Revenue

$485.38M

Net Income

$261.68M

53.9% Net Margin

EPS (Diluted)

$1.20

Total Assets

$9.09B

Cash & Equivalents

$410.91M

Free Cash Flow

$363.23M

Financial Statements
Beta
Revenue$485.38M
Operating Income$237.78M
Interest Expense$647K
Net Income$261.68M
EPS (Basic)$1.21
EPS (Diluted)$1.20
Shares Outstanding (Basic)171.63M
Shares Outstanding (Diluted)172.65M

Key Highlights

  • 1Net income allocable to common shareholders increased by 63% in Q2 2013 compared to Q2 2012 ($207.7M vs. $132.3M) and by 43% for the first six months of 2013 ($369.6M vs. $257.7M).
  • 2Same-store self-storage net operating income (NOI) grew by 8.4% for Q2 2013 and 8.9% for the first six months of 2013, indicating strong operational performance of established assets.
  • 3Public Storage is actively pursuing growth, with plans to acquire 29 self-storage facilities (approximately 2.3 million sq ft) for $374 million in Q3 2013, with $101 million already completed as of August 2, 2013.
  • 4The company's development pipeline includes projects to add approximately 1.4 million net rentable square feet, with an estimated cost of $198 million.
  • 5Funds From Operations (FFO) per diluted common share increased by 32.6% in Q2 2013 to $1.83, and by 24.5% for the first six months to $3.40, reflecting improved profitability.
  • 6The company maintains a low debt-to-capitalization ratio and has access to a $300 million revolving credit facility, with no outstanding borrowings as of August 2, 2013.
  • 7Ancillary operations, including tenant reinsurance and merchandise sales, also showed growth, contributing positively to overall net income.

Frequently Asked Questions

The substantial increase in net income is primarily driven by two factors: a significant increase in self-storage net operating income (NOI) from both "same store" facilities and "non-same store" facilities, and a favorable swing in foreign currency exchange gains/losses, particularly related to its investment in Shurgard Europe. Additionally, reduced allocations of net income to preferred shareholders due to the application of EITF D-42 in the prior year also contributed to the increase in net income attributable to common shareholders.

Public Storage's growth strategy focuses on both acquiring existing self-storage facilities and developing new ones. Key initiatives include the anticipated acquisition of 29 facilities in the next quarter for $374 million, an active development pipeline aimed at adding 1.4 million square feet, and continued pursuit of third-party acquisitions. The company also benefits from its equity investments in PSB and Shurgard Europe, which provide diversification.

Public Storage employs a capital structure primarily composed of preferred and common equity, maintaining a low level of debt. The company favors preferred securities for leverage due to their perpetual nature, lack of maturity dates, and ability to satisfy REIT distribution requirements. Retained operating cash flow and proceeds from equity issuances are the primary sources for funding growth and debt obligations. They also utilize a revolving line of credit for short-term needs.

Public Storage faces several risks, including general real estate ownership risks (demand changes, environmental issues, natural disasters), economic downturns affecting tenant financial health, competition, difficulties in integrating acquisitions, international operational risks (currency fluctuations), challenges in financing and obtaining permits for development, potential REIT qualification issues, data security breaches, self-insurance risks, and geographic concentration (around 20% of facilities in California).