Public Storage(PSA) - 2022 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) This section presents Public Storage's unaudited consolidated financial statements as of June 30, 2022, highlighting increased total assets and net income Key Balance Sheet Data (as of June 30, 2022) | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Assets | $17,862,851 | $17,380,908 | | Real estate facilities, net | $15,545,495 | $15,306,996 | | Total Liabilities | $7,814,503 | $7,957,370 | | Notes payable | $7,340,904 | $7,475,279 | | Total Equity | $10,048,348 | $9,355,289 | Key Income Statement Data (Six Months Ended June 30) | Metric | 2022 (in thousands) | 2021 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | $2,005,490 | $1,596,577 | +25.6% | | Net Income | $1,173,188 | $845,992 | +38.7% | | Net income allocable to common shareholders | $1,067,505 | $732,059 | +45.8% | | Diluted EPS | $6.05 | $4.18 | +44.7% | Key Cash Flow Data (Six Months Ended June 30) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash flows from operating activities | $1,453,773 | $1,130,455 | | Net cash flows used in investing activities | ($595,816) | ($2,719,704) | | Net cash flows (used in) from financing activities | ($577,859) | $1,812,911 | Condensed Notes to Consolidated Financial Statements Detailed notes disclose business activities, accounting policies, and the $2.7 billion sale of PSB interest post-quarter end - As of June 30, 2022, the company had interests in 2,807 self-storage facilities in the U.S., a 35% interest in Shurgard (256 European facilities), and a 41% interest in PS Business Parks (PSB)[35][36] - During the first six months of 2022, the company acquired 20 self-storage facilities for $251.3 million[43] - Subsequent to the quarter end, on July 20, 2022, the company sold its 41% equity interest in PSB to Blackstone for $2.7 billion in cash, recognizing a $2.1 billion gain in Q3 2022, prompting a special cash dividend of $13.15 per common share[105][106] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong financial performance, Q2 2022 net income growth, and Core FFO per share increase, driven by acquisitions and rental rates - Net income for Q2 2022 was $603.4 million ($3.42/share), a significant increase from $346.2 million ($1.97/share) in Q2 2021, primarily due to a $160.9 million increase in self-storage net operating income and a $114.4 million increase in foreign currency exchange gains[121] Core FFO Reconciliation (Three Months Ended June 30) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | FFO per share | $4.58 | $2.99 | 53.2% | | Core FFO per share | $3.99 | $3.15 | 26.7% | - The sale of the company's equity investment in PSB on July 20, 2022, generated $2.7 billion in cash proceeds and a $2.1 billion gain to be recognized in Q3 2022, prompting a special cash dividend of $13.15 per share[119][120] Analysis of Net Income - Self-Storage Operations Detailed analysis of self-storage NOI by segment, showing strong growth from Same Store, Acquired, and Developed facilities Self-Storage Net Operating Income (NOI) by Segment (Three Months Ended June 30) | Segment | 2022 NOI ($ thousands) | 2021 NOI ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Same Store Facilities | 608,607 | 512,889 | 18.7% | | Acquired Facilities | 62,638 | 20,411 | 206.9% | | Newly Developed & Expanded | 46,595 | 28,914 | 61.2% | | Total NOI | 735,297 | 574,398 | 28.0% | Ancillary Operations Ancillary operations generated $41.5 million NOI in Q2 2022, primarily driven by growth in tenant reinsurance business Ancillary Operations Net Operating Income (Three Months Ended June 30) | Operation | 2022 NOI ($ thousands) | 2021 NOI ($ thousands) | | :--- | :--- | :--- | | Tenant reinsurance | 38,489 | 33,554 | | Merchandise | 3,007 | 2,806 | | Third party property management | 53 | (29) | | Total Ancillary NOI | 41,549 | 36,331 | Liquidity and Capital Resources Strong liquidity, high credit ratings, and $1.0 billion cash position are bolstered by the PSB sale, supporting capital expenditures - The company holds strong credit ratings for its senior notes: 'A' from Standard & Poor's and 'A2' from Moody's[203] - Expected capital resources include $1.0 billion cash (as of June 30, 2022), ~$700 million in retained operating cash flow over the next year, and ~$400 million retained from the PSB sale after the special dividend[207] - Capital expenditures are expected to be approximately $300 million for 2022, including $180 million for the 'Property of Tomorrow' enhancement program and $30 million for LED lighting and solar panels[213] Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk primarily stems from $7.3 billion in debt at 1.9% interest and foreign currency exposure from Shurgard investment - Total debt outstanding was $7.3 billion at June 30, 2022, with a weighted average effective interest rate of 1.9%[226][227] - The company has foreign currency exposure from its investment in Shurgard (book value $282.9 million) and €1.5 billion of Euro-denominated debt, which acts as a natural hedge[228] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[230] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[231] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in legal proceedings but assesses the likelihood of a material loss as remote - The company states that the likelihood of any legal proceedings resulting in a material loss is remote[233] Item 1A. Risk Factors No material changes to risk factors were reported since the 2021 Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the company's 2021 Annual Report on Form 10-K[234] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company's common share repurchase program has 11.28 million shares remaining, with no repurchases in Q2 2022 - The company did not repurchase any common shares during the three and six months ended June 30, 2022[224][236] - As of June 30, 2022, 11,278,084 common shares may still be repurchased under the existing authorization[236]