Public Storage Reports Quarterly Results for the Period Ended June 30, 2024

Public Storage’s Financial Performance and Outlook

Public Storage, one of the largest self-storage real estate investment trusts (REITs), has reported its financial results for the first half of 2024. The company’s performance reflects both the challenges and opportunities in the self-storage industry.

Overview of Financial Performance

During the three and six months ended June 30, 2024, Public Storage’s revenues from its Same Store Facilities (facilities owned and operated since January 1, 2022) decreased by 1.0% and 0.5% respectively, compared to the same periods in 2023. This was primarily due to a decline in occupancy and lower rental rates.

However, the company’s non-same store facilities, which include recently acquired, developed, and expanded properties, contributed significantly to the overall growth. Net operating income from these non-same store facilities increased by 81.3% and 81.4% in the three and six-month periods, respectively, compared to the same periods in 2023.

As a result, the company’s total net income allocable to common shareholders decreased by 5.8% and 6.4% in the three and six-month periods, respectively, compared to the same periods in 2023. This was mainly due to higher depreciation and amortization expenses, as well as increased interest expenses, partially offset by the growth in net operating income from the non-same store facilities and foreign currency exchange gains.

Revenue and Profit Trends

The decrease in revenues from the Same Store Facilities was driven by a 0.6% decline in realized annual rent per occupied square foot and a 0.5% decrease in average occupancy in the three-month period, and a 0.6% decrease in average occupancy in the six-month period, compared to the same periods in 2023.

The company attributes the decline in demand to softer customer demand, particularly in the home-moving segment, which was partially offset by increases in customers seeking storage space for other reasons. Public Storage expects this trend to continue for the remainder of 2024, but with an improvement in the year-over-year decline in the second half of the year.

To mitigate the effect of lower demand, the company has increased marketing efforts, offered lower rental rates to new customers, and increased promotional discounting. As a result, the company expects a moderate decline in Same Store Facilities revenues in 2024 compared to 2023.

On the cost side, the Same Store Facilities experienced a 0.9% and 2.9% increase in cost of operations in the three and six-month periods, respectively, compared to the same periods in 2023. This was primarily due to higher property tax expense, partially offset by decreased on-site property manager payroll and utilities.

The company expects property tax expense to grow 4% to 5% in 2024 due to higher assessed values. However, the company has implemented various initiatives, such as enhancing operational processes and investing in energy-saving technologies, to manage the adverse impacts of inflation on its cost of operations.

Strengths and Weaknesses

One of Public Storage’s key strengths is its active acquisition and development strategy. Since the beginning of 2022, the company has acquired a total of 240 facilities with 17.0 million net rentable square feet for $3.4 billion. Additionally, the company has developed and expanded a total of 126 self-storage facilities with 14.9 million net rentable square feet, with a total cost of $1.4 billion incurred through June 30, 2024.

These newly acquired, developed, and expanded facilities have contributed significantly to the company’s growth, with a combined net operating income increase of 81.3% and 81.4% in the three and six-month periods, respectively, compared to the same periods in 2023.

However, the company’s earnings have been diluted during the construction and stabilization period of these new developments and expansions due to the cost of capital, related construction and development overhead expenses, and the net operating losses from newly developed facilities undergoing fill-up.

Another strength is the company’s strong financial profile, characterized by low leverage relative to its total capitalization and operating cash flows. This has enabled Public Storage to effectively access both the public and private capital markets to raise capital and maintain its high credit ratings.

One potential weakness is the company’s exposure to macroeconomic conditions and their impact on customer demand. The softening of demand in 2023 and the first half of 2024 has affected the company’s Same Store Facilities performance, and the company expects this trend to continue for the remainder of 2024, albeit with an improvement in the second half of the year.

Outlook and Future Prospects

Looking ahead, Public Storage remains focused on its growth strategy through acquisitions and development. The company has a robust pipeline of development and expansion projects, with a total cost of approximately $738.7 million as of June 30, 2024, of which $358.0 million is expected to be incurred primarily in the next 18 to 24 months.

The company also continues to seek to acquire additional self-storage facilities, with three facilities acquired or under contract subsequent to June 30, 2024 for a total purchase price of $24.2 million. However, future acquisition volume will depend on various factors, such as economic conditions and the level of seller confidence.

To enhance the competitive position of its facilities, the company has embarked on a multi-year “Property of Tomorrow” program to rebrand its properties and upgrade the configuration and layout of the offices and customer zones. The company expects to complete this program in 2024 and has spent approximately $63 million on the program in the first half of the year, with an expected total spend of $150 million for the full year.

Additionally, the company has initiated a solar program to install solar panels on over 1,000 of its self-storage facilities. The company has completed the installations on 572 facilities through June 30, 2024 and expects to spend $100 million on this effort in 2024.

These initiatives, along with the company’s continued focus on operational efficiency and cost management, are expected to help mitigate the adverse impacts of inflation and softer demand on the company’s financial performance.

Overall, Public Storage’s financial performance in the first half of 2024 reflects the challenges faced by the self-storage industry, but the company’s strong acquisition and development pipeline, as well as its focus on enhancing the competitiveness of its facilities, position it well for the future. The company’s robust financial profile and access to capital also provide it with the flexibility to adapt to changing market conditions and capitalize on growth opportunities.