Public Storage — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Public Storage is a self-storage REIT with interests in 2,797 U.S. facilities totaling approximately 199.1 million net rentable square feet, plus investments in Shurgard and PS Business Parks (PSB).
Financial and operating performance
| Metric | Q1 2022 | Prior period / change |
|---|---|---|
| Total revenue | $973.4 million | $767.3 million; up 26.9% |
| Net income | $516.3 million | $434.3 million; up 18.9% |
| Net income allocable to common shareholders | $464.1 million; $2.63 diluted EPS | $385.8 million; $2.21 diluted EPS |
| FFO per diluted share (non-GAAP) | $3.83 | $3.08; up 24.4% |
| Core FFO per diluted share (non-GAAP) | $3.65 | $2.82; up 29.4% |
| Cash from operating activities | $656.2 million | $509.2 million |
| Cash and equivalents at quarter-end | $940.5 million | $734.6 million at December 31, 2021 |
| Notes payable, carrying value | $7.442 billion | $7.475 billion at December 31, 2021 |
Self-storage net operating income (NOI, non-GAAP) rose 33.2% to $671.5 million. Same-store revenue increased 15.8% and same-store NOI increased 20.5%; same-store NOI margin before depreciation was 74.9%, versus 72.0%. Average same-store occupancy was 95.6% in both periods, while quarter-end occupancy was 95.1% versus 95.9%. Realized annual rent per occupied square foot rose 15.7%.
Investing activities used $288.5 million, including $99.5 million for maintenance capital expenditures, $76.7 million for development and expansion, and $112.3 million for acquisitions. Financing activities used $161.3 million. The company issued $250 million of Series S preferred shares, net of issuance costs. It paid $2.00 per common share in Q1 distributions.
Material changes and drivers
- Common-shareholder net income increased $78.3 million. Management attributed the improvement mainly to a $167.3 million increase in self-storage NOI and $23.6 million of the company’s equity share of PSB real-estate sale gains. These were partly offset by $75.3 million higher depreciation and amortization, $17.9 million higher interest expense, lower foreign-exchange gains, and a $9.4 million property-sale gain in Q1 2021 that did not recur.
- Same-store rental income growth reflected higher rents to existing and new tenants and reduced promotional discounts. Move-ins declined 4.9% and move-outs increased 5.0% year over year. Same-store operating costs rose 3.6%, including higher property taxes, repairs and maintenance, and centralized management costs; lower marketing expense partially offset these increases.
- Acquisitions and lease-up of newer properties boosted non-same-store NOI. The company acquired ten facilities in Q1 for a total cost of $127.7 million, partly paid in subsidiary partnership units. Higher acquired-property amortization contributed to the increase in depreciation expense.
- Equity earnings from unconsolidated entities increased to $43.4 million from $19.5 million, including higher PSB earnings and the PSB property-sale gain. Foreign-currency gains were $35.4 million, down from $45.4 million.
Outlook, liquidity, and risks
- Management expected continued same-store revenue growth for the rest of 2022, supported by demand, higher realized rents, and high occupancy; no full-year earnings or FFO guidance is provided in the supplied filing text.
- Management expected approximately $700 million of retained operating cash flow over the next 12 months, similar to 2021. The $500 million revolving facility had no borrowings; $21.2 million of letters of credit left approximately $478.8 million available. The company reported compliance with debt and credit-facility covenants, an approximately 1.8% weighted-average effective debt rate, and strong credit ratings.
- Expected 2022 maintenance capital expenditures were approximately $300 million. The Property of Tomorrow program was expected to cost about $180 million in 2022 and continue through 2025. The company also expected $30 million of 2022 investment in LED lighting and solar panels.
- Construction commitments totaled $204.9 million at quarter-end; development and expansion projects had an estimated $496.2 million of costs remaining, expected primarily over 18–24 months. Management cited permitting constraints and difficulty finding projects meeting its return expectations.
- After quarter-end, PSB agreed to be acquired by Blackstone affiliates for $187.50 per share. If completed, Public Storage expected about $2.7 billion in proceeds, an approximately $2.2 billion accounting gain, and a roughly $2.3 billion taxable-gain distribution to common shareholders. Closing was expected in Q3 2022 but remained subject to customary conditions, including PSB shareholder approval. Public Storage said future operating results would no longer include PSB contributions after the transaction.
- Risks highlighted include changes in storage demand and new supply, property taxes and labor costs, natural disasters, foreign-exchange movements, capital-market access, economic and geopolitical disruption, cybersecurity events, and the possibility that the PSB transaction may not close. The company stated that material loss from its legal proceedings was remote and reported no material change in its previously disclosed risk factors.
Important facts for investors to verify
- Whether the PSB merger closes on expected terms and timing, and the actual proceeds, gain, and required shareholder distribution.
- Whether strong same-store rent growth can continue without further weakening occupancy, given lower move-ins and higher move-outs.
- How property-tax, wage, repair, and technology costs affect margins as management’s stated cost pressures continue.
- Debt maturities and refinancing conditions, especially approximately $500 million of notes due in the remainder of 2022 and approximately $811 million in 2024.
- Progress, remaining funding needs, and lease-up returns for the acquisition, development, expansion, and Property of Tomorrow programs.
- Interpret non-GAAP NOI, FFO, and Core FFO alongside GAAP net income and cash flow; these measures are not substitutes for them and may not be comparable across REITs.