Public Storage annual report, FY2020

Public Storage — 2020 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2020; this is an annual report, not a standalone fourth-quarter filing. Public Storage is a Maryland REIT focused on self-storage, with tenant reinsurance, merchandise sales, third-party management, and equity investments in PS Business Parks and Shurgard.

Business context and key financial metrics

At year-end, the company consolidated 2,548 self-storage facilities in 38 U.S. states, with approximately 175.1 million rentable square feet. It also held about 42% of PS Business Parks and 35% of Shurgard.

Metric20202019
Total revenue$2.915 billion$2.855 billion
Net income$1.361 billion$1.526 billion
Net income allocable to common shareholders$1.098 billion; $6.29 diluted per share$1.273 billion; $7.29 diluted per share
FFO per diluted common share (non-GAAP)$9.75$10.58
Core FFO per diluted common share (non-GAAP)$10.61$10.75
Net cash from operating activities$2.043 billion$2.068 billion
Cash and equivalents at year-end$257.6 million$409.7 million
Notes payable, net book value$2.545 billion$1.902 billion

Self-storage revenue was $2.722 billion and segment net operating income (NOI) was $1.914 billion. Same-store NOI margin, calculated as NOI divided by revenue, was 71.8%, versus 72.8% in 2019. Same-store average occupancy rose to 94.5% from 93.4%, while realized annual rent per occupied square foot fell 1.1% to $17.34.

Investing cash outflow included $170.0 million of maintenance capital expenditures, $189.4 million for development and expansion, and $792.3 million for property acquisitions. Financing cash outflow included $1.606 billion of distributions to preferred and common shareholders and restricted share unitholders. The common dividend was $8.00 per share for 2020.

Material changes versus the prior comparable period

  • Total revenue increased about 2.1%, supported by acquisitions, newly developed and expanded facilities, and higher ancillary revenue. Same-store revenue declined 1.0%, and same-store NOI declined 2.3%.
  • Common-shareholder net income fell $174.4 million, or $1.00 per diluted share. Management attributed the decline principally to a $105.8 million unfavorable year-over-year change in foreign-currency effects, higher depreciation and amortization, higher general and administrative expense, preferred-share redemption allocations, and lower self-storage NOI.
  • Same-store costs rose 2.7%; marketing expense increased 22.5% and property taxes increased 3.1%. Tenant reinsurance NOI rose to $120.8 million from $105.7 million.
  • Debt increased during the year, including issuance of €500 million of notes. The company also issued $1.25 billion of preferred securities and redeemed preferred securities; $300 million of Series B preferred shares was called for redemption at year-end and redeemed in January 2021.

Outlook, commentary, risks, and unusual items

  • Management reported improving same-store trends in the second half: fourth-quarter same-store revenue rose 0.8% year over year. Year-end same-store occupancy was 94.2%, up from 91.7%, while contract rent per occupied foot was nearly flat.
  • Management expected continued revenue growth in the first half of 2021, citing demand and modest move-out activity, but noted greater uncertainty in the second half and risks that move-outs could return to historical levels. This is management commentary, not formal earnings guidance.
  • Management expected 2021 property-tax expense growth of approximately 5.5%; maintenance capital expenditures of about $250 million in 2021 and $250–$300 million annually over the following several years; and $250–$300 million of retained operating cash flow in 2021.
  • At year-end, identified capital resources for the next year were approximately $1.5 billion versus identified needs of about $1.3 billion. Resources included cash, $475.7 million of available revolver capacity, proceeds from a subsequent $500 million senior-note offering, and expected retained operating cash flow. The $500 million notes bear 0.875% interest and mature in 2026.
  • Debt principal was approximately $2.558 billion, with a weighted-average effective rate of 2.4%; the filing said there were no material maturities until September 2022. The $500 million revolving facility was undrawn at year-end, subject to $24.3 million of letters of credit.
  • Key risks include continuing COVID-19 effects on demand, collections, tenant moves, and regulation; new facility supply and competition; reliance on Google for customer acquisition; property-tax increases, especially in California; development delays and cost overruns; foreign-exchange exposure; and cyber, privacy, environmental, and legal risks. Management said COVID’s future financial effects could be material and could not be estimated.
  • Unusual items included a $98.0 million foreign-currency exchange loss on Euro-denominated debt, versus gains in 2019 and 2018, and $48.3 million of preferred-share redemption allocations to common shareholders. No asset impairments were recorded in the periods presented. The 2018 comparison included a $151.6 million gain associated with Shurgard’s public offering.
  • The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls. The auditor identified purchase-price allocation for 2020 acquisitions as a critical audit matter.

Important facts for investors to verify

  • Whether occupancy gains can be sustained while realized rents, same-store revenue, and NOI recover.
  • How much 2021 results depend on lower move-outs and pandemic-related changes in customer behavior, and whether those effects reverse.
  • Acquisition and development costs, lease-up progress, project contingencies, and returns relative to underwriting expectations.
  • Debt balances, foreign-currency exposure, preferred-share redemptions, dividend requirements, and the assumptions behind management’s liquidity estimates.
  • Potential property-tax increases, local rent restrictions, new supply, and customer-acquisition costs, particularly in markets with weaker same-store performance.