GLENDALE, Calif.–(BUSINESS WIRE)–Public Storage (NYSE:PSA) announced today operating results for the fourth quarter and year ended December 31, 2022.
“Public Storage’s industry-leading platform achieved record financial results in 2022,” said Joe Russell, President and Chief Executive Officer. “I want to thank the entire team for their focus and determination throughout the year. We enter 2023 in a position of strength, with our digital and operating model transformation enhancing the industry’s highest direct operating margins, strong-growth properties in our non-same store pool comprising more than 25% of the portfolio, and a balance sheet positioned to fund broad opportunity across acquisitions, development, and redevelopment. Our ability to drive unmatched levels of performance and profitability uniquely positions us for growth and value creation into the future.”
Highlights for the Three Months Ended December 31, 2022
Reported net income allocable to common shareholders of $2.06 per diluted share.
Reported core FFO allocable to common shareholders (“Core FFO”) of $4.16 per diluted share, an increase of 17.5% relative to the same period in 2021. We sold our entire equity investment in PS Business Parks, Inc. (“PSB”) in July 2022 and since then no longer recognize any further equity in earnings of PSB. Core FFO per diluted share increased 22.4% excluding the contribution from our equity investment in PSB to Core FFO per diluted share.
Increased Same Store (as defined below) direct net operating income by 15.0%, resulting from a 13.0% increase in Same Store revenues.
Achieved 81.2% Same Store direct net operating income margin, an increase of 1.8% relative to the same period in 2021.
Acquired 30 self-storage facilities with 1.6 million net rentable square feet for $228.6 million. Subsequent to December 31, 2022, we acquired or were under contract to acquire eight self-storage facilities with 0.5 million net rentable square feet, for $70.5 million.
Opened three newly developed facilities and completed various expansion projects with 0.5 million net rentable square feet costing $101.2 million. At December 31, 2022, we had various facilities in development and expansion with 4.6 million net rentable square feet estimated to cost $979.6 million.
Highlights for the Year Ended December 31, 2022
Reported net income allocable to common shareholders of $23.50 per diluted share.
Reported Core FFO of $15.92 per diluted share, an increase of 23.1% from 2021. Core FFO per diluted share increased 26.1% excluding the contribution from our equity investment in PSB to Core FFO per diluted share.
Increased Same Store direct net operating income by 17.1%, resulting from a 14.8% increase in Same Store revenues.
Acquired 74 self-storage facilities with 4.7 million net rentable square feet for $730.5 million.
Opened eight newly developed facilities and various expansion projects with 1.4 million net rentable square feet costing $227.2 million.
Distributed a one-time dividend of $13.15 per common share, totaling $2.3 billion, in August 2022 in connection with the sale of our equity investment in PSB, upon completion of its merger transaction with affiliates of Blackstone Real Estate on July 20, 2022.
Operating Results for the Three Months Ended December 31, 2022
For the three months ended December 31, 2022, net income allocable to our common shareholders was $362.6 million or $2.06 per diluted common share, compared to $558.1 million or $3.17 per diluted common share in the same period in 2021, representing a decrease of $195.5 million or $1.11 per diluted common share. The decrease is due primarily to (i) a $177.2 million decrease in foreign currency exchange gains and losses primarily associated with our Euro denominated notes payable and (ii) a $143.9 million decrease in equity in earnings of unconsolidated real estate entities due to the sale of our equity investment in PSB, partially offset by (iii) a $137.7 million increase in self-storage net operating income.
The $137.7 million increase in self-storage net operating income in the three months ended December 31, 2022 as compared to the same period in 2021 is a result of an $87.2 million increase attributable to our Same Store Facilities and a $50.5 million increase attributable to our Non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities increased 13.0% or $94.4 million in the three months ended December 31, 2022 as compared to the same period in 2021, due primarily to higher realized annual rent per occupied square foot, partially offset by a decline in occupancy. Cost of operations for the Same Store Facilities increased by 4.1% or $7.2 million in the three months ended December 31, 2022 as compared to the same period in 2021, due primarily to increased property tax expense, marketing expense, and other direct property costs, partially offset by a decrease in on-site property manager payroll expense. The increase in net operating income of $50.5 million for the Non-Same Store Facilities is due primarily to the impact of facilities acquired in 2021 and the fill-up of recently developed and expanded facilities.
Operating Results for the Year Ended December 31, 2022
For 2022, net income allocable to our common shareholders was $4,142.3 million or $23.50 per diluted common share, compared to $1,732.4 million or $9.87 per diluted common share in 2021, representing an increase of $2,409.9 million or $13.63 per diluted common share. The increase is due primarily to (i) a $2.1 billion gain on sale of our equity investment in PSB and (ii) a $614.3 million increase in self-storage net operating income, partially offset by (iii) a $174.7 million increase in depreciation and amortization expense, (iv) a $125.1 million decrease in equity in earnings of unconsolidated real estate entities due to sale of our equity investment in PSB, and (v) a $45.5 million increase in interest expense.
The $614.3 million increase in self-storage net operating income in 2022 as compared to 2021 is a result of a $370.1 million increase attributable to our Same Store Facilities and a $244.2 million increase attributable to our Non-Same Store Facilities. Revenues for the Same Store Facilities increased 14.8% or $409.9 million in 2022 as compared to 2021, due primarily to higher realized annual rent per occupied square foot, partially offset by a decline in occupancy. Cost of operations for the Same Store Facilities increased by 5.7% or $39.9 million in 2022 as compared to 2021, due primarily to increased property tax expense, on-site property manager payroll expense, marketing expense, other direct property costs, and centralized management costs. The increase in net operating income of $244.2 million for the Non-Same Store Facilities is due primarily to the impact of facilities acquired in 2021 and the fill-up of recently developed and expanded facilities.
Funds from Operations
Funds from Operations (“FFO”) and FFO per share are non-GAAP measures defined by the Nareit. We believe that FFO and FFO per share are useful to REIT investors and analysts in measuring our performance because Nareit’s definition of FFO excludes items included in net income that do not relate to or are not indicative of our operating and financial performance. FFO represents net income before depreciation and amortization, which is excluded because it 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. FFO also excludes gains or losses on sale of real estate assets and real estate impairment charges, which are also based upon historical costs and are impacted by historical depreciation. FFO and FFO per share are not a substitute for net income or earnings per share. FFO is not a substitute for net cash flow in evaluating our liquidity or ability to pay dividends, because it excludes investing and financing activities presented on our consolidated statements of cash flows. In addition, other REITs may compute these measures differently, so comparisons among REITs may not be helpful.
For the three months ended December 31, 2022, FFO was $3.38 per diluted common share as compared to $3.67 in the same period in 2021, representing a decrease of 7.9%.
For the year ended December 31, 2022, FFO was $16.46 per diluted common share, as compared to $13.36 in the same period in 2021, representing an increase of 23.2%.
We also present “Core FFO” and “Core FFO per share,” non-GAAP measures that represent FFO and FFO per share excluding the impact of (i) foreign currency exchange gains and losses, (ii) charges related to the redemption of preferred securities, and (iii) certain other non-cash and/or nonrecurring income or expense items primarily representing, with respect to the periods presented below, the impact of loss contingency accruals and casualties, unrealized gain on private equity investments and our equity share of merger transaction costs, severance of a senior executive, lease termination income, and casualties from our equity investees. We review Core FFO and Core FFO per share to evaluate our ongoing operating performance, and we believe they are used by investors and REIT analysts in a similar manner. However, Core FFO and Core FFO per share are not substitutes for net income and net income per share. Because other REITs may not compute Core FFO or Core FFO per share in the same manner as we do, may not use the same terminology, or may not present such measures, Core FFO and Core FFO per share may not be comparable among REITs.
The following table reconciles net income to FFO and Core FFO and reconciles diluted earnings per share to FFO per share and Core FFO per share (unaudited):
Three Months Ended December 31,
Year Ended December 31,
2022
2021
Percentage
Change
2022
2021
Percentage
Change
(Amounts in thousands, except per share data)
Reconciliation of Net Income to FFO and Core FFO:
Net income allocable to common shareholders
$
362,622
$
558,058
(35.0
)%
$
4,142,288
$
1,732,444
139.1
%
Eliminate items excluded from FFO:
Depreciation and amortization
224,438
204,131
881,569
709,349
Depreciation from unconsolidated real estate investments
9,837
19,244
54,822
73,729
Depreciation allocated to noncontrolling interests and restricted share unitholders
(1,781
)
(1,002
)
(6,622
)
(4,415
)
Gains on sale of real estate investments, including our equity share from investments
—
(134,116
)
(54,403
)
(165,272
)
Gain on sale of equity investment in PS Business Parks, Inc.
—
—
(2,116,839
)
—
FFO allocable to common shares
$
595,116
$
646,315
(7.9
)%
$
2,900,815
$
2,345,835
23.7
%
Eliminate the impact of items excluded from Core FFO, including our equity share from investments:
Foreign currency exchange (gain) loss
138,956
(38,203
)
(98,314
)
(111,787
)
Preferred share redemption charge
—
14,615
—
31,604
Property losses and tenant claims due to casualties (a)
(1,301
)
—
4,817
4,909
Other items
(760
)
—
(338
)
(543
)
Core FFO allocable to common shares
$
732,011
$
622,727
17.5
%
$
2,806,980
$
2,270,018
23.7
%
Reconciliation of Diluted Earnings per Share to FFO per Share and Core FFO per Share:
Diluted earnings per share
$
2.06
$
3.17
(35.0
)%
$
23.50
$
9.87
138.1
%
Eliminate amounts per share excluded from FFO:
Depreciation and amortization
1.32
1.26
5.27
4.44
Gains on sale of real estate investments, including our equity share from investments
—
(0.76
)
(0.31
)
(0.95
)
Gain on sale of equity investment in PS Business Parks, Inc.
—
—
(12.00
)
—
FFO per share
$
3.38
$
3.67
(7.9
)%
$
16.46
$
13.36
23.2
%
Eliminate the per share impact of items excluded from Core FFO, including our equity share from investments:
Foreign currency exchange (gain) loss
0.79
(0.22
)
(0.57
)
(0.64
)
Preferred share redemption charge
—
0.09
—
0.18
Property losses and tenant claims due to casualties (a)
(0.01
)
—
0.03
0.03
Other items
—
—
—
—
Core FFO per share
$
4.16
$
3.54
17.5
%
$
15.92
$
12.93
23.1
%
Exclude the contribution from our equity investment in PS Business Parks, Inc. to Core FFO per share
—
(0.14
)
(0.33
)
(0.57
)
Core FFO per share, excluding the impact of PS Business Parks, Inc.
$
4.16
$
3.40
22.4
%
$
15.59
$
12.36
26.1
%
Diluted weighted average common shares
176,144
176,079
176,280
175,568
(a)
Property losses and tenant claims due to casualties were related to Hurricane Ian for the three months and year ended December 31, 2022, and Hurricane Ida for the same periods in 2021. The related charges were included in general and administrative expenses and ancillary cost of operations on the Selected Consolidated Income Statement Data.
Property Operations – Same Store Facilities
The Same Store Facilities consist of facilities that have been owned and operated on a stabilized level of occupancy, revenues, and cost of operations since January 1, 2020. The composition of our Same Store Facilities allows us to more effectively evaluate the ongoing performance of our self-storage portfolio in 2020, 2021, and 2022 and exclude the impact of fill-up of unstabilized facilities, which can significantly affect operating trends. We believe the Same Store information is used by investors and analysts in a similar manner. However, because other REITs may not compute Same Store Facilities in the same manner as we do, may not use the same terminology, or may not present such a measure, Same Store Facilities may not be comparable among REITs. The following table summarizes the historical operating results of these 2,276 facilities (149.1 million net rentable square feet) that represent approximately 73% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at December 31, 2022 (unaudited):
Three Months Ended December 31,
Year Ended December 31,
2022
2021
Percentage
Change
2022
2021
Percentage
Change
(Dollar amounts in thousands, except for per square foot data)
Revenues (a):
Rental income
$
792,227
$
702,973
12.7
%
$
3,074,192
$
2,683,116
14.6
%
Late charges and administrative fees
26,695
21,529
24.0
%
101,015
82,147
23.0
%
Total revenues
818,922
724,502
13.0
%
3,175,207
2,765,263
14.8
%
Direct cost of operations (a):
Property taxes
65,697
63,929
2.8
%
279,388
267,961
4.3
%
On-site property manager payroll
29,600
32,053
(7.7
)%
119,139
114,426
4.1
%
Repairs and maintenance
15,223
13,539
12.4
%
58,468
52,703
10.9
%
Utilities
9,943
9,335
6.5
%
43,457
40,548
7.2
%
Marketing
13,615
9,130
49.1
%
45,906
39,682
15.7
%
Other direct property costs
19,904
18,191
9.4
%
80,991
73,646
10.0
%
Total direct cost of operations
153,982
146,177
5.3
%
627,349
588,966
6.5
%
Direct net operating income (b)
664,940
578,325
15.0
%
2,547,858
2,176,297
17.1
%
Indirect cost of operations (a):
Supervisory payroll
(8,464
)
(9,230
)
(8.3
)%
(35,017
)
(37,058
)
(5.5
)%
Centralized management costs
(15,665
)
(15,322
)
2.2
%
(61,922
)
(55,350
)
11.9
%
Share-based compensation
(3,297
)
(3,464
)
(4.8
)%
(14,203
)
(17,255
)
(17.7
)%
Net operating income (c)
$
637,514
$
550,309
15.8
%
$
2,436,716
$
2,066,634
17.9
%
Gross margin (before indirect costs, depreciation and amortization expense)
81.2
%
79.8
%
1.8
%
80.2
%
78.7
%
1.9
%
Gross margin (before depreciation and amortization expense)
77.8
%
76.0
%
2.4
%
76.7
%
74.7
%
2.7
%
Weighted average for the period:
Square foot occupancy
93.4
%
95.9
%
(2.6
)%
94.9
%
96.3
%
(1.5
)%
Realized annual rental income per (d):
Occupied square foot
$
22.74
$
19.66
15.7
%
$
21.73
$
18.67
16.4
%
Available square foot
$
21.25
$
18.85
12.7
%
$
20.61
$
17.99
14.6
%
At December 31:
Square foot occupancy
92.4
%
94.8
%
(2.5
)%
Annual contract rent per occupied square foot (e)
$
23.02
$
19.96
15.3
%
(a)
Revenues and cost of operations do not include tenant reinsurance and merchandise sales and expenses generated at the facilities.
(b)
Direct net operating income (“Direct NOI”), a subtotal within NOI, is a non-GAAP financial measure that excludes the impact of supervisory payroll, centralized management costs, and share-based compensation in addition to depreciation and amortization expense. We utilize direct net operating income in evaluating property performance and in evaluating property operating trends as compared to our competitors.
(c)
See attached reconciliation of self-storage NOI to net income.
(d)
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.
(e)
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.
Property Operations – Non-Same Store Facilities
In addition to the 2,276 Same Store Facilities, we have 593 facilities that were not stabilized with respect to occupancies, revenues, or cost of operations since January 1, 2020 or that we did not own as of January 1, 2020, including 368 facilities that were acquired, 62 newly developed facilities, 91 facilities that have been expanded or are targeted for expansion, and 72 facilities that are unstabilized because they are undergoing fill-up or were damaged in casualty events (collectively, the “Non-Same Store Facilities”). Operating data, metrics, and further commentary with respect to these facilities, including detail by vintage, are included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Analysis of Net Income – Self-Storage Operations” in our December 31, 2022 Form 10-K.
Investing and Capital Activities
During the three months ended December 31, 2022, we closed the acquisition of 30 self-storage facilities (26 in Florida, and one each in Indiana, Kansas, Ohio, and Utah) with 1.6 million net rentable square feet for $228.6 million. These include the Neighborhood Storage portfolio in the Ocala, Florida market, consisting of 28 properties with 1.2 million net rentable square feet, with 26 properties closed in December 2022 for $179.8 million and two properties that are under construction and expected to close in early 2023.
During 2022, we closed the acquisition of 74 self-storage facilities (28 in Florida, ten in Oklahoma, seven in Texas, four in North Carolina, three in South Carolina, two each in Alabama, Arizona, Indiana, Maryland, Nevada, and Ohio, and one each in Colorado, Georgia, Iowa, Kansas, Minnesota, New Jersey, Oregon, Pennsylvania, Tennessee, and Utah) with 4.7 million net rentable square feet for $730.5 million.
Additionally, on July 8, 2022, we acquired from PSB the commercial interests in five properties at three sites jointly occupied with our self-storage facilities located in Maryland and Virginia, for $47.3 million.
Subsequent to December 31, 2022, we acquired or were under contract to acquire eight self-storage facilities across five states with 0.5 million net rentable square feet, for $70.5 million.
During 2021, we acquired a portfolio of 48 properties (4.1 million net rentable square feet) operated under the brand name of ezStorage for $1.8 billion. These facilities generated revenues of $100.8 million, NOI of $79.9 million (including Direct NOI of $82.7 million), and average square footage occupancy of 89.6% for 2022.
During 2021, we acquired a portfolio of 56 properties (7.5 million net rentable square feet) operated under the brand name of All Storage for $1.5 billion. These facilities generated revenues of $79.2 million, NOI of $48.4 million (including Direct NOI of $51.2 million), and average square footage occupancy of 79.4% for 2022.
During the three months ended December 31, 2022, we opened three newly developed facilities and completed various expansion projects (0.5 million net rentable square feet – 0.2 million in Florida, and 0.1 million each in New Jersey, Maryland, and Michigan) costing $101.2 million. During 2022, we opened eight newly developed facilities and completed various expansion projects (1.4 million net rentable square feet – 0.4 million in Florida, 0.2 million each in Michigan and Minnesota, 0.1 million each in Illinois, Kentucky, Maryland, New Jersey, and Texas, and 0.1 million in various other states combined) costing $227.2 million. At December 31, 2022, we had various facilities in development (2.1 million net rentable square feet) estimated to cost $492.3 million and various expansion projects (2.5 million net rentable square feet) estimated to cost $487.3 million. Our aggregate 4.6 million net rentable square foot pipeline of development and expansion facilities includes 1.7 million in California, 0.6 million in Texas, 0.4 million in Maryland, 0.3 million each in Florida and Hawaii, 0.2 million each in New Jersey and Washington, and 0.9 million in other states. The remaining $606.6 million of development costs for these projects is expected to be incurred primarily in the next 18 to 24 months.
On July 20, 2022, we sold our entire equity investment in PSB upon the closing of the merger of PSB with affiliates of Blackstone Real Estate. We received a total of $2.7 billion of cash proceeds and recognized a gain of $2.1 billion. In connection with the sale of our equity investment in PSB, on August 4, 2022, we paid a special cash dividend of $13.15 per common share, totaling approximately $2.3 billion.
As previously announced, our Board of Trustees declared a 50% increase in the Company’s regular common quarterly dividend from $2.00 to $3.00 per common share. The Board also declared dividends with respect to our various series of preferred shares. All the dividends are payable on March 30, 2023 to shareholders of record as of March 15, 2023.
Outlook for the Year Ending December 31, 2023
Set forth below are our current expectations with respect to full year 2023 Core FFO per share and certain underlying assumptions, excluding the impact of the proposed acquisition of Life Storage.
Contacts
Ryan Burke
(818) 244-8080, Ext. 1141