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

Overview

Public Storage, a leading self-storage real estate investment trust (REIT), has reported its financial results for the three and nine months ended September 30, 2024. The company’s performance reflects the ongoing challenges in the self-storage industry, with revenues from its Same Store Facilities declining 1.3% and 0.8% in the respective periods compared to the prior year.

Despite the softening demand, Public Storage has continued to grow through strategic acquisitions and development of new facilities. Since the beginning of 2022, the company has acquired 243 facilities with 17.2 million net rentable square feet for $3.5 billion. Additionally, the company’s Newly Developed and Expanded Facilities, which include 127 self-storage facilities, contributed a 51.3% and 69.7% increase in net operating income in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.

The company has also faced inflationary pressures on its cost of operations, including labor, utilities, and repairs and maintenance. To mitigate these impacts, Public Storage has implemented various initiatives such as enhancing operational processes, investing in technology, and achieving economies of scale from recent acquisitions.

Financial Performance

For the three months ended September 30, 2024, Public Storage reported net income allocable to common shareholders of $380.7 million, or $2.16 per diluted common share, compared to $563.2 million, or $3.20 per diluted common share, for the same period in 2023. The decrease 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 an $11.7 million increase in self-storage net operating income.

For the nine months ended September 30, 2024, the company reported net income allocable to common shareholders of $1.3 billion, or $7.43 per diluted common share, compared to $1.6 billion, or $8.85 per diluted common share, for the same period in 2023. The decrease was primarily due to a $166.3 million increase in depreciation and amortization expense, an $82.7 million increase in interest expense, and a $40.5 million increase in foreign currency exchange losses, partially offset by a $64.6 million increase in self-storage net operating income.

Funds from Operations (FFO) and Core FFO

Funds from Operations (FFO), a non-GAAP measure used to evaluate the company’s performance, decreased 17.0% to $3.80 per diluted common share in the three months ended September 30, 2024, compared to $4.58 for the same period in 2023. For the nine months ended September 30, 2024, FFO decreased 3.7% to $12.34 per diluted common share, compared to $12.82 per diluted common share for the same period in 2023.

The company also presents “Core FFO,” a non-GAAP measure that excludes the impact of foreign currency exchange gains and losses, charges related to the redemption of preferred securities, and certain other non-cash and/or nonrecurring items. Core FFO decreased 3.2% to $4.20 per diluted common share in the three months ended September 30, 2024, and decreased 1.8% to $12.46 per diluted common share in the nine months ended September 30, 2024, compared to the same periods in 2023.

Same Store Facilities

The company’s Same Store Facilities, which represent 2,507 facilities that have been owned and operated on a stabilized basis since January 1, 2022, experienced a 1.3% and 0.8% decrease in revenues in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. This was primarily due to a 0.8% and 0.2% decrease in realized annual rent per occupied square foot, as well as a 0.5% and 0.6% decrease in average occupancy, respectively.

Cost of operations for the Same Store Facilities increased 2.6% and 2.8% in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. This was primarily due to increases in repair and maintenance expense, marketing expense, and other direct property costs, partially offset by decreased on-site property manager payroll.

The company 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 as compared to the first nine months of 2024. Public Storage plans to mitigate the effect of lower industry-wide demand by continuing to support new customer move-ins with increased marketing expense, lower rental rates to new customers, and increased promotional discounting, which is expected to result in a moderate decline in Same Store Facilities revenues in 2024 compared to 2023.

Acquired Facilities and Newly Developed and Expanded Facilities

The Acquired Facilities, which represent 243 facilities acquired since January 1, 2022, contributed net operating income of $40.2 million and $118.3 million in the three and nine months ended September 30, 2024, respectively. The Newly Developed and Expanded Facilities, which include 127 self-storage facilities, contributed net operating income of $39.8 million and $112.5 million in the respective periods.

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 acquired or under contract for $181.2 million subsequent to September 30, 2024. The company also has 23 additional facilities in development, which 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.

Ancillary Operations

Public Storage’s ancillary operations, which include tenant reinsurance, merchandise sales, and third-party property management, generated net operating income of $43.4 million and $133.4 million in the three and nine months ended September 30, 2024, respectively. Tenant reinsurance operations continue to be a significant contributor, with premium revenue increasing 13.1% and 11.3% in the respective periods compared to the prior year.

Liquidity and Capital Resources

Public Storage maintains a strong financial profile, with an “A” credit rating from Standard & Poor’s and “A2” from Moody’s on its senior notes payable. The company has significant financial flexibility, with $599.0 million in cash as of September 30, 2024, and approximately $450 million in expected retained operating cash flow over the next twelve months. Additionally, the company has $1,485.6 million available on its revolving line of credit.

The company’s current committed cash requirements include $400 million in scheduled principal repayments on unsecured notes in the next twelve months, $401.9 million of remaining spending on its current development pipeline, and $181.2 million in property acquisitions currently under contract. The company believes it has a variety of options to raise additional capital, including issuing common or preferred securities, debt, and limited partnership interests, or entering into joint venture arrangements, to fund future growth and other cash requirements.

Outlook

Public Storage expects to continue facing challenges in the self-storage industry, with weaker industry-wide demand in the remainder of 2024 compared to 2023. However, the company believes it is well-positioned to navigate these conditions through its strategic initiatives, including:

• Continued focus on acquisitions and development of new facilities to drive growth
• Implementation of operational efficiencies and cost-saving measures to mitigate inflationary pressures
• Utilization of its strong balance sheet and access to capital markets to fund growth and other cash requirements

Overall, Public Storage’s financial performance reflects the ongoing challenges in the self-storage industry, but the company’s diversified portfolio, strategic initiatives, and strong financial position provide a solid foundation for navigating the current market environment and positioning the company for long-term success.