Public Storage(PSA) - 2022 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) The unaudited consolidated financial statements for Q1 2022 reflect significant year-over-year growth in revenues and net income, driven by strong self-storage operations and increased total assets Consolidated Balance Sheets As of March 31, 2022, total assets increased, total liabilities slightly decreased, and total equity grew, reflecting retained earnings and preferred share issuance Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and equivalents | $940,524 | $734,599 | | Real estate facilities, net | $15,422,723 | $15,306,996 | | Total assets | $17,698,781 | $17,380,908 | | Notes payable | $7,441,723 | $7,475,279 | | Total liabilities | $7,895,694 | $7,957,370 | | Total equity | $9,719,261 | $9,355,289 | Consolidated Statements of Income For Q1 2022, the company reported a significant increase in total revenues and net income allocable to common shareholders, resulting in higher diluted EPS Q1 2022 vs Q1 2021 Income Statement (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $973,445 | $767,262 | 26.9% | | Net Income | $516,295 | $434,262 | 18.9% | | Net Income allocable to common shareholders | $464,124 | $385,810 | 20.3% | | Diluted EPS | $2.63 | $2.21 | 19.0% | Consolidated Statements of Cash Flows Net cash from operating activities increased significantly in Q1 2022, while cash was primarily used for investing activities like capital expenditures and acquisitions, and financing activities including shareholder distributions Cash Flow Summary (in thousands) | Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $656,241 | $509,162 | | Net cash used in investing activities | ($288,531) | ($403,725) | | Net cash used in financing activities | ($161,253) | ($202,971) | | Increase (decrease) in cash | $206,630 | ($97,356) | Condensed Notes to Consolidated Financial Statements The notes detail operations, accounting policies, and financial items, highlighting Q1 2022 acquisitions and the pending PSB merger expected to yield substantial cash proceeds - In Q1 2022, the company acquired ten self-storage facilities (781,000 net rentable sq. ft.) for a total cost of $127.7 million, comprising $112.3 million in cash and $15.4 million in partnership units[35] - On January 13, 2022, the company issued 10.0 million depositary shares of its 4.100% Series S Preferred Shares, raising $250.0 million in gross proceeds[68] - Subsequent to quarter-end, PS Business Parks, Inc. (PSB), in which the company holds a 41% equity interest, entered into a merger agreement with Blackstone; if consummated, Public Storage expects to receive approximately $2.7 billion in cash proceeds and recognize a gain of about $2.2 billion[101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 2022 performance to robust demand, higher rental rates, and occupancies, with significant NOI increases from Same Store and acquired facilities, supported by strategic initiatives and a strong financial profile Results of Operations Net income for common shareholders increased in Q1 2022, driven by higher self-storage NOI and equity share of gains, with Core FFO per share rising significantly FFO and Core FFO per Share Reconciliation | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Diluted EPS | $2.63 | $2.21 | 19.0% | | FFO per share | $3.83 | $3.08 | 24.4% | | Core FFO per share | $3.65 | $2.82 | 29.4% | - The increase in net income was primarily due to a $167.3 million increase in self-storage net operating income and a $23.6 million equity share of gains from PS Business Parks, Inc. real estate sales[115] Analysis of Self-Storage Operations Self-storage operations show strong organic growth in Same Store facilities with increased NOI and rent per square foot, alongside significant NOI contributions from recently acquired properties Same Store Facilities (2,282 facilities) Operating Highlights - Q1 2022 vs Q1 2021 | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $749.3M | $647.2M | 15.8% | | Net Operating Income (NOI) | $561.3M | $465.8M | 20.5% | | Weighted Average Occupancy | 95.6% | 95.6% | 0.0% | | Realized Annual Rent per Occupied Sq. Ft. | $20.29 | $17.54 | 15.7% | - Same Store revenue growth was driven by rate increases for existing tenants and a 15.1% year-over-year increase in move-in rates for new tenants due to strong demand[133] - NOI from Acquired Facilities increased from $3.9 million in Q1 2021 to $55.3 million in Q1 2022, primarily due to large portfolios acquired in 2021, including ezStorage and All Storage[123][151][152] Liquidity and Capital Resources The company maintains a strong liquidity position with substantial cash and credit facilities, supplemented by expected proceeds from the pending PSB merger, supporting capital expenditures and development projects - The company holds high credit ratings of 'A' from S&P and 'A2' from Moody's for its senior notes, ensuring effective access to capital markets[196] - Upon closing the PSB merger, the company expects to receive approximately $2.7 billion in cash and will be required to distribute an estimated $2.3 billion taxable gain to common shareholders[200][210] - As of March 31, 2022, the company has development and expansion projects with a remaining cost to complete of $496.2 million, expected to be incurred over the next 18 to 24 months[213] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure stems from its debt, with a low weighted average interest rate, and foreign currency fluctuations related to its Shurgard investment, naturally hedged by Euro-denominated notes - At March 31, 2022, the company had approximately $7.4 billion in debt with a weighted average effective rate of 1.8%[217][218] - Foreign currency exposure from the investment in Shurgard (book value $313.3 million, fair value $2.0 billion) is naturally hedged by €1.5 billion ($1.7 billion) of Euro-denominated debt[219] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period[221] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[222] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is party to various legal proceedings and claims, but management believes the likelihood of these resulting in a material loss is remote - The company states that the likelihood of any current legal proceedings resulting in a material loss, either individually or in aggregate, is remote[223] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the risk factors disclosed in the 2021 Form 10-K were reported[224] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any common shares during the quarter, with a significant number of shares remaining available under the existing repurchase program, though no current plans exist - The Board has authorized a repurchase program for up to 35,000,000 common shares; as of March 31, 2022, 11,278,084 shares remain available for repurchase under this program[226] - No common shares were repurchased during the three months ended March 31, 2022[216] Item 6. Exhibits This section lists the exhibits filed with or incorporated by reference into the Form 10-Q, including certifications and XBRL data files