Public Storage — Q2 2022 Form 10-Q
Business and period. Public Storage is a self-storage REIT. This filing reports the unaudited quarter and six months ended June 30, 2022, compared with the corresponding 2021 periods. At quarter-end, it had interests in 2,807 U.S. self-storage facilities across 39 states, with approximately 200.1 million net rentable square feet.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $1,032.0 million | $829.3 million | $2,005.5 million | $1,596.6 million |
| Net income | $656.9 million | $411.7 million | $1,173.2 million | $846.0 million |
| Net income allocable to common shareholders | $603.4 million | $346.2 million | $1,067.5 million | $732.1 million |
| Diluted earnings per common share | $3.42 | $1.97 | $6.05 | $4.18 |
| FFO per diluted common share (non-GAAP) | $4.58 | $2.99 | $8.41 | $6.07 |
| Core FFO per diluted common share (non-GAAP) | $3.99 | $3.15 | $7.64 | $5.97 |
- Q2 self-storage revenue was $973.3 million and segment NOI was $735.3 million, a 75.6% NOI margin. Same-store NOI rose 18.7%; same-store revenue increased 15.9% while operating costs rose 7.6%.
- Same-store average occupancy was 95.8% in Q2, down from 97.0% a year earlier; June 30 occupancy was 94.8%, versus 96.5%. Realized rent per occupied square foot rose 17.2% year over year.
- For the six months, operating cash flow was $1,453.8 million, investing cash outflow $595.8 million, and financing cash outflow $577.9 million. Maintenance capital expenditures were $212.5 million; dividends paid to common and preferred holders totaled approximately $799.5 million.
- At June 30, cash and equivalents were $1,013.9 million, notes payable were $7,340.9 million, total assets were $17,862.9 million, and total equity was $10,048.3 million. The $500 million revolving credit facility was undrawn, subject to letters of credit; approximately $481 million was available at August 4.
Changes versus prior period
- Q2 common-shareholder income increased 74.3%, while diluted EPS rose from $1.97 to $3.42. For the first half, common-shareholder income increased 45.8% and diluted EPS rose from $4.18 to $6.05.
- Same-store revenue growth and rent increases drove operating gains; acquired and newly developed facilities also contributed. Self-storage NOI increased 28.0% in Q2 and 30.4% for the first half.
- Reported income included foreign-exchange gains of $101.7 million in Q2 and $137.1 million for the first half, primarily from remeasurement of euro-denominated debt. These gains materially benefited reported results and are excluded from Core FFO.
- Interest expense increased to $32.9 million in Q2 from $22.0 million, and to $66.1 million for the first half from $37.2 million, primarily reflecting debt issued to fund 2021 acquisitions. Depreciation and amortization also increased with the expanded portfolio.
Outlook, commentary, and risks
- Management expected continued revenue growth during the remainder of 2022, citing strong customer demand, a stable tenant base, and higher realized rents while maintaining high occupancy. The filing does not provide a clear full-year earnings or EPS guidance figure.
- Management noted higher labor, utilities, repairs, property taxes, and development costs. It expected on-site payroll and centralized management costs to continue increasing, and said move-outs and lower occupancy warranted increased promotions, moderated new-tenant rate growth, and higher marketing in Q2.
- Management estimated 2022 maintenance capital expenditures of approximately $300 million, including approximately $180 million for its Property of Tomorrow program. That program was expected to run through 2025. Development and expansion projects had approximately $647 million of remaining costs expected primarily over the next 18–24 months; construction commitments totaled $267.5 million.
- After quarter-end, Public Storage completed the sale of its 41% PS Business Parks interest for $2.7 billion in proceeds and recorded a $2.1 billion gain in Q3, not Q2. It declared a $13.15-per-common-share special dividend, approximately $2.3 billion in total. The sale will reduce future equity earnings from unconsolidated entities.
- Other risks cited include economic and inflationary pressures, changes in demand and new supply, property taxes and labor costs, foreign-exchange movements, natural disasters, and technology or cybersecurity failures. Management said material legal losses were remote, reported no material changes to disclosed risk factors, and concluded disclosure controls were effective.
Investor facts to verify
- How sustainable same-store rent growth is as occupancy declines and move-outs increase; track realized rents, promotions, move-ins, and move-outs.
- How much reported earnings growth came from recurring operations versus foreign-exchange gains and other nonrecurring items; compare GAAP EPS with Core FFO.
- The effect of the PS Business Parks sale, special dividend, and resulting reduction in equity-method earnings on future cash, earnings, and capital allocation.
- Debt maturities, refinancing costs, and the funding and returns on acquisitions, development, and the Property of Tomorrow program.