Public Storage 10-Q Summary: Quarter Ended March 31, 2009
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Public Storage, a Maryland real estate investment trust (REIT) and the largest owner and operator of self-storage facilities in the U.S. The report covers the three-month period ended March 31, 2009. The Company operates primarily through three segments: U.S. Self-Storage, Shurgard Europe (an equity investment), and Ancillary operations (reinsurance, merchandise, and commercial property management). The Company qualified as a REIT and intends to continue to do so.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $405.1 million | $457.5 million |
| Net Income | $153.4 million | $519.9 million |
| Net Income Allocable to Common Shareholders | $159.5 million | $444.8 million |
| Diluted EPS (Common) | $0.95 | $2.63 |
| Net Cash Provided by Operating Activities | $259.5 million | $239.7 million |
| Cash and Cash Equivalents (Ending) | $493.4 million | $726.9 million |
| Total Debt (Notes Payable) | $527.2 million | $643.8 million |
| Self-Storage Rental Income | $371.6 million | $424.6 million |
| Same Store Occupancy (Weighted Avg) | 87.9% | 88.8% |
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased by $366.5 million ($70.5%) compared to Q1 2008. This is primarily due to the absence of a $341.9 million gain on the disposition of an interest in Shurgard Europe recorded in Q1 2008.
- Foreign Exchange Impact: The Company recorded a foreign currency exchange loss of $34.7 million in Q1 2009, compared to a gain of $41.0 million in Q1 2008. This relates to fluctuations in the Euro/U.S. Dollar exchange rate affecting a loan receivable from Shurgard Europe.
- Operating Performance: Same Store rental income decreased 0.8% and occupancy dropped 1.0% due to recessionary pressures. However, Net Operating Income (NOI) for Same Store facilities increased 7.4% due to reduced amortization of tenant intangibles.
- Debt Reduction: Total notes payable decreased by $116.6 million, driven by a tender offer to retire $110.2 million of senior unsecured notes, resulting in a $4.1 million gain on early retirement of debt.
- Discontinued Operations: The Company terminated its truck rental and containerized storage business units, reclassifying their results to discontinued operations.
Guidance, Outlook, and Risks
- Capital Deployment: Management holds $493.4 million in cash and is monitoring opportunities to deploy capital, primarily through opportunistic acquisitions of facilities or repurchasing its own debt and equity securities at discounts.
- Dividends: The Company anticipates a minimum quarterly distribution of $0.55 per common share for 2009. A $0.55 per share dividend was declared for the second quarter of 2009.
- Development: Development activities have been substantially reduced due to the recession and a belief that capital can be better utilized elsewhere. The development pipeline is nominal.
- Shurgard Europe: The Company expects continued declines in operating results for Shurgard Europe in 2009. A $517.5 million loan receivable from Shurgard Europe matures March 31, 2010; repayment is expected but dependent on credit market conditions.
- Risks: Key risks include the impact of the global fiscal crisis on demand, foreign currency fluctuations, potential failure to qualify as a REIT, and the inability to raise capital at reasonable costs due to tight credit markets.
Investor Verification Checklist
- Shurgard Europe Loan Repayment: Verify the status of the $517.5 million Euro-denominated loan receivable and the likelihood of full repayment by the March 31, 2010 maturity date given current credit market conditions.
- Foreign Exchange Sensitivity: Assess the ongoing impact of Euro/U.S. Dollar fluctuations on the Company's earnings, specifically regarding the Shurgard Europe loan and equity investment.
- Same Store Trends: Monitor occupancy and rental rate trends in key markets (e.g., Florida, Southern California) to gauge the depth of the recessionary impact on core operations.
- Capital Market Access: Evaluate the Company's ability to refinance debt or issue new equity if market conditions do not improve, given the current difficulty in accessing capital.
- REIT Compliance: Confirm the Company's continued qualification as a REIT to avoid corporate-level taxation, particularly given the distribution requirements.