10-QPeriod: Q2 FY2014

Public Storage Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 5, 2014For 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 ended June 30, 2014, with net income allocable to common shareholders increasing to $218.4 million ($1.26 per diluted share) from $207.7 million ($1.20 per diluted share) in the prior year. This growth was primarily driven by a significant increase in self-storage net operating income, stemming from both same-store facilities (up 5.3% in revenue) and the strategic acquisition of new properties. The company continued its aggressive acquisition strategy, adding 121 properties in 2013 and six more in the first half of 2014, with substantial further acquisitions already completed or under contract. Funds from Operations (FFO) also saw a healthy increase, rising by 8.7% to $1.99 per diluted common share. The company maintains a strong liquidity position with $763 million in capital resources as of June 30, 2014, supplemented by $286 million in available borrowing capacity. Management expects continued growth driven by ongoing acquisitions and development projects, which aim to add approximately 2.1 million net rentable square feet. While facing risks associated with real estate ownership and economic conditions, Public Storage's diversified portfolio, established brand, and strategic acquisitions position it for continued performance.

Financial Highlights

35 data points
Beta

Revenue

$533.48M

72.0% Gross Margin

Net Income

$278.28M

52.2% Net Margin

EPS (Diluted)

$1.26

Total Assets

$9.95B

Cash & Equivalents

$387.98M

Free Cash Flow

$395.34M

Financial Statements
Beta
Revenue$533.48M
Cost of Revenue$149.22M
Gross Profit$384.26M
Operating Expenses$272.37M
Operating Income$265.66M
Interest Expense$2.06M
Net Income$278.28M
EPS (Basic)$1.27
EPS (Diluted)$1.26
Shares Outstanding (Basic)172.28M
Shares Outstanding (Diluted)173.18M

Key Highlights

  • 1Net income for the quarter increased by $10.7 million to $218.4 million, or $1.26 per diluted share, compared to $207.7 million, or $1.20 per diluted share, in the prior year.
  • 2Self-storage net operating income (NOI) saw a substantial increase, driven by 5.3% revenue growth in same-store facilities and the positive impact of recent acquisitions.
  • 3Funds From Operations (FFO) per diluted common share rose by 8.7% to $1.99 for the quarter, indicating strong operational performance beyond GAAP net income.
  • 4The company completed significant acquisitions in 2013 (121 facilities for $1.2 billion) and continued this trend in 2014, acquiring six facilities for $37.1 million and announcing further significant acquisitions.
  • 5Development pipeline remains active, with projects underway to add approximately 2.1 million net rentable square feet, supported by significant capital commitments.
  • 6The company maintained a strong liquidity position with $763 million in capital resources and $286 million in available borrowing capacity as of June 30, 2014.
  • 7Same-store facilities demonstrated robust performance with a 5.3% revenue increase, driven by higher occupancy (94.7% vs 94.0%) and increased rental rates per occupied square foot.

Frequently Asked Questions

The main driver of revenue growth was the strong performance of both same-store facilities and recently acquired properties. Same-store facilities saw a 5.3% increase in revenue due to higher occupancy rates and increased rental income per occupied square foot. The acquisition of 127 self-storage facilities since January 2013 also significantly contributed to the revenue and net operating income growth.

Public Storage is funding its activities through a combination of sources. As of June 30, 2014, they had approximately $763 million in capital resources, including cash and cash equivalents, and an additional $286 million in available borrowing capacity. They also utilize retained operating cash flow and have access to capital markets for issuing preferred securities. Significant recent acquisitions were also financed through cash.

The report highlights several risks including general real estate ownership risks (demand changes, environmental issues, natural disasters), economic downturns impacting customer spending, competition, difficulties in integrating acquired properties, international operational risks (for Shurgard Europe), joint venture risks, regulatory changes, potential failure to qualify as a REIT, data security breaches, self-insurance risks, and difficulties in raising capital at reasonable costs. Economic uncertainty due to global events is also noted.

Funds From Operations (FFO) per diluted common share showed significant improvement. For the three months ended June 30, 2014, FFO was $1.99 per share, an increase of 8.7% from $1.83 per share in the same period of 2013. For the six months ended June 30, 2014, FFO increased by 9.7% to $3.73 per share from $3.40 per share in the prior year.