Public Storage quarterly report, Q1 FY2021

Full document

Public Storage — Q1 2021 Form 10-Q Summary

Business context and reporting period

For the three months ended March 31, 2021, Public Storage operated 2,563 self-storage facilities across 38 U.S. states, with approximately 176.2 million net rentable square feet. The company also held interests in Shurgard (approximately 35%) and PS Business Parks (approximately 42%). Figures below are unaudited and compared with Q1 2020 unless otherwise stated.

Financial and operating performance

  • Revenue: Total revenue was $767.3 million, up 6.7% from $719.0 million. Self-storage revenue grew 6.3% to $716.3 million; ancillary revenue increased 13.5% to $50.9 million.
  • Profit and per-share results: Net income was $434.3 million versus $367.1 million. Net income allocable to common shareholders was $385.8 million, or $2.21 per diluted share, versus $313.1 million, or $1.79. Management attributed the increase primarily to higher self-storage NOI and foreign-exchange gains, partly offset by increased depreciation and amortization.
  • Operating performance: Self-storage NOI rose 8.9% to $504.2 million. Same-store revenue increased 3.4% and same-store NOI rose 6.7%. Same-store average occupancy was 95.6%, up from 93.0%; realized rent per occupied square foot increased 1.7%. Same-store operating costs declined 4.3%, including lower property taxes and on-site payroll.
  • Margins: Same-store NOI margin was 72.1%, compared with 69.8% in Q1 2020. This measure excludes depreciation and amortization.
  • FFO: FFO per diluted share increased 18.0% to $3.08. Core FFO per share, a company-defined non-GAAP measure, increased 9.3% to $2.82.
  • Cash flow and investment: Operating cash flow was $509.2 million, versus $463.0 million. Investing activities used $403.7 million, including $203.1 million for acquisitions and $61.2 million for development and expansion. Cash and equivalents were $159.6 million at quarter-end, down from $257.6 million at year-end 2020.
  • Debt and liquidity: Notes payable totaled $3.0 billion, up from $2.5 billion at December 31, 2020, following issuance of $500 million of 0.875% senior notes in January. The weighted-average effective debt rate was 2.2%. The $500 million revolving facility was undrawn, with $475.7 million available after letters of credit; the company reported covenant compliance.
  • Shareholder distributions: Common distributions were $2.00 per share, totaling $350.1 million. Preferred distributions were $46.1 million. The company redeemed its 5.400% Series B preferred shares for $300 million in January.

Material changes versus Q1 2020

  • Common diluted EPS increased $0.42. The $45.4 million foreign-currency gain on euro-denominated debt was $36.4 million greater than the prior-year gain and materially contributed to earnings growth; it is excluded from Core FFO.
  • Same-store occupancy and rent improved, while late charges and administrative fees fell 24.9%, partly due to tenants paying more promptly and fewer move-ins.
  • Interest expense increased to $15.3 million from $13.6 million. Depreciation and amortization rose 8.1% to $146.9 million.
  • Equity earnings from unconsolidated entities declined to $19.5 million from $24.0 million, largely because Q1 2020 included PSB real-estate sale gains.
  • Capital spending for maintenance decreased to $36.6 million from $57.5 million, while development and expansion spending increased to $61.2 million from $47.6 million.

Outlook, commentary, risks and unusual items

  • Management expected continued revenue growth during 2021, supported by stronger demand and modest move-outs. It cautioned that second-half growth was less certain because of difficult comparisons and the possibility that move-outs return to historical levels. Local emergency restrictions on rent increases were expected to affect some revenue during 2021.
  • Management estimated 2021 property-tax expense would increase approximately 5% over 2020, and maintenance capital expenditures would total $250 million to $300 million. It expected to spend approximately $120 million in 2021 on a multi-year facility rebranding and customer-area upgrade program.
  • At March 31, the development pipeline comprised 16 new facilities and 25 expansions, expected to add approximately 3.4 million square feet at a total cost of $510.3 million; $309.0 million remained to be spent, primarily over 18–24 months. The company noted permitting, project-yield, cost-overrun and stabilization risks.
  • After quarter-end, the company acquired or was under contract to acquire 87 facilities for approximately $2.3 billion, including the 48-property ezStorage portfolio for $1.8 billion, subject to customary closing conditions. It also completed a $2.0 billion senior-note offering on April 23, 2021. Management estimated next-year capital resources of $2.9 billion against identified needs of $2.6 billion, including those post-quarter financing proceeds and acquisitions.
  • Other notable items included a $9.4 million gain on an eminent-domain sale and $3.8 million of accelerated share-based compensation expense related to retirement-plan changes. No impairment charges were recorded. Management said litigation-related material losses were remote and reported no material changes to previously disclosed risk factors.
  • Key risks include COVID-19-related demand and collection changes, a potential rebound in move-outs, rent-increase restrictions, local economic and property-tax changes, new supply and competition, acquisition and development execution, and foreign-currency fluctuations.

Important facts for investors to verify

  • Whether occupancy, move-out trends, rent growth and collections remain favorable as pandemic-related behavior normalizes and comparisons become more challenging.
  • Whether the ezStorage and other announced acquisitions close as expected, and whether acquisition pricing and lease-up deliver anticipated returns.
  • Whether development costs, permitting, project timing and the $250–$300 million maintenance-capex and $120 million rebranding plans remain on budget.
  • How much reported earnings growth depends on foreign-exchange movements and other nonrecurring items, versus recurring property operations; review GAAP net income alongside FFO and Core FFO.
  • Whether the company’s liquidity, debt covenants and financing assumptions remain adequate after acquisitions, distributions and development commitments.