Public Storage 2008 Annual Report (10-K) Summary
Business Context and Reporting Period
Company: Public Storage (Maryland REIT)
Reporting Period: Fiscal year ended December 31, 2008
Business Overview: Public Storage is the largest owner and operator of self-storage facilities in the U.S. and holds a 49% equity interest in Shurgard Europe, the largest operator in Western Europe. The company operates three segments: Self-Storage (U.S.), Shurgard Europe, and Ancillary (commercial properties, tenant reinsurance, retail).
Portfolio Size (Dec 31, 2008): 2,012 U.S. facilities (127 million sq. ft.) and 181 European facilities (10 million sq. ft.).
Key Financial Metrics
| Metric | 2008 | 2007 |
|---|---|---|
| Total Revenues | $1,745.6 million | $1,814.5 million |
| Net Income | $935.2 million | $457.5 million |
| Net Income (Common Shareholders) | $708.1 million ($4.19 diluted) | $199.4 million ($1.17 diluted) |
| Operating Cash Flow | $1,059.2 million | $1,027.6 million |
| Total Assets | $9,936.0 million | $10,643.1 million |
| Total Debt | $643.8 million | $1,069.9 million |
| Cash and Cash Equivalents | $680.7 million | $245.4 million |
| Debt-to-Assets Ratio | 5.2% | 10.1% |
Material Changes vs. Prior Period
- Net Income Surge: Net income increased 104% to $935.2 million, driven primarily by a one-time $344.7 million gain on the disposition of a 51% interest in Shurgard Europe (deconsolidated March 31, 2008).
- Revenue Decline: Total revenues decreased 3.8% to $1,745.6 million. This was due to the deconsolidation of Shurgard Europe, partially offset by growth in domestic operations.
- Expense Reduction: Depreciation and amortization dropped 33.4% to $414.2 million, and interest expense fell 31.0% to $43.9 million, largely due to the deconsolidation of European debt and operations.
- Foreign Exchange: The company recorded a $25.4 million foreign currency exchange loss in 2008, compared to a $58.4 million gain in 2007, due to Euro fluctuations.
- Capital Structure: Total debt decreased significantly as Shurgard Europe debt was removed from the consolidated balance sheet. Cash balances more than doubled to $680.7 million following the Europe transaction.
Guidance, Outlook, and Risks
- Economic Impact: Management notes that the U.S. and European recessions have softened demand, pressuring occupancy and rental rates. The company has responded by reducing rates, increasing promotions, and essentially shutting down development activities to preserve capital.
- Capital Markets: Issuance of preferred securities (a traditional growth source) has been precluded since late 2007 due to market dislocations. The company is relying on internal cash flow and cash on hand.
- Strategic Shifts:
- Repurchases: Leveraged market dislocations to repurchase $103.2 million of preferred securities for $66.9 million and $110.2 million of senior unsecured debt in early 2009.
- Development: Development pipeline reduced to five expansion projects totaling $27.1 million.
- Shurgard Europe Risks: Significant exposure remains via a $552.4 million loan receivable (due March 2010) and a 49% equity stake. Shurgard Europe faces refinancing risks with ~€250 million of joint venture debt maturing in mid-2009. Operating trends in Europe are negative, with same-store revenue down 2.3% in Q4 2008.
- Dividends: Paid $2.80 per common share in 2008 (including a $0.60 special dividend). Anticipated minimum quarterly distribution for 2009 is $0.55 per share.
Investor Verification Checklist
- Shurgard Europe Loan Repayment: Verify the ability of Shurgard Europe to refinance or repay the $552.4 million loan due March 2010 given current credit market conditions.
- European Joint Venture Debt: Monitor the refinancing status of the €250 million joint venture debt maturing in May/June 2009.
- Domestic Operating Trends: Confirm if the softening in demand and downward pressure on rental rates observed in Q4 2008 persists into 2009.
- Preferred Share Issuance: Assess the timeline for the return of the preferred share market, which is critical for the company's long-term growth strategy.
- Foreign Exchange Exposure: Evaluate the impact of continued Euro volatility on the $552.4 million loan receivable and the $264.1 million equity investment.