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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2022
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____________ to ____________.
Commission File Number: 001-33519
Public Storage
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Maryland | | 95-3551121 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
| | | |
701 Western Avenue, Glendale, California | | 91201-2349 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (818) 244-8080.
Former name, former address and former fiscal, if changed since last report: N/A
Securities registered pursuant to Section 12b of the Act:
| | | | | | | | | | | | | | |
| Title of Class | | Trading Symbol | | Name of each exchange on which registered |
| Common Shares, $0.10 par value | | PSA | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 5.150% Cum Pref Share, Series F, $0.01 par value | | PSAPrF | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 5.050% Cum Pref Share, Series G, $0.01 par value | | PSAPrG | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 5.600% Cum Pref Share, Series H, $0.01 par value | | PSAPrH | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 4.875% Cum Pref Share, Series I, $0.01 par value | | PSAPrI | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 4.700% Cum Pref Share, Series J, $0.01 par value | | PSAPrJ | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 4.750% Cum Pref Share, Series K, $0.01 par value | | PSAPrK | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 4.625% Cum Pref Share, Series L, $0.01 par value | | PSAPrL | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 4.125% Cum Pref Share, Series M, $0.01 par value | | PSAPrM | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 3.875% Cum Pref Share, Series N, $0.01 par value | | PSAPrN | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 3.900% Cum Pref Share, Series O, $0.01 par value | | PSAPrO | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 4.000% Cum Pref Share, Series P, $0.01 par value | | PSAPrP | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 3.950% Cum Pref Share, Series Q, $0.01 par value | | PSAPrQ | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 4.000% Cum Pref Share, Series R, $0.01 par value | | PSAPrR | | New York Stock Exchange |
| Depositary Shares Each Representing 1/1,000 of a 4.100% Cum Pref Share, Series S, $0.01 par value | | PSAPrS | | New York Stock Exchange |
| 0.875% Senior Notes due 2032 | | PSA32 | | New York Stock Exchange |
| 0.500% Senior Notes due 2030 | | PSA30 | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large accelerated filer | Accelerated
filer | Non-accelerated filer | Smaller reporting company | Emerging growth company |
| ☒ | ☐ | ☐ | ☐ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
Indicate the number of the registrant’s outstanding common shares of beneficial interest, as of October 27, 2022:
Common Shares of beneficial interest, $0.10 par value per share – 175,638,388 shares
PUBLIC STORAGE
INDEX
| | | | | | | | |
| PART I | FINANCIAL INFORMATION | Pages |
| | |
| Item 1. | Consolidated Financial Statements (Unaudited) | |
| | |
| | Consolidated Balance Sheets | |
| | |
| | Consolidated Statements of Income | |
| | |
| | Consolidated Statements of Comprehensive Income | |
| | |
| | Consolidated Statements of Equity and Redeemable Noncontrolling Interests | |
| | |
| | Consolidated Statements of Cash Flows | |
| | |
| | Condensed Notes to Consolidated Financial Statements | |
| | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
| | |
| Item 4. | Controls and Procedures | |
| | |
| PART II | OTHER INFORMATION (Items 3, 4 and 5 are not applicable) | |
| | |
| Item 1. | Legal Proceedings | |
| | |
| Item 1A. | Risk Factors | |
| | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| | |
| Item 6. | Exhibits | |
PUBLIC STORAGE
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
| | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 |
| (Unaudited) | | |
| ASSETS | | | |
| | | |
| Cash and equivalents | $ | 883,787 | | | $ | 734,599 | |
| Real estate facilities, at cost: | | | |
| Land | 5,240,841 | | | 5,134,060 | |
| Buildings | 18,535,053 | | | 17,673,773 | |
| 23,775,894 | | | 22,807,833 | |
| Accumulated depreciation | (8,346,598) | | | (7,773,308) | |
| 15,429,296 | | | 15,034,525 | |
| Construction in process | 406,354 | | | 272,471 | |
| 15,835,650 | | | 15,306,996 | |
| | | |
| Investments in unconsolidated real estate entities | 252,648 | | | 828,763 | |
| Goodwill and other intangible assets, net | 239,811 | | | 302,894 | |
| Other assets | 239,024 | | | 207,656 | |
| Total assets | $ | 17,450,920 | | | $ | 17,380,908 | |
| | | | |
| LIABILITIES AND EQUITY | | | |
| | | |
| Notes payable | $ | 6,740,451 | | | $ | 7,475,279 | |
| | | |
| Accrued and other liabilities | 589,712 | | | 482,091 | |
| Total liabilities | 7,330,163 | | | 7,957,370 | |
| | | |
| Commitments and contingencies (Note 14) | | | |
| | | |
| Redeemable noncontrolling interests | — | | | 68,249 | |
| | | | |
| Equity: | | | |
| Public Storage shareholders’ equity: | | | |
Preferred Shares, $0.01 par value, 100,000,000 shares authorized, 174,000 shares issued (in series) and outstanding, (164,000 at December 31, 2021) at liquidation preference | 4,350,000 | | | 4,100,000 | |
Common Shares, $0.10 par value, 650,000,000 shares authorized, 175,336,452 shares issued and outstanding (175,134,455 shares at December 31, 2021) | 17,534 | | | 17,513 | |
| Paid-in capital | 5,878,739 | | | 5,821,667 | |
| Accumulated deficit | (122,631) | | | (550,416) | |
| Accumulated other comprehensive loss | (96,470) | | | (53,587) | |
| Total Public Storage shareholders’ equity | 10,027,172 | | | 9,335,177 | |
| Noncontrolling interests | 93,585 | | | 20,112 | |
| Total equity | 10,120,757 | | | 9,355,289 | |
| Total liabilities, redeemable noncontrolling interests and equity | $ | 17,450,920 | | | $ | 17,380,908 | |
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| | | | | | | | | |
| Revenues: | | | | | | | | | |
| Self-storage facilities | $ | 1,027,374 | | | $ | 840,510 | | | $ | 2,917,675 | | | $ | 2,333,850 | | | |
| Ancillary operations | 60,757 | | | 54,421 | | | 175,946 | | | 157,658 | | | |
| 1,088,131 | | | 894,931 | | | 3,093,621 | | | 2,491,508 | | | |
| | | | | | | | | |
| Expenses: | | | | | | | | | |
| Self-storage cost of operations | 255,470 | | | 216,999 | | | 738,953 | | | 631,699 | | | |
| Ancillary cost of operations | 21,572 | | | 19,735 | | | 54,297 | | | 52,044 | | | |
| Depreciation and amortization | 220,772 | | | 188,552 | | | 661,608 | | | 508,139 | | | |
| General and administrative | 29,501 | | | 31,682 | | | 81,401 | | | 78,996 | | | |
| Interest expense | 34,113 | | | 23,736 | | | 100,178 | | | 60,980 | | | |
| | 561,428 | | | 480,704 | | | 1,636,437 | | | 1,331,858 | | | |
| | | | | | | | | |
| Other increases to net income: | | | | | | | | | |
| Interest and other income | 12,736 | | | 3,356 | | | 26,394 | | | 9,321 | | | |
| Equity in earnings of unconsolidated real estate entities | 8,180 | | | 32,860 | | | 100,129 | | | 81,382 | | | |
| Foreign currency exchange gain | 100,170 | | | 40,906 | | | 237,270 | | | 73,584 | | | |
| | | | | | | | | |
| Gain on sale of real estate | 1,503 | | | 279 | | | 1,503 | | | 13,683 | | | |
| Gain on sale of equity investment in PS Business Parks, Inc. | 2,128,860 | | | — | | | 2,128,860 | | | — | | | |
| Net income | 2,778,152 | | | 491,628 | | | 3,951,340 | | | 1,337,620 | | | |
| Allocation to noncontrolling interests | (9,158) | | | (1,537) | | | (14,553) | | | (4,067) | | | |
| Net income allocable to Public Storage shareholders | 2,768,994 | | | 490,091 | | | 3,936,787 | | | 1,333,553 | | | |
| Allocation of net income to: | | | | | | | | | |
| Preferred shareholders | (48,678) | | | (46,237) | | | (145,716) | | | (138,500) | | | |
| Preferred shareholders - redemptions | — | | | — | | | — | | | (16,989) | | | |
| Restricted share units | (8,155) | | | (1,527) | | | (11,405) | | | (3,678) | | | |
| Net income allocable to common shareholders | $ | 2,712,161 | | | $ | 442,327 | | | $ | 3,779,666 | | | $ | 1,174,386 | | | |
| Net income per common share: | | | | | | | | | |
| Basic | $ | 15.47 | | | $ | 2.53 | | | $ | 21.57 | | | $ | 6.72 | | | |
| Diluted | $ | 15.38 | | | $ | 2.52 | | | $ | 21.44 | | | $ | 6.70 | | | |
| | | | | | | | | |
| Basic weighted average common shares outstanding | 175,283 | | 174,926 | | 175,227 | | 174,787 | | |
| Diluted weighted average common shares outstanding | 176,328 | | 175,806 | | 176,325 | | 175,398 | | |
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| | | | | | | | | |
| Net income | $ | 2,778,152 | | | $ | 491,628 | | | $ | 3,951,340 | | | $ | 1,337,620 | | | |
| Foreign currency exchange loss on investment in Shurgard | (17,253) | | | (6,898) | | | (42,883) | | | (9,579) | | | |
| Total comprehensive income | 2,760,899 | | | 484,730 | | | 3,908,457 | | | 1,328,041 | | | |
| Allocation to noncontrolling interests | (9,158) | | | (1,537) | | | (14,553) | | | (4,067) | | | |
| Comprehensive income allocable to Public Storage shareholders | $ | 2,751,741 | | | $ | 483,193 | | | $ | 3,893,904 | | | $ | 1,323,974 | | | |
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
Three Months Ended September 30, 2022
(Amounts in thousands, except share and per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Preferred Shares | | Common Shares | | Paid-in Capital | | Accumulated Deficit | | Accumulated
Other Comprehensive Loss | | Total
Public Storage Shareholders' Equity | | Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
| | | | | | | | | | | | | | | | | |
Balances at June 30, 2022 | $ | 4,350,000 | | | $ | 17,524 | | | $ | 5,848,632 | | | $ | (182,213) | | | $ | (79,217) | | | $ | 9,954,726 | | | $ | 93,622 | | | $ | 10,048,348 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Issuance of common shares in connection with share-based compensation (97,189 shares) | — | | | 10 | | | 16,445 | | | — | | | — | | | 16,455 | | | — | | | 16,455 | | | — | |
| Taxes withheld upon net share settlement of restricted share units | — | | | — | | | (779) | | | — | | | — | | | (779) | | | — | | | (779) | | | — | |
| Share-based compensation expense | — | | | — | | | 14,441 | | | — | | | — | | | 14,441 | | | — | | | 14,441 | | | — | |
| | | | | | | | | | | | | | | | | |
| Contributions by noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 561 | | | 561 | | | — | |
| | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | 2,778,152 | | | — | | | 2,778,152 | | | — | | | 2,778,152 | | | — | |
| Net income allocated to noncontrolling interests | — | | | — | | | — | | | (9,158) | | | — | | | (9,158) | | | 9,158 | | | — | | | — | |
| Distributions to: | | | | | | | | | | | | | | | | | |
| Preferred shareholders (Note 9) | — | | | — | | | — | | | (48,678) | | | — | | | (48,678) | | | — | | | (48,678) | | | — | |
| Noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (9,756) | | | (9,756) | | | — | |
Common shareholders and restricted share unitholders ($15.15 per share) (Note 9) | — | | | — | | | — | | | (2,660,734) | | | — | | | (2,660,734) | | | — | | | (2,660,734) | | | — | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (17,253) | | | (17,253) | | | — | | | (17,253) | | | — | |
Balances at September 30, 2022 | $ | 4,350,000 | | | $ | 17,534 | | | $ | 5,878,739 | | | $ | (122,631) | | | $ | (96,470) | | | $ | 10,027,172 | | | $ | 93,585 | | | $ | 10,120,757 | | | $ | — | |
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
Three Months Ended September 30, 2021
(Amounts in thousands, except share and per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Preferred Shares | | Common Shares | | Paid-in Capital | | Accumulated Deficit | | Accumulated
Other Comprehensive Loss | | Total
Public Storage Shareholders' Equity | | Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
| | | | | | | | | | | | | | | | | |
Balances at June 30, 2021 | $ | 3,871,250 | | | $ | 17,486 | | | $ | 5,764,672 | | | $ | (863,742) | | | $ | (46,082) | | | $ | 8,743,584 | | | $ | 19,519 | | | $ | 8,763,103 | | | $ | — | |
Issuance of 5,750 preferred shares | 143,750 | | | — | | | (4,777) | | | — | | | — | | | 138,973 | | | — | | | 138,973 | | | — | |
| | | | | | | | | | | | | | | | | |
Issuance of common shares in connection with share-based compensation (183,823 shares) | — | | | 19 | | | 33,795 | | | — | | | — | | | 33,814 | | | — | | | 33,814 | | | — | |
| Share-based compensation expense, net of cash paid in lieu of common shares | — | | | — | | | 15,253 | | | — | | | — | | | 15,253 | | | — | | | 15,253 | | | — | |
| | | | | | | | | | | | | | | | | |
| Contributions by noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 594 | | | 594 | | | — | |
| Net income | — | | | — | | | — | | | 491,628 | | | — | | | 491,628 | | | — | | | 491,628 | | | — | |
| Net income allocated to noncontrolling interests | — | | | — | | | — | | | (1,537) | | | — | | | (1,537) | | | 1,537 | | | — | | | — | |
| Distributions to: | | | | | | | | | | | | | | | | | |
| Preferred shareholders | — | | | — | | | — | | | (46,237) | | | — | | | (46,237) | | | — | | | (46,237) | | | — | |
| Noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (1,706) | | | (1,706) | | | — | |
Common shareholders and restricted share unitholders ($2.00 per share) | — | | | — | | | — | | | (351,226) | | | — | | | (351,226) | | | — | | | (351,226) | | | — | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (6,898) | | | (6,898) | | | — | | | (6,898) | | | — | |
Balances at September 30, 2021 | $ | 4,015,000 | | | $ | 17,505 | | | $ | 5,808,943 | | | $ | (771,114) | | | $ | (52,980) | | | $ | 9,017,354 | | | $ | 19,944 | | | $ | 9,037,298 | | | $ | — | |
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
Nine Months Ended September 30, 2022
(Amounts in thousands, except share and per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Preferred Shares | | Common Shares | | Paid-in Capital | | Accumulated Deficit | | Accumulated
Other Comprehensive Loss | | Total
Public Storage Shareholders' Equity | | Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
Balances at December 31, 2021 | $ | 4,100,000 | | | $ | 17,513 | | | $ | 5,821,667 | | | $ | (550,416) | | | $ | (53,587) | | | $ | 9,335,177 | | | $ | 20,112 | | | $ | 9,355,289 | | | $ | 68,249 | |
Issuance of 10,000 preferred shares (Note 9) | 250,000 | | | — | | | (7,168) | | | — | | | — | | | 242,832 | | | — | | | 242,832 | | | — | |
| | | | | | | | | | | | | | | | | |
Issuance of common shares in connection with share-based compensation (201,997 shares) (Note 11) | — | | | 21 | | | 27,994 | | | — | | | — | | | 28,015 | | | — | | | 28,015 | | | — | |
| Taxes withheld upon net share settlement of restricted share units (Note 11) | — | | | — | | | (12,989) | | | — | | | — | | | (12,989) | | | — | | | (12,989) | | | — | |
| Share-based compensation expense (Note 11) | — | | | — | | | 49,235 | | | — | | | — | | | 49,235 | | | — | | | 49,235 | | | — | |
| | | | | | | | | | | | | | | | | |
| Contributions by noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 6,698 | | | 6,698 | | | 15,426 | |
| Reclassification from redeemable noncontrolling interests to noncontrolling interests | | | | | | | | | | | | | 83,826 | | | 83,826 | | | (83,826) | |
| Net income | — | | | — | | | — | | | 3,951,340 | | | — | | | 3,951,340 | | | — | | | 3,951,340 | | | — | |
| Net income allocated to noncontrolling interests | — | | | — | | | — | | | (14,553) | | | — | | | (14,553) | | | 13,893 | | | (660) | | | 660 | |
| Distributions to: | | | | | | | | | | | | | | | | | |
| Preferred shareholders (Note 9) | — | | | — | | | — | | | (145,716) | | | — | | | (145,716) | | | — | | | (145,716) | | | — | |
| Noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (30,944) | | | (30,944) | | | (509) | |
Common shareholders and restricted share unitholders ($19.15 per share) (Note 9) | — | | | — | | | — | | | (3,363,286) | | | — | | | (3,363,286) | | | — | | | (3,363,286) | | | — | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (42,883) | | | (42,883) | | | — | | | (42,883) | | | — | |
Balances at September 30, 2022 | $ | 4,350,000 | | | $ | 17,534 | | | $ | 5,878,739 | | | $ | (122,631) | | | $ | (96,470) | | | $ | 10,027,172 | | | $ | 93,585 | | | $ | 10,120,757 | | | $ | — | |
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
Nine Months Ended September 30, 2021
(Amounts in thousands, except share and per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Preferred Shares | | Common Shares | | Paid-in Capital | | Accumulated Deficit | | Accumulated
Other Comprehensive Loss | | Total
Public Storage Shareholders' Equity | | Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
| | | | | | | | | | | | | | | | | | |
Balances at December 31, 2020 | $ | 3,792,500 | | | $ | 17,458 | | | $ | 5,707,101 | | | $ | (914,791) | | | $ | (43,401) | | | $ | 8,558,867 | | | $ | 18,032 | | | $ | 8,576,899 | | | $ | — | |
Issuance of 29,900 preferred shares | 747,500 | | | — | | | (22,189) | | | — | | | — | | | 725,311 | | | — | | | 725,311 | | | — | |
Redemption and shares called for redemption of 21,000 preferred shares | (525,000) | | | — | | | — | | | — | | | — | | | (525,000) | | | — | | | (525,000) | | | — | |
Issuance of common shares in connection with share-based compensation (466,518 shares) | — | | | 47 | | | 81,365 | | | — | | | — | | | 81,412 | | | — | | | 81,412 | | | — | |
Share-based compensation expense, net of cash paid in lieu of common shares | — | | | — | | | 42,698 | | | — | | | — | | | 42,698 | | | — | | | 42,698 | | | — | |
| Acquisition of noncontrolling interests | — | | | — | | | (32) | | | — | | | — | | | (32) | | | (1) | | | (33) | | | — | |
| Contributions by noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 2,359 | | | 2,359 | | | — | |
| Net income | — | | | — | | | — | | | 1,337,620 | | | — | | | 1,337,620 | | | — | | | 1,337,620 | | | — | |
| Net income allocated to noncontrolling interests | — | | | — | | | — | | | (4,067) | | | — | | | (4,067) | | | 4,067 | | | — | | | — | |
| Distributions to: | | | | | | | | | | | | | | | | | |
| Preferred shareholders | — | | | — | | | — | | | (138,500) | | | — | | | (138,500) | | | — | | | (138,500) | | | — | |
| Noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (4,513) | | | (4,513) | | | — | |
Common shareholders and restricted share unitholders ($6.00 per share) | — | | | — | | | — | | | (1,051,376) | | | — | | | (1,051,376) | | | — | | | (1,051,376) | | | — | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (9,579) | | | (9,579) | | | — | | | (9,579) | | | — | |
Balances at September 30, 2021 | $ | 4,015,000 | | | $ | 17,505 | | | $ | 5,808,943 | | | $ | (771,114) | | | $ | (52,980) | | | $ | 9,017,354 | | | $ | 19,944 | | | $ | 9,037,298 | | | $ | — | |
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, |
| | 2022 | | 2021 | | |
| Cash flows from operating activities: | | | | | |
| Net income | $ | 3,951,340 | | | $ | 1,337,620 | | | |
| Adjustments to reconcile net income to net cash flows from operating activities: | | | | | |
| Gain on sale of equity investment in PS Business Parks, Inc. | (2,128,860) | | | — | | | |
| Gain on sale of real estate | (1,503) | | | (13,683) | | | |
| Depreciation and amortization | 661,608 | | | 508,139 | | | |
| Equity in earnings of unconsolidated real estate entities | (100,129) | | | (81,382) | | | |
| Distributions from cumulative equity in earnings of unconsolidated real estate entities | 134,460 | | | 59,251 | | | |
| Unrealized foreign currency exchange gain | (236,698) | | | (73,584) | | | |
| Share-based compensation expense | 44,597 | | | 47,647 | | | |
| Other | 55,975 | | | 30,712 | | | |
| Total adjustments | (1,570,550) | | | 477,100 | | | |
| Net cash flows from operating activities | 2,380,790 | | | 1,814,720 | | | |
| Cash flows from investing activities: | | | | | |
| Capital expenditures to maintain real estate facilities | (337,896) | | | (169,103) | | | |
| Development and expansion of real estate facilities | (231,483) | | | (201,527) | | | |
| Acquisition of real estate facilities and intangible assets | (529,357) | | | (2,845,284) | | | |
| Distributions in excess of cumulative equity in earnings from unconsolidated real estate entities | 13,670 | | | 8,765 | | | |
| Proceeds from sale of real estate investments | 1,543 | | | 16,070 | | | |
| Proceeds from sale of equity investment in PS Business Parks, Inc. | 2,636,011 | | | — | | | |
| Net cash flows from (used in) investing activities | 1,552,488 | | | (3,191,079) | | | |
| Cash flows from financing activities: | | | | | |
| Repayments on notes payable | (502,270) | | | (1,585) | | | |
| Issuance of notes payable, net of issuance costs | — | | | 3,300,160 | | | |
| Issuance of preferred shares | 242,832 | | | 725,311 | | | |
| Issuance of common shares in connection with share-based compensation | 27,913 | | | 81,412 | | | |
| Redemption of preferred shares | — | | | (825,000) | | | |
| Taxes paid upon net share settlement of restricted share units | (12,989) | | | (10,438) | | | |
| Acquisition of noncontrolling interests | — | | | (33) | | | |
| Contributions by noncontrolling interests | 1,659 | | | 2,359 | | | |
| Distributions paid to preferred shareholders, common shareholders and restricted share unitholders | (3,508,581) | | | (1,189,876) | | | |
| Distributions paid to noncontrolling interests | (31,453) | | | (4,513) | | | |
| Net cash flows (used in) from financing activities | (3,782,889) | | | 2,077,797 | | | |
| Net cash flows from operating, investing, and financing activities | 150,389 | | | 701,438 | | | |
| Net effect of foreign exchange impact on cash and equivalents, including restricted cash | — | | | 313 | | | |
| Increase in cash and equivalents, including restricted cash | $ | 150,389 | | | $ | 701,751 | | | |
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, |
| | 2022 | | 2021 | | |
| | | | | |
| Cash and equivalents, including restricted cash at beginning of the period: | | | | | |
| Cash and equivalents | $ | 734,599 | | | $ | 257,560 | | | |
| Restricted cash included in other assets | 26,691 | | | 25,040 | | | |
| $ | 761,290 | | | $ | 282,600 | | | |
| | | | | |
| Cash and equivalents, including restricted cash at end of the period: | | | | | |
| Cash and equivalents | $ | 883,787 | | | $ | 958,247 | | | |
| Restricted cash included in other assets | 27,892 | | | 26,104 | | | |
| | $ | 911,679 | | | $ | 984,351 | | | |
| | | | | |
| Supplemental schedule of non-cash investing and financing activities: | | | | | |
| | | | | |
| Costs incurred during the period remaining unpaid at period end for: | | | | | |
| Capital expenditures to maintain real estate facilities | $ | (14,254) | | | $ | (18,243) | | | |
| Construction or expansion of real estate facilities | (71,006) | | | (39,305) | | | |
| | | | | |
| Real estate acquired in exchange for noncontrolling interests | (19,865) | | | — | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
1.Description of the Business
Public Storage (referred to herein as “the Company,” “we,” “us,” or “our”), a Maryland real estate investment trust (“REIT”), was organized in 1980. Our principal business activities include the ownership and operation of self-storage facilities that offer storage spaces for lease, generally on a month-to-month basis, for personal and business use, ancillary activities such as tenant reinsurance, merchandise sales, and third party management, as well as the acquisition and development of additional self-storage space.
At September 30, 2022, we had direct and indirect equity interests in 2,836 self-storage facilities (with approximately 202.2 million net rentable square feet) located in 40 states in the United States (“U.S.”) operating under the Public Storage® name, and 1.2 million net rentable square feet of commercial and retail space.
At September 30, 2022, we owned a 35% common equity interest in Shurgard Self Storage SA (“Shurgard”), a public company traded on the Euronext Brussels under the “SHUR” symbol, which owned 259 self-storage facilities (with approximately 14 million net rentable square feet) located in seven Western European countries, all operating under the Shurgard® name.
On July 20, 2022, in connection with the closing of PS Business Parks, Inc.’s (“PSB”) merger transaction with affiliates of Blackstone Real Estate (“Blackstone”), we completed the sale of our 41% common equity interest in PSB in its entirety. Prior to the merger transaction, PSB was a REIT traded on the New York Stock Exchange under the “PSB” symbol, which owned commercial properties, primarily multi-tenant industrial, flex, and office space. Refer to Note 4. Investments in Unconsolidated Real Estate Entities for transaction information and our accounting treatment of the sale.
2.Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
We have prepared the accompanying interim consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Accounting Standards Codification of the Financial Accounting Standards Board (“FASB”), and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”). In our opinion, the interim consolidated financial statements presented herein reflect all adjustments, primarily of a normal recurring nature, that are necessary to present fairly the interim consolidated financial statements. Because they do not include all of the disclosures required by GAAP for complete annual financial statements, these interim consolidated financial statements should be read together with the audited Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Disclosures of the number and square footage of facilities, as well as the number and coverage of tenant reinsurance policies (Note 14) are unaudited and outside the scope of our independent registered public accounting firm’s review of our financial statements in accordance with the standards of the Public Company Accounting Oversight Board (U.S.).
Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Summary of Significant Accounting Policies
There have been no significant changes to the Company's significant accounting policies described in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements included in Item 8 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
3.Real Estate Facilities
Activity in real estate facilities during the nine months ended September 30, 2022 is as follows:
| | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| | | | | |
| | (Amounts in thousands) |
| Operating facilities, at cost: | | | | | |
| Beginning balance | $ | 22,807,833 | | | | | |
| Capital expenditures to maintain real estate facilities | 329,253 | | | | | |
| Acquisitions | 514,541 | | | | | |
| Dispositions | (1,704) | | | | | |
| Developed or expanded facilities opened for operation | 125,971 | | | | | |
| Ending balance | 23,775,894 | | | | | |
| Accumulated depreciation: | | | | | |
| Beginning balance | (7,773,308) | | | | | |
| Depreciation expense | (574,374) | | | | | |
| Dispositions | 1,084 | | | | | |
| Ending balance | (8,346,598) | | | | | |
| Construction in process: | | | | | |
| Beginning balance | 272,471 | | | | | |
| Costs incurred to develop and expand real estate facilities | 259,854 | | | | | |
| Developed or expanded facilities opened for operation | (125,971) | | | | | |
| Ending balance | 406,354 | | | | | |
Total real estate facilities at September 30, 2022 | $ | 15,835,650 | | | | | |
During the nine months ended September 30, 2022, we acquired 44 self-storage facilities (3.2 million net rentable square feet of storage space), for a total cost of $501.9 million, consisting of $482.0 million in cash and $19.9 million in partnership units in our subsidiary. Approximately $14.4 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing $126.0 million during the nine months ended September 30, 2022, adding 0.9 million net rentable square feet of self-storage space. Construction in process at September 30, 2022 consisted of projects to develop new self-storage facilities and expand existing self-storage facilities.
Additionally, on July 8, 2022, we acquired from PSB the commercial interests in five properties at three sites jointly occupied with certain of our self-storage facilities located in Maryland and Virginia, for $47.3 million. We recognized $27.0 million of real estate assets and $0.7 million of intangibles for the properties acquired, representing the cost of these commercial properties that we did not have interest in through our equity investment in PSB. We recognized the remaining $19.6 million as an increase to our basis in our equity investment in PSB, which represents the elimination of our portion of the gain recorded by PSB.
During the nine months ended September 30, 2022, we sold portions of real estate facilities in connection with eminent domain proceedings for $1.5 million in cash proceeds and recorded a related gain on sale of real estate of approximately $1.5 million.
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
4.Investments in Unconsolidated Real Estate Entities
The following tables set forth our investments in, and equity in earnings of, the Unconsolidated Real Estate Entities (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| | Investments in Unconsolidated Real Estate Entities at | | |
| | September 30, 2022 | | December 31, 2021 | | | | | | |
| | | | | | |
| PSB | $ | — | | $ | 515,312 | | | | | | |
| Shurgard | 252,648 | | 313,451 | | | | | | |
| Total | $ | 252,648 | | $ | 828,763 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Equity in Earnings of Unconsolidated Real Estate Entities for the |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | |
| PSB | $ | 3,586 | | $ | 27,110 | | $ | 80,596 | | $ | 62,494 |
| Shurgard | 4,594 | | 5,750 | | 19,533 | | 18,888 |
| Total | $ | 8,180 | | $ | 32,860 | | $ | 100,129 | | $ | 81,382 |
Investment in PSB
Prior to the sale of our equity investment in PSB in its entirety on July 20, 2022, we owned 7,158,354 shares of PSB’s common stock and 7,305,355 limited partnership units in an operating partnership controlled by PSB, representing a 41% common equity interest in PSB.
On April 24, 2022, PSB entered into an Agreement and Plan of Merger whereby affiliates of Blackstone agreed to acquire all outstanding shares of PSB’s common stock for $187.50 per share in cash. On July 20, 2022, PSB announced that it completed the merger transaction with Blackstone. Each share of PSB common stock and each common unit of partnership interest we held in PSB were converted into the right to receive the merger consideration of $187.50 per share or unit, including a $5.25 closing cash dividend per share or unit, and a $0.22 prorated quarterly cash dividend per share or unit, for a total of $187.72 per share or unit. At the close of the merger transaction, we received a total of $2.7 billion of cash proceeds and recognized a gain of $2.1 billion, which was classified within gain on sale of equity investment in PS Business Parks, Inc. in the Consolidated Statement of Income.
We classified the proceeds from the merger consideration of $2.6 billion or $182.25 per share or unit within cash flows from investing activities in the Consolidated Statements of Cash Flows for the nine months ended September 30, 2022. During the nine months ended September 30, 2022 and 2021, we received cash distributions from PSB totaling $109.5 million and $45.6 million, respectively, which were classified within cash flows from operating activities in the Consolidated Statements of Cash Flows.
Investment in Shurgard
Throughout all periods presented, we effectively owned, directly and indirectly 31,268,459 Shurgard common shares, representing a 35% equity interest in Shurgard.
Based upon the closing price at September 30, 2022 (€41.60 per share of Shurgard common stock, at 0.980 exchange rate of U.S. Dollars to the Euro), the shares we owned had a market value of approximately $1.3 billion.
Our equity in earnings of Shurgard comprised our equity share of Shurgard’s net income, less amortization of the Shurgard Basis Differential (defined below). For each of the nine months ended September 30, 2022 and 2021, we received $2.6 million of trademark license fees that Shurgard pays to us for the use of the Shurgard® trademark. We eliminated $0.9 million of intra-entity profits and losses for each of the nine months ended September 30, 2022 and
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
2021, representing our equity share of the trademark license fees. We classify the remaining license fees we receive from Shurgard as interest and other income on our income statement.
During the nine months ended September 30, 2022 and 2021, we received cash dividends from Shurgard totaling $37.8 million and $21.5 million, respectively. Approximately $13.7 million and $8.8 million of total cash distributions from Shurgard during the nine months ended September 30, 2022 and 2021, respectively, represented distributions in excess of cumulative equity in earnings from Shurgard, which was classified within cash flows from investing activities in the Consolidated Statements of Cash Flows.
At September 30, 2022, our investment in Shurgard’s real estate assets exceeded our pro-rata share of the underlying amounts on Shurgard’s balance sheet by approximately $65.7 million ($74.7 million at December 31, 2021). This differential (the “Shurgard Basis Differential”) includes our basis adjustments in Shurgard’s real estate assets net of related deferred income taxes. The Shurgard Basis Differential is being amortized as a reduction to equity in earnings of the Unconsolidated Real Estate Entities. Such amortization totaled approximately $9.0 million and $7.3 million during the nine months ended September 30, 2022 and 2021, respectively.
Shurgard is a publicly held entity trading on Euronext Brussels under the symbol “SHUR”.
5.Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At September 30, 2022 | | At December 31, 2021 |
| Gross Book Value | | Accumulated Amortization | | Net Book Value | | Gross Book Value | | Accumulated Amortization | | Net Book Value |
| Goodwill | $ | 165,843 | | | $ | — | | | $ | 165,843 | | | $ | 165,843 | | | $ | — | | | $ | 165,843 | |
| Shurgard® Trade Name | 18,824 | | | — | | | 18,824 | | | 18,824 | | | — | | | 18,824 | |
| Finite-lived intangible assets, subject to amortization | 196,617 | | | (141,473) | | | 55,144 | | | 198,180 | | | (79,953) | | | 118,227 | |
| Total goodwill and other intangible assets | $ | 381,284 | | | $ | (141,473) | | | $ | 239,811 | | | $ | 382,847 | | | $ | (79,953) | | | $ | 302,894 | |
Finite-lived intangible assets consist primarily of acquired customers in place. Amortization expense related to intangible assets subject to amortization was $20.0 million and $78.2 million for the three and nine months ended September 30, 2022, respectively, and $23.3 million and $49.0 million for the same periods in 2021. During the nine months ended September 30, 2022, intangibles increased $15.1 million in connection with the acquisition of real estate facilities. (Note 3).
The estimated future amortization expense for our finite-lived intangible assets at September 30, 2022 is as follows (amounts in thousands):