Public Storage — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Public Storage is a self-storage REIT operating 2,836 facilities across 40 U.S. states, with approximately 202.2 million rentable square feet. It also held a 35% interest in Shurgard at quarter-end.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $1.088 billion | $894.9 million | $3.094 billion | $2.492 billion |
| Net income | $2.778 billion | $491.6 million | $3.951 billion | $1.338 billion |
| Diluted earnings per common share | $15.38 | $2.52 | $21.44 | $6.70 |
| FFO per diluted share | $4.66 | $3.61 | $13.08 | $9.69 |
| Core FFO per diluted share | $4.13 | $3.42 | $11.77 | $9.39 |
- Q3 self-storage revenue was $1.027 billion, up 22.2%; self-storage net operating income (NOI) was $771.9 million, up 23.8%. For the first nine months, self-storage revenue rose 25.0% and NOI rose 28.0%.
- Same-store revenue grew 14.7% in Q3 and 15.4% year to date; same-store NOI increased 17.0% and 18.6%, respectively. Q3 same-store occupancy averaged 94.5%, versus 96.8% a year earlier. Realized rent per occupied square foot rose 17.2% in Q3.
- Operating cash flow for the first nine months was $2.381 billion, compared with $1.815 billion. Investing activities provided $1.552 billion, including $2.636 billion of proceeds from the PS Business Parks (PSB) sale; financing activities used $3.783 billion. Cash and equivalents were $883.8 million at September 30.
- Notes payable were $6.740 billion carrying value ($6.782 billion principal); weighted-average effective interest rate was 1.9%. The $500 million revolving credit facility was undrawn, with $18.6 million of letters of credit reducing available capacity. Management reported covenant compliance.
Changes and unusual items
- On July 20, Public Storage sold its 41% PSB interest for approximately $2.7 billion in cash and recorded a $2.129 billion gain. This gain was the principal reason reported net income and EPS surged; it is not recurring operating performance. PSB equity earnings will not recur after the sale.
- On August 4, the company paid a $13.15-per-share special dividend totaling approximately $2.3 billion from the PSB transaction proceeds. Total common distributions for the first nine months were $19.15 per share, including the special dividend.
- Core FFO per share, which excludes foreign currency gains and certain other items, increased 20.8% in Q3 and 25.3% for the first nine months. This provides a view of operating performance separate from the PSB gain and currency movements.
- Foreign currency gains, primarily related to euro-denominated debt, were $100.2 million in Q3 and $237.3 million year to date. Interest expense increased year over year, reflecting debt issued to fund 2021 acquisitions.
- During the first nine months, the company acquired 44 facilities for approximately $501.9 million and opened developed or expanded facilities adding 0.9 million square feet.
Outlook, risks and commitments
- Management expected continued revenue growth during the remainder of 2022, supported by customer demand and higher realized rents, while seeking to maintain high occupancy. No specific full-year earnings or FFO guidance is provided in the supplied filing text.
- Management cited inflation in labor, utilities, repairs and maintenance, and development costs; it also noted competitive labor conditions and higher property taxes. Occupancy and move-out trends warrant monitoring: Q3 same-store occupancy was below the prior year, and move-outs exceeded move-ins during the quarter.
- Expected 2022 maintenance capital expenditures were $400–$450 million. The Property of Tomorrow program was expected to cost approximately $220 million in 2022, and solar and LED investments approximately $50 million.
- Development and expansion projects had approximately $605.5 million of remaining cost, expected primarily over the next 18–24 months. Construction commitments totaled $265.7 million. Management noted permitting and project-yield constraints.
- Subsequent to quarter-end, the company acquired or was under contract to acquire 33 facilities for $262.6 million. It also declared a regular $2.00-per-share quarterly dividend for payment in December 2022.
- Risk factors include changes in storage demand, new supply and competition, inflation and potential recession, property taxes and regulation, natural disasters, foreign-exchange movements, and cybersecurity or technology disruptions. Management said legal contingencies were not expected to cause a material loss; no material changes to the prior annual report’s risk factors were reported.
Important facts for investors to verify
- Separate recurring operating growth from the $2.129 billion PSB sale gain and foreign currency gains; review Core FFO alongside GAAP earnings.
- Track occupancy, move-ins versus move-outs, rental-rate growth, promotional discounts, and whether same-store revenue gains persist as occupancy normalizes.
- Assess the effect of inflation and property-tax, payroll, marketing, and interest-cost increases on NOI and margins.
- Review debt maturities, refinancing costs, liquidity, and the funding plan for development, acquisitions, capital spending, and dividends.
- Monitor lease-up and returns on acquired and developed facilities, including the remaining development pipeline and post-quarter acquisitions.