Public Storage — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY2020. This filing reports annual results, not standalone fourth-quarter results.
Business context
Public Storage is a Maryland REIT focused on self-storage, with tenant reinsurance, merchandise sales, and third-party management businesses. At year-end it held interests in 2,787 U.S. facilities across 39 states, totaling approximately 198.3 million rentable square feet. It also held approximately 41% of PS Business Parks and 35% of Shurgard Self Storage.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $3.416 billion | $2.915 billion |
| Net income | $1.960 billion | $1.361 billion |
| Net income allocable to common shareholders | $1.732 billion; $9.87 diluted EPS | $1.098 billion; $6.29 diluted EPS |
| Net cash from operating activities | $2.544 billion | $2.043 billion |
| Net cash used in investing activities | $5.564 billion | $1.118 billion |
| Net cash from (used in) financing activities | $3.498 billion | $(1.076) billion |
| Cash and equivalents at year-end | $734.6 million | $257.6 million |
| Notes payable at year-end | $7.475 billion | $2.545 billion |
- Self-storage revenue increased 17.7% to $3.204 billion; segment net operating income (NOI), a non-GAAP measure, rose 22.9% to $2.352 billion.
- Same-store revenue increased 10.5% and same-store NOI increased 15.4%. Same-store average occupancy was 96.3%, up from 94.5%; realized annual rent per occupied square foot rose 8.8% to $18.75.
- Same-store cost of operations fell 2.0%; same-store NOI margin was 74.8% after indirect costs, compared with 71.6% in 2020.
- FFO per diluted share, a non-GAAP measure, increased 37.0% to $13.36; Core FFO per share increased 21.9% to $12.93. These measures are not substitutes for GAAP earnings or operating cash flow.
- Debt had a 1.8% weighted-average effective rate. The company reported a $500 million revolving credit facility with no borrowings and approximately $478.8 million available after letters of credit. It stated that it expected to refinance $500 million of notes due in September 2022.
- Common dividends were $8.00 per share for 2021. In February 2022, the Board declared a $2.00-per-share quarterly common dividend.
Material changes versus FY2020
- Common-shareholder net income increased $634.1 million. Management attributed the increase mainly to a $437.4 million rise in self-storage NOI, a $209.7 million favorable swing in foreign-currency results, and a $149.0 million equity share of PS Business Parks’ property-sale gains, partly offset by $160.2 million higher depreciation and amortization.
- Same-store revenue growth reflected higher rents and occupancy. New-tenant average contract rent per square foot increased 25.8%; move-outs declined 7.9%, and promotional discounts fell 49.8%.
- The company acquired 232 facilities for approximately $5.1 billion, adding 21.8 million rentable square feet. It completed development and expansion projects costing $218.0 million, adding 1.6 million square feet.
- Notes payable rose by approximately $4.9 billion, principally following debt offerings used to support growth. The company issued $1.2 billion of preferred shares and redeemed $1.2 billion, lowering its weighted-average preferred dividend rate from 4.8% to 4.5%.
Outlook, risks, and unusual items
- Management expected continued same-store revenue growth in 2022, citing strong customer demand and a stable tenant base. It expected retained operating cash flow to remain similar to 2021, at approximately $700 million.
- Management forecast approximately 5% same-store property-tax expense growth in 2022, higher on-site payroll costs, and continued increases in depreciation. It expected maintenance capital expenditures of about $300 million, including approximately $180 million for the Property of Tomorrow program and $30 million for LED and solar investments.
- The Property of Tomorrow program, scheduled for completion by year-end 2025, upgrades property appearance, energy efficiency, and customer areas. The company spent about $130 million on the program in 2021.
- Development and expansion projects totaled approximately $800 million, subject to contingencies; $527.5 million remained to be spent, primarily over the following 18 to 24 months. Management cited permitting constraints and difficulty finding projects meeting return expectations.
- Key risks include local competition and new supply, property-tax and wage inflation, natural disasters and climate-related costs, COVID-19 or other public-health restrictions, changes in self-storage demand, cybersecurity and technology disruptions, REIT qualification, and foreign-currency exposure.
- Notable nonrecurring or volatile contributors included a $111.8 million foreign-currency gain on euro-denominated debt, versus a $98.0 million loss in 2020, and substantial PS Business Parks property-sale gains included in equity earnings. The company reported that material losses from pending legal matters were remote; it also disclosed insurance deductibles and limits that could leave exposure to multiple catastrophic events.
Important facts for investors to verify
- Whether same-store rent growth and occupancy remain sustainable as new supply, seasonal demand, and customer move-outs evolve.
- The returns and stabilization progress of the 232 facilities acquired in 2021, particularly the large ezStorage and All Storage portfolios, and the effect of acquisition-related depreciation and amortization.
- Funding and execution of the development pipeline and Property of Tomorrow spending, including permitting, construction costs, and expected yields.
- Debt maturities and refinancing terms, interest-rate exposure, and the company’s ability to maintain its low stated borrowing costs.
- The extent to which earnings growth depends on foreign-exchange movements and PS Business Parks gains rather than recurring property operations.
- Exposure to property-tax reassessments, insurance shortfalls after disasters, and changes in COVID-related or other government restrictions.