10-QPeriod: Q3 FY2023

Public Storage Quarterly Report for Q3 Ended Sep 30, 2023

Filed October 30, 2023For Securities:PSAPSA-PRPSA-PFPSA-PGPSA-PHPSA-PIPSA-PJPSA-PMPSA-PNPSA-POPSA-PPPSA-PQPSA-PSPSA-PKPSA-PL

Summary

Public Storage (PSA) reported its third-quarter and year-to-date results for the period ending September 29, 2023. The company saw a 5.0% increase in self-storage revenues for the quarter and a 8.5% increase for the nine-month period, primarily driven by Same Store Facilities and contributions from recently acquired and developed properties. A significant event during the quarter was the acquisition of BREIT Simply Storage LLC for $2.2 billion, which added 127 self-storage facilities. This acquisition was funded in part by a $2.2 billion senior notes offering. While revenues are growing, the company noted softening demand and moderating income growth trends compared to the exceptional performance in 2020-2021, with occupancy levels gradually declining from their peaks. Despite the revenue growth, net income allocable to common shareholders decreased significantly year-over-year due to the absence of a large gain on the sale of PS Business Parks in the prior year, partially offset by strong performance in self-storage NOI and interest income. The company also highlighted its strong liquidity position and commitment to returning capital to shareholders through dividends.

Financial Highlights

36 data points
Beta

Revenue

$1.14B

Net Income

$613.30M

53.6% Net Margin

EPS (Diluted)

$3.20

Total Assets

$19.88B

Cash & Equivalents

$629.77M

Free Cash Flow

$875.67M

Financial Statements
Beta
Revenue$1.14B
Operating Expenses$611.83M
Interest Expense$58.35M
Net Income$613.30M
EPS (Basic)$3.21
EPS (Diluted)$3.20
Shares Outstanding (Basic)175.50M
Shares Outstanding (Diluted)176.15M

Key Highlights

  • 1Total revenues for the quarter increased by 5.0% to $1.14 billion, and by 8.5% to $3.36 billion for the nine months ended September 30, 2023.
  • 2Self-storage revenues specifically increased by 5.0% ($51.4 million) for the quarter and 8.5% ($249.4 million) for the nine months.
  • 3The company completed a significant acquisition of BREIT Simply Storage LLC for $2.2 billion, adding 127 self-storage facilities.
  • 4Net income attributable to common shareholders decreased significantly to $563.2 million ($3.20 per diluted share) for the quarter, down from $2.7 billion ($15.38 per diluted share) in the prior year, largely due to a one-time gain in the prior year.
  • 5Funds from Operations (FFO) per diluted share was $4.58 for the quarter, a slight decrease of 1.7% from $4.66 in the prior year.
  • 6The company declared a quarterly common dividend of $3.00 per share, representing an annualized rate of $12.00 per share.
  • 7Interest income from cash balances significantly increased due to higher average cash balances and higher interest rates.

Frequently Asked Questions

The acquisition of BREIT Simply Storage LLC for $2.2 billion on September 13, 2023, significantly expanded Public Storage's portfolio, adding 127 self-storage facilities. The acquisition was funded through a $2.2 billion senior notes offering. While the acquired facilities contributed to revenue, the integration costs and transaction expenses may impact short-term profitability.

Public Storage notes softening demand and moderating income growth trends compared to the exceptionally strong periods of 2020-2021. Occupancy has gradually declined from its peak. To mitigate these effects, the company is increasing marketing expenses, lowering rental rates for new customers, and offering more promotional discounts. They expect revenue growth to decline significantly through the remainder of 2023 and anticipate potential year-over-year revenue declines in the fourth quarter.

The company has experienced an increase in interest expense due to higher SOFR rates impacting its variable-rate debt and the issuance of new notes to fund the Simply Acquisition. However, they maintain a strong credit profile with 'A' ratings, allowing access to capital markets. They plan to refinance maturing notes in April 2024 and believe they have sufficient liquidity and access to capital to meet their obligations and growth plans.

Net income allocable to common shareholders decreased substantially year-over-year. This was primarily due to the absence of a significant $2.1 billion gain on the sale of PS Business Parks recognized in the prior year's third quarter. Excluding this one-time event, the underlying operational performance showed an increase in self-storage net operating income and interest income.