Public Storage(US:PSA)2022-11-01 20:21PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated balance sheets, income statements, and cash flows for the period Consolidated Balance Sheets Total assets reached $17.45 billion while total liabilities decreased to $7.33 billion as of September 30, 2022 Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $17,450,920 | $17,380,908 | | Cash and equivalents | $883,787 | $734,599 | | Real estate facilities, net | $15,835,650 | $15,306,996 | | Total Liabilities | $7,330,163 | $7,957,370 | | Notes payable | $6,740,451 | $7,475,279 | | Total Equity | $10,120,757 | $9,355,289 | Consolidated Statements of Income Net income surged to $2.78 billion in Q3 2022, driven by a significant gain on the sale of an equity investment - A significant gain of $2.13 billion from the sale of the equity investment in PS Business Parks, Inc was the primary driver of the substantial increase in net income18 Income Statement Summary (in thousands) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,088,131 | $894,931 | $3,093,621 | $2,491,508 | | Self-storage facilities | $1,027,374 | $840,510 | $2,917,675 | $2,333,850 | | Net Income | $2,778,152 | $491,628 | $3,951,340 | $1,337,620 | | Diluted EPS | $15.38 | $2.52 | $21.44 | $6.70 | Consolidated Statements of Cash Flows Investing activities provided $1.55 billion in cash, primarily from the sale of the PS Business Parks investment Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $2,380,790 | $1,814,720 | | Net Cash from (used in) Investing Activities | $1,552,488 | ($3,191,079) | | Proceeds from sale of PSB investment | $2,636,011 | $0 | | Acquisition of real estate facilities | ($529,357) | ($2,845,284) | | Net Cash (used in) from Financing Activities | ($3,782,889) | $2,077,797 | | Distributions paid | ($3,508,581) | ($1,189,876) | | Increase in Cash and Equivalents | $150,389 | $701,751 | Condensed Notes to Consolidated Financial Statements Notes detail the $2.7 billion sale of PS Business Parks, acquisition of 44 facilities, and a special dividend - As of September 30, 2022, the company held interests in 2,836 self-storage facilities in the U.S. and a 35% equity interest in Shurgard, which owns 259 facilities in Western Europe3839 - On July 20, 2022, the company completed the sale of its 41% common equity interest in PS Business Parks, Inc (PSB) for $2.7 billion in cash, recognizing a gain of $2.1 billion4052 - During the first nine months of 2022, the company acquired 44 self-storage facilities for a total cost of $501.9 million46 - A special cash dividend of $13.15 per common share, totaling approximately $2.3 billion, was paid on August 4, 2022, following the sale of the PSB investment82 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Same Store NOI growth, the impact of the PSB investment sale, and continued expansion Overview Q3 2022 performance was driven by strong organic growth and a $2.1 billion gain from the PSB asset sale - Same Store Facility revenues increased by 14.7% ($105.4 million) in Q3 2022 compared to Q3 2021, driven by strong demand, higher rental rates, and high occupancy levels126 - The company completed the sale of its 41% equity interest in PS Business Parks, Inc (PSB) on July 20, 2022, receiving $2.7 billion in cash proceeds and recognizing a $2.1 billion gain130 - Following the PSB sale, a special cash dividend of $13.15 per common share, totaling approximately $2.3 billion, was paid on August 4, 2022131 - The company is implementing a multi-year 'Property of Tomorrow' program to rebrand and enhance facilities, with an expected spend of approximately $220 million in 2022129 Results of Operations Net income rose to $2.71 billion in Q3 2022, primarily due to the PSB sale gain and higher self-storage NOI - The primary drivers for the net income increase were the $2.1 billion gain on the sale of the PSB equity investment and a significant increase in self-storage net operating income (NOI)133135 Net Income per Diluted Common Share | Period | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Q3 | $15.38 | $2.52 | $12.86 | | Nine Months | $21.44 | $6.70 | $14.74 | Funds from Operations and Core Funds from Operations Core FFO per diluted share grew 20.8% to $4.13 in Q3 2022, reflecting strong operational performance FFO and Core FFO per Diluted Share | Metric | Q3 2022 | Q3 2021 | % Change | 9 Months 2022 | 9 Months 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | FFO per share | $4.66 | $3.61 | 29.1% | $13.08 | $9.69 | 35.0% | | Core FFO per share | $4.13 | $3.42 | 20.8% | $11.77 | $9.39 | 25.3% | Analysis of Net Income - Self-Storage Operations Total self-storage NOI grew 23.8% in Q3 2022, with Same Store facilities contributing a 17.0% increase Self-Storage Net Operating Income (NOI) by Segment - Q3 2022 vs Q3 2021 (in thousands) | Segment | Q3 2022 NOI | Q3 2021 NOI | % Change | | :--- | :--- | :--- | :--- | | Same Store Facilities | $632,570 | $540,665 | 17.0% | | Acquired Facilities | $70,931 | $34,452 | 105.9% | | Newly Developed & Expanded | $50,097 | $34,731 | 44.2% | | Other Non-Same Store | $18,306 | $13,663 | 34.0% | | Total NOI | $771,904 | $623,511 | 23.8% | Ancillary Operations Ancillary NOI increased to $39.2 million in Q3 2022, led by growth in the tenant reinsurance business - Tenant reinsurance premium revenue grew 12.1% in Q3 2022, driven by an increased tenant base from acquired and newly developed facilities197 Ancillary Operations Net Operating Income (in thousands) | Segment | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Tenant reinsurance | $35,769 | $31,745 | $112,176 | $97,156 | | Merchandise | $2,861 | $2,908 | $8,835 | $8,784 | | Third party property management | $555 | $33 | $638 | ($326) | | Total NOI | $39,185 | $34,686 | $121,649 | $105,614 | Analysis of items not allocated to segments Key unallocated items include a $100.2 million foreign currency gain and decreased equity earnings post-PSB sale - Equity in earnings from PSB ceased after July 20, 2022, due to the sale of the investment, and the company will no longer recognize earnings from PSB going forward202204 - A foreign currency gain of $100.2 million was recorded in Q3 2022, primarily due to the strengthening of the U.S. Dollar against the Euro207 - Interest expense increased year-over-year due to debt issued to fund 2021 acquisitions, with a weighted average interest rate of approximately 1.9% on $6.7 billion of notes payable206 Liquidity and Capital Resources The company maintains a strong liquidity position with $883.8 million in cash and a $500 million credit facility - The company holds strong credit ratings of 'A' from Standard & Poor's and 'A2' from Moody's for its senior notes, enabling effective access to capital markets211 - Capital resources as of September 30, 2022, include $883.8 million in cash, a $500 million undrawn revolving credit facility, and an expected $600 million in retained operating cash flow over the next twelve months212214 - Committed cash requirements include $262.6 million for acquisitions under contract and $605.5 million for the current development pipeline215227 - Capital expenditures for 2022 are expected to be $400-$450 million, including $220 million for the 'Property of Tomorrow' enhancement program220 Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risks relate to debt interest rates and foreign currency exposure from its European investment - Total debt outstanding was approximately $6.7 billion at September 30, 2022, with a weighted average effective interest rate of 1.9%231232 - The company has foreign currency exposure from its investment in Shurgard (book value $252.6 million) and €1.5 billion of Euro-denominated notes, which provide a natural hedge233 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022 - 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 report235 - No material changes were made to the internal control over financial reporting during the quarter ended September 30, 2022236 PART II OTHER INFORMATION Item 1. Legal Proceedings The company believes the likelihood of a material loss from current legal proceedings is remote - The company states that the likelihood of any current legal proceedings resulting in a material loss is remote238 Item 1A. Risk Factors No material changes to risk factors have been identified since the 2021 Annual Report on Form 10-K - No material changes have occurred to the risk factors disclosed in the company's 2021 Annual Report on Form 10-K239 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No common shares were repurchased in Q3 2022, with 11.3 million shares remaining under the buyback program - No common shares were repurchased during the three and nine months ended September 30, 2022230241 - As of September 30, 2022, 11,278,084 common shares remain available for repurchase under the authorized program, which has no expiration date241 Item 6. Exhibits This section lists all exhibits filed with or incorporated by reference into the quarterly report