Public Storage Reports Quarterly Results for the Period Ended September 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 three and nine months ended September 30, 2024. The company’s performance reflects the ongoing trends in the self-storage industry and provides insights into its growth strategies and future outlook.

Overview of Financial Performance

During the three and nine months ended September 30, 2024, Public Storage’s revenues generated by its Same Store Facilities (facilities owned and operated since January 1, 2022) decreased by 1.3% ($12.3 million) and 0.8% ($21.4 million), respectively, compared to the same periods in 2023. This was primarily due to a decline in occupancy and lower realized annual rent per occupied square foot.

However, the company’s non-same store facilities, which include recently acquired and newly developed or expanded properties, contributed to an increase in net operating income of 51.3% ($27.1 million) and 69.7% ($94.8 million) in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.

Overall, net income allocable to common shareholders decreased by 32.4% and 16.1% in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. This was primarily due to a $118.5 million increase in foreign currency losses, a $41.6 million increase in depreciation and amortization expense, and a $15.9 million increase in interest expense, partially offset by the increase in net operating income from the non-same store facilities.

Revenue and Profit Trends

The decrease in revenues from the Same Store Facilities was driven by a 0.8% and 0.6% decline in average occupancy and a 0.8% and 0.2% decrease in realized annual rent per occupied square foot in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. This was due to weaker industry-wide demand, which the company has been addressing through increased marketing efforts and promotional discounting.

The increase in net operating income from the non-same store facilities was primarily due to the impact of facilities acquired in 2023, as well as newly developed and expanded facilities. These properties are in various stages of their revenue stabilization periods, and the company expects them to continue contributing to growth as they reach stabilization.

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 243 facilities with 17.2 million net rentable square feet for $3.5 billion. Additionally, the company has 127 newly developed or expanded facilities with 15.3 million net rentable square feet, representing a significant investment of $1.6 billion.

However, the company has also faced some challenges, including the impact of inflationary pressures on its cost of operations, such as labor, utilities, and repairs and maintenance. To mitigate these adverse impacts, the company has implemented various initiatives, such as enhancing operational processes, investing in technology to reduce payroll hours, and investing in solar power and LED lights to lower utility usage.

Another potential weakness is the company’s exposure to foreign currency exchange risk, as it has Euro-denominated notes payable. The company recorded significant foreign currency losses of $70.6 million and $20.6 million in the three and nine months ended September 30, 2024, respectively, due to fluctuations in the exchange rate between the U.S. Dollar and the Euro.

Outlook and Future Prospects

Looking ahead, Public Storage expects weaker industry-wide demand in the remainder of 2024 compared to 2023, but with an improvement in the year-over-year decline in demand in the remainder of 2024 compared to the first nine months of 2024. The company plans to continue supporting new customer move-ins with increased marketing expense, lower rental rates, and increased promotional discounting to mitigate the effect of lower industry-wide demand on its facilities.

The company remains active in seeking to acquire additional self-storage facilities, with 14 facilities across nine states with 1.2 million net rentable square feet under contract or acquired subsequent to September 30, 2024 for $181.2 million. However, future acquisition volume is likely to be impacted by cost of capital and overall macroeconomic uncertainties.

The company also has a robust development pipeline, with 23 additional facilities in development that will have a total of 2.3 million net rentable square feet of storage space and an aggregate development cost of approximately $426.7 million. Additionally, the company expects to add 1.7 million net rentable square feet of storage space by expanding existing self-storage facilities for an aggregate direct development cost of $285.8 million.

To fund its growth and capital requirements, the company has a strong financial profile, with $599.0 million of cash, $1,485.6 million available on its revolving line of credit, and expected retained operating cash flow of approximately $450 million over the next twelve months. The company also has access to the debt and preferred equity markets, which it has utilized to raise capital, as evidenced by its recent issuances of senior notes.

Overall, Public Storage’s financial performance reflects the ongoing challenges in the self-storage industry, but the company’s growth strategies, operational initiatives, and strong financial position position it well to navigate the current environment and continue its expansion in the future.