Business context and reporting period
Public Storage (NYSE: PSA) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The REIT operates self-storage facilities and related businesses. At quarter-end, it had interests in 2,649 U.S. self-storage facilities with approximately 183.5 million net rentable square feet, as well as investments in Shurgard and PS Business Parks.
Financial and operating performance
Amounts below are in millions, except per-share data, percentages, and where noted.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $829.3 | $712.9 | $1,596.6 | $1,432.0 |
| Net income | $411.7 | $315.8 | $846.0 | $682.9 |
| Net income allocable to common shareholders | $346.2 | $246.1 | $732.1 | $559.3 |
| Diluted EPS | $1.97 | $1.41 | $4.18 | $3.20 |
| FFO per diluted share (non-GAAP) | $2.99 | $2.28 | $6.07 | $4.90 |
| Core FFO per diluted share (non-GAAP) | $3.15 | $2.46 | $5.97 | $5.04 |
Q2 revenue increased 16.3% and net income increased 30.4% year over year. For the six months, revenue increased 11.5% and net income increased 23.9%. Management attributed common earnings growth primarily to higher self-storage net operating income (NOI), with the six-month comparison also benefiting from foreign-exchange movements on Euro-denominated debt.
- Self-storage: Q2 segment revenue was $777.0 million and NOI was $574.4 million, up 16.9% and 28.3%, respectively. Six-month NOI was $1,078.6 million, up 18.4%.
- Same-store operations: Revenue grew 10.8% in Q2 and 7.1% for the six months; NOI grew 21.7% and 14.1%, respectively. Q2 same-store NOI margin, calculated as NOI divided by revenue, was 75.4% versus 68.7% a year earlier.
- Same-store demand and pricing: Q2 average occupancy was 97.0%, versus 94.2%; realized rent per occupied square foot rose 7.8%. At June 30, same-store occupancy was 96.5% and annual contract rent per occupied square foot was up 8.8% year over year.
- Cash flow: For the six months, operating cash flow was $1,130.5 million; investing cash outflow was $2,719.7 million; financing cash inflow was $1,812.9 million. Cash and equivalents increased $223.8 million, including restricted cash, to $506.4 million.
- Debt and liquidity: Notes payable totaled $5,024.4 million at June 30, compared with $2,545.0 million at December 31, 2020. Weighted-average effective debt rate was 2.0%; debt fair value was approximately $5.2 billion. Cash and equivalents were $480.8 million, and $474.9 million of revolving-credit capacity was available. No revolver borrowings were outstanding.
- Distributions: Common distributions were $2.00 per share for Q2 and $4.00 per share for the six months. The Board declared a further $2.00-per-share quarterly dividend on July 28, payable in September.
Material changes versus the prior comparable period
- Same-store performance strengthened, reflecting higher rents and occupancy, reduced promotional discounts, and lower operating costs. Management noted Q2 2020 comparisons were affected by temporarily curtailed tenant rate increases and pandemic-related costs and restrictions.
- Acquisitions expanded the portfolio: the company acquired 99 facilities during the first six months for approximately $2.5 billion, including the 48-property ezStorage portfolio acquired April 28 for $1.8 billion. The acquired-facility segment remained loss-making after depreciation and amortization, which rose substantially with the acquisitions.
- Debt increased following 2021 note offerings totaling $2.5 billion. The offerings included $700 million of floating-rate notes and $1.3 billion of fixed-rate notes in April, in addition to $500 million of 0.875% notes issued in January.
- General and administrative expense rose to $27.7 million in Q2 from $17.1 million, primarily due to higher share-based compensation. The company recorded $11.0 million of accelerated compensation expense in the six months following a plan change that allows eligible employees’ awards to vest upon retirement.
- Foreign-currency results were volatile: the company recorded a $12.7 million Q2 loss and a $32.7 million six-month gain, compared with losses in both 2020 periods. It also recorded $13.4 million of six-month gains on real-estate sales, primarily related to eminent-domain proceedings.
Outlook, risks, contingencies, and unusual items
- Management expected continued year-over-year revenue growth in the second half of 2021, supported by stable demand and strong rates, but cautioned that a return to typical seasonal move-out patterns could lower occupancy in Q4.
- Management estimated 2021 same-store property-tax expense would increase approximately 5% versus 2020, despite lower reported first-half expense partly due to the timing of 2020 accruals. Full-year maintenance capital expenditures were expected to be $250–$300 million; approximately $133 million was expected for the multi-year rebranding and customer-area upgrade program.
- The development and expansion pipeline totaled approximately $661 million, with $411.3 million remaining to spend, primarily over the next 18–24 months. The company cited permitting challenges and difficulty finding projects meeting its return expectations. It typically underwrites new developments to approximately an 8% stabilized NOI yield on cost; actual returns are not assured.
- Management estimated approximately $1.3 billion of capital resources over the next year against approximately $1.2 billion of identified needs, including $466.6 million of acquisitions under contract, the $325 million Series D preferred redemption, and remaining pipeline spending. It expected approximately $300 million of retained operating cash flow in 2021.
- Subsequent to quarter-end, the company acquired or was under contract to acquire 36 facilities for $466.6 million; eight were under construction and expected to close as completed. It redeemed Series D preferred shares for $325 million on July 20, 2021.
- Key risks cited include changing storage demand and move-out behavior, COVID-19 and variants, new supply and competition, potential migration from high-cost markets, acquisition and development execution, property-tax changes, foreign-exchange movements, and access to capital. Legal proceedings were described as unlikely to result in a material loss; no asset impairments were recorded. The filing reported no material change to previously disclosed risk factors.
- The company reported compliance with debt covenants and no material off-balance-sheet arrangements. Its $500 million revolving facility matures in April 2024; $25.1 million of letters of credit reduced available capacity.
Most important facts for investors to verify
- Whether same-store rent growth and high occupancy persist, particularly if seasonal move-outs normalize or demand weakens.
- Whether acquired facilities—especially ezStorage—meet expected stabilization and return targets, and how acquisition-related depreciation affects reported earnings.
- Whether operating cash flow and available financing remain sufficient for dividends, acquisitions, the development pipeline, and debt maturities.
- How much of reported earnings growth reflects recurring property operations versus foreign-exchange gains, real-estate sale gains, and elevated share-based compensation.
- Whether estimated property-tax increases, capital spending, development costs, and post-quarter acquisition commitments track management’s expectations.