Public Storage 10-Q Summary: Period Ended June 30, 2009
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2009, for Public Storage, a Maryland real estate investment trust (REIT). The Company is the largest owner and operator of self-storage facilities in the U.S. and holds a 49% equity interest in Shurgard Europe. The filing includes unaudited condensed consolidated financial statements and management's discussion and analysis (MD&A).
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $811.96 million | $875.65 million |
| Net Income | $358.82 million | $663.90 million |
| Net Income Allocable to Common Shareholders | $294.98 million | $512.81 million |
| Diluted EPS (Common) | $1.75 | $3.04 |
| Net Cash Provided by Operating Activities | $542.25 million | $511.19 million |
| Cash and Cash Equivalents (Ending) | $584.86 million | $775.00 million |
| Total Debt (Notes Payable) | $524.44 million | $643.81 million |
| Same Store Occupancy (Weighted Avg) | 88.9% | 89.9% |
| Same Store Realized Rent per Sq. Ft. | $12.69 | $12.88 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 7.3% year-over-year. Same Store facility revenues declined 2.2% due to a 1.5% reduction in realized rent per occupied square foot and a 1.1% reduction in average occupancy, driven by recessionary pressures.
- Net Income Decrease: Net income dropped significantly ($305 million) compared to the prior year. This is primarily attributable to the absence of a $341.8 million gain on the disposition of an interest in Shurgard Europe recorded in the first half of 2008.
- Expense Reductions: General and administrative expenses decreased by $30.2 million ($48.1M vs. $17.9M), largely due to the absence of $27.9 million in incentive compensation related to the 2008 Shurgard Europe disposition. Depreciation and amortization decreased by $48.3 million due to reduced intangible amortization.
- Foreign Exchange: The Company recorded a foreign currency exchange loss of $1.5 million for the six months ended June 30, 2009, compared to a gain of $41.0 million in the same period in 2008, reflecting fluctuations in the Euro/U.S. Dollar exchange rate.
- Discontinued Operations: The Company terminated its truck rental and containerized storage business units. An $8.2 million impairment charge related to an eminent domain proceeding at one facility was recorded in discontinued operations.
Guidance, Outlook, and Risks
- Outlook: Management expects revenue declines for Same Store facilities in the third quarter of 2009 to surpass 5% compared to the prior year. The Company anticipates continued downward pressure on occupancy and rental rates due to the economic environment.
- Capital Deployment: With $584.9 million in cash on hand, the Company is monitoring opportunities to deploy capital, primarily through the acquisition of facilities or the opportunistic repurchase of its own debt and equity securities. No new development projects are currently planned.
- Dividends: The Company expects to maintain quarterly distributions of at least $0.55 per common share for 2009 to satisfy REIT distribution requirements.
- Risks: Key risks include the potential failure to qualify as a REIT, which would subject the Company to corporate income tax; continued economic downturns affecting self-storage demand; and foreign currency exchange rate fluctuations impacting the Shurgard Europe loan receivable and investment.
- Unusual Items: The Company repurchased $110.2 million of senior unsecured notes and $24.6 million of preferred shares at a discount to liquidation value, generating gains and reducing future dividend obligations.
Investor Verification Checklist
- REIT Status: Verify continued compliance with REIT distribution requirements (90% of taxable income) to avoid corporate taxation.
- Shurgard Europe Loan: Monitor the $550.5 million loan receivable from Shurgard Europe, which matures March 31, 2010, and the Company's commitment to provide up to an additional €185 million in loans.
- Occupancy Trends: Track Same Store occupancy and rental rate trends, which are currently declining due to macroeconomic conditions.
- Debt Maturities: Review the schedule of debt maturities, noting $5.5 million due in 2009 and $131.2 million due in 2011.
- Discontinued Operations: Confirm the final disposition of the truck rental and containerized storage assets and the resolution of the eminent domain proceeding.