Public Storage Reports Results for the Third Quarter Ended September 30, 2012
Public Storage Reports Results for the Third Quarter Ended September 30, 2012
GLENDALE, Calif.--(BUSINESS WIRE)-- Public Storage (NYS: PSA) announced today operating results for the third quarter ended September 30, 2012.
Operating Results for the Three Months Ended September 30, 2012
For the three months ended September 30, 2012, net income allocable to our common shareholders was $202.5 million or $1.18 per diluted common share compared to $118.0 million or $0.69 per diluted common share for the same period in 2011, representing an increase of $84.5 million or $0.49 per diluted common share. This increase is due to (i) a $37.3 million increase resulting from foreign currency exchange gains and losses incurred in translating the value of our Euro-denominated loan receivable from Shurgard Europe into a U.S. Dollar equivalent, (ii) improved property operations (see below), and (iii) reduced allocations of income to our preferred shareholders due primarily to lower average coupon rates and lower average outstanding preferred shares.
Revenues for the Same Store Facilities (see table below) increased 4.8% or $18.8 million in the quarter ended September 30, 2012 as compared to the same period in 2011, primarily due to higher realized annual rent per occupied square foot. Cost of operations for the Same Store Facilities decreased by 2.3% or $2.8 million in the quarter ended September 30, 2012 as compared to the same period in 2011 due primarily to lower repairs and maintenance and media advertising. Net operating income for our Same Store Facilities increased 7.9% or $21.6 million in the quarter ended September 30, 2012 as compared to the same period in 2011. Net operating income for our non-Same Store facilities increased $5.2 million in the quarter ended September 30, 2012 as compared to the same period in 2011.
Operating Results for the Nine Months Ended September 30, 2012
For the nine months ended September 30, 2012, net income allocable to our common shareholders was $460.2 million or $2.68 per diluted common share, compared to $397.5 million or $2.33 per diluted common share for the same period in 2011, representing an increase of $62.7 million or $0.35 per diluted common share. This increase is due to (i) improved property operations (see below) and (ii) a $16.7 million reduction in allocations of net income to preferred shareholders based upon distributions paid due to lower average coupon rates and lower average outstanding preferred shares, offset partially by (iii) a $27.8 million decrease in earnings due to the application of EITF D-42 to our and PSB's redemptions of preferred securities, and (iv) a $16.0 million decrease due to foreign currency exchange gains and losses in translating our Euro-denominated loan receivable from Shurgard Europe into U.S. Dollars.
Revenues for the Same Store Facilities (see table below) increased 4.9% or $55.4 million in the nine months ended September 30, 2012 as compared to the same period in 2011, primarily due to higher realized annual rent per occupied square foot. Cost of operations for the Same Store Facilities decreased by 0.6% or $2.1 million in the nine months ended September 30, 2012 as compared to the same period in 2011 due primarily to lower media advertising. Net operating income for our Same Store Facilities increased 7.5% or $57.5 million in the nine months ended September 30, 2012 as compared to the same period in 2011. Net operating income for our non-Same Store facilities increased $14.0 million in the nine months ended September 30, 2012 as compared to the same period in 2011.
Funds from Operations
For the three months ended September 30, 2012, funds from operations ("FFO") was $1.73 per diluted common share as compared to $1.29 for the same period in 2011, representing an increase of 34.1%.
For the three months ended September 30, 2012, FFO was impacted by a foreign currency exchange gain of $9.0 million (compared to a $28.3 million loss for the same period in 2011) and a $12.9 million charge in applying EITF D-42 due to redemptions of preferred securities, including our equity share of PSB (compared to a $16.2 million charge for the same period in 2011).
For the nine months ended September 30, 2012, FFO was $4.46 per diluted common share as compared to $4.17 for the same period in 2011, representing an increase of 7.0%.
For the nine months ended September 30, 2012, FFO was impacted by a foreign currency exchange loss of $2.5 million (compared to a $13.5 million gain for the same period in 2011) and a $56.9 million charge in applying EITF D-42 due to redemptions of preferred securities, including our equity share of PSB (compared to a $29.1 million net charge for the same period in 2011).
Our FFO was also impacted by impairment charges with respect to non-real estate assets, contingency accruals, our equity share of PSB's lease termination benefits, and costs associated with the acquisition of real estate facilities, which reduced FFO per diluted common share $0.02 in the nine months ended September 30, 2012, and $0.01 in each of the three and nine months ended September 30, 2011.
The following table provides a summary of the per-share impact of the items noted above (unaudited):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||
2012 | 2011 | Percentage | 2012 | 2011 | Percentage | |||||||||||||||||||||||||||||
FFO per diluted common share prior to adjustments for the following items | $ | 1.76 | $ | 1.56 | 12.8 | % | $ | 4.82 | $ | 4.27 | 12.9 | % | ||||||||||||||||||||||
Foreign currency exchange gain (loss) | 0.05 | (0.17 | ) | (0.01 | ) | 0.08 | ||||||||||||||||||||||||||||
Application of EITF D-42 | (0.08 | ) | (0.09 | ) | (0.33 | ) | (0.17 | ) | ||||||||||||||||||||||||||
Other items, net | - | (0.01 | ) | (0.02 | ) | (0.01 | ) | |||||||||||||||||||||||||||
FFO per diluted common share, as reported | $ | 1.73 | $ | 1.29 | 34.1 | % | $ | 4.46 | $ | 4.17 | 7.0 | % | ||||||||||||||||||||||
FFO is a term defined by the National Association of Real Estate Investment Trusts. It is generally defined as net income before depreciation, gains and losses, and impairment charges with respect to real estate assets. FFO is presented because management and many analysts consider FFO to be one measure of the performance of real estate companies. In addition, we believe that FFO is helpful to investors as an additional measure of the performance of a real estate investment trust ("REIT"), because net income includes the impact of depreciation, which assumes that the value of real estate diminishes predictably over time, while we believe that the value of real estate fluctuates due to market conditions and in response to inflation. FFO computations do not consider scheduled principal payments on debt, capital improvements, distributions and other obligations of the Company. FFO is not a substitute for our cash flow or net income as a measure of our liquidity or operating performance or our ability to pay dividends. Other REITs may not compute FFO in the same manner; accordingly, FFO may not be comparable among REITs. See the attached reconciliation of net income to FFO.
Property Operations - Same Store Facilities
The Same Store Facilities represent those facilities that have been owned and operated on a stabilized basis since January 1, 2010 and therefore provide meaningful comparisons for 2011 and 2012. The following table summarizes the historical operating results of these 1,941 facilities (122.5 million net rentable square feet) that represent approximately 94% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at September 30, 2012.
Selected Operating Data for the Same Store Facilities (1,941 Facilities) (unaudited): | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
2012 | 2011 | Percentage | 2012 | 2011 | Percentage | |||||||||||||||||||||||||||||
(Dollar amounts in thousands, except for weighted average data) | ||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||
Rental income | $ | 391,461 | $ | 372,301 | 5.1 | % | $ | 1,130,548 | $ | 1,076,400 | 5.0 | % | ||||||||||||||||||||||
Late charges and administrative fees | 21,180 | 21,518 | (1.6 | )% | 60,721 | 59,459 | 2.1 | % | ||||||||||||||||||||||||||
Total revenues (a) | 412,641 | 393,819 | 4.8 | % | 1,191,269 | 1,135,859 | 4.9 | % | ||||||||||||||||||||||||||
Cost of operations: | ||||||||||||||||||||||||||||||||||
Property taxes | 40,580 | 39,550 | 2.6 | % | 125,563 | 121,196 | 3.6 | % | ||||||||||||||||||||||||||
On-site property manager payroll | 24,694 | 25,289 | (2.4 | )% | 74,973 | 76,481 | (2.0 | )% | ||||||||||||||||||||||||||
Repairs and maintenance | 8,487 | 10,960 | (22.6 | )% | 31,097 | 32,718 | (5.0 | )% | ||||||||||||||||||||||||||
Utilities | 10,153 | 10,501 | (3.3 | )% | 27,852 | 29,175 | (4.5 | )% | ||||||||||||||||||||||||||
Media advertising | 1,239 | 2,144 | (42.2 | )% | 6,275 | 9,550 | (34.3 | )% | ||||||||||||||||||||||||||
Other advertising and selling expense | 8,943 | 7,816 | 14.4 | % | 24,968 | 24,589 | 1.5 | % | ||||||||||||||||||||||||||
Other direct property costs (b) | 8,739 | 8,917 | (2.0 | )% | 26,492 | 27,215 | (2.7 | )% | ||||||||||||||||||||||||||
Supervisory payroll (c) | 8,191 | 8,199 | (0.1 | )% | 25,630 | 24,605 | 4.2 | % | ||||||||||||||||||||||||||
Allocated overhead (d) | 7,540 | 7,962 | (5.3 | )% | 27,441 | 26,880 | 2.1 | % | ||||||||||||||||||||||||||
Total cost of operations (a) | 118,566 | 121,338 | (2.3 | )% | 370,291 | 372,409 | (0.6 | )% | ||||||||||||||||||||||||||
Net operating income (e) | $ | 294,075 | $ | 272,481 | 7.9 | % | $ | 820,978 | $ | 763,450 | 7.5 | % | ||||||||||||||||||||||
Gross margin | 71.3 | % | 69.2 | % | 3.0 | % | 68.9 | % | 67.2 | % | 2.5 | % | ||||||||||||||||||||||
Weighted average for the period: | ||||||||||||||||||||||||||||||||||
Square foot occupancy (f) | 92.7 | % | 92.2 | % | 0.5 | % | 91.9 | % | 91.5 | % | 0.4 | % | ||||||||||||||||||||||
Realized annual rent per occupied square foot (g) (h) | $ | 13.79 | $ | 13.19 | 4.5 | % | $ | 13.39 | $ | 12.81 | 4.5 | % | ||||||||||||||||||||||
REVPAF (h) (i) | $ | 12.79 | $ | 12.16 | 5.2 | % | $ | 12.31 | $ | 11.72 | 5.0 | % | ||||||||||||||||||||||
Weighted average at September 30: | ||||||||||||||||||||||||||||||||||
Square foot occupancy | 92.5 | % | 91.7 | % | 0.9 | % | ||||||||||||||||||||||||||||
In place annual rent per occupied square foot (j) | $ | 14.63 | $ | 14.13 | 3.5 | % | ||||||||||||||||||||||||||||
Total net rentable square feet (in thousands) | 122,464 | 122,464 | - | |||||||||||||||||||||||||||||||
(a) | Revenues and cost of operations do not include ancillary revenues and expenses generated at the facilities with respect to tenant reinsurance and retail sales. | ||
(b) | Other direct property costs include administrative expenses that are solely attributable to the self-storage facilities, such as property insurance, office expenses incurred at the property, telephone and data communication lines at the properties, business license costs and bank charges related to handling the properties' cash deposits. | ||
(c) | Supervisory payroll expense represents compensation paid to the management personnel who directly and indirectly supervise the on-site property managers. | ||
(d) | Allocated overhead represents administrative expenses for shared general corporate functions, which are allocated to self-storage property operations to the extent their efforts are devoted to self-storage operations. Such functions include data processing, human resources, operational accounting and finance, information technology, marketing and costs of senior executives (other than the Chief Executive Officer and Chief Financial Officer, whose compensation is allocated to general and administrative expense). | ||
(e) | Net operating income or "NOI" is a non-GAAP (generally accepted accounting principles) financial measure that excludes the impact of depreciation expense. Although depreciation is an operating expense, we believe that NOI is a meaningful measure of operating performance, because we utilize NOI in making decisions with respect to capital allocations, in determining current property values, segment performance and comparing period-to-period and market-to-market property operating results. NOI is not a substitute for net operating income after depreciation in evaluating our operating results. See attached reconciliation of Same Store NOI to our net income. | ||
(f) | Square foot occupancies represent weighted average occupancy levels over the entire period. | ||
(g) | Realized annual rent per occupied square foot is computed by annualizing the result of dividing rental income by the weighted average occupied square footage for the period. Realized annual rent per occupied square foot takes into consideration promotional discounts, which reduce rental income from the contractual amounts due. | ||
(h) | Late charges and administrative fees are excluded from the computation of realized annual rent per occupied square foot and annualized rental income per available square foot ("REVPAF") because exclusion of these amounts provides a better measure of our ongoing level of revenue. | ||
(i) | REVPAF represents annualized rental income which excludes late charges and administrative fees divided by total available net rentable square feet. REVPAF takes into consideration promotional discounts that reduce rental income from the contractual amounts due. | ||
(j) | In place annual rent per occupied square foot represents annualized contractual rents per occupied square foot without reductions for promotional discounts and excludes late charges and administrative fees. | ||
The following table summarizes selected quarterly financial data with respect to the Same Store Facilities (unaudited): | |||
Three Months Ended | |||||||||||||||||||||||||||||||
