Public Storage — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Public Storage is a REIT focused on self-storage and related services. At quarter-end it had interests in 2,877 U.S. facilities with approximately 204.9 million net rentable square feet and a 35% interest in Shurgard.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $1,094.2 million | $973.4 million |
| Net income | $520.4 million | $516.3 million |
| Net income allocable to common shareholders | $467.6 million | $464.1 million |
| Diluted EPS | $2.65 | $2.63 |
| FFO per diluted share (non-GAAP) | $3.94 | $3.83 |
| Core FFO per diluted share (non-GAAP) | $4.08 | $3.65 |
| Operating cash flow | $696.9 million | $656.2 million |
- Self-storage revenue grew 12.6% to $1,032.2 million; ancillary revenue rose to $62.0 million. Self-storage NOI increased 13.7% to $763.6 million.
- Same-store revenue grew 9.8% and NOI 11.2%. Same-store average occupancy declined to 93.2% from 95.5%, while realized rent per occupied square foot rose 12.4% to $22.65. Same-store operating costs increased 5.6%; reported gross margin before depreciation and amortization was 75.6%, versus 74.6%.
- Investing cash outflow was $212.3 million, including $96.6 million of maintenance capital expenditures, $68.9 million for development and expansion, and $46.8 million for acquisitions. Financing cash outflow was $564.0 million, including shareholder distributions. Cash and equivalents ended at $695.4 million, down from $775.3 million at year-end 2022.
- Notes payable totaled $6.9 billion; weighted-average effective interest rate was 2.2%. Debt fair value was approximately $6.0 billion. Debt maturities include $808.9 million in 2024 and $1.15 billion in 2026. The $500 million revolving facility had no borrowings; $18.6 million of letters of credit reduced availability. The company reported compliance with debt covenants.
Changes versus prior-year quarter
- Common diluted EPS increased 0.8%; common-shareholder net income increased $3.5 million. Self-storage NOI increased $92.0 million, including $64.4 million from same-store facilities and $27.6 million from non-same-store facilities.
- Results included a $26.9 million foreign-currency loss, compared with a $35.4 million gain in Q1 2022, primarily from translating euro-denominated debt. Equity earnings from unconsolidated entities fell $37.4 million, principally because Public Storage sold its PS Business Parks interest in July 2022.
- Interest and other income increased $15.3 million, largely due to higher interest earned on cash balances. Interest expense rose to $36.1 million from $33.1 million, primarily reflecting higher rates on variable-rate debt, partly offset by debt redemption savings.
- The quarterly common distribution increased from $2.00 to $3.00 per share; Q1 common distributions were $527.6 million versus $351.2 million a year earlier.
Outlook, risks and notable items
- Management said demand softened from the second half of 2022 through Q1 2023 and returned to more typical seasonal patterns. It expects weaker industry demand for the rest of 2023, moderating income growth, and a significant decline in revenue growth versus 2021–2022; year-over-year revenue declines in the second half of 2023 are possible. Management plans to support demand with marketing, lower move-in rates and increased promotions.
- Management expected approximately $400 million of retained operating cash flow in 2023. It expected about $450 million of capital expenditures, including approximately $160 million for its Property of Tomorrow program and $132 million for solar and LED investments.
- At March 31, the development and expansion pipeline had estimated remaining costs of $648.6 million, expected primarily over 18–24 months. Construction commitments totaled $249.5 million. Subsequent to quarter-end, the company acquired or was under contract to acquire 12 facilities for $139.0 million.
- Risks cited include macroeconomic uncertainty and weaker demand, inflation in labor and operating costs, property-tax increases, foreign-exchange movements, natural disasters, regulatory changes, cybersecurity and capital-market conditions. The company said legal claims were not expected to result in material loss; it reported no material change to previously disclosed risk factors.
- The May 2, 2023 board declaration set a $3.00-per-share quarterly common dividend, approximately $526 million in total, payable at quarter-end in June. Management’s statements are forward-looking and subject to risks; Q1 results are not necessarily indicative of full-year results.
Investor verification points
- Track occupancy, move-in and move-out volumes, realized rents and promotional spending against management’s expectation of weaker demand and possible second-half revenue declines.
- Assess whether operating-cost inflation, especially property taxes, payroll, repairs and marketing, remains consistent with management’s outlook.
- Review the timing and financing of 2024 debt maturities, the April 2024 revolving-facility maturity, and planned development, acquisition and capital-expenditure commitments.
- Distinguish GAAP earnings from NOI, FFO and Core FFO, which are non-GAAP measures; consider the effect of currency movements and the prior-year PSB earnings comparison.
- Monitor cash generation and distributions following the 50% increase in the common dividend, as well as progress and spending on the development pipeline and Property of Tomorrow program.