Market Overview

Public Storage Reports Results for the First Quarter Ended March 31, 2019

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Public Storage (NYSE:PSA) announced today operating results for the
quarter ended March 31, 2019.

Operating Results for the Three Months Ended
March 31, 2019

For the three months ended March 31, 2019, net income allocable to our
common shareholders was $301.7 million or $1.73 per diluted common
share, compared to $287.8 million or $1.65 per diluted common share in
2018 representing an increase of $13.9 million or $0.08 per diluted
common share. The increase is due primarily to (i) a $7.4 million
increase in self-storage net operating income (described below), (ii) a
$19.6 million increase due to the impact of foreign currency exchange
gains and losses associated with our euro denominated debt and (iii) a
reduction in general and administrative expense attributable primarily
to $7.8 million in incremental share-based compensation expense in the
three months ended March 31, 2018 for the planned retirement of our
former CEO and CFO. These increases were offset partially by (iv) our
$10.9 million equity share of gains on sale of real estate recorded by
PS Business Parks, Inc. in 2018 and (v) an $8.5 million allocation to
our preferred shareholders associated with our preferred share
redemption activities.

The $7.4 million increase in self-storage net operating income is a
result of a $2.3 million increase in our Same Store Facilities (as
defined below) and a $5.1 million increase in our Non Same Store
Facilities (as defined below). Revenues for the Same Store Facilities
increased 1.5% or $8.7 million in the three months ended March 31, 2019
as compared to 2018, due primarily to higher realized annual rent per
occupied square foot. Cost of operations for the Same Store Facilities
increased by 3.9% or $6.3 million in the three months ended March 31,
2019 as compared to 2018, due primarily to increased property taxes and
higher marketing expenses. The increase in net operating income of $5.1
million for the Non Same Store Facilities is due primarily to the impact
of facilities acquired in 2018 and 2019, and the fill up of recently
developed and expanded facilities.

Funds from Operations

For the three months ended March 31, 2019, funds from operations ("FFO")
was $2.52 per diluted common share, as compared to $2.37 in 2018,
representing an increase of 6.3%. 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.

We also present "Core FFO per share," a non-GAAP measure that represents
FFO per share excluding the impact of (i) foreign currency exchange
gains and losses, (ii) EITF D-42 charges related to the redemption of
preferred securities, (iii) accelerations of accruals due to the
retirement of our former CEO and CFO and (iv) certain other non-cash
and/or nonrecurring income or expense items. We review Core FFO per
share to evaluate our ongoing operating performance, and we believe it
is used by investors and REIT analysts in a similar manner. However,
Core FFO per share is not a substitute for net income per share. Because
other REITs may not compute Core FFO per share in the same manner as we
do, may not use the same terminology or may not present such a measure,
Core FFO per share may not be comparable among REITs.

The following table reconciles from FFO per share to Core FFO per share
(unaudited):

 
         
Three Months Ended March 31,
Percentage
2019 2018 Change
 
FFO per share $ 2.52 $ 2.37 6.3 %
Eliminate the per share impact of
items excluded from Core FFO, including
our equity share from investments:
Foreign currency exchange (gain) loss (0.04 ) 0.07
Application of EITF D-42 0.05 -
Acceleration of share-based compensation expense
due to retirement of former CEO and CFO   -     0.04
Core FFO per share $ 2.53   $ 2.48 2.0 %
 

Property Operations – Same Store Facilities

The Same Store Facilities represent those facilities that have been
owned and operated on a stabilized level of occupancy, revenues and cost
of operations since January 1, 2017. We review the operations of our
Same Store Facilities, which excludes facilities whose operating trends
are significantly affected by factors such as casualty events, as well
as recently developed, expanded, or acquired facilities, to more
effectively evaluate the ongoing performance of our self-storage
portfolio in 2017, 2018 and 2019. We believe the Same Store information
is used by investors and REIT analysts in a similar manner. The Same
Store pool increased from 2,046 facilities at December 31, 2018 to 2,165
facilities at March 31, 2019. The following table summarizes the
historical operating results of these 2,165 facilities (139.8 million
net rentable square feet) that represent approximately 85% of the
aggregate net rentable square feet of our U.S. consolidated self-storage
portfolio at March 31, 2019.

 

Selected Operating Data for the Same

           

Store Facilities (2,165 facilities)

(unaudited):

Three Months Ended March 31,
Percentage
2019 2018 Change
 
(Dollar amounts in thousands, except for per square foot amounts)
Revenues:
Rental income $ 562,630 $ 554,116 1.5 %
Late charges and administrative fees   26,117     25,941   0.7 %
Total revenues (a)   588,747     580,057   1.5 %
 
Cost of operations:
Property taxes 65,353 62,226 5.0 %
On-site property manager payroll 30,263 30,296 (0.1 )%
Supervisory payroll 9,780 10,132 (3.5 )%
Repairs and maintenance 10,613 9,962 6.5 %
Snow removal 2,801 2,219 26.2 %
Utilities 11,028 11,480 (3.9 )%
Marketing 8,780 6,879 27.6 %
Other direct property costs 16,439 15,836 3.8 %
Allocated overhead   14,130     13,815   2.3 %
Total cost of operations (a)   169,187     162,845   3.9 %
Net operating income (b) $ 419,560   $ 417,212   0.6 %
 
Gross margin 71.3 % 71.9 % (0.8 )%
 
Weighted average for the period:
Square foot occupancy 92.5 % 92.1 % 0.4 %
Realized annual rental income per (c):
Occupied square foot $ 17.41 $ 17.21 1.2 %
Available square foot ("REVPAF") $ 16.10 $ 15.86 1.5 %
At March 31:
Square foot occupancy 92.1 % 92.0 % 0.1 %
Annual contract rent per occupied
square foot (d) $ 17.94 $ 17.71 1.3 %
       
(a) Revenues and cost of operations do not include ancillary revenues
and expenses generated at the facilities with respect to tenant
reinsurance and retail sales.
(b) See attached reconciliation of self-storage NOI to net income.
(c) 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.
(d) 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.
 

The following table summarizes selected quarterly financial data with
respect to the Same Store Facilities (unaudited):

   
 
    For the Quarter Ended    
March 31     June 30   September 30     December 31 Entire Year
 
(Amounts in thousands, except for per square foot amounts)
Total revenues:
2019 $ 588,747
2018 $ 580,057 $ 590,585 $ 607,598 $ 594,302 $ 2,372,542
 
Total cost of operations:
2019 $ 169,187
2018 $ 162,845 $ 159,631 $ 161,324 $ 130,477 $ 614,277
 
Property taxes:
2019 $ 65,353
2018 $ 62,226 $ 62,940 $ 62,750 $ 36,550 $ 224,466
 
Repairs and maintenance, including
snow removal expenses:
2019 $ 13,414
2018 $ 12,181 $ 12,139 $ 11,903 $ 12,475 $ 48,698
 
Marketing:
2019 $ 8,780
2018 $ 6,879 $ 8,115 $ 8,246 $ 9,205 $ 32,445
 
REVPAF:
2019 $ 16.10
2018 $ 15.86 $ 16.19 $ 16.62 $ 16.25 $ 16.23
 
Weighted average realized annual
rent per occupied square foot:
2019 $ 17.41
2018 $ 17.21 $ 17.25 $ 17.72 $ 17.57 $ 17.44
 
Weighted average occupancy levels
for the period:
2019 92.5 %
2018 92.1 % 93.8 % 93.8 % 92.5 % 93.1 %
 

Property Operations – Non Same Store Facilities

In addition to the 2,165 same-store facilities, we have 279 facilities
that were not stabilized with respect to occupancies, revenues or cost
of operations since January 1, 2017 or that we did not own as of January
1, 2017, including 71 facilities that were acquired from third parties,
74 newly developed facilities, 62 facilities that have been expanded or
are targeted for expansion, and 72 facilities that are unstabilized due
to the impact of casualties and other factors (collectively, the "Non
Same Store Facilities"). Operating data, metrics, and further commentary
with respect to these facilities, including detail by vintage, is
included in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" under "Self-Storage Operations" in our March
31, 2019 Form 10-Q.

Investing and Capital Activities

During the three months ended March 31, 2019, we acquired 12
self-storage facilities (nine in Virginia and one each in Florida,
Georgia and Kentucky) with 0.8 million net rentable square feet for
$81.3 million. Subsequent to March 31, 2019, we acquired or were under
contract to acquire ten self-storage facilities (four in Florida, two in
Virginia and one each in Arizona, Colorado, Michigan and Texas) with 0.7
million net rentable square feet for $116.4 million.

During the three months ended March 31, 2019, we opened four newly
developed facilities and various expansion projects (1.6 million net
rentable square feet – 1.3 million in Texas and 0.1 million each in
California, Colorado and Florida) costing $133.5 million. At March 31,
2019, we had various facilities in development (1.2 million net rentable
square feet) estimated to cost $194 million and various expansion
projects (2.7 million net rentable square feet) estimated to cost $318
million. Our aggregate 3.9 million net rentable square foot pipeline of
development and expansion facilities includes 1.0 million in Florida,
0.8 million in Minnesota, 0.4 million in Washington, 0.3 million each in
Colorado and North Carolina and 1.1 million in other states. The
remaining $299 million of development costs for these projects is
expected to be incurred primarily in the next 18 months.

On February 22, 2019, we called our 6.375% Series Y Preferred Shares for
redemption. The shares were redeemed on March 28, 2019 for $285 million.

On March 11, 2019, we issued our 5.60% Series H Preferred Shares for
gross proceeds of $285 million.

On April 12, 2019, we completed a public offering of $500 million in
aggregate principal amount of senior notes bearing interest at an annual
rate of 3.385% maturing on May 1, 2029.

On April 19, 2019, we amended our $500 million revolving line of credit.
This amendment (i) extends the maturity date from March 31, 2020 to
April 19, 2024, (ii) decreases the current effective borrowing spread
over LIBOR from 0.850% to 0.70%, and (iii) decreases the current
effective facility fee from 0.080% to 0.070%. All other terms remain
substantially the same.

Distributions Declared

On April 24, 2019, 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 June 27, 2019 to shareholders of record as
of June 12, 2019.

First Quarter Conference Call

A conference call is scheduled for May 2, 2019 at 10:00 a.m. (PDT) to
discuss the first quarter earnings results. The domestic dial-in number
is (866) 406-5408, and the international dial-in number is (973)
582-2770 (conference ID number for either domestic or international is
1168559). A simultaneous audio webcast may be accessed by using the link
at www.publicstorage.com
under "Company Info, Investor Relations, News and Events, Event
Calendar." A replay of the conference call may be accessed through May
16, 2019 by calling (800) 585-8367 (domestic), (404) 537-3406
(international) or by using the link at www.publicstorage.com
under "Company Info, Investor Relations, News and Events, Event
Calendar." All forms of replay utilize conference ID number 1168559.

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 March 31, 2019, we had: (i) interests in 2,444
self-storage facilities located in 38 states with approximately 164
million net rentable square feet in the United States, (ii) an
approximate 35% common equity interest in Shurgard Self Storage SA
(Euronext Brussels:SHUR) which owned 231 self-storage facilities located
in seven Western European nations with approximately 13 million net
rentable square feet operated under the "Shurgard" brand and (iii) an
approximate 42% common equity interest in PS Business Parks, Inc.
(NYSE:PSB) which owned and operated approximately 28 million rentable
square feet of commercial space at March 31, 2019. Our headquarters are
located in Glendale, California.

Additional information about Public Storage is available on our website, www.publicstorage.com.

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All
statements in this press release, other than statements of historical
fact, are forward-looking statements which may be identified by the use
of the words "expects," "believes," "anticipates," "should," "estimates"
and similar expressions. These forward-looking statements involve known
and unknown risks and uncertainties, which may cause our actual results
and performance to be materially different from those expressed or
implied in the forward-looking statements. Factors and risks that may
impact future results and performance include, but are not limited to,
those described in Part 1, Item 1A, "Risk Factors" in our most recent
Annual Report on Form 10-K filed with the Securities and Exchange
Commission (the "SEC") on February 27, 2019 and in our other filings
with the SEC and the following: general risks associated with the
ownership and operation of real estate, including changes in demand,
risk related to development of self-storage facilities, potential
liability for environmental contamination, natural disasters and adverse
changes in laws and regulations governing property tax, real estate and
zoning; risks associated with downturns in the national and local
economies in the markets in which we operate, including risks related to
current economic conditions and the economic health of our customers;
the impact of competition from new and existing self-storage and
commercial facilities and other storage alternatives; difficulties in
our ability to successfully evaluate, finance, integrate into our
existing operations and manage acquired and developed properties; risks
associated with international operations including, but not limited to,
unfavorable foreign currency rate fluctuations, changes in tax laws, and
local and global economic uncertainty that could adversely affect our
earnings and cash flows; risks related to our participation in joint
ventures; the impact of the regulatory environment as well as national,
state and local laws and regulations including, without limitation,
those governing environmental, taxes, our tenant reinsurance business
and labor, and risks related to the impact of new laws and regulations;
risks of increased tax expense associated either with a possible failure
by us to qualify as a REIT, or with challenges to the determination of
taxable income for our taxable REIT subsidiaries; risks due to a
potential November 2020 statewide ballot initiate (or other equivalent
actions) that could remove the protections of Proposition 13 with
respect to our real estate and result in substantial increases in our
assessed values and property tax bills in California; changes in federal
or state tax laws related to the taxation of REITs and other
corporations; security breaches or a failure of our networks, systems or
technology could adversely impact our business, customer and employee
relationships; risks associated with the self-insurance of certain
business risks, including property and casualty insurance, employee
health insurance and workers compensation liabilities; difficulties in
raising capital at a reasonable cost; delays in the development process;
ongoing litigation and other legal and regulatory actions which may
divert management's time and attention, require us to pay damages and
expenses or restrict the operation of our business; and economic
uncertainty due to the impact of war or terrorism. These forward-looking
statements speak only as of the date of this press release. All of our
forward-looking statements, including those in this press release, are
qualified in their entirety by this statement. We expressly disclaim any
obligation to update publicly or otherwise revise any forward-looking
statements, whether as a result of new information, new estimates, or
other factors, events or circumstances after the date of this press
release, except where expressly required by law. Given these risks and
uncertainties, you should not rely on any forward-looking statements in
this press release, or which management may make orally or in writing
from time to time, as predictions of future events nor guarantees of
future performance.

 

PUBLIC STORAGE

SELECTED INCOME STATEMENT DATA

(Amounts in thousands, except per share data)

(Unaudited)

 
    Three Months Ended
March 31,
2019     2018
 
Revenues:
Self-storage facilities $ 650,408 $ 631,537
Ancillary operations   38,630     38,387  
  689,038     669,924  
 
Expenses:
Self-storage cost of operations 193,656 182,187
Ancillary cost of operations 10,545 10,640
Depreciation and amortization 121,941 117,979
General and administrative 19,503 31,520
Interest expense   8,143     8,107  
  353,788     350,433  
 
Other increase (decrease) to net income:
Interest and other income 6,965 5,544
Equity in earnings of unconsolidated real estate entities 17,672 30,795
Gain on sale of real estate - 424
Foreign currency exchange gain (loss)   7,791     (11,818 )
Net income 367,678 344,436
Allocation to noncontrolling interests   (1,157 )   (1,439 )
Net income allocable to Public Storage shareholders 366,521 342,997
Allocation of net income to:
Preferred shareholders – distributions (55,012 ) (54,081 )
Preferred shareholders – redemptions (8,533 ) -
Restricted share units   (1,233 )   (1,097 )
Net income allocable to common shareholders $ 301,743   $ 287,819  
 

Per common share:

Net income per common share – Basic $ 1.73   $ 1.66  
Net income per common share – Diluted $ 1.73   $ 1.65  
Weighted average common shares – Basic   174,177     173,892  
Weighted average common shares – Diluted   174,376     174,148  
 
 

PUBLIC STORAGE

SELECTED BALANCE SHEET DATA

(Amounts in thousands, except share and per share data)

 
 
    March 31, 2019     December 31, 2018
ASSETS (Unaudited)
 
Cash and equivalents $ 217,973 $ 361,218
 
Operating real estate facilities:
Land and buildings, at cost 15,537,360 15,296,844
Accumulated depreciation   (6,255,475 )   (6,140,072 )
9,281,885 9,156,772
Construction in process 213,785 285,339
Investments in unconsolidated real estate entities 784,314 783,988
Goodwill and other intangible assets, net 210,459 209,856
Other assets   166,600     131,097  
Total assets $ 10,875,016   $ 10,928,270  
 
 
 
LIABILITIES AND EQUITY
 
Senior unsecured notes $ 1,377,403 $ 1,384,880
Mortgage notes 28,747 27,403
Accrued and other liabilities   374,245     371,259  
Total liabilities 1,780,395 1,783,542
 
Equity:
Public Storage shareholders' equity:
Cumulative Preferred Shares, $0.01 par value, 100,000,000 shares
authorized, 161,000 shares issued (in series) and outstanding,
(161,000 at December 31, 2018) at liquidation preference 4,025,000 4,025,000
Common Shares, $0.10 par value, 650,000,000 shares authorized,
174,215,292 shares issued and outstanding, (174,130,881 shares
at December 31, 2018) 17,422 17,413
Paid-in capital 5,708,699 5,718,485
Accumulated deficit (615,329 ) (577,360 )
Accumulated other comprehensive loss   (65,971 )   (64,060 )
Total Public Storage shareholders' equity 9,069,821 9,119,478
Noncontrolling interests   24,800     25,250  
Total equity   9,094,621     9,144,728  
Total liabilities and equity $ 10,875,016   $ 10,928,270  
 
 
PUBLIC STORAGE
SELECTED FINANCIAL DATA
 
Computation of Funds from Operations and Funds Available for
Distribution

(Unaudited – amounts in thousands except per share data)

 
    Three Months Ended
March 31,
2019   2018
 

Computation of FFO per Share:

 
Net income allocable to common shareholders $ 301,743 $ 287,819
Eliminate items excluded from FFO:
Depreciation and amortization 121,941 117,979
Depreciation from unconsolidated real estate investments 17,514 19,315
Depreciation allocated to noncontrolling interests
and restricted share unitholders (1,198 ) (918 )
Gains on sale of real estate, including our equity share
from investments   -     (11,891 )
FFO allocable to common shares (a) $ 440,000   $ 412,304  
Diluted weighted average common shares   174,376     174,148  
FFO per share (a) $ 2.52   $ 2.37  
 

Reconciliation of Earnings per Share to
FFO per Share:

 
Earnings per share—Diluted $ 1.73 $ 1.65
Eliminate per share amounts excluded from FFO:
Depreciation and amortization allocable to
common shareholders 0.79 0.78
Gains on sale of real estate, including our equity share
from investments   -     (0.06 )
FFO per share (a) $ 2.52   $ 2.37  
 

Computation of Funds Available for
Distribution ("FAD"):

 
FFO allocable to common shares $ 440,000 $ 412,304
Eliminate effect of items included in FFO but not FAD:
Share-based compensation expense (less than) in
excess of cash paid (3,093 ) 5,909
Foreign currency exchange (gain) loss (7,791 ) 11,818
Application of EITF D-42 8,533 -
Less: Capital expenditures to maintain real estate facilities (30,205 )   (24,344 )
 
FAD (a) $ 407,444   $ 405,687  
 
Distributions paid to common shareholders and restricted
share units $ 349,478   $ 349,011  
 
Distribution payout ratio   85.8 %   86.0 %
 
Distributions per common share $ 2.00   $ 2.00  
(a)   FFO and FFO per share are non-GAAP measures defined by the National
Association of Real Estate Investment Trusts and, along with the
non-GAAP measure FAD, are considered helpful measures of REIT
performance by REITs and many REIT analysts. FFO represents GAAP net
income before depreciation and amortization, real estate gains or
losses and impairment charges, which are excluded because they are
based upon historical costs and assume that building values diminish
ratably over time, while we believe that real estate values
fluctuate due to market conditions. FAD represents FFO adjusted to
exclude certain non-cash charges and to deduct capital expenditures.
We utilize FAD in evaluating our ongoing cash flow available for
investment, debt repayment and common distributions. We believe
investors and analysts utilize FAD in a similar manner. FFO and FFO
per share are not a substitute for net income or earnings per share.
FFO and FAD are not substitutes for GAAP net cash flow in evaluating
our liquidity or ability to pay dividends, because they exclude
investing and financing activities presented on our statements of
cash flows. In addition, other REITs may compute these measures
differently, so comparisons among REITs may not be helpful.
 

PUBLIC STORAGE

SELECTED FINANCIAL DATA

 

Reconciliation of Self-Storage Net Operating Income to

Net Income

(Unaudited – amounts in thousands)

 
    Three Months Ended
March 31,
2019     2018
 
Self-storage revenues for:
Same Store facilities $ 588,747 $ 580,057
Acquired facilities 11,208 6,927
Newly developed and expanded facilities 34,390 28,267
Other non-same store facilities   16,063     16,286  
Self-storage revenues 650,408 631,537
 
Self-storage cost of operations for:
Same Store facilities 169,187 162,845
Acquired facilities 4,611 2,529
Newly developed and expanded facilities 14,598 11,041
Other non-same store facilities   5,260     5,772  
Self-storage cost of operations 193,656 182,187
 
Self-storage NOI for:
Same Store facilities 419,560 417,212
Acquired facilities 6,597 4,398
Newly developed and expanded facilities 19,792 17,226
Other non-same store facilities   10,803     10,514  
Self-storage NOI (a) 456,752 449,350
Ancillary revenues 38,630 38,387
Ancillary cost of operations (10,545 ) (10,640 )
Depreciation and amortization (121,941 ) (117,979 )
General and administrative expense (19,503 ) (31,520 )
Interest and other income 6,965 5,544
Interest expense (8,143 ) (8,107 )
Equity in earnings of unconsolidated real estate entities 17,672 30,795
Gain on sale of real estate - 424
Foreign currency exchange gain (loss)   7,791     (11,818 )
Net income on our income statement $ 367,678   $ 344,436  
 
(a) Net operating income or "NOI" is a non-GAAP financial measure that
excludes the impact of depreciation and amortization expense, which
is based upon historical costs and assumes that building values
diminish ratably over time, while we believe that real estate values
fluctuate due to market conditions. We utilize NOI in determining
current property values, evaluating property performance, and in
evaluating operating trends. We believe that investors and analysts
utilize NOI in a similar manner. NOI is not a substitute for net
income, operating cash flow, or other related GAAP financial
measures, in evaluating our operating results. This table reconciles
from NOI for our self-storage facilities to the net income presented
on our income statement.

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