Public Storage Reports Results for the Quarter Ended March 31, 2014

Business Wire

GLENDALE, Calif.--(BUSINESS WIRE)--

Public Storage (PSA) announced today operating results for the quarter ended March 31, 2014.

Operating Results for the Three Months Ended March 31, 2014

For the three months ended March 31, 2014, net income allocable to our common shareholders was $174.1 million or $1.01 per diluted common share, compared to $161.9 million or $0.94 per diluted common share for the same period in 2013, representing an increase of $12.2 million or $0.07 per diluted common share. This increase is due primarily to a $30.8 million increase in self-storage net operating income, offset partially by an $18.0 million increase in depreciation and amortization associated with acquired real estate facilities.

Our self-storage net operating income increased $30.8 million in the three months ended March 31, 2014 as compared to the same period in 2013, including $16.0 million for our Same Store Facilities and $14.8 million for our non-Same Store Facilities. Revenues for the Same Store Facilities increased 5.1% or $21.3 million in the quarter ended March 31, 2014 as compared to the same period in 2013, due to higher realized annual rent per occupied square foot and higher average occupancy. Cost of operations for the Same Store Facilities increased by 4.0% or $5.3 million in the quarter ended March 31, 2014 as compared to the same period in 2013, due primarily to weather related increases in snow removal and utilities expense and increased property tax expense, offset partially by lower advertising and selling costs. The increase in net operating income for the non-Same Store Facilities is due primarily to the impact of the acquisition of 121 self-storage facilities from third parties since January 1, 2013.

Funds from Operations

For the three months ended March 31, 2014, funds from operations (“FFO”) was $1.74 per diluted common share, as compared to $1.57 for the same period in 2013, representing an increase of $0.17 per share. FFO is a non-GAAP (generally accepted accounting principles) term defined by the National Association of Real Estate Investment Trusts and generally represents net income before depreciation, gains and losses and impairment charges with respect to real estate assets.

In addition to FFO, we often discuss “Core FFO” per share which is also a non-GAAP measure that represents FFO per share, adjusted to exclude the impact of (i) foreign currency exchange losses, consisting of a loss of $2.3 million and $12.7 million for the three months ended March 31, 2014 and March 31, 2013, respectively, and (ii) other items, comprised primarily of a $7.8 million accrual related to a contingent legal settlement included in ancillary cost of operations for the three months ended March 31, 2014, and our $1.4 million share of charges incurred by Shurgard Europe in closing a facility during the same period in 2013. We believe Core FFO is a helpful measure in understanding our ongoing earnings and cash flow. We also believe that the analyst community reviews our Core FFO and Core FFO per share (or similar measures using different terminology). Core FFO is not a substitute for net income, earnings per share or cash flow from operations. Because other real estate investment trusts (“REITs”) may not compute Core FFO in the same manner as we do, may not use the same terminology, or may not present such a measure, Core FFO 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
2014 2013 Change
 
FFO per share $ 1.74 $ 1.57 10.8 %
Eliminate the per share impact of items excluded from Core FFO:
Foreign currency exchange loss 0.01 0.07
Other items   0.05   0.01
Core FFO per share $ 1.80 $ 1.65 9.1 %
 
 

Property Operations – Same Store Facilities

The Same Store Facilities represent those facilities that have been owned and operated on a stabilized basis since January 1, 2012 and therefore provide meaningful comparisons for 2013 and 2014. The Same Store pool increased from 1,949 facilities at December 31, 2013 to 1,983 facilities at March 31, 2014. The following table summarizes the historical operating results of these 1,983 facilities (125.5 million net rentable square feet) that represent approximately 89% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at March 31, 2014.

Selected Operating Data for the Same Store

Facilities (1,983 facilities) (unaudited):

    Three Months Ended March 31,
        Percentage
2014 2013 Change
 
(Dollar amounts in thousands, except for weighted average data)
Revenues:
Rental income $ 418,489 $ 398,305 5.1 %
Late charges and administrative fees   22,133     21,004   5.4 %
Total revenues (a)   440,622     419,309   5.1 %
 
Cost of operations:
Property taxes 47,602 45,633 4.3 %
On-site property manager payroll 26,823 26,372 1.7 %
Supervisory payroll (b) 8,853 9,300 (4.8 )%
Repairs and maintenance 7,695 7,685 0.1 %
Snow removal 7,053 3,341 111.1 %
Utilities 10,553 9,481 11.3 %
Advertising and selling expense 6,483 7,659 (15.4 )%
Other direct property costs (c) 12,671 12,877 (1.6 )%
Allocated overhead (d)   11,796     11,857   (0.5 )%
Total cost of operations (a)   139,529     134,205   4.0 %
Net operating income (e) $ 301,093   $ 285,104   5.6 %
 
Gross margin 68.3 % 68.0 % 0.4 %
 
Weighted average for the period:
Square foot occupancy (f) 92.6 % 91.9 % 0.8 %
Realized annual rental income per:
Occupied square foot (g) $ 14.41 $ 13.81 4.3 %
Available square foot (“REVPAF”) (g)

$

13.34 $ 12.70 5.0 %
Weighted average at March 31:
Square foot occupancy 93.2 % 92.3 % 1.0 %
Annual contract rent per occupied square foot (h) $ 15.01 $ 14.41 4.2 %
(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) Supervisory payroll expense represents compensation paid to management personnel who directly and indirectly supervise on-site property managers.
 
(c) Other direct property costs include administrative expenses that are solely attributable to the self-storage facilities, such as property insurance, business license costs, bank charges related to processing the properties’ cash receipts, credit card fees, and the cost of operating each property’s rental office including supplies and telephone data communication lines.
 
(d) Allocated overhead represents administrative expenses for shared general corporate functions, which are allocated to self-storage property operations to the extent their efforts are devoted to self-storage operations. Such functions include data processing, human resources, operational accounting and finance, marketing and costs of senior executives (other than the Chief Executive Officer and Chief Financial Officer, whose compensation is allocated to general and administrative expenses).
 
(e) See attached reconciliation of Same Store NOI to operating income.
 
(f) Square foot occupancies represent weighted average occupancy levels over the entire period.
 
(g) 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.
 
(h) Contract rent represents the applicable contractual monthly rent charged to our tenants, excluding the impact of promotional discounts, late charges, and administrative fees.
 

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

    Three Months Ended    
March 31     June 30     September 30     December 31 Full Year
(Amounts in thousands, except for per square foot amounts)
Total revenues:

  2014

$ 440,622

  2013

$ 419,309 $ 430,179 $ 451,525 $ 443,055 $ 1,744,068
 
Total cost of operations:

  2014

$ 139,529

  2013

$ 134,205 $ 125,335 $ 127,753 $ 102,116 $ 489,409
 
Property taxes:

  2014

$ 47,602

  2013

$ 45,633 $ 44,972 $ 44,594 $ 27,781 $ 162,980
 
Repairs and maintenance, including snow removal expenses:

  2014

$ 14,748

  2013

$ 11,026 $ 9,281 $ 9,870 $ 9,986 $ 40,163
 
Advertising and selling expense:

  2014

$ 6,483

  2013

$ 7,659 $ 6,580 $ 8,600 $ 4,957 $ 27,796
 
REVPAF:

  2014

$ 13.34

  2013

$ 12.70 $ 13.05 $ 13.67 $ 13.44 $ 13.21
 
Weighted average realized annual rent per occupied square foot:

  2014

$ 14.41

  2013

$ 13.81 $ 13.88 $ 14.49 $ 14.45 $ 14.16
 
Weighted average occupancy levels:

  2014

92.6 %

  2013

91.9 % 94.0 % 94.4 % 93.0 % 93.3 %
 
 

Investing and Capital Activities

During the three months ended March 31, 2014 we completed two new development facilities and one expansion project adding 335,000 net rentable square feet at a cost of approximately $40 million. As of March 31, 2014, we had development and expansion projects in process which will add approximately 1.9 million net rentable square feet of storage space at a total cost of approximately $195 million. A total of $38 million in costs were incurred through March 31, 2014 with respect to these projects, with the remaining costs expected to be incurred primarily in the remainder of 2014.

In April 2014, we acquired a self-storage facility located in Austin, Texas with 86,000 net rentable square feet for approximately $6 million in cash and $5 million in assumed debt.

As of May 1, 2014, we are currently under contract, subject to contingencies, to acquire five self-storage facilities in North Carolina, with an aggregate of 342,000 in net rentable square feet, at a total cost of approximately $26 million in cash. We expect to complete the acquisition during the second quarter of 2014.

On January 28, 2014, our joint venture partner in Shurgard Europe acquired 51% of the loan receivable from Shurgard Europe at face value of €158.6 million ($216.2 million) in cash.

On March 17, 2014, we issued our 6.375% Series Y Preferred Shares for gross proceeds of $235 million and on April 10, 2014, we issued additional Series Y Preferred Shares at par for $50 million in gross proceeds.

During the three months ended March 31, 2014, we repaid our $50.1 million balance on our bank credit facility and repaid $328 million of our term loan. At May 1, 2014, the balance of our term loan is $322 million and no amounts are outstanding on our bank credit facility.

Distributions Declared

On May 1, 2014, our Board of Trustees declared a regular common quarterly dividend of $1.40 per common share. The Board also declared dividends with respect to our various series of preferred shares. All the dividends are payable on June 30, 2014 to shareholders of record as of June 13, 2014.

First Quarter Conference Call

A conference call is scheduled for May 2, 2014 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 25942930). A simultaneous audio web cast may be accessed by using the link at www.publicstorage.com under “Company Info, Investor Relations, Upcoming Events.” A replay of the conference call may be accessed through May 16, 2014 by calling (800) 585-8367 (domestic) or (404) 537-3406 (international) or by using the link at www.publicstorage.com under “Company Info, Investor Relations, Webcasts.” All forms of replay utilize conference ID number 25942930.

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. The Company’s headquarters are located in Glendale, California. At March 31, 2014, we had interests in 2,202 self-storage facilities located in 38 states with approximately 141 million net rentable square feet in the United States and 188 storage facilities located in seven Western European nations with approximately ten million net rentable square feet operated under the “Shurgard” brand. We also own a 42% common equity interest in PS Business Parks, Inc. (PSB) which owned and operated approximately 29.7 million rentable square feet of commercial space, primarily flex, multitenant office and industrial space, at March 31, 2014.

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

Forward-Looking Statements

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 are described from time to time in our filings with the Securities and Exchange Commission, including in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, our other Quarterly Reports on Form 10-Q and current reports on Form 8-K. These risks include, but are not limited to, the following: general risks associated with the ownership and operation of real estate, including changes in demand for our storage facilities, potential liability for environmental contamination, adverse changes in tax, real estate and zoning laws and regulations and the impact of natural disasters; risks associated with downturns in the national and local economies in the markets in which we operate; 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 related to our participation in joint ventures; risks associated with international operations including, but not limited to, unfavorable foreign currency rate fluctuations that could adversely affect our earnings and cash flows; the impact of the regulatory environment as well as national, state and local laws and regulations including, without limitation, those governing REITs; risks associated with a possible failure by us to qualify as a REIT under the Internal Revenue Code of 1986, as amended; disruptions or shutdowns of our automated processes and systems; changes in federal tax laws related to the taxation of REITs, which could impact our status as a REIT; difficulties in raising capital at a reasonable cost; delays in the development process; and economic uncertainty due to the impact of war or terrorism. We 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.

PUBLIC STORAGE

SELECTED INCOME STATEMENT DATA

(Amounts in thousands, except per share data)

(Unaudited)

 
        Three Months Ended
March 31,
2014         2013
 
Operating Revenues:
Self-storage facilities $ 485,587 $ 439,665
Ancillary operations   34,037     31,235  
  519,624     470,900  
 
Operating Expenses:
Self-storage cost of operations 156,068 140,993
Ancillary cost of operations (a) 18,451 9,396
Depreciation and amortization 109,021 91,001
General and administrative   18,989     18,253  
  302,529     259,643  
 
Operating income 217,095 211,257
 
Other income (expense):
Interest and other income (b) 2,402 5,581
Interest expense (c) (3,480 ) (3,497 )
Equity in earnings of unconsolidated real estate entities 14,604 11,643
Foreign currency exchange loss   (2,348 )   (12,737 )
Net income 228,273 212,247
Allocation to noncontrolling interests   (1,077 )   (1,024 )
Net income allocable to Public Storage shareholders 227,196 211,223
Allocation of net income to:
Preferred shareholders - distributions (52,507 ) (48,590 )
Restricted share units   (637 )   (697 )
Net income allocable to common shareholders $ 174,052   $ 161,936  
 

Per common share:

Net income per common share – Basic $ 1.01   $ 0.94  
Net income per common share – Diluted $ 1.01   $ 0.94  
Weighted average common shares – Basic   171,910     171,446  
Weighted average common shares – Diluted   172,809     172,514  
(a)  

Amounts for the three months ended March 31, 2014 include a $7.8 million accrual related to a contingent legal settlement.

 
(b)

Amounts for the three months ended March 31, 2014 decreased from the same period in 2013 due primarily to the sale of 51% of our loan receivable from Shurgard Europe to our joint venture partner on January 28, 2014.

 
(c)

Amounts for the three months ended March 31, 2014 include $1.6 million in cash interest, as well as $1.0 million of amortization of loan costs (including $0.6 million in accelerated amortization associated with prepayments), with respect to our term loan.

 
 
PUBLIC STORAGE
SELECTED BALANCE SHEET DATA

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

               
March 31, 2014 December 31, 2013
ASSETS (Unaudited)
 
Cash and cash equivalents $ 101,112 $ 19,169
 
Operating real estate facilities:
Land and buildings, at cost 12,339,715 12,286,256
Accumulated depreciation   (4,192,529 )   (4,098,814 )
8,147,186 8,187,442
Construction in process 37,742 52,336
Investments in unconsolidated real estate entities 858,222 856,182
Goodwill and other intangible assets, net 232,273 246,854

Loan receivable from Shurgard Europe

209,557 428,139
Other assets   96,490     86,144  
Total assets $ 9,682,582   $ 9,876,266  
 
 
LIABILITIES AND EQUITY
Borrowings on bank credit facility $ - $ 50,100
Term loan 372,000 700,000
Notes payable 88,150 88,953
Accrued and other liabilities   222,608     218,358  
Total liabilities 682,758 1,057,411
 
Equity:
Public Storage shareholders’ equity:
Cumulative Preferred Shares, $0.01 par value, 100,000,000 shares authorized, 151,900 shares issued (in series) and outstanding (142,500 at December 31, 2013), at liquidation preference 3,797,500 3,562,500
Common Shares, $0.10 par value, 650,000,000 shares authorized, 172,236,050 shares issued and outstanding (171,776,291 shares at December 31, 2013) 17,224 17,178
Paid-in capital 5,544,204 5,531,034
Accumulated deficit (385,512 ) (318,482 )
Accumulated other comprehensive loss   (15 )   (500 )
Total Public Storage shareholders’ equity 8,973,401 8,791,730
Noncontrolling interests   26,423     27,125  
Total equity   8,999,824     8,818,855  
Total liabilities and equity $ 9,682,582   $ 9,876,266  
 
 

Shurgard Europe Same Store Selected Operating Data

The Shurgard Europe Same Store Pool represents Shurgard Europe’s 174 facilities (9.2 million net rentable square feet) that have been operated on a stabilized basis since January 1, 2012 and therefore provide meaningful comparisons for 2013 and 2014. These 174 facilities represent approximately 92% of the aggregate net rentable square feet of Shurgard Europe’s self-storage portfolio. Our pro-rata share of the operating results for these facilities is included in “equity in earnings of unconsolidated real estate entities” on our income statement.

Selected Operating Data for the Shurgard Europe Same

Store Pool (174 facilities) (unaudited):

 

    Three Months Ended March 31,
        Percentage
2014 2013 Change
 
(Dollar amounts in thousands, utilizing constant exchange rates (a))
 
Rental income, late charges and administrative fees $ 52,437 $ 51,770 1.3 %
Cost of operations   22,568     22,288   1.3 %
Net operating income $ 29,869   $ 29,482   1.3 %
 
Gross margin 57.0 % 56.9 % 0.2 %
 
Weighted average for the period:
Square foot occupancy (b) 83.2 % 79.9 % 4.1 %
Realized annual rent, prior to late charges and administrative fees, per:
Occupied square foot (c) $ 26.77 $ 27.58 (2.9 )%
Available square foot (“REVPAF”) (c) $ 22.27 $ 22.04 1.0 %
 

Weighted average at March 31:

Square foot occupancy

86.1 % 79.5 % 8.3 %

Annual contract rent per occupied square foot (d)

$

28.93

$

30.68

(5.7

)%

 
Average Euro to U.S. Dollar exchange rates: (a)
Constant exchange rates used herein 1.370 1.370 -
Actual historical exchange rates 1.370 1.320 3.8 %
(a)   In order to isolate changes in the underlying operations from the impact of exchange rates, the amounts in this table are presented on a constant exchange rate basis. The amounts for the three months ended March 31, 2013 have been restated using the actual exchange rates for the three months ended March 31, 2014.
 
(b) Square foot occupancies represent weighted average occupancy levels over the entire period.
 
(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)

Contract rent represents the applicable contractual monthly rent charged to tenants, excluding the impact of promotional discounts, late charges, and administrative fees.

 
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,
2014         2013
 

Computation of FFO per Share:

 
Net income allocable to common shareholders $ 174,052 $ 161,936
Eliminate items excluded from FFO:
Depreciation and amortization 109,021 91,001
Depreciation from unconsolidated real estate investments 19,671 18,903
Depreciation allocated to noncontrolling interests and restricted share unitholders (1,128 ) (1,015 )
Gains on sale of real estate investments, including our equity share   (87 )   -  
FFO allocable to common shares (a) $ 301,529   $ 270,825  
Diluted weighted average common shares   172,809     172,514  
FFO per share (a) $ 1.74   $ 1.57  
 
 

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

 
FFO allocable to common shares $ 301,529 $ 270,825
Eliminate effect of items included in FFO but not FAD:
Non-cash share-based compensation expense 6,287 5,894
Foreign currency exchange loss 2,348 12,737
Less: Capital expenditures to maintain real estate facilities   (13,136 )   (7,818 )
 
FAD $ 297,028   $ 281,638  
 
Distributions paid to common shareholders $ 240,889   $ 214,386  
 
Distribution payout ratio   81.1 %   76.1 %
 
Distributions per common share $ 1.40   $ 1.25  
(a)   FFO is a non-GAAP term defined by the National Association of Real Estate Investment Trusts, and generally represents net income before depreciation, gains and losses, and impairment charges with respect to real estate assets. We present FFO and FFO per share because we consider FFO to be an important measure of the performance of real estate companies, as do many analysts in evaluating our Company. We believe that FFO is a helpful measure of a REIT’s performance since FFO excludes depreciation, which is included in computing net income and assumes the value of real estate diminishes predictably over time. We believe that real estate values fluctuate due to market conditions and in response to inflation. FFO computations do not consider scheduled principal payments on debt, capital improvements, distributions and other obligations of the Company. FFO and FFO per share are not a substitute for our cash flow or net income per share as a measure of our liquidity or operating performance or our ability to pay dividends. Because other REITs may not compute FFO in the same manner, FFO may not be comparable among REITs.
 
 
PUBLIC STORAGE
SELECTED FINANCIAL DATA
 
Reconciliation of Same Store Data and Self-Storage Net Operating Income to
Operating Income

(Unaudited – amounts in thousands)

 
        Three Months Ended
March 31,
2014         2013
 
Revenues for:
Same Store Facilities $ 440,622 $ 419,309

Non Same Store Facilities: (a)

2013 acquisitions 22,199 40
2012 acquisitions 6,434 4,957

Other

  16,332     15,359  
Self-storage revenues 485,587 439,665
 
Self-storage cost of operations for:
Same Store Facilities 139,529 134,205

Non Same Store Facilities: (a)

2013 acquisitions 8,644 9
2012 acquisitions 2,365 1,891
Other   5,530     4,888  
Self-storage cost of operations   156,068     140,993  
 
Net operating income for:
Same Store Facilities 301,093 285,104

Non Same Store Facilities: (a)

2013 acquisitions 13,555 31
2012 acquisitions 4,069 3,066
Other   10,802     10,471  
Self-storage net operating income (b) 329,519 298,672
Ancillary operating revenues 34,037 31,235
Ancillary cost of operations (18,451 ) (9,396 )
Depreciation and amortization (109,021 ) (91,001 )
General and administrative expense   (18,989 )   (18,253 )
Operating income on our income statement $ 217,095   $ 211,257  
(a)  

We have 206 additional self-storage facilities that are not Same Store Facilities, including 121 facilities acquired in 2013 and 24 facilities acquired in 2012. The average square foot occupancy during the three months ended March 31, 2014 was 85% for the facilities acquired in 2013, 86% for the facilities acquired in 2012 and 82% for the other facilities.

 
(b) Net operating income or “NOI” is a non-GAAP financial measure that excludes the impact of depreciation and amortization expense. We believe that NOI is a meaningful measure of operating performance, because we utilize NOI in making decisions with respect to capital allocations, in determining current property values, in evaluating property performance and in comparing period-to-period and market-to-market property operating results. In addition, we believe the investment community utilizes NOI in determining operating performance and real estate values, and does not consider depreciation expense because it is based upon historical cost. NOI is not a substitute for net income, net 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 operating income presented on our income statement.

Contact:
Public Storage
Clemente Teng
(818) 244-8080, Ext. 1141

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