Public Storage — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; unaudited. Public Storage is a self-storage REIT operating 2,678 facilities across 39 states, with approximately 186.4 million net rentable square feet. It also holds interests in Shurgard and PS Business Parks.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $894.9 million | $734.5 million | $2,491.5 million | $2,166.5 million |
| Net income | $491.6 million | $325.8 million | $1,337.6 million | $1,008.8 million |
| Net income allocable to common shareholders | $442.3 million | $246.9 million | $1,174.4 million | $806.2 million |
| Diluted earnings per common share | $2.52 | $1.41 | $6.70 | $4.62 |
| FFO per diluted common share | $3.61 | $2.28 | $9.69 | $7.18 |
| Core FFO per diluted common share | $3.42 | $2.63 | $9.39 | $7.68 |
- Q3 same-store revenue increased 14.0%; same-store NOI rose 21.7% to $540.4 million. For the nine months, same-store revenue increased 9.4% and NOI rose 16.7% to $1.52 billion.
- Q3 same-store occupancy averaged 96.8%, versus 95.5% a year earlier; at quarter-end it was 95.7%. Realized rent per occupied square foot rose 12.5% in Q3, while same-store operating costs fell 4.6%.
- Nine-month operating cash flow was $1.815 billion, compared with $1.530 billion. Investing activities used $3.191 billion, principally reflecting acquisitions; financing activities provided $2.078 billion. Cash and equivalents were $958.2 million at September 30, 2021, versus $257.6 million at year-end 2020.
- Notes payable totaled $5.773 billion, up from $2.545 billion at year-end. The weighted-average effective debt rate was 1.8%; debt maturities include $502.6 million in 2022. The $500 million revolving facility was undrawn, with $478.8 million available after letters of credit.
- Total assets were $15.285 billion and total equity was $9.037 billion. The company paid common distributions of $6.00 per share during the first nine months; the board declared a further $2.00 quarterly dividend payable in December.
Changes, outlook and management commentary
- Common-shareholder earnings and FFO increased substantially year over year. Management attributed growth mainly to stronger same-store NOI, contributions from acquired and developed facilities, and a favorable foreign-currency impact on euro-denominated debt. Q3 included a $40.9 million currency gain, versus a $41.9 million loss in Q3 2020; nine-month gains were $73.6 million versus losses of $52.3 million.
- The company acquired 126 facilities during the first nine months for approximately $2.8 billion, including the 48-property ezStorage portfolio for $1.8 billion. Subsequent to quarter-end, it acquired or was under contract to acquire 107 facilities for $2.3 billion, including the 56-property All Storage portfolio, subject to customary closing conditions.
- Management expected continued year-over-year revenue growth through the remainder of 2021, citing strong demand, higher rental rates and high occupancy. In-place contract rent per occupied foot was 10.7% above the prior-year level at quarter-end.
- Management estimated 2021 same-store property taxes would increase approximately 4.8% versus 2020, including a projected Q4 increase after lower year-to-date comparisons. On October 1, property-employee wages increased an average of 7.5%. Full-year maintenance capital expenditures were expected to approximate $250 million, including about $120 million for facility rebranding and $36 million for solar and LED investments.
- The development and expansion pipeline was estimated at $730.6 million, with $502.2 million remaining to spend, primarily over 18–24 months. Management said acquisition and development activity, permitting constraints, labor and construction costs, and the availability and cost of capital could affect plans. The filing does not provide a formal earnings or FFO forecast.
Risks, contingencies and unusual items
- Key disclosed risks include economic and COVID-related changes in demand, rent regulation, population out-migration from high-cost markets, competition and new supply, acquisition integration, development delays and cost overruns, labor availability and costs, property taxes, catastrophic events, cybersecurity, and access to capital.
- Euro-denominated debt and the Shurgard investment create currency exposure; exchange-rate changes can materially affect reported earnings and equity. The company also faces interest-rate exposure, including a floating-rate $700 million note.
- Management stated that legal claims and proceedings were not expected to result in a material loss; it reported no material off-balance-sheet arrangements and no material changes to the risk factors in its 2020 Form 10-K.
- Q3 and nine-month results include acquisition-related depreciation and amortization, share-based compensation and currency remeasurement gains. The 2020 comparative statements were reclassified for third-party management activity and corrected for expense presentation; the correction was described as immaterial and did not change total expenses or net income.
Investor verification priorities
- Assess whether rent increases and occupancy can be sustained as demand, move-outs, promotions and market supply change.
- Verify the closing, financing and integration of the announced acquisitions, particularly the All Storage transaction, and the returns on recent acquisitions and development projects.
- Monitor the projected property-tax rebound, higher employee wages, insurance claims and other cost pressures against operating efficiencies.
- Review debt maturities, future funding needs, euro exposure and the earnings effects of currency movements; distinguish recurring operating performance from currency gains, asset-sale gains and other adjustments in FFO measures.
- Confirm actual 2021 capital spending, pipeline completion and dividend funding against management’s estimates and the REIT distribution requirement.