10-QPeriod: Q2 FY2015

Public Storage Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 5, 2015For 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 2015, driven by growth in its core self-storage operations. Net income available to common shareholders increased significantly, with diluted EPS rising to $1.52 for the quarter and $2.75 for the half-year. Funds From Operations (FFO) also showed robust growth, increasing by 8.0% and 8.8% for the respective periods, highlighting the company's operational efficiency and profitability. The company continues to expand its portfolio through strategic acquisitions and development projects, demonstrating a commitment to long-term growth and value creation. The company's Same Store Facilities reported a notable increase in revenues, primarily due to a rise in realized annual rental income per occupied square foot and a slight uptick in occupancy rates. This demonstrates effective rental rate management and sustained demand for self-storage. While development activities and acquisition costs are expected to dilute earnings in the short term, management views these investments as beneficial for long-term cash flow generation. PSA maintains a strong liquidity position with over $700 million in liquid capital resources, supporting its ongoing capital needs and strategic initiatives.

Financial Highlights

33 data points
Beta

Revenue

$588.62M

72.6% Gross Margin

Net Income

$328.04M

55.7% Net Margin

EPS (Diluted)

$1.52

Total Assets

$9.63B

Cash & Equivalents

$20.26M

Free Cash Flow

$457.13M

Financial Statements
Beta
Revenue$588.62M
Cost of Revenue$161.10M
Gross Profit$427.52M
Operating Expenses$288.56M
Operating Income$300.06M
Net Income$328.04M
EPS (Basic)$1.53
EPS (Diluted)$1.52
Shares Outstanding (Basic)172.63M
Shares Outstanding (Diluted)173.39M

Key Highlights

  • 1Strong revenue and net income growth driven by self-storage operations, with net income per diluted share increasing to $1.52 for Q2 2015 and $2.75 for H1 2015.
  • 2Funds From Operations (FFO) per share grew by 8.0% for Q2 2015 ($2.15 vs $1.99) and 8.8% for H1 2015 ($4.06 vs $3.73), indicating healthy operational performance.
  • 3Same Store Facilities revenue increased by 6.8% in Q2 2015, driven by a 6.3% rise in realized annual rental income per occupied square foot.
  • 4The company is actively pursuing growth through acquisitions, with eight facilities acquired for $72.2 million in H1 2015 and contracts for nine additional facilities.
  • 5A significant development pipeline is underway, with approximately 3.9 million net rentable square feet planned at a total cost of $479 million, indicating investment in future expansion.
  • 6PSA maintains a healthy liquidity position with over $700 million in liquid capital resources, sufficient to cover planned capital needs of approximately $450 million over the next year.
  • 7The company confirmed its REIT status and commitment to maintaining it, distributing $661.6 million in dividends during the first half of 2015.

Frequently Asked Questions

Revenue growth was primarily driven by increases in rental income from Same Store Facilities, which rose by 6.8% in the second quarter of 2015. This growth was largely due to a 6.3% increase in realized annual rental income per occupied square foot, resulting from annual rent increases to existing tenants and higher move-in rental rates. Additionally, revenue from Non Same Store Facilities increased significantly due to acquisitions and the stabilization of recently developed properties.

Public Storage is pursuing growth through both acquisitions and development. In the first half of 2015, they acquired eight facilities for $72.2 million and are under contract for nine more. They also have a substantial development pipeline adding 3.9 million net rentable square feet. While these growth initiatives are expected to dilute earnings in the short term due to the time it takes for new facilities to stabilize, the company views them as beneficial for long-term cash flow generation. Management expects this dilution to continue and grow in the remainder of 2015.

As of June 30, 2015, Public Storage had over $700 million in liquid capital resources, comprising $474 million in available credit facility borrowing capacity and $250 million in expected retained operating cash flow. Planned capital needs for the next year total approximately $450 million, including development pipeline spending, property acquisitions, and debt repayment. The company believes it has access to additional capital through debt or equity issuance if needed, and expects operating cash flow to be sufficient for ongoing requirements and distributions.

FFO is presented as a measure of REIT performance, excluding real estate depreciation and gains/losses on sales. For the second quarter of 2015, FFO per share increased by 8.0% to $2.15, and for the first half of 2015, it increased by 8.8% to $4.06. This growth in FFO, compared to the growth in net income, suggests that the company's core operating real estate is performing well and generating strong cash flow before non-cash accounting adjustments.