10-QPeriod: Q3 FY2013

Public Storage Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 6, 2013For 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 nine months ended September 29, 2013, driven by a significant increase in self-storage net operating income. Net income allocable to common shareholders rose to $601.0 million, or $3.48 per diluted share, a substantial improvement from $460.2 million, or $2.68 per diluted share, in the prior year period. This growth was largely attributed to an $86.5 million increase in self-storage net operating income and a $56.9 million reduction in income allocated to preferred shareholders due to redemptions. The company continued its aggressive acquisition and development strategy. For the first nine months of 2013, PSA acquired 32 self-storage facilities for approximately $392 million and had development and expansion projects underway adding 1.6 million net rentable square feet. Looking ahead, PSA expects to complete the acquisition of 88 self-storage facilities for approximately $754 million in the fourth quarter of 2013, signaling continued expansion and a focus on growing its property portfolio. The company's liquidity position, while generally sufficient for ongoing operations, required careful management to fund these significant near-term capital requirements, supplemented by cash on hand and a credit line.

Financial Highlights

31 data points
Beta

Revenue

$511.96M

Net Income

$285.63M

55.8% Net Margin

EPS (Diluted)

$1.34

Total Assets

$9.15B

Cash & Equivalents

$56.97M

Free Cash Flow

$367.09M

Financial Statements
Beta
Revenue$511.96M
Operating Income$249.97M
Interest Expense$478K
Net Income$285.63M
EPS (Basic)$1.35
EPS (Diluted)$1.34
Shares Outstanding (Basic)171.72M
Shares Outstanding (Diluted)172.79M

Key Highlights

  • 1Net income attributable to common shareholders increased by $140.8 million year-over-year for the nine months ended September 30, 2013, reaching $601.0 million ($3.48 per diluted share).
  • 2Self-storage net operating income (NOI) saw a substantial increase of $86.5 million for the nine-month period, highlighting the core business's strong performance.
  • 3Public Storage actively pursued growth through acquisitions, investing approximately $392 million in 32 facilities during the first nine months of 2013, with plans to acquire an additional 88 facilities for $754 million in Q4 2013.
  • 4The company is actively engaged in development and expansion projects, with plans to add approximately 1.6 million net rentable square feet.
  • 5Funds from Operations (FFO) per diluted share increased to $5.40 for the nine months ended September 30, 2013, up from $4.46 in the prior year period, indicating improved operational profitability.
  • 6Core FFO per share also demonstrated strong growth, rising to $5.36 from $4.82 year-over-year.
  • 7The company's financial strategy emphasizes funding growth with retained operating cash flows and equity issuance, while maintaining a low debt-to-total-capitalization ratio.

Frequently Asked Questions

The primary drivers for the increase in net income were a significant rise in self-storage net operating income, which grew by $86.5 million, and a reduction in income allocated to preferred shareholders due to redemptions, amounting to $56.9 million. These factors contributed to a substantial year-over-year improvement in earnings per diluted share.

Public Storage is executing a dual strategy of acquisitions and development. They acquired 32 facilities in the first nine months of 2013 and have plans to complete the acquisition of 88 additional facilities in the fourth quarter of 2013 for approximately $754 million. Concurrently, they are pursuing development and expansion projects aimed at adding 1.6 million net rentable square feet.

As of September 30, 2013, Public Storage had $57 million in cash and an undrawn $300 million credit line. While operating cash flow is expected to cover ongoing expenses and distributions, it is not sufficient on its own for the near-term capital requirements, including the planned $754 million in acquisitions. The company anticipates supplementing its liquidity through retained operating cash flow, potential sale of a portion of its loan receivable from Shurgard Europe, and potentially drawing on its credit facility or exploring other financing alternatives like common equity if market conditions are favorable.

FFO and Core FFO are non-GAAP measures that Public Storage presents because they are considered important by the company and analysts for evaluating the performance of real estate companies. FFO excludes non-cash items like depreciation and gains/losses on property sales, while Core FFO further adjusts for items like foreign currency exchange gains/losses. The reported increases in both FFO per share ($5.40) and Core FFO per share ($5.36) for the nine-month period reflect the underlying operational profitability and cash generation from its real estate assets.