Public Storage Reports Results For The Three And Six Months ...| MENAFN.COM

Tuesday, 09 August 2022 02:32 GMT

Public Storage Reports Results For The Three And Six Months Ended June 30, 2022


(MENAFN- Caribbean News Global)

GLENDALE, Calif.–(BUSINESS WIRE)–Public Storage (NYSE:PSA) announced today operating results for the three and six months ended June 30, 2022.

“Public Storage's operating strength was evident during the quarter, with strong performance across the same store and non-same store portfolios driving an increase in our outlook for the back half of the year,” said Joe Russell, President and Chief Executive Officer.“As we approach our 50th Anniversary this month, I want to commend the Public Storage team, past and present, for delivering exceptional performance utilizing our industry-leading platform and digital customer experience, multi-factor external growth, and balance sheet strength. We are well positioned as we look to the future.”

Highlights for the Three Months Ended June 30, 2022

  • Reported net income allocable to common shareholders of $3.42 per diluted share.
  • Reported core FFO allocable to common shareholders (“Core FFO”) of $3.99 per diluted share, an increase of 26.7% relative to the same period in 2021.
  • Increased Same Store (as defined below) direct net operating income by 17.8%, resulting from a 15.9% increase in Same Store revenues.
  • Achieved 80.6% Same Store direct net operating income margin, an increase of 1.6% relative to the same period in 2021.
  • Acquired ten self-storage facilities with 0.7 million net rentable square feet for $123.6 million. Subsequent to June 30, 2022, we acquired or were under contract to acquire 24 self-storage facilities with 1.7 million net rentable square feet, for $257.4 million.
  • Completed various expansion projects with 0.3 million net rentable square feet costing $36.9 million. At June 30, 2022, we had various facilities in development and expansion with 5.4 million net rentable square feet estimated to cost $1.0 billion.

Operating Results for the Three Months Ended June 30, 2022

For the three months ended June 30, 2022, net income allocable to our common shareholders was $603.4 million or $3.42 per diluted common share, compared to $346.2 million or $1.97 per diluted common share in 2021, representing an increase of $257.2 million or $1.45 per diluted common share. The increase is due primarily to (i) a $160.9 million increase in self-storage net operating income, (ii) a $114.4 million increase in foreign currency exchange gains primarily associated with our Euro denominated notes payable, (iii) a $21.1 million increase in our equity share of gains on sale of real estate recorded by our unconsolidated real estate entities, and (iv) a $17.0 million decrease in allocations to preferred shareholders with respect to redemption of preferred shares, partially offset by (v) a $46.0 million increase in depreciation and amortization expense and (vi) a $10.9 million increase in interest expense.

The $160.9 million increase in self-storage net operating income in the three months ended June 30, 2022 as compared to the same period in 2021 is a result of a $95.7 million increase attributable to our Same Store Facilities and a $65.2 million increase attributable to our Non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities increased 15.9% or $108.4 million in the three months ended June 30, 2022 as compared to 2021, due primarily to higher realized annual rent per available square foot. Cost of operations for the Same Store Facilities increased by 7.6% or $12.7 million in the three months ended June 30, 2022 as compared to 2021, due primarily to increased property tax expense, on-site property manager payroll expense, marketing expense, other direct property costs, and centralized management costs. The increase in net operating income of $65.2 million for the Non-Same Store Facilities is due primarily to the impact of facilities acquired in 2021 and the fill-up of recently developed and expanded facilities.

Operating Results for the Six Months Ended June 30, 2022

For the six months ended June 30, 2022, net income allocable to our common shareholders was $1,067.5 million or $6.05 per diluted common share, compared to $732.1 million or $4.18 per diluted common share in 2021, representing an increase of $335.4 million or $1.87 per diluted common share. The increase is due primarily to (i) a $328.2 million increase in self-storage net operating income, (ii) a $104.4 million increase in foreign currency exchange gains primarily associated with our Euro denominated notes payable, (iii) a $44.7 million increase in our equity share of gains on sale of real estate recorded by our unconsolidated real estate entities, and (iv) a $17.0 million decrease in allocations to preferred shareholders with respect to redemption of preferred shares, partially offset by (v) a $121.2 million increase in depreciation and amortization expense and (vi) a $28.8 million increase in interest expense.

The $328.2 million increase in self-storage net operating income in the six months ended June 30, 2022 as compared to the same period in 2021 is a result of a $191.3 million increase attributable to our Same Store Facilities and a $136.9 million increase attributable to our Non-Same Store Facilities. Revenues for the Same Store Facilities increased 15.9% or $210.5 million in the six months ended June 30, 2022 as compared to 2021, due primarily to higher realized annual rent per available square foot. Cost of operations for the Same Store Facilities increased by 5.5% or $19.2 million in the six months ended June 30, 2022 as compared to 2021, due primarily to increased property tax expense, on-site property manager payroll expense, other direct property costs, and centralized management costs. The increase in net operating income of $136.9 million for the Non-Same Store Facilities is due primarily to the impact of facilities acquired in 2021 and the fill-up of recently developed and expanded facilities.

Funds from Operations

For the three months ended June 30, 2022, funds from operations (“FFO”) was $4.58 per diluted common share as compared to $2.99 in the same period in 2021, representing an increase of 53.2%. FFO is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts and generally represents net income before depreciation and amortization expense, gains and losses and impairment charges with respect to real estate assets. A reconciliation of GAAP diluted net income per share to FFO per share, and additional descriptive information regarding this non-GAAP measure, is attached.

For the six months ended June 30, 2022, FFO was $8.41 per diluted common share, as compared to $6.07 in the same period in 2021, representing an increase of 38.6%.

We also present“Core FFO” and“Core FFO per share,” non-GAAP measures that represent FFO and FFO per share excluding the impact of (i) foreign currency exchange gains and losses, (ii) charges related to the redemption of preferred securities, and (iii) certain other non-cash and/or nonrecurring income or expense items primarily representing, with respect to the periods presented below, unrealized gain on private equity investments and our equity share of merger transaction costs, severance of a senior executive, and casualties from our equity investees. We review Core FFO and Core FFO per share to evaluate our ongoing operating performance, and we believe they are used by investors and REIT analysts in a similar manner. However, Core FFO and Core FFO per share are not substitutes for net income and net income per share. Because other REITs may not compute Core FFO or Core FFO per share in the same manner as we do, may not use the same terminology, or may not present such measures, Core FFO and Core FFO per share may not be comparable among REITs.

The following table reconciles FFO per share to Core FFO per share and FFO to Core FFO, respectively (unaudited):

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

Percentage

Change

2022

2021

Percentage

Change

(Amounts in thousands, except per share data)

Reconciliation of FFO per Share to Core FFO per Share:

FFO per share

$

4.58

$

2.99

53.2

%

$

8.41

$

6.07

38.6

%

Eliminate the per share impact of items excluded from Core FFO, including our equity share from investments:

Foreign currency exchange (gain) loss

(0.58

)

0.07

(0.78

)

(0.19

)

Preferred share redemption charge

0.10

0.10

Other items

(0.01

)

(0.01

)

0.01

(0.01

)

Core FFO per share

$

3.99

$

3.15

26.7

%

$

7.64

$

5.97

28.0

%

Reconciliation of FFO to Core FFO:

FFO allocable to common shares

$

807,481

$

525,009

53.8

%

$

1,483,685

$

1,064,263

39.4

%

Eliminate the impact of items excluded from Core FFO, including our equity share from investments:

Foreign currency exchange (gain) loss

(101,723

)

12,707

(137,100

)

(32,678

)

Preferred share redemption charge

16,989

16,989

Other items

(1,781

)

(2,194

)

766

(2,543

)

Core FFO allocable to common shares

$

703,977

$

552,511

27.4

%

$

1,347,351

$

1,046,031

28.8

%

Diluted weighted average common shares

176,312

175,547

176,325

175,194

Core FFO per share

$

3.99

$

3.15

26.7

%

$

7.64

$

5.97

28.0

%

Property Operations – Same Store Facilities

The Same Store Facilities consist of facilities that have been owned and operated on a stabilized level of occupancy, revenues, and cost of operations since January 1, 2020. The composition of our Same Store Facilities allows us to more effectively evaluate the ongoing performance of our self-storage portfolio in 2020, 2021, and 2022 and exclude the impact of fill-up of unstabilized facilities, which can significantly affect operating trends. We believe the Same Store information is used by investors and analysts in a similar manner. However, because other REITs may not compute Same Store Facilities in the same manner as we do, may not use the same terminology, or may not present such a measure, Same Store Facilities may not be comparable among REITs. The following table summarizes the historical operating results of these 2,282 facilities (149.5 million net rentable square feet) that represent approximately 75% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at June 30, 2022 (unaudited):

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

Percentage

Change

2022

2021

Percentage

Change

(Dollar amounts in thousands, except for per square foot data)

Revenues (a):

Rental income

$

765,081

$

661,345

15.7

%

$

1,490,514

$

1,288,497

15.7

%

Late charges and administrative fees

23,857

19,197

24.3

%

47,694

39,245

21.5

%

Total revenues

788,938

680,542

15.9

%

1,538,208

1,327,742

15.9

%

Direct cost of operations (a):

Property taxes

71,227

67,484

5.5

%

141,231

134,266

5.2

%

On-site property manager payroll

29,531

25,650

15.1

%

60,231

54,394

10.7

%

Repairs and maintenance

13,255

13,107

1.1

%

28,745

26,128

10.0

%

Utilities

10,143

9,379

8.1

%

21,589

20,175

7.0

%

Marketing

8,648

6,863

26.0

%

19,888

21,473

(7.4

)%

Other direct property costs

20,253

18,311

10.6

%

40,319

36,675

9.9

%

Total direct cost of operations

153,057

140,794

8.7

%

312,003

293,111

6.4

%

Direct net operating income (b)

635,881

539,748

17.8

%

1,226,205

1,034,631

18.5

%

Indirect cost of operations (a):

Supervisory payroll

(8,739

)

(9,214

)

(5.2

)%

(18,306

)

(19,544

)

(6.3

)%

Centralized management costs

(14,767

)

(13,091

)

12.8

%

(30,324

)

(26,328

)

15.2

%

Share-based compensation

(3,768

)

(4,554

)

(17.3

)%

(7,627

)

(10,089

)

(24.4

)%

Net operating income (c)

$

608,607

$

512,889

18.7

%

$

1,169,948

$

978,670

19.5

%

Gross margin (before indirect costs, depreciation and amortization expense)

80.6%

79.3%

1.6

%

79.7%

77.9%

2.3

%

Gross margin (before depreciation and amortization expense)

77.1%

75.4%

2.3

%

76.1%

73.7%

3.3

%

Weighted average for the period:

Square foot occupancy

95.8%

97.0%

(1.2

)%

95.7%

96.3%

(0.6

)%

Realized annual rental income per (d):

Occupied square foot

$

21.37

$

18.23

17.2

%

$

20.83

$

17.89

16.4

%

Available square foot

$

20.47

$

17.69

15.7

%

$

19.94

$

17.23

15.7

%

At June 30:

Square foot occupancy

94.8%

96.5%

(1.8

)%

Annual contract rent per occupied square foot (e)

$

21.92

$

18.67

17.4

%

(a)

Revenues and cost of operations do not include tenant reinsurance and merchandise sales and expenses generated at the facilities.

(b)

Direct net operating income (“Direct NOI”), a subtotal within NOI, is a non-GAAP financial measure that excludes the impact of supervisory payroll, centralized management costs, and share-based compensation in addition to depreciation and amortization expense. We utilize direct net operating income in evaluating property performance and in evaluating property operating trends as compared to our competitors.

(c)

See attached reconciliation of self-storage NOI to net income.

(d)

Realized annual rent per occupied square foot is computed by dividing annualized rental income, before late charges and administrative fees, by the weighted average occupied square feet for the period. Realized annual rent per available square foot (“REVPAF”) is computed by dividing annualized rental income, before late charges and administrative fees, by the total available rentable square feet for the period. These measures exclude late charges and administrative fees in order to provide a better measure of our ongoing level of revenue. Late charges are dependent upon the level of delinquency, and administrative fees are dependent upon the level of move-ins. In addition, the rates charged for late charges and administrative fees can vary independently from rental rates. These measures take into consideration promotional discounts, which reduce rental income.

(e)

Annual contract rent represents the agreed upon monthly rate that is paid by our tenants in place at the time of measurement. Contract rates are initially set in the lease agreement upon move-in, and we adjust them from time to time with notice. Contract rent excludes other fees that are charged on a per-item basis, such as late charges and administrative fees, does not reflect the impact of promotional discounts, and does not reflect the impact of rents that are written off as uncollectible.

Property Operations – Non-Same Store Facilities

In addition to the 2,282 Same Store Facilities, we have 525 facilities that were not stabilized with respect to occupancies, revenues, or cost of operations since January 1, 2020 or that we did not own as of January 1, 2020, including 314 facilities that were acquired, 54 newly developed facilities, 91 facilities that have been expanded or are targeted for expansion, and 66 facilities that are unstabilized because they are under fill-up or were damaged in casualty events (collectively, the“Non-Same Store Facilities”). Operating data, metrics, and further commentary with respect to these facilities, including detail by vintage, are included in“Management's Discussion and Analysis of Financial Condition and Results of Operations” under“Analysis of Net Income – Self-Storage Operations” in our June 30, 2022 Form 10-Q.

Investing and Capital Activities

During the three months ended June 30, 2022, we acquired ten self-storage facilities (two each in North Carolina and Texas, and one each in Colorado, Florida, Georgia, Maryland, Oregon, and Tennessee) with 0.7 million net rentable square feet for $123.6 million. During the six months ended June 30, 2022, we acquired 20 self-storage facilities (five in Texas, three in North Carolina, two in Maryland, and one each in Arizona, Colorado, Florida, Georgia, Indiana, Minnesota, Nevada, Oregon, Pennsylvania, and Tennessee) with 1.5 million net rentable square feet for $251.3 million.

Subsequent to June 30, 2022, we acquired or were under contract to acquire 24 self-storage facilities across ten states with 1.7 million net rentable square feet, for $257.4 million. Additionally, on July 8, 2022, we acquired the commercial interests of PS Business Parks, Inc. (“PSB”) at three sites, totaling five properties, jointly occupied with our self-storage facilities located in Maryland and Virginia, for $47 million.

During 2021, we acquired a portfolio of 48 properties (4.1 million net rentable square feet) operated under the brand name of ezStorage for $1.8 billion, which includes 47 self-storage facilities and a property that was under construction. These facilities generated revenues of $48.7 million, NOI of $38.3 million (including Direct NOI of $39.7 million), and average square footage occupancy of 89.7% for the six months ended June 30, 2022.

During 2021, we acquired a portfolio of 56 properties (7.5 million net rentable square feet) operated under the brand name of All Storage for $1.5 billion, with 55 properties closed in the fourth quarter of 2021 and one property closed in February 2022. These facilities generated revenues of $35.2 million, NOI of $21.4 million (including Direct NOI of $22.8 million), and average square footage occupancy of 78.4% for the six months ended June 30, 2022.

During the three months ended June 30, 2022, we completed various expansion projects (0.3 million net rentable square feet – 0.2 million in Minnesota and 0.1 million in Florida) costing $36.9 million. During six months ended June 30, 2022, we completed various expansion projects (0.4 million net rentable square feet – 0.2 million in Minnesota, 0.1 million in Florida and 0.1 million in other states) costing $56.3 million. At June 30, 2022, we had various facilities in development (2.6 million net rentable square feet) estimated to cost $480.3 million and various expansion projects (2.8 million net rentable square feet) estimated to cost $547.0 million. Our aggregate 5.4 million net rentable square foot pipeline of development and expansion facilities includes 1.6 million in California, 0.7 million in Texas, 0.6 million in Florida, 0.5 million in Maryland, 0.3 million Washington, 0.2 million each in Hawaii, Michigan, Nevada, New Jersey, and New York, and 0.7 million in other states. The remaining $647.3 million of development costs for these projects is expected to be incurred primarily in the next 18 to 24 months.

On April 24, 2022, PSB entered into an Agreement and Plan of Merger whereby affiliates of Blackstone Real Estate (“Blackstone”) agreed to acquire all outstanding shares of PSB's common stock for $187.50 per share in cash. On July 20, 2022, PSB announced that it completed the merger transaction with Blackstone. Each share of PSB common stock and each common unit of partnership interest we held in PSB were converted into the right to receive the merger consideration of $187.50 per share or unit and a $0.22 prorated quarterly cash dividend per share or unit, for a total of $187.72 per share or unit. At the close of the merger transaction, we received a total of $2.7 billion of cash proceeds and recognized a $2.1 billion gain on the sale of our equity investment in PSB in the Consolidated Statement of Income for the third quarter of 2022.

In connection with the sale of our equity investment in PSB, on July 22, 2022, our Board of Trustees declared a special cash dividend of $13.15 per common share. The special dividend is payable on August 4, 2022 to shareholders of record as of August 1, 2022.

On July 26, 2022, the Company called for redemption on August 15, 2022 its 2.370% Senior Notes, with an aggregate outstanding principal amount of $500.0 million, due September 15, 2022.

Distributions Declared

On August 3, 2022, our Board of Trustees declared a regular common quarterly dividend of $2.00 per common share. The Board also declared dividends with respect to our various series of preferred shares. All the dividends are payable on September 29, 2022 to shareholders of record as of September 14, 2022.

Outlook for the Year Ending December 31, 2022

The following table outlines the Company's Core FFO per share estimate and certain underlying assumptions for the year ending December 31, 2022, including estimates for the impact of the sale of our investment in PSB to Blackstone on July 20, 2022:

Guidance Ranges for 2022

Low

High

(Amounts in thousands, except per share data)

Same Store:

Revenue growth

12.00%

15.00%

Expense growth

6.00%

8.00%

Net operating income growth

13.40%

18.00%

Acquisitions

$1,000,000

Development openings

$250,000

Non-Same Store net operating income

$480,000

$500,000

Ancillary net operating income

$155,000

$160,000

General and administrative expense

$105,000

$111,000

Interest expense

$133,000

Preferred dividends

$195,000

Capital expenditures

$300,000

Core FFO per share (before the impact of the sale of PSB)

$15.22

$15.92

Impact of the sale of PSB

(0.22)

(0.22)

Core FFO per share

$15.00

$15.70

Incremental Non-Same Store NOI to stabilization (2023 and beyond)

$172,000

Forward-looking Core FFO per share measures exclude estimates for the impact of (i) foreign currency exchange gains and losses, (ii) charges related to the redemption of preferred securities, and (iii) certain other significant non-cash and/or nonrecurring income or expense items such as loss contingency accruals, casualties, transactional due diligence, and advisory costs. Public Storage is unable to provide a reconciliation of Core FFO per share guidance measures to corresponding U.S. GAAP measures on a forward-looking basis without unreasonable effort due to the overall high variability of most of the foregoing items that have been excluded. The items that are being excluded are difficult to predict and a reconciliation could result in disclosure that would be imprecise or potentially misleading. Material changes to any one of these items could have a significant effect on our guidance and future U.S. GAAP results.

Second Quarter Conference Call

A conference call is scheduled for August 5, 2022 at 9:00 a.m. (PDT) to discuss the second quarter earnings results. The domestic dial-in number is (866) 342-8591, and the international dial-in number is (203) 518-9713 (conference ID number for either domestic or international is PSAQ222). A simultaneous audio webcast may be accessed by using the link at under“About Us, Investor Relations, News and Events, Event Calendar.” A replay of the conference call may be accessed through August 12, 2022 by calling (888) 219-1276 (domestic), (402) 220-4949 (international) or by using the link at under“About Us, Investor Relations, News and Events, Event Calendar.”

About Public Storage

Public Storage, a member of the S&P 500 and FT Global 500, is a REIT that primarily acquires, develops, owns and operates self-storage facilities. At June 30, 2022, we had: (i) interests in 2,807 self-storage facilities located in 39 states with approximately 200 million net rentable square feet in the United States, and (ii) a 35% common equity interest in Shurgard Self-Storage SA (Euronext Brussels:SHUR), which owned 256 self-storage facilities located in seven Western European nations with approximately 14 million net rentable square feet operated under the Shurgard® brand. On July 20, 2022, in connection with the closing of PS Business Parks, Inc.'s merger transaction with affiliates of Blackstone Real Estate, we completed the sale of our approximate 41% common equity interest in PS Business Parks, Inc.

Contacts

Ryan Burke

(818) 244-8080, Ext. 1141

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