SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended SeptemberJune 30, 20172021
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 STORAGEPublic Storage
(Exact name of registrant as specified in its charter)
Maryland | 95-3551121 |
(State or other jurisdiction of | (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 4.900% Cum Pref Share, Series E, $0.01 par value | PSAPrE | 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 | ||
0.875% Senior Notes due 2032 | PSA32 | 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.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
[X] 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 | Smaller reporting company | Emerging growth company |
[X] | [ ] | [ ] | [ ] | [ ] |
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 [X] No
Indicate the number of the registrant’s outstanding common shares of beneficial interest, as of OctoberJuly 30, 2017:2021:
Common Shares of beneficial interest, $.10$0.10 par value per share – 174,041,219175,228,245 shares
PUBLIC STORAGE
INDEX
PART I | FINANCIAL INFORMATION | Pages |
Item 1. | Financial Statements (Unaudited) | |
Balance Sheets at | ||
2020 | 1 | |
Statements of Income for the Three and | ||
2020 | 2 | |
Statements of Comprehensive Income for the Three and June 30, | ||
2020 | 3 | |
| ||
Statements of Equity for the | ||
2021 and 2020 | 4-7 | |
Statements of Cash Flows for the | ||
2020 | 8-9 | |
Condensed Notes to Financial Statements | ||
10-29 | ||
| ||
Item 2. | Management’s Discussion and Analysis of | |
30-62 | ||
| ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
63 | ||
|
| |
| Controls and Procedures | 63 |
PART II | OTHER INFORMATION (Items 3, 4 and 5 are not applicable) | |
Item 1. | Legal Proceedings | |
64 | ||
|
| |
Item | Risk Factors | 64 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
64 | ||
|
| |
Item 6. | Exhibits | 64 |
PUBLIC STORAGE
BALANCE SHEETS
(Amounts in thousands, except share data)
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| |||||
| September 30, |
| December 31, | June 30, | December 31, | |||||
| 2017 |
| 2016 | 2021 | 2020 | |||||
ASSETS |
| (Unaudited) |
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|
| (Unaudited) | ||||
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| |||||
Cash and cash equivalents | $ | 694,233 |
| $ | 183,688 | |||||
Cash and equivalents | $ | 480,810 | $ | 257,560 | ||||||
Real estate facilities, at cost: |
|
|
|
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| |||||
Land |
| 3,851,679 |
|
| 3,781,479 | 4,796,684 | 4,375,588 | |||
Buildings |
| 10,518,224 |
|
| 10,181,750 | 15,181,248 | 12,997,039 | |||
|
| 14,369,903 |
|
| 13,963,229 | 19,977,932 | 17,372,627 | |||
Accumulated depreciation |
| (5,585,825) |
|
| (5,270,963) | (7,435,657) | (7,152,135) | |||
|
| 8,784,078 |
|
| 8,692,266 | 12,542,275 | 10,220,492 | |||
Construction in process |
| 221,970 |
|
| 230,310 | 249,713 | 188,079 | |||
|
| 9,006,048 |
|
| 8,922,576 | 12,791,988 | 10,408,571 | |||
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| |||||
Investments in unconsolidated real estate entities |
| 726,168 |
|
| 689,207 | 767,914 | 773,046 | |||
Goodwill and other intangible assets, net |
| 205,868 |
|
| 212,719 | 265,486 | 204,654 | |||
Other assets |
| 133,377 |
|
| 122,148 | 184,167 | 172,715 | |||
Total assets | $ | 10,765,694 |
| $ | 10,130,338 | $ | 14,490,365 | $ | 11,816,546 | |
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LIABILITIES AND EQUITY |
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Notes payable | $ | 1,425,854 |
| $ | 390,749 | $ | 4,995,620 | $ | 2,544,992 | |
Preferred shares called for redemption (Note 8) | 325,000 | 300,000 | ||||||||
Accrued and other liabilities |
| 380,420 |
|
| 297,935 | 406,642 | 394,655 | |||
Total liabilities |
| 1,806,274 |
|
| 688,684 | 5,727,262 | 3,239,647 | |||
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| |||||
Commitments and contingencies (Note 12) |
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Equity: |
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Public Storage shareholders’ equity: |
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| |||||
Preferred Shares, $0.01 par value, 100,000,000 shares authorized, |
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|
| |||||
161,000 shares issued (in series) and outstanding, (174,700 at |
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| |||||
December 31, 2016), at liquidation preference |
| 4,025,000 |
|
| 4,367,500 | |||||
154,850 shares issued (in series) and outstanding, | ||||||||||
(151,700 at December 31, 2020) at liquidation preference | 3,871,250 | 3,792,500 | ||||||||
Common Shares, $0.10 par value, 650,000,000 shares authorized, |
|
|
|
|
| |||||
173,738,808 shares issued and outstanding (173,288,787 shares at |
|
|
|
|
| |||||
December 31, 2016) |
| 17,374 |
|
| 17,329 | |||||
174,864,437 shares issued and outstanding (174,581,742 shares at | ||||||||||
December 31, 2020) | 17,486 | 17,458 | ||||||||
Paid-in capital |
| 5,631,049 |
|
| 5,609,768 | 5,764,672 | 5,707,101 | |||
Accumulated deficit |
| (662,360) |
|
| (487,581) | (863,742) | (914,791) | |||
Accumulated other comprehensive loss |
| (74,873) |
|
| (95,106) | (46,082) | (43,401) | |||
Total Public Storage shareholders’ equity |
| 8,936,190 |
|
| 9,411,910 | 8,743,584 | 8,558,867 | |||
Noncontrolling interests |
| 23,230 |
|
| 29,744 | 19,519 | 18,032 | |||
Total equity |
| 8,959,420 |
|
| 9,441,654 | 8,763,103 | 8,576,899 | |||
Total liabilities and equity | $ | 10,765,694 |
| $ | 10,130,338 | $ | 14,490,365 | $ | 11,816,546 |
PUBLIC STORAGE
STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
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| Three Months Ended |
| Nine Months Ended | |||||||||||||||||||
| September 30, |
| September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2021 | 2020 | 2021 | 2020 | |||||||||||
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Revenues: |
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Self-storage facilities | $ | 646,238 |
| $ | 623,157 |
| $ | 1,878,215 |
| $ | 1,792,130 | $ | 776,993 | $ | 664,542 | $ | 1,493,340 | $ | 1,338,743 | |||
Ancillary operations |
| 40,123 |
|
| 39,991 |
|
| 118,005 |
|
| 116,992 | 52,322 | 48,401 | 103,237 | 93,244 | |||||||
|
| 686,361 |
|
| 663,148 |
|
| 1,996,220 |
|
| 1,909,122 | 829,315 | 712,943 | 1,596,577 | 1,431,987 | |||||||
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Expenses: |
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| ||||||||||||
Self-storage cost of operations |
| 173,315 |
|
| 165,905 |
| 516,488 |
|
| 483,455 | 202,595 | 216,954 | 414,700 | 428,050 | ||||||||
Ancillary cost of operations |
| 17,304 |
|
| 12,722 |
| 39,611 |
|
| 40,462 | 15,991 | 15,335 | 32,309 | 28,907 | ||||||||
Depreciation and amortization |
| 113,320 |
|
| 109,432 |
| 334,426 |
|
| 321,573 | 172,728 | 137,618 | 319,587 | 273,518 | ||||||||
General and administrative |
| 22,311 |
|
| 22,140 |
| 62,331 |
|
| 63,508 | 27,740 | 17,104 | 47,314 | 34,972 | ||||||||
Interest expense | 21,994 | 14,145 | 37,244 | 27,766 | ||||||||||||||||||
|
| 326,250 |
|
| 310,199 |
|
| 952,856 |
|
| 908,998 | 441,048 | 401,156 | 851,154 | 793,213 | |||||||
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| |||||||||||
Operating income |
| 360,111 |
|
| 352,949 |
| 1,043,364 |
|
| 1,000,124 | ||||||||||||
Other increases (decreases) to net income: | ||||||||||||||||||||||
Interest and other income |
| 4,569 |
|
| 3,750 |
| 12,722 |
|
| 11,614 | 3,113 | 5,665 | 5,965 | 11,784 | ||||||||
Interest expense |
| (2,389) |
|
| (1,221) |
| (4,553) |
|
| (3,310) | ||||||||||||
Equity in earnings of unconsolidated real estate entities |
| 17,218 |
|
| 17,237 |
| 57,235 |
|
| 41,628 | 29,066 | 17,655 | 48,522 | 41,623 | ||||||||
Foreign currency exchange loss |
| (13,446) |
|
| (3,665) |
| (44,452) |
|
| (5,987) | ||||||||||||
Casualty loss |
| (7,789) |
|
| - |
| (7,789) |
|
| - | ||||||||||||
Gain on real estate investment sales |
| - |
|
| - |
|
| 975 |
|
| 689 | |||||||||||
Foreign currency exchange (loss) gain | (12,707) | (19,295) | 32,678 | (10,350) | ||||||||||||||||||
Gain on sale of real estate | 3,991 | - | 13,404 | 1,117 | ||||||||||||||||||
Net income |
| 358,274 |
|
| 369,050 |
|
| 1,057,502 |
|
| 1,044,758 | 411,730 | 315,812 | 845,992 | 682,948 | |||||||
Allocation to noncontrolling interests |
| (1,600) |
|
| (1,745) |
|
| (4,684) |
|
| (4,921) | (1,304) | (889) | (2,530) | (1,869) | |||||||
Net income allocable to Public Storage shareholders |
| 356,674 |
|
| 367,305 |
|
| 1,052,818 |
|
| 1,039,837 | 410,426 | 314,923 | 843,462 | 681,079 | |||||||
Allocation of net income to: |
|
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|
|
|
|
|
| ||||||||||||
Preferred shareholders - distributions |
| (61,055) |
|
| (57,178) |
| (182,457) |
|
| (178,666) | ||||||||||||
Preferred shareholders | (46,183) | (52,952) | (92,263) | (104,957) | ||||||||||||||||||
Preferred shareholders - redemptions (Note 8) |
| (14,692) |
|
| - |
| (29,330) |
|
| (26,873) | (16,989) | (15,069) | (16,989) | (15,069) | ||||||||
Restricted share units |
| (1,210) |
|
| (1,170) |
|
| (3,502) |
|
| (3,231) | (1,005) | (783) | (2,151) | (1,800) | |||||||
Net income allocable to common shareholders | $ | 279,717 |
| $ | 308,957 |
| $ | 837,529 |
| $ | 831,067 | $ | 346,249 | $ | 246,119 | $ | 732,059 | $ | 559,253 | |||
Net income per common share: |
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| |||||||||||
Basic | $ | 1.61 |
| $ | 1.78 |
| $ | 4.83 |
| $ | 4.80 | $ | 1.98 | $ | 1.41 | $ | 4.19 | $ | 3.21 | |||
Diluted | $ | 1.61 |
| $ | 1.78 |
| $ | 4.81 |
| $ | 4.78 | $ | 1.97 | $ | 1.41 | $ | 4.18 | $ | 3.20 | |||
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Basic weighted average common shares outstanding |
| 173,715 |
|
| 173,108 |
|
| 173,560 |
|
| 173,057 | 174,824 | 174,493 | 174,718 | 174,470 | |||||||
Diluted weighted average common shares outstanding |
| 174,240 |
|
| 173,848 |
|
| 174,128 |
|
| 173,899 | 175,547 | 174,575 | 175,194 | 174,596 | |||||||
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PUBLIC STORAGE
STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
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Net income | $ | 358,274 |
| $ | 369,050 |
| $ | 1,057,502 |
| $ | 1,044,758 |
Other comprehensive income (loss): |
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Aggregate foreign currency exchange loss | (6,176) |
|
| (8,341) |
|
| (24,219) |
|
| (20,165) | |
Adjust for aggregate foreign currency exchange |
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| |
gain in equity in earnings of unconsolidated |
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|
real estate entities |
| - |
|
| - |
|
| - |
|
| (941) |
Adjust for aggregate foreign currency exchange |
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| |
loss included in net income |
| 13,446 |
|
| 3,665 |
|
| 44,452 |
|
| 5,987 |
Other comprehensive income (loss) |
| 7,270 |
|
| (4,676) |
|
| 20,233 |
|
| (15,119) |
Total comprehensive income |
| 365,544 |
|
| 364,374 |
|
| 1,077,735 |
|
| 1,029,639 |
Allocation to noncontrolling interests |
| (1,600) |
|
| (1,745) |
|
| (4,684) |
|
| (4,921) |
Comprehensive income allocable to |
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Public Storage shareholders | $ | 363,944 |
| $ | 362,629 |
| $ | 1,073,051 |
| $ | 1,024,718 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||
Net income | $ | 411,730 | $ | 315,812 | $ | 845,992 | $ | 682,948 | |||
Foreign currency exchange gain (loss) on | |||||||||||
investment in Shurgard | 3,259 | 4,869 | (2,681) | (8,246) | |||||||
Total comprehensive income | 414,989 | 320,681 | 843,311 | 674,702 | |||||||
Allocation to noncontrolling interests | (1,304) | (889) | (2,530) | (1,869) | |||||||
Comprehensive income allocable to | |||||||||||
Public Storage shareholders | $ | 413,685 | $ | 319,792 | $ | 840,781 | $ | 672,833 | |||
PUBLIC STORAGE
STATEMENT OF EQUITY
Three Months Ended June 30, 2021
(Amounts in thousands, except share and per share amounts)
(Unaudited)
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| Accumulated |
| Total |
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| Cumulative |
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| Other |
| Public Storage |
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| Preferred |
| Common |
| Paid-in |
| Accumulated |
| Comprehensive |
| Shareholders’ |
| Noncontrolling |
| Total | ||||||||
| Shares |
| Shares |
| Capital |
| Deficit |
| Loss |
| Equity |
| Interests |
| Equity | ||||||||
Balances at December 31, 2016 | $ | 4,367,500 |
| $ | 17,329 |
| $ | 5,609,768 |
| $ | (487,581) |
| $ | (95,106) |
| $ | 9,411,910 |
| $ | 29,744 |
| $ | 9,441,654 |
Issuance of 23,200 preferred shares (Note 8) |
| 580,000 |
|
| - |
|
| (18,823) |
|
| - |
|
| - |
|
| 561,177 |
|
| - |
|
| 561,177 |
Redemption of 36,900 preferred shares (Note 8) |
| (922,500) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (922,500) |
|
| - |
|
| (922,500) |
Issuance of common shares in connection with |
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share-based compensation (450,021 shares) (Note 10) | - |
|
| 45 |
|
| 34,709 |
|
| - |
|
| - |
|
| 34,754 |
|
| - |
|
| 34,754 | |
Cash paid in lieu of common shares, net of |
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share-based compensation expense (Note 10) | - |
|
| - |
|
| 13,096 |
|
| - |
|
| - |
|
| 13,096 |
|
| - |
|
| 13,096 | |
Acquisition of noncontrolling interests |
| - |
|
| - |
|
| (7,701) |
|
| - |
|
| - |
|
| (7,701) |
|
| (6,724) |
|
| (14,425) |
Contributions by noncontrolling interests |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,066 |
|
| 1,066 |
Net income |
| - |
|
| - |
|
| - |
|
| 1,057,502 |
|
| - |
|
| 1,057,502 |
|
| - |
|
| 1,057,502 |
Net income allocated to noncontrolling interests |
| - |
|
| - |
|
| - |
|
| (4,684) |
|
| - |
|
| (4,684) |
|
| 4,684 |
|
| - |
Distributions to equity holders: |
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Preferred shares (Note 8) |
| - |
|
| - |
|
| - |
|
| (182,457) |
|
| - |
|
| (182,457) |
|
| - |
|
| (182,457) |
Noncontrolling interests |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (5,540) |
|
| (5,540) |
Common shares and restricted share units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($6.00 per share) |
| - |
|
| - |
|
| - |
|
| (1,045,140) |
|
| - |
|
| (1,045,140) |
|
| - |
|
| (1,045,140) |
Other comprehensive income (Note 2) |
| - |
|
| - |
|
| - |
|
| - |
|
| 20,233 |
|
| 20,233 |
|
| - |
|
| 20,233 |
Balances at September 30, 2017 | $ | 4,025,000 |
| $ | 17,374 |
| $ | 5,631,049 |
| $ | (662,360) |
| $ | (74,873) |
| $ | 8,936,190 |
| $ | 23,230 |
| $ | 8,959,420 |
Accumulated | Total | ||||||||||||||||||||||
Cumulative | Other | Public Storage | |||||||||||||||||||||
Preferred | Common | Paid-in | Accumulated | Comprehensive | Shareholders’ | Noncontrolling | Total | ||||||||||||||||
Shares | Shares | Capital | Deficit | Loss | Equity | Interests | Equity | ||||||||||||||||
Balances at March 31, 2021 | $ | 3,792,500 | $ | 17,465 | $ | 5,715,254 | $ | (877,931) | $ | (49,341) | $ | 8,597,947 | $ | 19,368 | $ | 8,617,315 | |||||||
Issuance of 24,150 preferred shares (Note 8) | 603,750 | - | (17,412) | - | - | 586,338 | - | 586,338 | |||||||||||||||
Redemption and shares called for redemption | |||||||||||||||||||||||
of 21,000 preferred shares (Note 8) | (525,000) | - | - | - | - | (525,000) | - | (525,000) | |||||||||||||||
Issuance of common shares in connection with | |||||||||||||||||||||||
share-based compensation (213,433 shares) | - | 21 | 42,874 | - | - | 42,895 | - | 42,895 | |||||||||||||||
Share-based compensation expense, net of cash | |||||||||||||||||||||||
paid in lieu of common shares | - | - | 23,956 | - | - | 23,956 | - | 23,956 | |||||||||||||||
Contributions by noncontrolling interests | - | - | - | - | - | - | 385 | 385 | |||||||||||||||
Net income | - | - | - | 411,730 | - | 411,730 | - | 411,730 | |||||||||||||||
Net income allocated to noncontrolling interests | - | - | - | (1,304) | - | (1,304) | 1,304 | - | |||||||||||||||
Distributions to: | |||||||||||||||||||||||
Preferred shareholders (Note 8) | - | - | - | (46,183) | - | (46,183) | - | (46,183) | |||||||||||||||
Noncontrolling interests | - | - | - | - | - | - | (1,538) | (1,538) | |||||||||||||||
Common shareholders and restricted share | |||||||||||||||||||||||
unitholders ($2.00 per share) (Note 8) | - | - | - | (350,054) | - | (350,054) | - | (350,054) | |||||||||||||||
Other comprehensive income (Note 2) | - | - | - | - | 3,259 | 3,259 | - | 3,259 | |||||||||||||||
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 |
PUBLIC STORAGE
STATEMENT OF EQUITY
Three Months Ended June 30, 2020
(Amounts in thousands, except share and per share amounts)
(Unaudited)
Accumulated | Total | ||||||||||||||||||||||
Cumulative | Other | Public Storage | |||||||||||||||||||||
Preferred | Common | Paid-in | Accumulated | Comprehensive | Shareholders’ | Noncontrolling | Total | ||||||||||||||||
Shares | Shares | Capital | Deficit | Loss | Equity | Interests | Equity | ||||||||||||||||
Balances at March 31, 2020 | $ | 4,065,000 | $ | 17,448 | $ | 5,709,861 | $ | (701,226) | $ | (78,005) | $ | 9,013,078 | $ | 17,130 | $ | 9,030,208 | |||||||
Issuance of 22,600 preferred shares (Note 8) | 565,000 | - | (15,830) | - | - | 549,170 | - | 549,170 | |||||||||||||||
Redemption of 19,800 preferred shares (Note 8) | (495,000) | - | - | - | - | (495,000) | - | (495,000) | |||||||||||||||
Issuance of common shares in connection with | |||||||||||||||||||||||
share-based compensation (23,896 shares) | - | 2 | 1,921 | - | - | 1,923 | - | 1,923 | |||||||||||||||
Share-based compensation expense, net of cash | |||||||||||||||||||||||
paid in lieu of common shares | - | - | 6,546 | - | - | 6,546 | - | 6,546 | |||||||||||||||
Acquisition of noncontrolling interests | - | - | (32) | - | - | (32) | (1) | (33) | |||||||||||||||
Contributions by noncontrolling interests | - | - | - | - | - | - | 867 | 867 | |||||||||||||||
Net income | - | - | - | 315,812 | - | 315,812 | - | 315,812 | |||||||||||||||
Net income allocated to noncontrolling interests | - | - | - | (889) | - | (889) | 889 | - | |||||||||||||||
Distributions to: | |||||||||||||||||||||||
Preferred shareholders (Note 8) | - | - | - | (52,952) | - | (52,952) | - | (52,952) | |||||||||||||||
Noncontrolling interests | - | - | - | - | - | - | (1,378) | (1,378) | |||||||||||||||
Common shareholders and restricted share | |||||||||||||||||||||||
unitholders ($2.00 per share) (Note 8) | - | - | - | (349,834) | - | (349,834) | - | (349,834) | |||||||||||||||
Other comprehensive income (Note 2) | - | - | - | - | 4,869 | 4,869 | - | 4,869 | |||||||||||||||
Balances at June 30, 2020 | $ | 4,135,000 | $ | 17,450 | $ | 5,702,466 | $ | (789,089) | $ | (73,136) | $ | 8,992,691 | $ | 17,507 | $ | 9,010,198 |
PUBLIC STORAGE
STATEMENT OF EQUITY
Six Months Ended June 30, 2021
(Amounts in thousands, except share and per share amounts)
(Unaudited)
Accumulated | Total | ||||||||||||||||||||||
Cumulative | Other | Public Storage | |||||||||||||||||||||
Preferred | Common | Paid-in | Accumulated | Comprehensive | Shareholders’ | Noncontrolling | Total | ||||||||||||||||
Shares | Shares | Capital | Deficit | Loss | Equity | Interests | Equity | ||||||||||||||||
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 24,150 preferred shares (Note 8) | 603,750 | - | (17,412) | - | - | 586,338 | - | 586,338 | |||||||||||||||
Redemption and shares called for redemption | |||||||||||||||||||||||
of 21,000 preferred shares (Note 8) | (525,000) | - | - | - | - | (525,000) | - | (525,000) | |||||||||||||||
Issuance of common shares in connection with | |||||||||||||||||||||||
share-based compensation (282,695 shares) (Note 10) | - | 28 | 47,570 | - | - | 47,598 | - | 47,598 | |||||||||||||||
Share-based compensation expense, net of cash | |||||||||||||||||||||||
paid in lieu of common shares (Note 10) | - | - | 27,445 | - | - | 27,445 | - | 27,445 | |||||||||||||||
Acquisition of noncontrolling interests | - | - | (32) | - | - | (32) | (1) | (33) | |||||||||||||||
Contributions by noncontrolling interests | - | - | - | - | - | - | 1,765 | 1,765 | |||||||||||||||
Net income | - | - | - | 845,992 | - | 845,992 | - | 845,992 | |||||||||||||||
Net income allocated to noncontrolling interests | - | - | - | (2,530) | - | (2,530) | 2,530 | - | |||||||||||||||
Distributions to: | |||||||||||||||||||||||
Preferred shareholders (Note 8) | - | - | - | (92,263) | - | (92,263) | - | (92,263) | |||||||||||||||
Noncontrolling interests | - | - | - | - | - | - | (2,807) | (2,807) | |||||||||||||||
Common shareholders and restricted share | |||||||||||||||||||||||
unitholders ($4.00 per share) (Note 8) | - | - | - | (700,150) | - | (700,150) | - | (700,150) | |||||||||||||||
Other comprehensive loss (Note 2) | - | - | - | - | (2,681) | (2,681) | - | (2,681) | |||||||||||||||
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 |
PUBLIC STORAGE
STATEMENT OF EQUITY
Six Months Ended June 30, 2020
(Amounts in thousands, except share and per share amounts)
(Unaudited)
Accumulated | Total | ||||||||||||||||||||||
Cumulative | Other | Public Storage | |||||||||||||||||||||
Preferred | Common | Paid-in | Accumulated | Comprehensive | Shareholders’ | Noncontrolling | Total | ||||||||||||||||
Shares | Shares | Capital | Deficit | Loss | Equity | Interests | Equity | ||||||||||||||||
Balances at December 31, 2019 | $ | 4,065,000 | $ | 17,442 | $ | 5,710,934 | $ | (665,575) | $ | (64,890) | $ | 9,062,911 | $ | 16,756 | $ | 9,079,667 | |||||||
Issuance of 22,600 preferred shares (Note 8) | 565,000 | - | (15,830) | - | - | 549,170 | - | 549,170 | |||||||||||||||
Redemption of 19,800 preferred shares (Note 8) | (495,000) | - | - | - | - | (495,000) | - | (495,000) | |||||||||||||||
Issuance of common shares in connection with | |||||||||||||||||||||||
share-based compensation (80,303 shares) | - | 8 | 3,678 | - | - | 3,686 | - | 3,686 | |||||||||||||||
Share-based compensation expense, net of cash | |||||||||||||||||||||||
paid in lieu of common shares | - | - | 3,716 | - | - | 3,716 | - | 3,716 | |||||||||||||||
Acquisition of noncontrolling interests | - | - | (32) | - | - | (32) | (1) | (33) | |||||||||||||||
Contributions by noncontrolling interests | - | - | - | - | - | - | 1,433 | 1,433 | |||||||||||||||
Net income | - | - | - | 682,948 | - | 682,948 | - | 682,948 | |||||||||||||||
Net income allocated to noncontrolling interests | - | - | - | (1,869) | - | (1,869) | 1,869 | - | |||||||||||||||
Distributions to: | |||||||||||||||||||||||
Preferred shareholders (Note 8) | - | - | - | (104,957) | - | (104,957) | - | (104,957) | |||||||||||||||
Noncontrolling interests | - | - | - | - | - | - | (2,550) | (2,550) | |||||||||||||||
Common shareholders and restricted share | |||||||||||||||||||||||
unitholders ($4.00 per share) (Note 8) | - | - | - | (699,636) | - | (699,636) | - | (699,636) | |||||||||||||||
Other comprehensive loss (Note 2) | - | - | - | - | (8,246) | (8,246) | - | (8,246) | |||||||||||||||
Balances at June 30, 2020 | $ | 4,135,000 | $ | 17,450 | $ | 5,702,466 | $ | (789,089) | $ | (73,136) | $ | 8,992,691 | $ | 17,507 | $ | 9,010,198 |
PUBLIC STORAGE
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
For the Six Months Ended June 30, | |||||
2021 | 2020 | ||||
Cash flows from operating activities: | |||||
Net income | $ | 845,992 | $ | 682,948 | |
Adjustments to reconcile net income to net cash flows | |||||
from operating activities: | |||||
Gain on real estate investment sales | (13,404) | (1,117) | |||
Depreciation and amortization | 319,587 | 273,518 | |||
Equity in earnings of unconsolidated real estate entities | (48,522) | (41,623) | |||
Distributions from cumulative equity in earnings of unconsolidated | |||||
real estate entities | 43,747 | 37,032 | |||
Foreign currency exchange (gain) loss | (32,678) | 10,350 | |||
Share-based compensation expense | 32,672 | 12,801 | |||
Other | (16,939) | 28,165 | |||
Total adjustments | 284,463 | 319,126 | |||
Net cash flows from operating activities | 1,130,455 | 1,002,074 | |||
Cash flows from investing activities: | |||||
Capital expenditures to maintain real estate facilities | (90,644) | (99,883) | |||
Development and expansion of real estate facilities | (135,180) | (88,682) | |||
Acquisition of real estate facilities and intangible assets | (2,518,358) | (253,331) | |||
Distributions in excess of cumulative equity in earnings | |||||
from unconsolidated real estate entities | 8,765 | 10,803 | |||
Repayment of note receivable | - | 4,860 | |||
Proceeds from sale of real estate investments | 15,713 | 1,399 | |||
Net cash flows used in investing activities | (2,719,704) | (424,834) | |||
Cash flows from financing activities: | |||||
Repayments on notes payable | (1,053) | (1,000) | |||
Issuance of notes payable, net of issuance costs | 2,482,529 | 545,151 | |||
Issuance of preferred shares | 586,338 | 549,170 | |||
Issuance of common shares | 47,598 | 3,686 | |||
Redemption of preferred shares | (500,000) | - | |||
Cash paid upon vesting of restricted share units | (9,013) | (9,085) | |||
Acquisition of noncontrolling interests | (33) | (33) | |||
Contributions by noncontrolling interests | 1,765 | 1,433 | |||
Distributions paid to preferred shareholders, | |||||
common shareholders and restricted share unitholders | (792,413) | (804,593) | |||
Distributions paid to noncontrolling interests | (2,807) | (2,550) | |||
Net cash flows provided by financing activities | 1,812,911 | 282,179 | |||
Net cash flows from operating, investing, and financing activities | 223,662 | 859,419 | |||
Net effect of foreign exchange impact on cash and equivalents, including | |||||
restricted cash | 173 | (28) | |||
Increase in cash and equivalents, including restricted cash | $ | 223,835 | $ | 859,391 | |
|
|
|
|
|
|
| Nine Months Ended September 30, | ||||
| 2017 |
| 2016 | ||
Cash flows from operating activities: |
|
|
|
|
|
Net income | $ | 1,057,502 |
| $ | 1,044,758 |
Adjustments to reconcile net income to net cash provided |
|
|
|
|
|
by operating activities: |
|
|
|
|
|
Gain on real estate investment sales |
| (975) |
|
| (689) |
Casualty loss |
| 7,789 |
|
| - |
Depreciation and amortization |
| 334,426 |
|
| 321,573 |
Equity in earnings of unconsolidated real estate entities |
| (57,235) |
|
| (41,628) |
Distributions from retained earnings of unconsolidated |
|
|
|
|
|
real estate entities |
| 39,887 |
|
| 72,461 |
Foreign currency exchange loss |
| 44,452 |
|
| 5,987 |
Share-based compensation expense |
| 25,505 |
|
| 26,845 |
Other |
| 51,168 |
|
| 50,733 |
Total adjustments |
| 445,017 |
|
| 435,282 |
Net cash provided by operating activities |
| 1,502,519 |
|
| 1,480,040 |
Cash flows from investing activities: |
|
|
|
|
|
Capital expenditures to maintain real estate facilities |
| (84,797) |
|
| (62,032) |
Construction in process |
| (240,482) |
|
| (190,412) |
Acquisition of real estate facilities and intangible assets | (81,676) |
|
| (257,650) | |
Distributions in excess of retained earnings from |
|
|
|
|
|
unconsolidated real estate entities |
| - |
|
| 67,420 |
Proceeds from sale of real estate investments |
| 5,596 |
|
| 998 |
Other |
| 4,162 |
|
| (13,883) |
Net cash used in investing activities |
| (397,197) |
|
| (455,559) |
Cash flows from financing activities: |
|
|
|
|
|
Repayments on notes payable |
| (1,267) |
|
| (19,995) |
Issuance of notes payable |
| 992,129 |
|
| 113,620 |
Issuance of preferred shares |
| 561,177 |
|
| 798,128 |
Issuance of common shares |
| 34,754 |
|
| 14,191 |
Redemption of preferred shares |
| (922,500) |
|
| (862,500) |
Cash paid upon vesting of restricted share units |
| (12,409) |
|
| (13,604) |
Acquisition of noncontrolling interests |
| (14,425) |
|
| - |
Contributions by noncontrolling interests |
| 1,066 |
|
| 3,177 |
Distributions paid to Public Storage shareholders |
| (1,227,597) |
|
| (1,098,763) |
Distributions paid to noncontrolling interests |
| (5,540) |
|
| (5,608) |
Net cash used in financing activities |
| (594,612) |
|
| (1,071,354) |
Net increase (decrease) in cash and cash equivalents |
| 510,710 |
|
| (46,873) |
Net effect of foreign exchange translation on cash and cash equivalents |
| (165) |
|
| (199) |
Cash and cash equivalents at the beginning of the period |
| 183,688 |
|
| 104,285 |
Cash and cash equivalents at the end of the period | $ | 694,233 |
| $ | 57,213 |
PUBLIC STORAGE
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
For the Six Months Ended June 30, | |||||
2021 | 2020 | ||||
Cash and equivalents, including restricted cash at beginning of the period: | |||||
Cash and equivalents | $ | 257,560 | $ | 409,743 | |
Restricted cash included in other assets | 25,040 | 23,811 | |||
$ | 282,600 | $ | 433,554 | ||
Cash and equivalents, including restricted cash at end of the period: | |||||
Cash and equivalents | $ | 480,810 | $ | 1,268,475 | |
Restricted cash included in other assets | 25,625 | 24,470 | |||
$ | 506,435 | $ | 1,292,945 | ||
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 | $ | (13,728) | $ | (12,363) | |
Construction or expansion of real estate facilities | (41,345) | (26,763) | |||
Accrued and other liabilities | 55,073 | 39,126 | |||
Preferred shares called for redemption and reclassified to liabilities | 325,000 | 495,000 | |||
Preferred shares called for redemption and reclassified from equity | (325,000) | (495,000) | |||
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, | ||||
| 2017 |
| 2016 | ||
Supplemental schedule of non-cash investing and |
|
|
|
|
|
financing activities: |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment: |
|
|
|
|
|
Real estate facilities, net of accumulated depreciation | $ | (595) |
| $ | 1,014 |
Investments in unconsolidated real estate entities |
| (19,613) |
|
| 13,074 |
Notes payable |
| 44,262 |
|
| 5,878 |
Accumulated other comprehensive loss |
| (24,219) |
|
| (20,165) |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired in exchange for assumption of notes payable | - |
|
| (12,945) | |
Notes payable assumed in connection with acquisition of real estate |
| - |
|
| 12,945 |
|
|
|
|
|
|
Accrued construction costs and capital expenditures: |
|
|
|
|
|
Capital expenditures to maintain real estate facilities |
| 2,272 |
|
| (5,747) |
Construction in process |
| (10,527) |
|
| (13,679) |
Accrued and other liabilities |
| 8,255 |
|
| 19,426 |
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
SeptemberJune 30, 20172021
(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 which offer storage spaces for lease, generally on a month-to-month basis, for personal and business use, ancillary activities such as merchandise sales and tenant reinsurance to the tenants at our self-storage facilities, merchandise sales and third party management, as well as the acquisition and development of additional self-storage space.
At SeptemberJune 30, 2017,2021, we have direct and indirect equity interests in 2,3742,649 self-storage facilities (with approximately 157183.5 million net rentable square feet) located in 3839 states in the United States (“U.S.”) operating under the “Public Storage” name. name, and 0.9 million net rentable square feet of commercial and retail space.
We also own one self-storage facility in London, England and we have31.3 million common shares (an approximate 35% interest) of Shurgard Self Storage SA (“Shurgard”) a 49% interest in Shurgard Europe,public company traded on Euronext Brussels under the “SHUR” symbol, which owns 219243 self-storage facilities (with approximately 1213 million net rentable square feet) located in seven7 Western European countries, all operating under the “Shurgard” name. We also have direct and indirectown an approximate 42% common equity interestsinterest in approximately 29PS Business Parks, Inc. (“PSB”), a REIT traded on the New York Stock Exchange under the “PSB” symbol, which owns 28 million net rentable square feet of commercial properties, primarily multi-tenant industrial, flex, and office space, located in seven states in the U.S. primarily owned and operated by PS Business Parks, Inc. (“PSB”) under the “PS Business Parks” name. At September 30, 2017, we have an approximate 42% common equity interest in PSB.6 states.
Disclosures of the number and square footage of facilities, as well as the number and coverage of tenant reinsurance policies (Note 12) 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.).
2.Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
We have prepared the accompanying interim 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 financial statements presented herein reflect all adjustments, primarily of a normal recurring nature, that are necessary to fairly present the interim financial statements. Because they do not include all of the disclosures required by GAAP for complete annual financial statements, these interim financial statements should be read together with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Certain amounts previously reported in our June 30, 2020 financial statements have been reclassified to conform to the June 30, 2021 presentation, including revenues and cost operations from our third party management activities of $3.7 million and $3.6 million, respectively, for the three months ended June 30, 2020, and $6.6 million and $6.2 million, respectively, for the six months ended June 30, 2020, previously reported within interest and other income. This reclassification had no impact on our balance sheet, statements of comprehensive income, statements of equity, or cash flows as of and for the three and six months ended June 30, 2020.
Additionally, we corrected our prior period financial statement presentation of share-based compensation expense and dividends paid on restricted share units (“RSUs”) between general and administrative expense and self-storage cost of operations. As a result, we revised our statements of income for the three and
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
six months ended June 30, 2020 with an increase in self-storage cost of operations of $3.1 million and $6.3 million, respectively, and a corresponding decrease to general and administrative expenses. This immaterial correction had no impact on our total expenses or net income. The correction also had no impact on our balance sheet, statements of comprehensive income, statements of equity, or cash flows as of and for the three and six months ended June 30, 2020.
Summary of Significant Accounting Policies
Consolidation and Equity Method of Accounting
We consider entities to be Variable Interest Entities (“VIEs”) when they have insufficient equity to finance their activities without additional subordinated financial support provided by other parties, or the equity holders as a group do not have a controlling financial interest. We consolidate VIEs when we have (i) the power to direct the activities most significantly impacting economic performance, and (ii) either the obligation to absorb losses or the right to receive benefits from the VIE. We have no involvement with any material VIEs.At June 30, 2021, we were the primary beneficiary of, and therefore fully consolidated, 3 limited liability companies that are considered VIEs, which owned 48 self-storage properties acquired on April 28, 2021 known as the ezStorage portfolio. The net book value of the assets owned by these VIEs was approximately $1.8 billion as of June 30, 2021, which was included in real estate facilities on our Balance Sheet. The title of these 48 properties is expected to be reverted to us in the remainder of 2021. We consolidate all other entities when we control them through voting shares or contractual rights. The entities we consolidate, for the period in which the reference applies, are referred to collectively as the “Subsidiaries,” and we eliminate intercompany transactions and balances.
We account for our investments in entities that we do not consolidate but have significant influence over using the equity method of accounting. These entities, for the periods in which the reference applies, are referred to collectively as the “Unconsolidated Real Estate Entities”, eliminatingEntities,” for which we eliminate intra-entity profits and losses
7
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
and amortizingamortize any differences between the cost of our investment and the underlying equity in net assets against equity in earnings as if the Unconsolidated Real Estate Entity were a consolidated subsidiary.
Equity in earnings of unconsolidated real estate entities presented on our income statements represents our pro-rata share of the earnings of the Unconsolidated Real Estate Entities.
WhenThe dividends we begin consolidating an entity, we record a gain or loss representingreceive from the differential between the book value and fair value of any preexisting equity interest. All changes in consolidation statusUnconsolidated Real Estate Entities are reflected prospectively.on our statements of cash flows as “distributions from cumulative equity in earnings of unconsolidated real estate entities” to the extent of our cumulative equity in earnings, with any excess classified as “distributions in excess of cumulative equity in earnings from unconsolidated real estate entities.”
Collectively, at SeptemberJune 30, 2017,2021, the Company and the Subsidiaries own 2,3622,649 self-storage facilities in the U.S., one self-storage facility in London, England and three4 commercial facilities in the U.S. At SeptemberJune 30, 2017,2021, the Unconsolidated Real Estate Entities are comprised of PSB Shurgard Europe, as well as limited partnerships that own an aggregate of 12 self-storage facilities in the U.S.and Shurgard.
Use of Estimates
The financial statements and accompanying notes reflect our estimates and assumptions. Actual results could differ from those estimates and assumptions.
Income Taxes
We have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended (the “Code”). AsFor each taxable year in which we qualify for taxation as a REIT, we dowill not incurbe subject to U.S. federal corporate income tax if we distribute 100% ofon our REIT“REIT taxable income” (generally, taxable income each year,subject to specified
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
adjustments, including a deduction for dividends paid and if we meet certain organizational and operational rules.excluding our net capital gain) that is distributed to our shareholders. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no U.S. federal corporate income tax expense related to our REIT taxable income.
Our tenant reinsurance, merchandise and tenant reinsurancethird party management operations are subject to corporate income tax and such taxes are included in ancillary cost of operations. We also incur income and other taxes in certain states, which are included in general and administrative expense.
We recognize tax benefits of uncertain income tax positions that are subject to audit only if we believe it is more likely than not that the position would ultimately be sustained assuming the relevant taxing authorities had full knowledge of the relevant facts and circumstances of our positions. As of SeptemberJune 30, 2017,2021, we had no0 tax benefits that were not recognized.
Real Estate Facilities
Real estate facilities are recorded at cost. We capitalize all costs incurred to acquire, develop, construct, renovate and improve facilities, including interest and property taxes incurred during the construction period and, effective October 1, 2016, the external transactionperiod. The costs of demolition of existing facilities associated with acquisitions of real estate. Prior to October 1, 2016, transaction costs for acquisitions were included in general and administrative expense on our income statements. This change was made due to a change in GAAP, which results in real estate facility acquisitions generally being considered acquisitions of assets rather than business combinations.renovation are expensed as incurred. We allocate the net acquisition cost of acquired real estate facilities to the underlying land, buildings, and identified intangible assets based upon their respective individual estimated fair values.
Costs associated with dispositions of real estate, as well as repairs and maintenance costs, are expensed as incurred. We depreciate buildings and improvements on a straight-line basis over estimated useful lives ranging generally between 5 to 25 years.
When we sell a full or partial interest in a real estate facility without retaining a controlling interest following sale, we recognize a gain or loss on sale as if 100% of the property was sold at fair value. If we retain a controlling interest following the sale, we record a noncontrolling interest for the book value of the partial interest sold, and recognize additional paid-in capital for the difference between the consideration received and the partial interest at book value.
8
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
Other Assets
Other assets primarily consist of rents receivableright-of-use assets, prepaid costs and expenses, restricted cash, reinsurance premium receivables and rent receivables from our tenants prepaid expenses and restricted cash.(net of an allowance for uncollectible amounts).
Accrued and Other Liabilities
Accrued and other liabilities consist primarily of property tax accruals, trade and construction payables, rents prepaid by our tenants, trade payables, property tax accruals, accrued payroll,lease liabilities, accrued tenant reinsurance losses and contingent loss accruals when probable and estimable.accrued payroll. We believe the fair value of our accrued and other liabilities approximates book value, due primarily to the short period until repayment. We disclose the nature of significant unaccrued losses that are reasonably possible of occurring and, if estimable, a range of exposure.
Cash Equivalents, Restricted Cash, Marketable Securities and Other Financial Instruments
Cash equivalents represent highly liquid financial instruments such as money market funds with daily liquidity or short-term commercial paper or treasury securities maturing within three months of acquisition. Cash and cash equivalents which are restricted from general corporate use are included in other assets. We believe that the
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
book value of all such financial instruments for all periods presented approximates fair value, due to the short period to maturity.
Fair Value
As used herein, the term “fair value” is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. OurBecause our estimates of fair value involve considerable judgment, and are not necessarily indicativeincluding determination of the amountsfactors that couldmarket participants would consider in negotiating exchange values, such estimates may be limited in their ability to reflect what would actually be realized in currentan actual market exchanges.exchange.
We estimate the fair value of our cash and cash equivalents, marketable securities, other assets, debt, and other liabilities by applying a discount rate todiscounting the related future cash flows of the financial instrument. The discountat a rate is based upon quoted interest rates for securities that have similar characteristics such as credit quality and time to maturity; suchmaturity. Such quoted interest rates are referred to generally as “Level 2” inputs.
We use significant judgment to estimate fair values of investments in real estate, goodwill, and other intangible assets. In estimating their values, we consider significant unobservable inputs such as market prices of land, market capitalization rates, expected returns, earnings multiples, projected levels of earnings, costs of construction, and functional depreciation. These inputs are referred to generally as “Level 3” inputs.
Currency and Credit Risk
Financial instruments that are exposed to credit risk consist primarily of cash and cash equivalents, certain portions of other assets including rents receivable from our tenants (net of an allowance for uncollectible receivables based upon expected losses in the portfolio) and restricted cash. Cash equivalents we invest in are either money market funds with a rating of at least AAA by Standard & Poor’s, commercial paper that is rated A1 by Standard & Poor’s or deposits with highly rated commercial banks.
At SeptemberJune 30, 2017,2021, due primarily to our investment in Shurgard Europe (Note 4) and our notes payable denominated in Euros (Note 6), our operating results and financial position are affected by fluctuations in currency exchange rates between the Euro, and to a lesser extent, other European currencies, against the U.S. Dollar.
Goodwill and Other Intangible Assets
Intangible assets are comprised of goodwill, the “Shurgard” trade name, acquired customers in place, and leasehold interests in land.finite-lived assets.
9
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
Goodwill totaled $174.6$165.8 million at SeptemberJune 30, 2017 and2021 ($165.8 million at December 31, 2016.2020). The “Shurgard” trade name, which is used by Shurgard Europe pursuant to a fee-based licensing agreement, has a book value of $18.8 million at SeptemberJune 30, 20172021 and December 31, 2016.2020. Goodwill and the “Shurgard” trade name have indefinite lives and are not amortized.
AcquiredOur finite-lived assets are comprised primarily of (i) acquired customers in place and leasehold interests in land are finite-lived assets and are amortized relative to the benefit of the customers in place, orwith such amortization reflected as depreciation and amortization expense on our income statement and (ii) property tax abatements acquired and amortized relative to the benefit to land lease expense to each period.reduction in property tax paid, with such amortization reflected as self-storage cost of operations on our income statement. At SeptemberJune 30, 2017,2021, these intangibles had a net book value of $12.5$80.9 million ($19.320.1 million at December 31, 2016)2020). Accumulated amortization totaled $31.3$38.7 million at SeptemberJune 30, 20172021 ($54.027.3 million at December 31, 2016), and amortization expense2020). A total of $11.9$19.6 million and $15.8$25.7 million in amortization expense was recorded in the ninethree and six months ended SeptemberJune 30, 20172021, respectively, and 2016, respectively. $4.3 million and $9.0 million in the same periods in 2020.
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
The estimated future amortization expense for our finite-lived intangible assets at SeptemberJune 30, 20172021 is approximately $2.3$35.5 million in the remainder of 2017, $4.02021, $31.3 million in 20182022 and $6.2$14.1 million thereafter. During the ninesix months ended SeptemberJune 30, 2017,2021, intangibles increased $5.1$86.5 million in connection with the acquisition of self-storage facilities (Note 3).
Evaluation of Asset Impairment
We evaluate our real estate and finite-lived intangible assets for impairment each quarter. If there are indicators of impairment and we determine that the asset is not recoverable from future undiscounted cash flows to be received through the asset’s remaining life (or, if earlier, the expected disposal date), we record an impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value or net proceeds from expected disposal.
We evaluate our investments in unconsolidated real estate entities for impairment on a quarterly basis. We record an impairment charge to the extent the carrying amount exceeds estimated fair value, when we believe any such shortfall is other than temporary.
We evaluate goodwill for impairment annually and whenever relevant events, circumstances and other related factors indicate that fair value of the related reporting unit may be less than the carrying amount. If we determine that the fair value of the reporting unit exceeds the aggregate carrying amount, no impairment charge is recorded. Otherwise, we record an impairment charge to the extent the carrying amount of the goodwill exceeds the amount that would be allocated to goodwill if the reporting unit were acquired for estimated fair value.
We evaluate other indefinite-lived intangible assets, such as the “Shurgard” trade name for impairment at least annually and whenever relevant events, circumstances and other related factors indicate that the fair value is less than the carrying amount. When we conclude that it is likely that the asset is not impaired, we do not record an impairment charge and no further analysis is performed. Otherwise, we record an impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value.
NoNaN impairments were recorded in any of our evaluations for any period presented herein.
Casualty Loss
We record casualty losses for a) the book value of assets destroyed and b) incremental repair, clean-up, and other costs associated with the casualty. Insurance proceeds are recorded as a reduction in casualty loss when all uncertainties of collection are satisfied. During the three and nine months ended September 30, 2017, we incurred casualty losses totaling $7.8 million, comprised of $3.3 million in book value of assets damaged and $4.5 million in repairs and maintenance incurred in connection with Hurricanes Harvey and Irma.
10
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
Revenue and Expense Recognition
Revenues from self-storage facilities, which are primarily composed of rental income earned pursuant to month-to-month leases, as well as associated late charges and administrative fees, are recognized as earned. Promotional discounts reduce rental income over the promotional period, which is generally one month. Ancillary revenues and interest and other income are recognized when earned.
We accrue for property tax expense based upon actual amounts billed and, in some circumstances, estimates when bills or assessments have not been received from the taxing authorities. If these estimates are incorrect, the timing and amount of expense recognition could be incorrect. Cost of operations (including advertising expenditures), general and administrative expense, and interest expense are expensed as incurred.
Foreign Currency Exchange Translation
The local currency (primarily the Euro) is the functional currency for our interests in foreign operations. The related balance sheet amounts are translated into U.S. Dollars at the exchange rates at the respective financial statement date, while amounts on our statements of income are translated at the average exchange rates during the respective period. Cumulative translation adjustments, to the extent not included in cumulative net income, are included in equity as a component of accumulated other comprehensive income (loss).
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
When financial instruments denominated in a currency other than the U.S. Dollar are expected to be settled in cash in the foreseeable future, the impact of changes in the U.S. Dollar equivalent are reflected in current earnings. The Euro was translated at exchange rates of approximately 1.1811.188 U.S. Dollars per Euro at SeptemberJune 30, 2017 (1.0522021 (1.226 at December 31, 2016)2020), and average exchange rates of 1.1751.205 and 1.1161.101 for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and average exchange rates of 1.1131.205 and 1.1161.102 for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. Cumulative translation adjustments, to the extent not included in cumulative net income, are included in equity as a component of accumulated other comprehensive income (loss).
Comprehensive Income
Total comprehensive income represents net income, adjusted for changes in other comprehensive income (loss) for the applicable period. The aggregate foreign currency exchange gains and losses reflected on our statements of comprehensive incomeperiod, which are comprised primarily of foreign currency exchangetranslation gains and losses on our investment in Shurgard Europe and our unsecured notes denominated in Euros.Shurgard.
Recently Accounting Pronouncements and Guidance
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which requires revenue to be based upon the consideration expected from customers for promised goods or services. The FASB also added guidance with respect to the sale of our real estate facilities. The new standards, effective on January 1, 2018, permit either the retrospective or cumulative effects transition method and allowed for early adoption on January 1, 2017. We did not early adopt these new standards. We plan to adopt the new standards in the first quarter of 2018 utilizing the cumulative effects transition method. We do not believe the new standards will have a material impact on our results of operations or financial condition, primarily because most of our revenue is from rental revenue, which the new standards do not cover, and because we do not provide any material products and services to our customers or sell material amounts of our real estate facilities.
In February 2016, the FASB issued ASU 2016-02, Leases, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new standard, effective on January 1, 2019, requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief and allows for early adoption on January 1, 2016. We
11
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
do not believe this standard will have a material impact on our results of operations or financial condition, because substantially all of our lease revenues are derived from month-to-month self-storage leases, and we do not have material amounts of lease expense.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. The new standard provides guidance on certain specific cash flow issues, including, but not limited to, debt prepayment or extinguishment costs and distributions received from equity method investees. The standard is effective for periods beginning after December 15, 2017, with early adoption permitted and shall be applied retrospectively where practicable. The Company adopted the new guidance effective January 1, 2017 and has elected to use the cumulative earnings approach to classify distributions received from equity method investees. Under the cumulative earnings approach, distributions up to the amount of cumulative equity in earnings recognized will be treated as returns on investment and those in excess of that amount will be treated as returns of investment. The adoption of the cumulative earnings approach had no impact on our consolidated financial statements for the periods presented.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash, which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The new guidance also requires entities to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. The standard is effective on January 1, 2018, with early adoption permitted. The standard requires the use of the retrospective transition method. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
Net Income per Common Share
Net income is allocated to (i) noncontrolling interests based upon their share of the net income of the Subsidiaries and (ii) preferred shareholders, to the extent redemption cost exceeds the related original net issuance proceeds (an “EITF D-42 allocation”“preferred share redemption charge”), and (iii)with the remaining net income is allocated to each of our equity securities based upon the dividends declared or accumulated during the period, combined with participation rights in undistributed earnings.
Basic and diluted net income per common share are each calculated based upon net income allocable to common shareholders presented on the face of our income statement, divided by (i) in the case of basic net income per common share, weighted average common shares, and (ii) in the case of diluted income per share, weighted average common shares adjusted for the impact, if dilutive, of stock options outstanding (Note 10). The following table reconciles from basic to diluted common shares outstanding:outstanding (amounts in thousands):
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Weighted average common shares and equivalents | ||||||||||||
outstanding: | ||||||||||||
Basic weighted average common | ||||||||||||
shares outstanding | 174,824 | 174,493 | 174,718 | 174,470 | ||||||||
Net effect of dilutive stock options - | ||||||||||||
based on treasury stock method | 723 | 82 | 476 | 126 | ||||||||
Diluted weighted average common | ||||||||||||
shares outstanding | 175,547 | 174,575 | 175,194 | 174,596 |
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
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| Weighted average common shares and equivalents |
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| outstanding: |
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| Basic weighted average common |
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| shares outstanding |
| 173,715 |
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| 173,108 |
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| 173,560 |
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| 173,057 |
| Net effect of dilutive stock options - |
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| based on treasury stock method |
| 525 |
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| 740 |
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| 568 |
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| 842 |
| Diluted weighted average common |
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| shares outstanding |
| 174,240 |
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| 173,848 |
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| 174,128 |
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| 173,899 |
3.Real Estate Facilities
Activity in real estate facilities during the ninesix months ended SeptemberJune 30, 20172021 is as follows:
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(Amounts in thousands) | |||
Operating facilities, at cost: | |||
Beginning balance | $ | 17,372,627 | |
Capital expenditures to maintain real estate facilities | 94,616 | ||
Acquisitions | 2,431,821 | ||
Dispositions | (6,705) | ||
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Developed or | |||
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| 85,573 | ||
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| 19,977,932 | ||
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| (7,152,135) | ||
Depreciation expense | (287,918) | ||
Dispositions | 4,396 | ||
Ending balance | (7,435,657) | ||
Construction in process: | |||
Beginning balance | 188,079 | ||
Costs incurred to develop and expand real estate facilities | 147,207 | ||
Developed or | (85,573) | ||
| 249,713 | ||
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Total real estate facilities at | $ | 12,791,988 |
13
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
During the ninesix months ended SeptemberJune 30, 2017,2021, we acquired 1499 self-storage facilities (830,000(8,148,000 net rentable square feet)feet of storage space), for a total cost of $81.7 million,$2.5 billion in cash. Approximately $5.1$86.5 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing $85.6 million during the ninesix months ended SeptemberJune 30, 2017,2021, adding 2.10.5 million net rentable square feet of self-storage space, at an aggregate cost of $255.3 million.space. Construction in process at SeptemberJune 30, 20172021 consists of projects to develop new self-storage facilities and redevelopexpand existing self-storage facilities, which will add a total of 4.7 million net rentable square feet of storage space at an aggregate estimated cost of approximately $600.2 million. facilities.
During the ninesix months ended SeptemberJune 30, 2017,2021, our accrual for unpaid construction costs increased $10.2 million (a $4.0 million decrease for the same period in 2020). During the six months ended June 30, 2021, our accrual for capital expenditures to maintain real estate facilities increased $3.5 million (a $4.3 million decrease for the same period in 2020).
During the six months ended June 30, 2021, we sold a parcel of land held for development and other portions of real estate facilities in connection with an eminent domain proceedingsproceeding for a total of approximately $5.9$15.7 million in cash proceeds of which $0.3 million was collected in 2016, and recorded a related gain on sale of real estate investment sales of approximately $1.0 million in the nine months ended September$13.4 million.
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2017.2021
(Unaudited)
4.Investments in Unconsolidated Real Estate Entities
The following table sets forth our investments in, and equity in earnings of, the Unconsolidated Real Estate Entities (amounts in thousands):
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| Investments in Unconsolidated Real Estate Entities at | ||||
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| December 31, 2016 | ||
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| PSB | $ | 401,577 |
| $ | 402,765 |
| Shurgard Europe |
| 318,162 |
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| 280,019 |
| Other Investments |
| 6,429 |
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| 6,423 |
| Total | $ | 726,168 |
| $ | 689,207 |
Investments in Unconsolidated Real Estate | ||||||
Entities at | ||||||
June 30, 2021 | December 31, 2020 | |||||
PSB | $ | 438,513 | $ | 431,963 | ||
Shurgard | 329,401 | 341,083 | ||||
Total | $ | 767,914 | $ | 773,046 |
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| Equity in Earnings of Unconsolidated Real Estate Entities for the | ||||||||||
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
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| PSB | $ | 9,261 |
| $ | 10,118 |
| $ | 35,694 |
| $ | 25,318 |
| Shurgard Europe |
| 7,243 |
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| 6,362 |
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| 19,484 |
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| 14,304 |
| Other Investments |
| 714 |
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| 757 |
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| 2,057 |
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| 2,006 |
| Total | $ | 17,218 |
| $ | 17,237 |
| $ | 57,235 |
| $ | 41,628 |
Equity in Earnings of Unconsolidated Real Estate Entities for the | ||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
PSB | $ | 20,908 | $ | 13,228 | $ | 35,384 | $ | 34,965 | ||||
Shurgard | 8,158 | 4,427 | 13,138 | 6,658 | ||||||||
Total | $ | 29,066 | $ | 17,655 | $ | 48,522 | $ | 41,623 |
During the nine months ended September 30, 2017 and 2016, we received cash distributions from our investments in the Unconsolidated Real Estate Entities totaling $39.9 million and $139.9 million, respectively. For the nine months ended September 30, 2016, $67.4 million of the distributions received exceeded the retained earnings of the Unconsolidated Real Estate Entities and are presented as an investing activity on our statement of cash flows. At September 30, 2017, the cost of our investment in the Unconsolidated Real Estate Entities exceeds our pro rata share of the underlying equity by approximately $51.0 million ($54.0 million at December 31, 2016). This differential is being amortized as a reduction in equity in earnings of the Unconsolidated Real Estate Entities based upon allocations to the underlying net assets. Such amortization was approximately $1.0 million and $1.3 million during the nine months ended September 30, 2017 and 2016, respectively.
Investment in PSB
PSB is a REIT traded on the New York Stock Exchange. We have an approximate 42% common equity interest in PSB as of September 30, 2017 and December 31, 2016, comprised of our ownership of
14
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
Throughout all periods presented, we owned 7,158,354 shares of PSB’s common stock and 7,305,355 limited partnership units (“LP Units”) in an operating partnership controlled by PSB.PSB, representing an approximate 42% common equity interest. The LP Unitslimited partnership units are convertible at our option, subject to certain conditions, on a one-for-one1-for-one basis into PSB common stock.
Based upon the closing price at SeptemberJune 30, 20172021 ($133.50148.08) per share of PSB common stock),stock, the shares and units we owned had a market value of approximately $1.9$2.1 billion. At September 30, 2017, the adjusted tax basis
Our equity in earnings of PSB is comprised of our equity share of PSB’s net income, less amortization of the PSB Basis Differential (defined below). Our equity share of PSB’s share-based compensation is recognized in paid-in capital.
During each of the six month periods ended June 30, 2021 and 2020, we received cash distributions from PSB totaling $30.4 million.
At June 30, 2021, our pro-rata investment in PSB was less than its book value of $401.6 million.
The following table sets forth selected financial information of PSB. The amounts represent all of PSB’s balances and notreal estate assets included in investment in unconsolidated real estate entities exceeds our pro-rata share.share of the underlying amounts on PSB’s balance sheet by approximately $3.0 million ($3.4 million at December 31, 2020). This differential (the “PSB Basis Differential”) is being amortized as a reduction to equity in earnings of the Unconsolidated Real Estate Entities. Such amortization totaled approximately $0.4 million during each of the six month periods ended June 30, 2021 and 2020.
PSB is a publicly held entity traded on the New York Stock Exchange under the symbol “PSB”.
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| 2017 |
| 2016 | ||
| (Amounts in thousands) | ||||
For the nine months ended September 30, |
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Total revenue | $ | 300,342 |
| $ | 289,272 |
Costs of operations |
| (92,962) |
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| (92,440) |
Depreciation and amortization |
| (70,465) |
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| (74,886) |
General and administrative |
| (7,019) |
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| (11,982) |
Other items |
| (1,131) |
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| (4,567) |
Gain on real estate investment sales |
| 5,074 |
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| - |
Net income |
| 133,839 |
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| 105,397 |
Allocations to preferred shareholders and |
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restricted share unitholders |
| (45,954) |
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| (41,885) |
Net income allocated to common shareholders |
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and LP Unitholders | $ | 87,885 |
| $ | 63,512 |
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PUBLIC STORAGE
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|
|
|
|
|
| September 30, |
| December 31, | ||
| 2017 |
| 2016 | ||
| (Amounts in thousands) | ||||
|
|
|
|
|
|
Total assets (primarily real estate) | $ | 2,125,731 |
| $ | 2,119,371 |
Preferred stock called for redemption |
| 220,000 |
|
| 230,000 |
Other liabilities |
| 82,618 |
|
| 78,657 |
Equity: |
|
|
|
|
|
Preferred stock |
| 889,750 |
|
| 879,750 |
Common equity and LP units |
| 933,363 |
|
| 930,964 |
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Investment in Shurgard Europe
ForThroughout all periods presented, we effectively owned, directly and indirectly 31,268,459 Shurgard common shares, representing an approximate 35% equity interest in Shurgard.
Based upon the closing price at June 30, 2021 (€40.70 per share of Shurgard common stock, at 1.188 exchange rate of US Dollars to the Euro), the shares we owned had a 49% equity investment in Shurgard Europe and our joint venture partner owns the remaining 51% interest. market value of approximately $1.5 billion.
Our equity in earnings of Shurgard Europe is comprised of our 49%equity share of Shurgard Europe’sShurgard’s net income, less amortization of the Shurgard Basis Differential (defined below). We eliminated $0.6 million and 49%$0.5 million intra-entity profits and losses for the six month periods ended June 30, 2021 and 2020, respectively, representing our equity share of the trademark license fees that Shurgard Europe pays to us for the use of the “Shurgard” trademark. TheWe classify the remaining 51% of the license fees are classifiedwe receive from Shurgard as interest and other income on our income statement.
ChangesThe dividends we receive from Shurgard, combined with our equity share of trademark license fees collected from Shurgard, are reflected on our statements of cash flows as “distributions from cumulative equity in foreign currency exchange rates increasedearnings of unconsolidated real estate entities” to the extent of our cumulative equity in earnings, with any excess classified as “distributions in excess of cumulative equity in earnings from unconsolidated real estate entities.” Shurgard paid €0.57 per share and €0.50 per share in dividends to its shareholders during the six months ended June 30, 2021 and 2020, respectively, of which our share totaled $21.5 million and $17.0 million, respectively.
At June 30, 2021, our pro-rata investment in Shurgard’s real estate assets included in investment in unconsolidated real estate entities exceeds our pro-rata share of the underlying amounts on Shurgard’s balance sheet by approximately $78.8 million ($83.1 million at December 31, 2020). This differential (the “Shurgard Basis Differential”) includes our cost basis adjustment in Shurgard’s real estate assets net of related deferred income taxes. The real estate assets basis differential is being amortized as a reduction to equity in earnings of the Unconsolidated Real Estate Entities. Such amortization totaled approximately $4.4 million and $6.3 million during the six month periods ended June 30, 2021 and 2020, respectively.
As of June 30, 2021 and 2020, we translated the book value of our investment in Shurgard Europe by approximately $19.6from Euro to U.S. Dollar and recorded $2.7 million and decreased it by $13.1$8.2 million inother comprehensive loss, respectively.
Shurgard is a publicly held entity trading on Euronext Brussels under the nine months ended September 30, 2017 and 2016, respectively. symbol “SHUR”.
15
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
The following table sets forth selected consolidated financial information of Shurgard Europe based upon all of Shurgard Europe’s balances for all periods, rather than our pro rata share. Such amounts are based upon our historical acquired book basis.
|
|
|
|
|
|
| 2017 |
| 2016 | ||
| (Amounts in thousands) | ||||
For the nine months ended September 30, |
|
|
|
|
|
Self-storage and ancillary revenues | $ | 194,973 |
| $ | 189,837 |
Self-storage and ancillary cost of operations |
| (72,233) |
|
| (73,456) |
Depreciation and amortization |
| (45,194) |
|
| (49,933) |
General and administrative |
| (8,971) |
|
| (10,951) |
Interest expense on third party debt |
| (15,465) |
|
| (15,615) |
Trademark license fee payable to Public Storage |
| (1,947) |
|
| (1,908) |
Income tax expense |
| (12,622) |
|
| (8,807) |
Foreign exchange loss |
| (725) |
|
| (1,883) |
|
|
|
|
|
|
Net income | $ | 37,816 |
| $ | 27,284 |
Average exchange rates of Euro to the U.S. Dollar |
| 1.113 |
|
| 1.116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
| 2017 |
| 2016 | ||
|
| (Amounts in thousands) | |||
|
|
|
|
|
|
Total assets (primarily self-storage facilities) | $ | 1,424,695 |
| $ | 1,261,912 |
Total debt to third parties |
| 719,082 |
|
| 666,926 |
Other liabilities |
| 136,947 |
|
| 106,916 |
Equity |
| 568,666 |
|
| 488,070 |
|
|
|
|
|
|
Exchange rate of Euro to U.S. Dollar |
| 1.181 |
|
| 1.052 |
Other Investments
At September 30, 2017 and December 31, 2016, the “Other Investments” include an average 26% common equity ownership in limited partnerships that collectively own 12 self-storage facilities and have no debt. In the nine months ended September 30, 2016, we sold one of the Other Investments resulting in a $689,000 gain on real estate investment sales on our income statement. In the nine months ended September 30, 2017 and 2016, the Other Investments had $11.9 million and $11.8 million, respectively, in self-storage revenues, $3.7 million and $3.5 million, respectively, in self-storage operating expenses, $195,000 and $396,000, respectively, in depreciation expense, and $81,000 and $50,000, respectively, in general and administrative and other expenses (amounts represent 100% of the operations of these entities, not our pro rata share).
5.Credit Facility
We have a revolving credit agreement (the “Credit Facility”) with a $500 million borrowing limit, which expiresmatures on March 31, 2020.April 19, 2024. Amounts drawn on the Credit Facility bear annual interest at rates ranging from LIBOR plus 0.850%0.7% to LIBOR plus 1.450%1.350% depending upon the ratio of our Total Indebtedness to Gross
16
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
Asset Value (as defined in the Credit Facility) (LIBOR plus 0.850%0.7% at SeptemberJune 30, 2017)2021). We are also required to pay a quarterly facility fee ranging from 0.080%0.07% per annum to 0.250%0.25% per annum depending upon the ratio of our Total Indebtedness to our Gross Asset Value (0.080%(0.07% per annum at SeptemberJune 30, 2017)2021). At SeptemberJune 30, 20172021 and October 31, 2017,August 3, 2021, we had no0 outstanding borrowings under this Credit Facility. We had undrawn standby letters of credit, which reduce our borrowing capacity, totaling $18.7$25.1 million at SeptemberJune 30, 20172021 ($15.224.3 million at December 31, 2016)2020). The Credit Facility has various customary restrictive covenants, all of which we were in compliance with at SeptemberJune 30, 2017.2021.
U.S. Dollar Denominated Unsecured Debt6.Notes Payable
On September 18, 2017, we issued, in a public offering, two tranches each totaling $500.0 millionOur notes payable are reflected net of U.S. Dollar denominated unsecured notes (the “U.S. Dollar Notes”). In connection with the offering, we incurred a total of $7.9 million inissuance costs (including original issue discounts), which is reflectedare amortized as a reduction in the principal amount and amortized, usinginterest expense on the effective interest method over the term of each respective note. Our notes payable at June 30, 2021 and December 31, 2020 are set forth in the tables below:
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Amounts at June 30, 2021 | |||||||||||||||
Coupon | Effective | Unamortized | Book | Fair | |||||||||||
Rate | Rate | Principal | Costs | Value | Value | ||||||||||
($ amounts in thousands) | |||||||||||||||
U.S. Dollar Denominated Unsecured Debt | |||||||||||||||
Notes due September 15, 2022 | 2.370% | 2.483% | $ | 500,000 | $ | (627) | $ | 499,373 | $ | 512,105 | |||||
Notes due April 23, 2024 | SOFR+0.47% | 0.596% | 700,000 | (1,980) | 698,020 | 702,637 | |||||||||
Notes due February 15, 2026 | 0.875% | 1.030% | 500,000 | (3,431) | 496,569 | 495,387 | |||||||||
Notes due September 15, 2027 | 3.094% | 3.218% | 500,000 | (3,284) | 496,716 | 545,829 | |||||||||
Notes due May 1, 2028 | 1.850% | 1.962% | 650,000 | (4,615) | 645,385 | 654,584 | |||||||||
Notes due May 1, 2029 | 3.385% | 3.459% | 500,000 | (2,412) | 497,588 | 556,510 | |||||||||
Notes due May 1, 2031 | 2.300% | 2.419% | 650,000 | (6,725) | 643,275 | 660,910 | |||||||||
4,000,000 | (23,075) | 3,976,925 | 4,127,962 | ||||||||||||
Euro Denominated Unsecured Debt | |||||||||||||||
Notes due April 12, 2024 | 1.540% | 1.540% | 118,786 | - | 118,786 | 124,570 | |||||||||
Notes due November 3, 2025 | 2.175% | 2.175% | 287,478 | - | 287,478 | 313,314 | |||||||||
Notes due January 24, 2032 | 0.875% | 0.978% | 593,928 | (5,663) | 588,265 | 594,820 | |||||||||
1,000,192 | (5,663) | 994,529 | 1,032,704 | ||||||||||||
Mortgage Debt, secured by 27 | |||||||||||||||
real estate facilities with a net | |||||||||||||||
book value of $100.6 million | 3.925% | 3.919% | 24,166 | - | 24,166 | 25,499 | |||||||||
$ | 5,024,358 | $ | (28,738) | $ | 4,995,620 | $ | 5,186,165 | ||||||||
Amounts at | |||||||||||||||
December 31, 2020 | |||||||||||||||
Book | Fair | ||||||||||||||
Value | Value | ||||||||||||||
($ amounts in thousands) | |||||||||||||||
U.S. Dollar Denominated Unsecured Debt | |||||||||||||||
Notes due September 15, 2022 | $ | 499,109 | $ | 517,419 | |||||||||||
Notes due September 15, 2027 | 496,452 | 560,833 | |||||||||||||
Notes due May 1, 2029 | 497,433 | 574,833 | |||||||||||||
1,492,994 | 1,653,085 | ||||||||||||||
Euro Denominated Unsecured Debt | |||||||||||||||
Notes due April 12, 2024 | 122,646 | 129,192 | |||||||||||||
Notes due November 3, 2025 | 296,821 | 323,552 | |||||||||||||
Notes due January 24, 2032 | 607,301 | 634,389 | |||||||||||||
1,026,768 | 1,087,133 | ||||||||||||||
Mortgage Debt | 25,230 | 26,958 | |||||||||||||
$ | 2,544,992 | $ | 2,767,176 |
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
U.S. Dollar Denominated Unsecured Notes
On January 19, 2021, we completed a public offering of $500 million aggregate principal amount of senior notes bearing interest at an annual rate of 0.875% and maturing on February 15, 2026. Interest on the U.S. Dollar Notessenior notes is payable semi-annually, commencing on MarchAugust 15, 2021. In connection with the offering, we incurred a total of $3.8 million in costs.
On April 23, 2021, we completed a public offering of $700 million, $650 million and September 15$650 million aggregate principal amount of each year,senior notes bearing interest at an annual rate of the compounded Secured Overnight Financing Rate (“SOFR”) + 0.47% (reset quarterly and at 0.495% as of June 30, 2021), 1.85% and 2.30%, respectively, and maturing on April 23, 2024, May 1, 2028 and May 1, 2031, respectively. Interest on the 2024 notes is payable quarterly, commencing March 15, 2018. on July 23, 2021. Interest on the 2028 notes and 2031 notes is payable semi-annually, commencing on November 1, 2021. In connection with the offering, we incurred a total of $13.7 million in costs.
The U.S. Dollar Denominated Unsecured Notes have various financial covenants, all of which we were in compliance with at SeptemberJune 30, 2017.2021. Included in these covenants are a)(a) a maximum Debt to Total Assets of 65% (4.4%(approximately 13% at SeptemberJune 30, 2017)2021) and b)(b) a minimum ratio of Adjusted EBITDA to Interest Expense of 1.5x (361.3x(approximately 36x for the twelve months ended SeptemberJune 30, 2017)2021) as well as covenants limiting our ability tothe amount we can encumber our properties with mortgage debt. These terms and all of the covenants are defined more fully in the related prospectus.
Euro Denominated Unsecured DebtNotes
Our euroEuro denominated unsecured notes (the “Euro Notes”) is payableconsist of 3 tranches: (i) €242.0 million issued to institutional investors.investors on November 3, 2015 for $264.3 million in net proceeds upon converting the Euros to U.S. Dollars, (ii) €100.0 million of the Euro Notes were issued to institutional investors on April 12, 2016 for $113.6 million in net proceeds.proceeds upon converting the Euros to U.S. Dollars, and (iii) €500.0 million issued in a public offering on January 24, 2020 for $545.2 million in net proceeds upon converting the Euros to U.S. Dollars. Interest is payable semi-annually.semi-annually on the notes issued November 3, 2015 and April 12, 2016, and annually on the notes issued January 24, 2020. The Euro Notes have various customary financial covenants allsimilar to those of which we were in compliance with at September 30, 2017.the U.S. Dollar Notes.
We reflect changes in the U.S. Dollar equivalent of the amount payable, as a result of changes in foreign exchange rates as “foreign currency exchange loss”(loss) gain” on our income statement (losses of $13.4$12.7 million and $44.5gains of $32.7 million for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, as compared to losses of $3.7$19.3 million and $6.0$10.4 million for the same periods in 2016,three and six months ended June 30, 2020, respectively).
Mortgage DebtNotes
Our non-recourse mortgage debt was assumed in connection with property acquisitions, and recorded at fair value with any premium or discount to the stated note balance amortized using the effective interest method. Our mortgage debt has
At June 30, 2021, the related contractual interest rates are fixed, rates of interestranging between 3.2% and are non-recourse.7.1%, and mature between January 1, 2022 and July 1, 2030.
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
At SeptemberJune 30, 2017,2021, approximate principal maturities of our Unsecured Debt and Mortgage DebtNotes Payable are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
| Unsecured |
| Mortgage |
|
| |||
| Debt |
| Debt |
| Total | |||
Remainder of 2017 | $ | - |
| $ | 432 |
| $ | 432 |
2018 |
| - |
|
| 11,241 |
|
| 11,241 |
2019 |
| - |
|
| 1,505 |
|
| 1,505 |
2020 |
| - |
|
| 1,585 |
|
| 1,585 |
2021 |
| - |
|
| 1,503 |
|
| 1,503 |
2022 |
| 500,000 |
|
| 2,071 |
|
| 502,071 |
Thereafter |
| 904,072 |
|
| 11,316 |
|
| 915,388 |
| $ | 1,404,072 |
| $ | 29,653 |
| $ | 1,433,725 |
Weighted average effective rate |
| 2.6% |
|
| 4.0% |
|
| 2.6% |
Unsecured | Mortgage | |||||||
Debt | Debt | Total | ||||||
Remainder of 2021 | $ | - | $ | 789 | $ | 789 | ||
2022 | 500,000 | 2,574 | 502,574 | |||||
2023 | - | 19,219 | 19,219 | |||||
2024 | 818,786 | 124 | 818,910 | |||||
2025 | 287,478 | 131 | 287,609 | |||||
Thereafter | 3,393,928 | 1,329 | 3,395,257 | |||||
$ | 5,000,192 | $ | 24,166 | $ | 5,024,358 | |||
Weighted average effective rate | 1.9% | 3.9% | 2.0% |
Cash paid for interest totaled $7.7$32.3 million and $7.2$26.4 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. Interest capitalized as real estate totaled $3.1 million and $3.9$1.7 million for each of the nine monthssix month periods ended SeptemberJune 30, 20172021 and 2016, respectively.2020.
18
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
7.Noncontrolling Interests
At SeptemberJune 30, 2017,2021, the noncontrolling interests represent (i) third-party equity interests in subsidiaries owning 1123 operating self-storage facilities and seven5 self-storage facilities that are under construction and (ii) 231,978 partnership units held by third-parties in a subsidiary that are convertible on a one-for-one1-for-one basis (subject to certain limitations) into common shares of the Company at the option of the unitholder (collectively, the “Noncontrolling Interests”). At SeptemberJune 30, 2017,2021, the Noncontrolling Interests cannot require us to redeem their interests, other than pursuant to a liquidation of the subsidiary.
During the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, we allocated a total of $4.7$2.5 million and $4.9$1.9 million, respectively, of income to these interests; and we paid $5.5$2.8 million and $5.6$2.6 million, respectively, in distributions to these interests.
During the ninesix months ended SeptemberJune 30, 2017, we acquired Noncontrolling Interests for $14.4 million (none in the nine months ended September 30, 2016), in cash, of which $7.7 million was allocated to Paid-in capital2021 and $6.7 million as a reduction to Noncontrolling Interests. During the nine months ended September 30, 2017 and 2016,2020, Noncontrolling Interests contributed $1.1$1.8 million and $3.2$1.4 million, respectively. respectively, to our subsidiaries.
8.Shareholders’ Equity
Preferred Shares
At SeptemberJune 30, 20172021 and December 31, 2016,2020, we had the following series of Cumulative Preferred Shares (“Preferred Shares”) outstanding:
At June 30, 2021 | At December 31, 2020 | ||||||||||||||
Series | Earliest Redemption Date | Dividend Rate | Shares Outstanding | Liquidation Preference | Shares Outstanding | Liquidation Preference | |||||||||
(Dollar amounts in thousands) | |||||||||||||||
Series C | 5/17/2021 | 5.125% | - | $ | - | 8,000 | $ | 200,000 | |||||||
Series D | 7/20/2021 | 4.950% | - | - | 13,000 | 325,000 | |||||||||
Series E | 10/14/2021 | 4.900% | 14,000 | 350,000 | 14,000 | 350,000 | |||||||||
Series F | 6/2/2022 | 5.150% | 11,200 | 280,000 | 11,200 | 280,000 | |||||||||
Series G | 8/9/2022 | 5.050% | 12,000 | 300,000 | 12,000 | 300,000 | |||||||||
Series H | 3/11/2024 | 5.600% | 11,400 | 285,000 | 11,400 | 285,000 | |||||||||
Series I | 9/12/2024 | 4.875% | 12,650 | 316,250 | 12,650 | 316,250 | |||||||||
Series J | 11/15/2024 | 4.700% | 10,350 | 258,750 | 10,350 | 258,750 | |||||||||
Series K | 12/20/2024 | 4.750% | 9,200 | 230,000 | 9,200 | 230,000 | |||||||||
Series L | 6/17/2025 | 4.625% | 22,600 | 565,000 | 22,600 | 565,000 | |||||||||
Series M | 8/14/2025 | 4.125% | 9,200 | 230,000 | 9,200 | 230,000 | |||||||||
Series N | 10/6/2025 | 3.875% | 11,300 | 282,500 | 11,300 | 282,500 | |||||||||
Series O | 11/17/2025 | 3.900% | 6,800 | 170,000 | 6,800 | 170,000 | |||||||||
Series P | 6/16/2026 | 4.000% | 24,150 | 603,750 | - | - | |||||||||
Total Preferred Shares | 154,850 | $ | 3,871,250 | 151,700 | $ | 3,792,500 |
The holders of our Preferred Shares have general preference rights with respect to liquidation, quarterly distributions and any accumulated unpaid distributions. Except under certain conditions and as noted below, holders of the Preferred Shares willdo not be entitled to vote on most matters.have voting rights. In the event of a cumulative arrearage equal to six6 quarterly dividends, holders of all outstanding series of preferred shares (voting as a single class without regard to series) will have the right to elect two2 additional members to serve on our board of trustees (our “Board”) until the arrearage has been cured. At SeptemberJune 30, 2017,2021, there were no0 dividends in arrears. The affirmative vote of at least 66.67% of the outstanding shares of a series of Preferred Shares is required for any material and adverse amendment to the terms of such series. The affirmative vote of at least 66.67% of the outstanding shares of all of our Preferred Shares, voting as a single class, is required to issue shares ranking senior to our Preferred Shares.
Except under certain conditions relating to the Company’s qualification as a REIT, the Preferred Shares are not redeemable prior to the dates indicated on the table above. On or after the respective dates, each of the series of Preferred Shares is redeemable at our option, in whole or in part, at $25.00 per depositary share, plus accrued and unpaid dividends. Holders of the Preferred Shares cannot require us to redeem such shares.
Upon issuance of our Preferred Shares, we classify the liquidation value as preferred equity on our balance sheet with any issuance costs recorded as a reduction to Paid-in capital.
On January 20, 2016, we issued 12.0 million depositary shares, each representing 1/1,000 of a share of our 5.40% Series B Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $300.0 million in gross proceeds, and we incurred $9.9 million in issuance costs.
On May 17, 2016, we issued 8.0 million depositary shares, each representing 1/1,000 of a share of our 5.125% Series C Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $200.0 million in gross proceeds, and we incurred $6.4 million in issuance costs.
On July 20, 2016, we issued 13.0 million depositary shares, each representing 1/1,000 of a share of our 4.95% Series D Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $325.0 million in gross proceeds, and we incurred $10.6 million in issuance costs.
On October 14, 2016, we issued 14.0 million depositary shares, each representing 1/1,000 of a share of our 4.90% Series E Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $350.0 million in gross proceeds, and we incurred $11.9 million in issuance costs.
During the nine months ended September 30, 2016, we redeemed our Series Q and Series R Preferred Shares at par, for a total of $862.5 million, before payment of accrued dividends. We recorded $26.9 million in allocation of income from our common shareholders to the holders of our Preferred Shares in the nine months ended September 30, 2016 in connection with these redemptions.
On June 2, 2017, we issued 11.2 million depositary shares, each representing 1/1,000 of a share of our 5.150% Series F Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $280.0 million in gross proceeds, and we incurred $8.9 million in issuance costs.
On August 9, 2017, we issued 12.0 million depositary shares, each representing 1/1,000 of a share of our 5.050% Series G Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $300.0 million in gross proceeds, and we incurred $9.9 million in issuance costs.
In June 2017,December 2020, we called for redemption of, and on July 26, 2017,January 20, 2021, we redeemed our 5.900%5.400% Series SB Preferred Shares, at par. The liquidation value (at par) of $300.0 million was reclassified as a liability at December 31, 2020, and is not included in the table above. We recorded a $14.6$9.9 million allocation of income from our common shareholders to the holders of our Preferred Shares in the nine monthsyear ended September 30, 2017December 31, 2020 in connection with this redemption.
In August 2017,
On June 16, 2021, we calledissued 24.2 million depositary shares, each representing 0.001 of a share of our 4.000% Series P Preferred Shares, at an issuance price of $25.00 per depositary share, for redemptiona total of $603.8 million in gross proceeds, and on September 28, 2017,we incurred $17.4 million in issuance costs.
On June 30, 2021, we redeemed our 5.750%5.125% Series TC Preferred Shares, at par. We recorded a $14.7$6.4 million allocation of income from our common shareholders to the holders of our Preferred Shares in the three and ninesix months ended SeptemberJune 30, 20172021 in connection with this redemption.
CommonIn June 2021, we called for redemption of, and on July 20, 2021, we redeemed our 4.950% Series D Preferred Shares, at par. The liquidation value (at par) of $325.0 million was reclassified as a liability at June 30, 2021, and is not included in the table above. We recorded a $10.6 million allocation of income from our common shareholders to the holders of our Preferred Shares in the three and six months ended June 30, 2021 in connection with this redemption.
On June 17, 2020, we issued 22.6 million depositary shares, each representing 0.001 of a share of our 4.625% Series L Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $565.0 million in gross proceeds, and we incurred $15.8 million in issuance costs.
In June 2020, we called for redemption of, and on July 10, 2020, we redeemed our 5.375% Series V Preferred Shares, at par. We recorded a $15.1 million allocation of income from our common shareholders to the holders of our Preferred Shares in the three and six months ended June 30, 2020 in connection with this redemption.
Dividends
Common share dividends, including amounts paid to our restricted share unitholders, totaled $348.6$350.1 million ($2.00 per share) and $312.5$349.8 million ($1.802.00 per share) for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and $1.0 billion$700.2 million ($6.004.00 per share) and $920.1$699.6 million ($5.304.00 per share) for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. Preferred share dividends totaled $61.1$46.2 million and $57.2$53.0 million for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and $182.5$92.3 million and $178.7$105.0 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
9.Related Party Transactions
B. Wayne Hughes, our former Chairman and his family, including his daughterAt June 30, 2021, Tamara Hughes Gustavson, a current member of the Board and his son B. Wayne Hughes, Jr., who are both members of our Board, collectively own approximately 14.3% of our common shares outstanding at September 30, 2017.
At September 30, 2017, B. Wayne Hughes and Tamara Hughes Gustavson togetherher adult children owned and controlled 5765 self-storage facilities in Canada. Ms. Gustavson’s direct ownership in these properties is less than 1.0%. These facilities operate under the “Public Storage” tradename, which we license to the owners of these facilities for use in Canada on a royalty-free, non-exclusive basis. We have no0 ownership interest in these facilities and we do not own or operate any facilities in Canada. If we chose to acquire or develop our own facilities in Canada, we would have to share the use of the “Public Storage” name in Canada with the facilities’ owners.Canada. We have a right of first refusal, subject to limitations, to acquire the stock or assets of the corporation engaged in the operation of these facilities if their owners agree to sell them. Our subsidiaries reinsure risks relating to loss of goods stored by customers in these facilities, and have received approximately $752,000$992,000 and $606,000$719,000 for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. Our right to continue receiving these premiums may be qualified.
10.Share-Based Compensation
Under various share-based compensation plans and under terms established or modified by our Board or a committee thereof, we grant non-qualified options to purchase the Company’s common shares, as well as restricted share units (“RSUs”),RSUs, to trustees, officers, and key employees.
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Stock options and RSUs are considered “granted” and “outstanding” as the terms are used herein, when (i) the Company and the recipient reach a mutual understanding of the key terms of the award, (ii) the award has been authorized, and (iii) the recipient is affected by changes in the market price of our stock, and (iv) it is probable that any performance conditions will be met. stock.
We amortize the grant-date fair value of awards, as compensation expense over the service period, which begins on the grant date and ends on the expected vesting date. For awards that are earned solely upon the passage of time and continued service, the entire cost of the award is amortized on a straight-line basis over the service period. For awards with performance conditions, the individual cost of each vesting is amortized separately over each individual service period (the “accelerated attribution” method).
Share-based compensation expense associated with stock options and RSUs, including employer taxes incurred upon vesting, was recorded in the various expense categories in the Statement of Income as set forth in the following table. In addition, $1.1 million and $2.2 million share-based compensation cost was capitalized as real estate facilities for the three and six months ended June 30, 2021, respectively.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||
(Amounts in thousands) | |||||||||||
Self-storage cost of operations | $ | 5,328 | $ | 3,725 | $ | 12,529 | $ | 7,452 | |||
Ancillary cost of operations | 549 | - | 1,049 | - | |||||||
General and administrative | 12,471 | 3,446 | 20,368 | 6,488 | |||||||
Total | $ | 18,348 | $ | 7,171 | $ | 33,946 | $ | 13,940 | |||
In July 2020, our share-based compensation plans were modified to allow immediate vesting upon retirement (“Retirement Acceleration”), and to extend the exercisability of outstanding stock options up to a year after retirement, for currently outstanding and future grants. Prior to the modification, unvested awards were forfeited, and outstanding vested stock options were cancelled, upon retirement. Employees are eligible for Retirement Acceleration if they meet certain conditions including length of service, age, notice of intent to retire, and facilitation of succession for their role.
21This modification results in accelerating amortization of compensation expense for each grant by changing the end of the service period from the original vesting date to the date an employee is expected to be eligible for Retirement Acceleration, if earlier. As a result, the Company recorded $11.0 million in accelerated compensation expense during the six months ended June 30, 2021. NaN such compensation expense was recorded during the six months ended June 30, 2020.
PUBLIC STORAGEDuring the three months ended March 31, 2021, the Company depleted the available shares under the 2016 Equity and Performance-Based Incentive Compensation Plan resulting in $4.8 million of award expense classified as a liability as of March 31, 2021. On April 26, 2021, the Company’s Shareholders approved the 2021 Equity and Performance-Based Incentive Compensation Plan, which authorizes an additional 3 million shares available for future issuance. Consequently, awards previously classified as a liability were revalued as of April 26, 2021, resulting in an additional stock based compensation expense of $3.6 million, and reclassified to equity.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
In amortizing share-based compensation expense, we do not estimate future forfeitures in advance.forfeitures. Instead, we reverse previously amortized share-based compensation expense with respect to grants that are forfeited in the period the employee terminates employment.
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Stock Options
Stock options vest over a three3 to five-year period,5 years, expire ten10 years after the grant date, and the exercise price is equal to the closing trading price of our common shares on the grant date. Employees cannot require the Company to settle their award in cash. We use the Black-Scholes option valuation model to estimate the fair value of our performance-based and non-performance based stock options.
Outstanding stock option grants are included on a one-for-one basis in our diluted weighted average shares, to the extent dilutive, after applying the treasury stock method (based upon the average common share price during the period) to assumed exercise proceeds and measured but unrecognized compensation.
For the three and ninesix months ended SeptemberJune 30, 2017,2021, we recorded $2.3share-based compensation expense for outstanding stock options of $10.6 million and $5.1$15.0 million, respectively, in compensation expense related to stock options, as compared to $1.3$1.5 million and $3.2$2.4 million for the same periods in 2016. Amounts2020. The amount for the ninethree and six months ended SeptemberJune 30, 2017 reflect a reduction2021 includes $3.7 million and $4.5 million, respectively, in compensation expense of $0.8 million related to stock options forfeited duringconnection with the period.Retirement Acceleration as discussed above.
During the ninesix months ended SeptemberJune 30, 2017, 1,076,0002021, 565,000 stock options were granted, 386,643awarded, 234,467 options were exercised and 200,00010,000 options were forfeited. A total of 2,484,7973,281,700 stock options were outstanding at SeptemberJune 30, 2017 (1,995,4402021, (2,961,167 at December 31, 2016).2020) and have an average exercise price of $215.09.
During the six months ended June 30, 2021, we incurred share-based compensation expense of $0.7 million in connection with the initial 15,000 stock option awards issued to each of the 5 members that joined our Board in January 2021.
During the six months ended June 30, 2021, 245,000 stock options were awarded where vesting is dependent upon meeting certain performance targets with respect to 2021, 2022, and 2023. These awards contain a relative Total Shareholder Return modifier that will adjust the payout based on relative performance as compared to the market. As of June 30, 2021, these targets are expected to be met at 100% achievement. These options resulted in $3.4 million in related compensation expense during the six months ended June 30, 2021.
During the six months ended June 30, 2020, 770,000 stock options were awarded where vesting is dependent upon meeting certain performance targets with respect to 2020, 2021, and 2022. As of June 30, 2021, these targets are expected to be met at 125% achievement, an increase from 100% as of December 31, 2020, resulting in $8.8 million in related compensation expense during the six months ended June 30, 2021.
Restricted Share Units
RSUs generally vest ratably over a five5 to eight-year period8 years from the grant date. The grantee receives dividends for each outstanding RSU equal to the per-share dividends received by our common shareholders. We expense any dividends previously paid upon forfeiture of the related RSU. Upon vesting, the grantee receives common shares equal to the number of vested RSUs, less common shares withheld in exchange for tax deposits made by the Company to satisfy the grantee’s statutory tax liabilities arising from the vesting.
The fair value of our RSUs is determined based upon the applicable closing trading price of our common shares.
During the ninesix months ended SeptemberJune 30, 2017, 198,4272021, 84,500 RSUs were granted, 77,13822,348 RSUs were forfeited and 114,18170,929 RSUs vested. This vesting resulted in the issuance of 63,37848,228 common shares. In addition, tax deposits totaling $12.4$9.0 million ($13.69.1 million for the same period in 2016)2020) were made on behalf of employees in exchange for 50,80322,701 common shares withheld upon vesting. A total of 703,749544,011 RSUs were outstanding at SeptemberJune 30, 2017 (696,6412021
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
(552,788 at December 31, 2016)2020). During the six months ended June 30, 2021, 37,000 RSUs were awarded where vesting is dependent upon meeting certain performance targets for 2021. As of June 30, 2021, these targets are expected to be met at 125% achievement. These RSUs resulted in $2.7 million in related compensation expense during the six months ended June 30, 2021.
A total of $10.7$8.7 million and $21.1 million in RSU expensecost was recorded for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, which includes approximately $0.1 million and $0.7$1.3 million, respectively, in employer taxes incurred upon vesting, as compared to $10.2$5.7 million and $24.7$11.5 million for the same periods in 2016,2020, which includes approximately $40,000$0.1 million and $1.1 million, respectively, in employer taxes incurred upon vesting. AmountsThe amount for the ninethree and six months ended SeptemberJune 30, 2017 reflect a reduction2021 includes $3.5 million and $6.5 million, respectively, in RSU expense of $4.6 million related to RSUs forfeited duringconnection with the period.Retirement Acceleration as discussed above.
22
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
11.Segment Information
Our reportable segments reflect the significant components of our operations where discrete financial information is evaluated separately by our chief operating decision maker (“CODM”). We organize our segments based primarily upon the nature of the underlying products and services, as well as the drivers of profitability growth. The net income for each reportable segment included in the tablestable below are in conformity with GAAP and our significant accounting policies as denoted in Note 2. The amounts not attributable to reportable segments are aggregated under “other items not allocated to segments.”
Following is a description of and basis for presentation for each of our reportable segments.
Self-Storage Operations
The Self-Storage Operations segment reflects the rental operations from all self-storage facilities owned by the Company and the Subsidiaries.we own. Our CODM reviews the net operating income (“NOI”) of this segment, which represents the related revenues less cost of operations (prior to depreciation expense), in assessing performance and making resource allocation decisions. The presentation in the tables below sets forth the NOI of this segment, as well as the depreciation expense for this segment, which while reviewed by our CODM and included in net income, is not considered by the CODM in assessing performance and decision making. For all periods presented, substantially all of our real estate facilities, goodwill and other intangible assets, other assets, and accrued and other liabilities are associated with the Self-Storage Operations segment.
Ancillary Operations
The Ancillary Operations segment reflects the saleoperations of our tenant reinsurance, merchandise sales and reinsurance of policies against losses to goods stored by our self-storage tenants, activities which are incidental to our primary self-storage rentalthird party management activities. Our CODM reviews the NOI of these operations in assessing performance and making resource allocation decisions.
Investment in PSB
This segment represents our approximate 42% equity interest in PSB, a publicly-traded REIT that owns, operates, acquires and develops commercial properties, primarily multi-tenant flex, office, and industrial space. PSB has a separate management team and board of directors that makes its financing, capital allocation, and other significant decisions. In making resource allocation decisions with respect to our investment in PSB, the CODM reviews PSB’s net income, which is detailed in PSB’s periodic filings with the SEC, and is included in Note 4.SEC. The segment presentation in the tables below includes our equity earnings from PSB.
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Investment in Shurgard Europe
This segment represents our 49%approximate 35% equity interest in Shurgard, Europe,a publicly held company which owns and operates self-storage facilities located in seven7 countries in Western Europe. Shurgard Europe has a separate management team reporting to our CODM and our joint venture partner.board of trustees that makes its financing, capital allocation, and other significant decisions. In making resource allocation decisions with respect to our investment in Shurgard, Europe, the CODM reviews Shurgard Europe’sShurgard’s net income, which is detailed in Note 4.income. The segment presentation below includes our equity earnings from Shurgard Europe.Shurgard.
23
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
Presentation of Segment Information
The following tables reconciletable reconciles NOI (as applicable) and net income of each segment to our consolidated net income (amounts in thousands):income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2017 |
|
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|
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|
|
|
|
|
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| ||
|
|
|
|
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|
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|
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|
|
|
|
|
|
| Self-Storage Operations |
| Ancillary Operations |
| Investment in PSB |
| Investment in Shurgard Europe |
| Other Items Not Allocated to Segments |
| Total | ||||||
| (Amounts in thousands) | ||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations | $ | 646,238 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 646,238 |
Ancillary operations |
| - |
|
| 40,123 |
|
| - |
|
| - |
|
| - |
|
| 40,123 |
|
| 646,238 |
|
| 40,123 |
|
| - |
|
| - |
|
| - |
|
| 686,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations |
| 173,315 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 173,315 |
Ancillary operations |
| - |
|
| 17,304 |
|
| - |
|
| - |
|
| - |
|
| 17,304 |
|
| 173,315 |
|
| 17,304 |
|
| - |
|
| - |
|
| - |
|
| 190,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations |
| 472,923 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 472,923 |
Ancillary operations |
| - |
|
| 22,819 |
|
| - |
|
| - |
|
| - |
|
| 22,819 |
|
| 472,923 |
|
| 22,819 |
|
| - |
|
| - |
|
| - |
|
| 495,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other components of net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization |
| (113,320) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (113,320) |
General and administrative |
| - |
|
| - |
|
| - |
|
| - |
|
| (22,311) |
|
| (22,311) |
Interest and other income |
| - |
|
| - |
|
| - |
|
| - |
|
| 4,569 |
|
| 4,569 |
Interest expense |
| - |
|
| - |
|
| - |
|
| - |
|
| (2,389) |
|
| (2,389) |
Equity in earnings of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unconsolidated real estate entities |
| - |
|
| - |
|
| 9,261 |
|
| 7,243 |
|
| 714 |
|
| 17,218 |
Foreign currency exchange loss |
| - |
|
| - |
|
| - |
|
| - |
|
| (13,446) |
|
| (13,446) |
Casualty loss |
| - |
|
| - |
|
| - |
|
| - |
|
| (7,789) |
|
| (7,789) |
Net income (loss) | $ | 359,603 |
| $ | 22,819 |
| $ | 9,261 |
| $ | 7,243 |
| $ | (40,652) |
| $ | 358,274 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
(amounts in thousands) | ||||||||||||
Self-Storage Segment | ||||||||||||
Revenue | $ | 776,993 | $ | 664,542 | $ | 1,493,340 | $ | 1,338,743 | ||||
Cost of operations | (202,595) | (216,954) | (414,700) | (428,050) | ||||||||
Net operating income | 574,398 | 447,588 | 1,078,640 | 910,693 | ||||||||
Depreciation and amortization | (172,728) | (137,618) | (319,587) | (273,518) | ||||||||
Net income | 401,670 | 309,970 | 759,053 | 637,175 | ||||||||
Ancillary Segment | ||||||||||||
Revenue | 52,322 | 48,401 | 103,237 | 93,244 | ||||||||
Cost of operations | (15,991) | (15,335) | (32,309) | (28,907) | ||||||||
Net operating income | 36,331 | 33,066 | 70,928 | 64,337 | ||||||||
Investment in PSB Segment (a) - Equity in earnings of unconsolidated entities | 20,908 | 13,228 | 35,384 | 34,965 | ||||||||
Investment in Shurgard Segment (a) - Equity in earnings of unconsolidated entities | 8,158 | 4,427 | 13,138 | 6,658 | ||||||||
Total net income allocated to segments | 467,067 | 360,691 | 878,503 | 743,135 | ||||||||
Other items not allocated to segments: | ||||||||||||
General and administrative | (27,740) | (17,104) | (47,314) | (34,972) | ||||||||
Interest and other income | 3,113 | 5,665 | 5,965 | 11,784 | ||||||||
Interest expense | (21,994) | (14,145) | (37,244) | (27,766) | ||||||||
Foreign currency exchange (loss) gain | (12,707) | (19,295) | 32,678 | (10,350) | ||||||||
Gain on sale of real estate | 3,991 | - | 13,404 | 1,117 | ||||||||
Net income | $ | 411,730 | $ | 315,812 | $ | 845,992 | $ | 682,948 |
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
SeptemberJune 30, 20172021
(Unaudited)
(a) See Note 4 for a reconciliation of these amounts to our total Equity in Earnings of Unconsolidated Real Estate Entities on our income statements.
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Three months ended September 30, 2016 |
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|
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| Self-Storage Operations |
| Ancillary Operations |
| Investment in PSB |
| Investment in Shurgard Europe |
| Other Items Not Allocated to Segments |
| Total | ||||||
| (Amounts in thousands) | ||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations | $ | 623,157 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 623,157 |
Ancillary operations |
| - |
|
| 39,991 |
|
| - |
|
| - |
|
| - |
|
| 39,991 |
|
| 623,157 |
|
| 39,991 |
|
| - |
|
| - |
|
| - |
|
| 663,148 |
|
|
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|
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|
|
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|
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Cost of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations |
| 165,905 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 165,905 |
Ancillary operations |
| - |
|
| 12,722 |
|
| - |
|
| - |
|
| - |
|
| 12,722 |
|
| 165,905 |
|
| 12,722 |
|
| - |
|
| - |
|
| - |
|
| 178,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations |
| 457,252 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 457,252 |
Ancillary operations |
| - |
|
| 27,269 |
|
| - |
|
| - |
|
| - |
|
| 27,269 |
|
| 457,252 |
|
| 27,269 |
|
| - |
|
| - |
|
| - |
|
| 484,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other components of net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization |
| (109,432) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (109,432) |
General and administrative |
| - |
|
| - |
|
| - |
|
| - |
|
| (22,140) |
|
| (22,140) |
Interest and other income |
| - |
|
| - |
|
| - |
|
| - |
|
| 3,750 |
|
| 3,750 |
Interest expense |
| - |
|
| - |
|
| - |
|
| - |
|
| (1,221) |
|
| (1,221) |
Equity in earnings of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
unconsolidated real estate entities | - |
|
| - |
|
| 10,118 |
|
| 6,362 |
|
| 757 |
|
| 17,237 | |
Foreign currency exchange loss |
| - |
|
| - |
|
| - |
|
| - |
|
| (3,665) |
|
| (3,665) |
Net income (loss) | $ | 347,820 |
| $ | 27,269 |
| $ | 10,118 |
| $ | 6,362 |
| $ | (22,519) |
| $ | 369,050 |
25
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2017 |
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| ||
|
|
|
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|
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|
|
|
|
|
|
| Self-Storage Operations |
| Ancillary Operations |
| Investment in PSB |
| Investment in Shurgard Europe |
| Other Items Not Allocated to Segments |
| Total | ||||||
| (Amounts in thousands) | ||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations | $ | 1,878,215 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 1,878,215 |
Ancillary operations |
| - |
|
| 118,005 |
|
| - |
|
| - |
|
| - |
|
| 118,005 |
|
| 1,878,215 |
|
| 118,005 |
|
| - |
|
| - |
|
| - |
|
| 1,996,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations |
| 516,488 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 516,488 |
Ancillary operations |
| - |
|
| 39,611 |
|
| - |
|
| - |
|
| - |
|
| 39,611 |
|
| 516,488 |
|
| 39,611 |
|
| - |
|
| - |
|
| - |
|
| 556,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations |
| 1,361,727 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,361,727 |
Ancillary operations |
| - |
|
| 78,394 |
|
| - |
|
| - |
|
| - |
|
| 78,394 |
|
| 1,361,727 |
|
| 78,394 |
|
| - |
|
| - |
|
| - |
|
| 1,440,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other components of net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization |
| (334,426) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (334,426) |
General and administrative |
| - |
|
| - |
|
| - |
|
| - |
|
| (62,331) |
|
| (62,331) |
Interest and other income |
| - |
|
| - |
|
| - |
|
| - |
|
| 12,722 |
|
| 12,722 |
Interest expense |
| - |
|
| - |
|
| - |
|
| - |
|
| (4,553) |
|
| (4,553) |
Equity in earnings of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
unconsolidated real estate entities | - |
|
| - |
|
| 35,694 |
|
| 19,484 |
|
| 2,057 |
|
| 57,235 | |
Foreign currency exchange loss |
| - |
|
| - |
|
| - |
|
| - |
|
| (44,452) |
|
| (44,452) |
Casualty loss |
| - |
|
| - |
|
| - |
|
| - |
|
| (7,789) |
|
| (7,789) |
Gain on real estate investment sales |
| - |
|
| - |
|
| - |
|
| - |
|
| 975 |
|
| 975 |
Net income (loss) | $ | 1,027,301 |
| $ | 78,394 |
| $ | 35,694 |
| $ | 19,484 |
| $ | (103,371) |
| $ | 1,057,502 |
26
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Self-Storage Operations |
| Ancillary Operations |
| Investment in PSB |
| Investment in Shurgard Europe |
| Other Items Not Allocated to Segments |
| Total | ||||||
| (Amounts in thousands) | ||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations | $ | 1,792,130 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 1,792,130 |
Ancillary operations |
| - |
|
| 116,992 |
|
| - |
|
| - |
|
| - |
|
| 116,992 |
|
| 1,792,130 |
|
| 116,992 |
|
| - |
|
| - |
|
| - |
|
| 1,909,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations |
| 483,455 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 483,455 |
Ancillary operations |
| - |
|
| 40,462 |
|
| - |
|
| - |
|
| - |
|
| 40,462 |
|
| 483,455 |
|
| 40,462 |
|
| - |
|
| - |
|
| - |
|
| 523,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-storage operations |
| 1,308,675 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,308,675 |
Ancillary operations |
| - |
|
| 76,530 |
|
| - |
|
| - |
|
| - |
|
| 76,530 |
|
| 1,308,675 |
|
| 76,530 |
|
| - |
|
| - |
|
| - |
|
| 1,385,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other components of net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization |
| (321,573) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (321,573) |
General and administrative |
| - |
|
| - |
|
| - |
|
| - |
|
| (63,508) |
|
| (63,508) |
Interest and other income |
| - |
|
| - |
|
| - |
|
| - |
|
| 11,614 |
|
| 11,614 |
Interest expense |
| - |
|
| - |
|
| - |
|
| - |
|
| (3,310) |
|
| (3,310) |
Equity in earnings of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
unconsolidated real estate entities | - |
|
| - |
|
| 25,318 |
|
| 14,304 |
|
| 2,006 |
|
| 41,628 | |
Foreign currency exchange loss |
| - |
|
| - |
|
| - |
|
| - |
|
| (5,987) |
|
| (5,987) |
Gain on real estate investment sales |
| - |
|
| - |
|
| - |
|
| - |
|
| 689 |
|
| 689 |
Net income (loss) | $ | 987,102 |
| $ | 76,530 |
| $ | 25,318 |
| $ | 14,304 |
| $ | (58,496) |
| $ | 1,044,758 |
27
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
12.Commitments and Contingencies
Contingent Losses
We are a party to various legal proceedings and subject to various claims and complaints; however, we believe that the likelihood of these contingencies resulting in a material loss to the Company, either individually or in the aggregate, is remote.
Insurance and Loss Exposure
We have historically carriedcarry property, earthquake, general liability, employee medical insurance and workers compensation coverage through internationally recognized insurance carriers, subject to deductibles. Our deductible for general liability is $2.0 million per occurrence. Our annual deductiblesdeductible for property losses areloss is $25.0 million for first occurrence with an aggregate ofper occurrence. This deductible decreases to $5.0 million once we reach $35.0 million in aggregate losses for two occurrences andthat exceed $5.0 million per occurrence thereafter.million. Insurance carriers’ aggregate limits on these policies of $75.0 million for property losses and $102.0 million for general liability losses are higher than estimates of maximum probable losses that could occur from individual catastrophic events determined in recent engineering and actuarial studies; however, in case of multiple catastrophic events, these limits could be exceeded.
We reinsure a program that provides insurance to our customers from an independent third-party insurer. This program covers tenantcustomer claims for losses to goods stored at our facilities as a result of specific named perils (earthquakes are not covered by this program), up to a maximum limit of $5,000 per storage unit. We reinsure all risks in this program, but purchase insurance to cover this exposure for a limit of $15.0 million for losses in excess of $5.0 million per occurrence. We are subject to licensing requirements and regulations in several states. Customers participate in the program at their option. At SeptemberJune 30, 2017,2021, there were approximately 914,0001,092,000 certificates held by our self-storage customers, representing aggregate coverage of approximately $2.8$4.6 billion.
Commitments
We have construction commitments representing future expected payments for construction under contract totaling $151.8 million at June 30, 2021. We expect to pay approximately $81.0 million in the remainder of 2021, $70.2 million in 2022 and $0.6 million in 2023 for these construction commitments.
We have future contractual payments on land, equipment and office space under various lease commitments totaling $66.5 million at June 30, 2021. We expect to pay approximately $1.4 million in the remainder of 2021, $3.1 million in 2022, $2.9 million in each of 2023, 2024 and 2025 and $53.3 million thereafter for these commitments.
13.Subsequent Events
Subsequent to SeptemberJune 30, 2017,2021, we acquired or were under contract to acquire (subject to customary closing conditions) eight36 self-storage facilities across 15 states with 534,0003.0 million net rentable square feet, for $67.8$466.6 million.
On July 20, 2021, we redeemed our 4.950% Series D Preferred Shares, at par, for a total of $325 million in cash before payment of accrued dividends.
ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include statements relating to our 2021 outlook and all underlying assumptions, our expected acquisition, disposition, development and redevelopment activity, supply and demand for our self-storage facilities, information relating to operating trends in our markets, expectations regarding operating expenses, including property tax changes, our strategic priorities, expectations with respect to financing activities, rental rates, cap rates and yields, leasing expectations, our credit ratings, and all other statements other than statements of historical fact. Such statements are based on management’s beliefs and assumptions made based on information currently available to management. All statements in this document, other than statements of historical fact, are forward-looking statements which may be identified by the use of the words "expects," "believes," "anticipates," "should," "estimates"“outlook,” “guidance,” “expects,” “believes,” “anticipates,” “should,” “estimates,” and similar expressions.
These forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results and performance to be materially different from those expressed or implied in the forward-looking statements. Factors and risks that may impact future results and performance include, but are not limited to, those described in Part 1, Item 1A, "Risk Factors" and“Risk Factors” in our most recent Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on February 28, 201724, 2021 and in our other filings with the SEC including:
general risks associated with the ownership and operation of real estate, including changes in demand, risk related to development, expansion, and acquisition of self-storage facilities, potential liability for environmental contamination, natural disasters and adverse changes in laws and regulations governing property tax, real estate and zoning; risks associated with downturns in the national and local economies in the markets in which we operate, including risks related to current economic conditions and the economic health of our customers; risks associated with the COVID-19 Pandemic (the “COVID Pandemic”) or similar events, including but not limited to illness or death of our employees or customers, negative impacts to the economic environment and to self-storage customers which could reduce the demand for self-storage or reduce our ability to collect rent, and/or potential regulatory actions to (i) close our facilities if we were determined not to be an “essential business” or for other reasons, (ii) limit our ability to increase rent or otherwise limit the rent we can charge or (iii) limit our ability to collect rent or evict delinquent tenants; the risk that there could be an out-migration of population from certain high-cost major markets, if it is determined that the ability to “work from home,” which has become more prominent during the COVID Pandemic, could allow certain workers to live in less expensive localities, which could negatively impact the occupancies and revenues of our properties in such major high-cost markets; the risk that more jurisdictions will reinstitute COVID Pandemic restrictions, which were previously eased, in response to increases in infections, including as a result of variants such as the Delta variant, or if additional pandemics occur; the risk that we could experience a change in the move-out patterns of our long-term customers due to economic uncertainty and increases in unemployment resulting from changes in macro environment, which could lead to lower occupancies and rent “roll down” as long-term customers are replaced with new customers at lower rates; the risk of negative impacts on the cost and availability of debt and equity capital as a result of the COVID Pandemic, which could have a material impact upon our capital and growth plans; |
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the impact of competition from new and existing self-storage and commercial facilities and other storage alternatives;
the risk that our existing self-storage facilities may be at a disadvantage in competing with newly developed facilities with more visual and customer appeal;
risks related to increased reliance on Google and Sparefoot as customer acquisition channels;
difficulties in our ability to successfully evaluate, finance, integrate into our existing operations, and manage properties that we acquire directly or through the acquisition of entities that own and operate self-storage facilities, or to consummate announced acquisitions in the expected timeframe or at all;
risks associated with international operations including, but not limited to, unfavorable foreign currency rate fluctuations, changes in tax laws, and local and global economic uncertainty that could adversely affect our earnings and cash flows;
risks related to our participation in joint ventures;
the impact of the legal and regulatory environment as well as national, state and local laws and regulations including, without limitation, those governing environmental issues, taxes, our tenant reinsurance business, and labor, including risks related to the impact of new laws and regulations;
risks of increased tax expense associated either with a possible failure by us to qualify as a real estate investment trust (“REIT”), or with challenges to the determination of taxable income for our taxable REIT subsidiaries;
risks due to ballot initiatives or other actions that could remove the protections of Proposition 13 with respect to our real estate and result in substantial increases in our assessed values and property tax bills in California;
changes in United States (“U.S.”) federal or state tax laws related to the taxation of REITs and other corporations;
security breaches, including ransomware, or a failure of our networks, systems or technology could adversely impact our operations or our business, customer and employee relationships or result in fraudulent payments;
risks associated with the self-insurance of certain business risks, including property and casualty insurance, employee health insurance and workers compensation liabilities;
difficulties in raising capital at a reasonable cost;
delays and cost overruns on our projects to develop new facilities or expand our existing facilities;
difficulties in our ability to hire and retain skilled management and staff;
ineffective succession planning for our CEO, executive management and our other key employees;
ongoing litigation and other legal and regulatory actions which may divert management’s time and attention, require us to pay damages and expenses or restrict the operation of our business; and
economic uncertainty due to the impact of war or terrorism.
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These forward lookingforward-looking statements speak only as of the date of this report or as of the dates indicated in the statements. All of our forward-looking statements, including those in this report, are qualified in their entirety by this statement. We expressly disclaim any obligation to update publicly or otherwise revise any forward-looking statements, whether as a resultbecause of new information, new estimates, or other factors, events or circumstances after the date of these forward lookingforward-looking statements, except wherewhen expressly required by law. Given these risks and uncertainties, you should not rely on any forward-looking statements in this report, or which management may make orally or in writing from time to time, neither as predictions of future events nor guarantees of future performance.
Critical Accounting Policies
Our MD&A discusses ourThe preparation of financial statements which have been preparedand related disclosures in accordanceconformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”), and are affected by our requires us to make judgments, assumptions, and estimates. The notesestimates that affect the amounts reported. On an ongoing basis, we evaluate our estimates and assumptions. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to our Septemberdetermine reported amounts of assets, liabilities, revenues, and expenses that are not readily apparent from other sources.
During the six months ended June 30, 2017 financial statements, primarily Note 2, summarize our significant accounting policies.
We believe the following are2021, there were no material changes to our critical accounting policies because they have a material impact onand estimates as compared to the portrayalcritical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our financial condition and results, and they require us to make judgments and estimates about matters that are inherently uncertain.Form 10-K for the year ended December 31, 2020.
Income Tax Expense: We have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, we do not incur federal income tax on our REIT taxable income that is fully distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we meet certain organizational and operational rules. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no federal income tax expense related to our REIT taxable income.Overview
Our evaluation that we have met the REIT requirements could be incorrect, because compliance with the tax rules requires factual determinations, and circumstances we have not identified could result in noncompliance with the tax requirements in current or prior years. For any taxable year that we fail to qualify as a REIT and for which applicable statutory relief provisions did not apply, we would be taxed at the regular corporate rates on all of our taxable income for at least that year and the ensuing four years, we could be subject to penalties and interest, and our net income would be materially different from the amounts estimated in our financial statements.
In addition, certain of our consolidated corporate subsidiaries have elected to be treated as “taxable REIT subsidiaries” for federal income tax purposes, which are taxable as regular corporations and subject to certain limitations on intercompany transactions. If tax authorities determine that amounts paid by our taxable REIT subsidiaries to us are not reasonable compared to similar arrangements among unrelated parties, we could be subject to a 100% penalty tax on the excess payments. Such a penalty tax could have a material adverse impact on our net income.
Impairment of Long-Lived Assets: The analysis of impairment of our long-lived assets involves identification of indicators of impairment, projections of future operating cash flows, and estimates of fair values, all of which require significant judgment and subjectivity. Others could come to materially different conclusions. In addition, we may not have identified all current facts and circumstances that may affect impairment. Any unidentified impairment loss, or change in conclusions, could have a material adverse impact on our net income.
Accrual for Uncertain and Contingent Liabilities: We accrue for certain contingent and other liabilities that have significant uncertain elements, such as property taxes, workers compensation claims, tenant reinsurance
30
claims, as well as other legal claims and disputes involving customers, employees, governmental agencies and other third parties. We estimate such liabilities based upon many factors such as assumptions of past and future trends and our evaluation of likely outcomes. However, the estimates of known liabilities could be incorrect or we may not be aware of all such liabilities, in which case our accrued liabilities and net income could be misstated.
Accounting for Acquired Real Estate Facilities:We estimate the fair values of the land, buildings and intangible assets acquired for purposes of allocating the purchase price. Such estimates are based upon many assumptions and judgments, including (i) market rates of return and capitalization rates on real estate and intangible assets, (ii) building and material cost levels, (iii) comparisons of the acquired underlying land parcels to recent land transactions, and (iv) future cash flows from the real estate and the existing tenant base. Others could come to materially different conclusions as to the estimated fair values, which would result in different depreciation and amortization expense, gains and losses on sale of real estate assets, and real estate and intangible assets.
Overview
Our self-storage operations generate most of our net income and we believe that our earnings growth is most impacted by the level of organic growth inwithin our existing self-storage portfolio.Same Store Facilities. Accordingly, a significant portion of management’s time is devoted to maximizing cash flows from our existing self-storage facilities. facility portfolio.
Most
During the three and six months ended June 30, 2021, revenues generated by our Same Store Facilities increased 10.8% and 7.1%, respectively, while Same Store cost of operations decreased. Demand and operating trends have continued to improve leading to increases in our self-storage rental rates in all markets while maintaining high levels of occupancy. Our operating trends have benefited from our ability to reduce labor costs through technology improvements and reduced need for internet marketing. At June 30, 2021, contract rent per occupied foot was 8.8% higher and square foot occupancy was 2.0% higher for our Same Store Facilities (as defined below) as compared to June 30, 2020, suggesting continued revenue growth into 2021.
In addition to managing our existing facilities compete with other well-managedfor organic growth, we have grown and well-located competitors and we are subjectplan to general economic conditions, particularly those that affect the spending habits of consumers and moving trends. We believe that our centralized information networks, national telephone and online reservation system, the brand name “Public Storage,” and our economies of scale enable uscontinue to meet such challenges effectively.
We plan on growing organically as well asgrow through the acquisition and development of additionalnew facilities and expand our existing self-storage facilities. Since the beginning of 2015 through September 30, 2017,2019 we acquired a total of 86205 facilities with 6.216.4 million net rentable square feet from third parties for approximately $679.6 million,$3.7 billion, and since January 1, 2013, we opened newlywithin our non-same store portfolio have developed and redevelopedexpanded self-storage space for a total cost of $831.2 million,$1.5 billion, adding approximately 7.516.4 million net rentable square feet.
Subsequent to September 30, 2017,
On April 28, 2021, as part of our portfolio growth, we acquired or were under contract to acquire (subject to customary closing conditions) eight self-storage facilities for $67.8 million. We will continue to seek to acquire properties; however, there is significant competition to acquire existing facilities and there can be no assurance as to the levelezStorage portfolio consisting of facilities we may acquire.
As of September 30, 2017, we had additional development and redevelopment projects which will add approximately 4.748 properties (4.1 million net rentable square feet at a total costfeet) for $1.8 billion. These properties are located in submarkets with strong demand drivers and other desirable characteristics across Washington DC, Virginia, and Maryland.
Our strong financial profile continues to enable an effective access to capital markets in order to support our growth and during the six months ended June 30, 2021, we raised an aggregate of approximately $600.2 million. We expect to continue to seek additional development projects; however, the level of such activity may be limited due to various constraints such as difficulty$2.5 billion in finding available sites that meet our risk-adjusted yield expectations, as well as challengestwo public debt offerings and $604 million in obtaining building permits for self-storage activities in certain municipalities.
We believe that our development and redevelopment activities are beneficial to our business over the long run. However, in the short run, such activities dilute our earnings due to the three to four year period that it takes to fill up newly developed and redeveloped storage facilities and reach a stabilized level of cash flows offset by the cost of capital to fund the cost, combined with related overhead expenses flowing through general and administrative expense. We believe this dilution will increase in the remainder of 2017 and beyond, because of an increased level of net rentable square feet being added to our portfolio due to continued development and redevelopment efforts.
31
On September 18, 2017, we completed a public offering of $1.0 billionour preferred shares.
In order to enhance the competitive position of certain of our facilities relative to local competitors (including newly developed facilities), we have embarked on a multi-year program to rebrand our properties, in aggregate principal amountorder to develop more pronounced, attractive, and clearly identifiable color schemes and signage, as well as to upgrade the configuration and layout of unsecured notes in two tranches (collectively, the “U.S. Dollar Notes”).offices and other customer zones to improve the customer experience. The first tranchetiming and scope of $500.0 million aggregate principal amount bears interest at an annual rate of 2.370%, was issued at par valuethe program will evolve as the work is executed and matures on September 15, 2022. The second tranche of $500.0 million aggregate principal amount bears interest at an annual rate of 3.094%, was issued at par value and matures on September 15, 2027.
As of September 30, 2017, our capital resources over the next year are expected to be approximately $1.4 billion which exceeds our current planned capital needs over the next year of approximately $447.8 million. Our capital resources include: (i) $694.2 million of cash as of September 30, 2017, (ii) $481.3 million of available borrowing capacity on our revolving line of credit, and (iii) approximately $250.0 million of expected retained operating cash flow for the next twelve months. Retained operating cash flow represents our expected cash flow provided by operating activities, less shareholder distributions and capital expenditures to maintain our real estate facilities.
Our planned capital needs over the next year consist of (i) $378.3 million of remaining spend on our current development pipeline, (ii) $67.8 million in property acquisitions currently under contract, and (iii) $1.7 million in principal repayments on existing debt. Our capital needs may increase significantly over the next year as we expect to increase our development pipeline and acquire additional properties. In addition to other investment activities, we may also redeem outstanding preferred securities or repurchase shares of our common stock in the future. spend approximately $133 million over 2021 on this effort.
Results of Operations
Operating results for the threeThree Months Ended June 30, 2021 and nine months ended September 30, 2017 and 20162020
For the three months ended SeptemberJune 30, 2017,2021, net income allocable to our common shareholders was $279.7$346.2 million or $1.61$1.97 per diluted common share, compared to $309.0$246.1 million or $1.78$1.41 per diluted common share in 20162020 representing a decreasean increase of $29.3$100.1 million or $0.17.$0.56 per diluted common share. The decreaseincrease is due primarily to (i) a $14.7 million increase in allocation to our preferred shareholders as a result of redemption activities in the three months ended September 30, 2017, a $7.8 million casualty loss and $5.2 million in incremental tenant reinsurance losses related to Hurricanes Harvey and Irma, and a $9.8 million increase in foreign exchange translation losses associated with our euro denominated debt as compared to the same period in 2016. These amounts were partially offset by a $15.7$126.8 million increase in self-storage net operating income (described below)., (ii) a $11.4 million increase due to equity in earnings of unconsolidated real estate entities, partially offset by (iii) a $35.1 million increase in depreciation and amortization expense and (iv) a $10.6 million increase in general and administrative expense due primarily to increased share-based compensation expense.
The $15.7$126.8 million increase in self-storage net operating income is a result of a $10.6$91.6 million increase in our Same Store Facilities (as defined below), and $5.1a $35.2 million increase in our Non SameNon-Same Store Facilities (as defined below). Revenues for the Same Store Facilities increased 2.4%10.8% or $13.0$66.4 million in the three months ended SeptemberJune 30, 20172021 as compared to 2016,2020, due primarily to higher realized annual rent per occupiedavailable square foot.foot and weighted average square foot occupancy. Cost of operations for the Same Store Facilities increaseddecreased by 1.6%13.1% or $2.4$25.2 million in the three months ended SeptemberJune 30, 20172021 as compared to 2016,2020, due primarily to increaseda 33.7% ($13.1 million) decrease in on-site property taxes, repairsmanager payroll resulting from a temporary $3.00 hourly incentive increase and maintenanceenhancement of paid time off benefits to all of our property managers between April 1, 2020 and payroll.June 30, 2020 during the COVID Pandemic, a 61.2% ($10.8 million) decrease in marketing expenses, and a change in property tax timing contributing to a 7.3% ($5.3 million) decrease in property tax expense. The increase in net operating income of $35.2 million for the Non SameNon-Same Store Facilities is due primarily to the impact of 321 self-storage facilities acquired in 2020 and 2021 and the fill-up of recently developed orand expanded since January 2015.facilities.
Operating Results for the Six Months Ended June 30, 2021 and 2020
For the ninesix months ended SeptemberJune 30, 2017,2021, net income allocable to our common shareholders was $837.5$732.1 million or $4.81$4.18 per diluted common share, compared to $831.1$559.3 million or $4.78$3.20 per diluted common share in 20162020 representing an
32
increase of $6.4$172.8 million or $0.03.$0.98 per diluted common share. The increase is due primarily to (i) a $53.1$167.9 million increase in self-storage net operating income and(described below), (ii) a $15.6$43.0 million increase in equity in earningsdue to the impact of real estate entities, offset partially by a $38.5 million increase in foreign currency exchange translationgains and losses associated with our euroEuro denominated debt, as well aspartially offset by (iii) a $7.8$46.1 million casualty lossincrease in depreciation and $5.2amortization expense and (iv) a $12.3 million increase in incremental tenant reinsurance losses relatedgeneral and administrative expense due primarily to Hurricanes Harvey and Irma.increased share-based compensation expense.
The $53.1$167.9 million increase in self-storage net operating income is a result of a $35.9$120.9 million increase in our Same Store Facilities (as defined below), and $17.2a $47.0 million increase in our Non SameNon-Same Store Facilities.Facilities (as defined below). Revenues for the Same Store Facilities increased 3.2%7.1% or $51.4$87.5 million in the ninesix months ended SeptemberJune 30, 20172021 as compared to 2016,2020, due primarily to higher realized annual rent per occupiedavailable square foot.foot and weighted average square foot occupancy. Cost of operations for the Same Store Facilities increaseddecreased by 3.6%8.7% or $15.5$33.3 million in the ninesix months ended SeptemberJune 30, 20172021 as compared to 2016,2020, due primarily to increaseda 24.3% ($17.4 million) decrease in on-site property taxesmanager payroll resulting from a temporary $3.00 hourly incentive increase and advertisingenhancement of paid time off benefits to all of our property managers between April 1, 2020 and selling costs.June 30, 2020 during the COVID Pandemic, a change in property tax timing contributing to our 7.9% ($11.5 million) decrease in property tax expense, and a 34.0% ($11.0 million) decrease in marketing expenses. The increase in net operating income of $47.0 million for the Non SameNon-Same Store Facilities is due primarily to the impact of 321 self-storage facilities acquired in 2020 and 2021 and the fill-up of recently developed orand expanded since January 2015. facilities.
Funds from Operations and Core Funds from Operations
Funds from Operations (“FFO”) and FFO per share are non-GAAP measures defined by the National Association of Real Estate Investment Trusts and are considered helpful measures of REIT performance by REITs and many REIT analysts. FFO represents net income before real estate depreciation and amortization, which is excluded because
it is based upon historical real estate costs and assumes that building values diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. FFO also excludes gains or losses on sale of real estate assets and real estate impairment charges, which are also based upon historical real estate costs and are impacted by historical depreciation. FFO and FFO per share are not a substitute for net income or earnings per share. FFO is not a substitute for GAAP net cash flow in evaluating our liquidity or ability to pay dividends, because it excludes investing and financing activities presented on our statements of cash flows. In addition, other REITs may compute these measures differently, so comparisons among REITs may not be helpful.
For the three months ended SeptemberJune 30, 2017,2021, FFO was $2.35$2.99 per diluted common share, as compared to $2.51$2.28 per diluted common share for the same period in 2016,2020, representing a decreasean increase of 6.4%31.1%, or $0.16$0.71 per diluted common share.
For the ninesix months ended SeptemberJune 30, 2017,2021, FFO was $7.00$6.07 per diluted common share, as compared to $6.94$4.90 per diluted common share for the same period in 2016,2020, representing an increase of 0.9%23.9%, or $0.06$1.17 per diluted common share.
The following tables reconcile diluted earnings per share to FFO per share and set forth the computation of FFO per share:
33
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
(Amounts in thousands, except per share data) | ||||||||||||
Reconciliation of Diluted Earnings per Share to | ||||||||||||
FFO per Share: | ||||||||||||
Diluted Earnings per Share | $ | 1.97 | $ | 1.41 | $ | 4.18 | $ | 3.20 | ||||
Eliminate amounts per share excluded from FFO: | ||||||||||||
Depreciation and amortization | 1.07 | 0.87 | 2.00 | 1.75 | ||||||||
Gains on sale of real estate investments, | ||||||||||||
including our equity share from | ||||||||||||
investments | (0.05) | - | (0.11) | (0.05) | ||||||||
FFO per share | $ | 2.99 | $ | 2.28 | $ | 6.07 | $ | 4.90 | ||||
Computation of FFO per Share: | ||||||||||||
Net income allocable to common shareholders | $ | 346,249 | $ | 246,119 | $ | 732,059 | $ | 559,253 | ||||
Eliminate items excluded from FFO: | ||||||||||||
Depreciation and amortization | 171,738 | 136,821 | 317,607 | 271,958 | ||||||||
Depreciation from unconsolidated | ||||||||||||
real estate investments | 17,343 | 16,872 | 35,276 | 35,115 | ||||||||
Depreciation allocated to noncontrolling | ||||||||||||
interests and restricted share unitholders | (1,124) | (938) | (2,095) | (1,899) | ||||||||
Gains on sale of real estate investments, | ||||||||||||
including our equity share from | ||||||||||||
investments | (9,197) | - | (18,584) | (9,241) | ||||||||
FFO allocable to common shares | $ | 525,009 | $ | 398,874 | $ | 1,064,263 | $ | 855,186 | ||||
Diluted weighted average common shares | 175,547 | 174,575 | 175,194 | 174,596 | ||||||||
FFO per share | $ | 2.99 | $ | 2.28 | $ | 6.07 | $ | 4.90 | ||||
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| Three Months Ended |
| Nine Months Ended |
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|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
| (Amounts in thousands, except per share data) |
| ||||||||||
Reconciliation of Diluted Earnings per Share to |
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FFO per Share: |
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Diluted Earnings per Share |
| $ | 1.61 |
| $ | 1.78 |
| $ | 4.81 |
| $ | 4.78 |
|
Eliminate amounts per share excluded from FFO: |
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| |
Depreciation and amortization allocable to |
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common shareholders |
|
| 0.75 |
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| 0.73 |
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| 2.21 |
|
| 2.16 |
|
Gains on sale of real estate investments, |
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including our equity share from |
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investments, and other |
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| (0.01) |
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| - |
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| (0.02) |
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| - |
|
FFO per share |
| $ | 2.35 |
| $ | 2.51 |
| $ | 7.00 |
| $ | 6.94 |
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Computation of FFO per Share: |
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Net income allocable to common shareholders |
| $ | 279,717 |
| $ | 308,957 |
| $ | 837,529 |
| $ | 831,067 |
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Eliminate items excluded from FFO: |
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|
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|
|
Depreciation and amortization |
|
| 113,320 |
|
| 109,432 |
|
| 334,426 |
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| 321,573 |
|
Depreciation from unconsolidated |
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|
real estate investments |
|
| 18,054 |
|
| 18,328 |
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| 52,635 |
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| 57,319 |
|
Depreciation allocated to noncontrolling |
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interests and restricted share unitholders |
|
| (858) |
|
| (884) |
|
| (2,657) |
|
| (2,642) |
|
Gains on sale of real estate investments, |
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including our equity share from |
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investments |
|
| - |
|
| (78) |
|
| (3,077) |
|
| (767) |
|
FFO allocable to common shares |
| $ | 410,233 |
| $ | 435,755 |
| $ | 1,218,856 |
| $ | 1,206,550 |
|
Diluted weighted average common shares |
|
| 174,240 |
|
| 173,848 |
|
| 174,128 |
|
| 173,899 |
|
FFO per share |
| $ | 2.35 |
| $ | 2.51 |
| $ | 7.00 |
| $ | 6.94 |
|
We also present “Core FFO per share,” a non-GAAP measure that represents FFO per share excluding the impact of (i) foreign currency exchange gains and losses, (ii) EITF D-42 charges related to the redemption of preferred securities, (iii) reversals of accruals with respect to share based awards forfeited by executive officers and (iv)(iii) certain other significant non-cash and/or nonrecurring income or expense items.items such as loss contingency
accruals, casualties, transactional due diligence, and advisory costs. We review Core FFO per share to evaluate our ongoing operating performance and we believe it is used by investors and REIT analysts in a similar manner. However, Core FFO per share is not a substitute for net income per share. Because other REITs may not compute Core FFO per share in the same manner as we do, may not use the same terminology or may not present such a measure, Core FFO per share may not be comparable among REITs.
34
The following table reconciles FFO per share to Core FFO per share:
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| Three Months Ended | Six Months Ended | |||||||||||||||||||
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
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| Percentage |
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| Percentage | Percentage | Percentage | |||||||||||||||||
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| 2017 |
| 2016 |
| Change |
| 2017 |
| 2016 |
| Change | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||
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FFO per share | FFO per share | $ | 2.35 |
| $ | 2.51 |
| (6.4)% |
| $ | 7.00 |
| $ | 6.94 |
| 0.9% | FFO per share | $ | 2.99 | $ | 2.28 | 31.1% | $ | 6.07 | $ | 4.90 | 23.9% | |||||||||||
Eliminate the per share impact of items | Eliminate the per share impact of items |
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| Eliminate the per share impact of items | ||||||||||||||||||||||
excluded from Core FFO, including | excluded from Core FFO, including |
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| excluded from Core FFO, including | |||||||||||||||||||||
our equity share from investments: | our equity share from investments: |
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| our equity share from investments: | |||||||||||||||||||||
Foreign currency exchange loss | 0.08 |
|
| 0.02 |
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| 0.26 |
|
| 0.03 |
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| ||||||||||||||||||||||||
Application of EITF D-42 |
| 0.10 |
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| - |
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|
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| 0.18 |
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| 0.15 |
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Casualty losses and tenant claims |
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| ||||||||||||||||||||||||
due to hurricanes |
| 0.07 |
|
| - |
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| 0.07 |
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| - |
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| |||||||||||||||||||||||
Reversals of accruals on forfeited |
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| |||||||||||||||||||||||
executive share-based awards |
| - |
|
| - |
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| (0.03) |
|
| - |
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| |||||||||||||||||||||||
Foreign currency exchange loss (gain) | Foreign currency exchange loss (gain) | 0.07 | 0.11 | (0.19) | 0.06 | |||||||||||||||||||||||||||||||||
Preferred share redemption charge | Preferred share redemption charge | 0.10 | 0.09 | 0.10 | 0.09 | |||||||||||||||||||||||||||||||||
Other items | Other items |
| 0.01 |
|
| - |
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|
|
| - |
|
| 0.02 |
|
| Other items | (0.01) | (0.02) | (0.01) | (0.01) | |||||||||||||||||
Core FFO per share | Core FFO per share | $ | 2.61 |
| $ | 2.53 |
| 3.2% |
| $ | 7.48 |
| $ | 7.14 |
| 4.8% | Core FFO per share | $ | 3.15 | $ | 2.46 | 28.0% | $ | 5.97 | $ | 5.04 | 18.5% |
Analysis of Net Income by Reportable Segment
The following discussion and analysis is presented and organized in accordance with Note 11 to our SeptemberJune 30, 20172021 financial statements, “Segment Information.” Accordingly, refer to the tablestable presented in Note 11 in order to reconcile such amounts to our total net income and for further information on our reportable segments.
Self-Storage Operations
Our self-storage operations are analyzed in twofour groups: (i) the 2,0422,278 facilities that we have owned and operated on a stabilized basis since January 1, 20152019 (the “Same Store Facilities”), (ii) 205 facilities we acquired after December 31, 2018 (the “Acquired facilities”), (iii) 138 facilities that have been newly developed or expanded, or that we expect to commence expansion by December 31, 2021 (the “Newly developed and (ii) allexpanded facilities”) and (iv) 28 other facilities, which are newly acquired, newly developed,otherwise not stabilized with respect to occupancies or recently redevelopedrental rates since January 1, 2019 (the “Non Same Store Facilities”“Other non-same store facilities”). See Note 11 to our SeptemberJune 30, 20172021 financial statements “Segment Information,” for a reconciliation of the amounts in the tables below to our total net income.
Self-Storage Operations | |||||||||||||||
Summary | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
Percentage | Percentage | ||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | ||||||||||
(Dollar amounts and square footage in thousands) | |||||||||||||||
Revenues: | |||||||||||||||
Same Store facilities | $ | 680,838 | $ | 614,418 | 10.8% | $ | 1,328,655 | $ | 1,241,109 | 7.1% | |||||
Acquired facilities | 42,395 | 9,359 | 353.0% | 62,564 | 17,102 | 265.8% | |||||||||
Newly developed and expanded facilities | 48,019 | 35,617 | 34.8% | 90,958 | 70,318 | 29.4% | |||||||||
Other non-same store facilities | 5,741 | 5,148 | 11.5% | 11,163 | 10,214 | 9.3% | |||||||||
776,993 | 664,542 | 16.9% | 1,493,340 | 1,338,743 | 11.5% | ||||||||||
Cost of operations (a): | |||||||||||||||
Same Store facilities | 167,174 | 192,345 | (13.1)% | 348,186 | 381,534 | (8.7)% | |||||||||
Acquired facilities | 15,147 | 5,044 | 200.3% | 25,854 | 8,750 | 195.5% | |||||||||
Newly developed and expanded facilities | 18,263 | 17,109 | 6.7% | 36,401 | 33,201 | 9.6% | |||||||||
Other non-same store facilities | 2,011 | 2,456 | (18.1)% | 4,259 | 4,565 | (6.7)% | |||||||||
202,595 | 216,954 | (6.6)% | 414,700 | 428,050 | (3.1)% | ||||||||||
Net operating income (b): | |||||||||||||||
Same Store facilities | 513,664 | 422,073 | 21.7% | 980,469 | 859,575 | 14.1% | |||||||||
Acquired facilities | 27,248 | 4,315 | 531.5% | 36,710 | 8,352 | 339.5% | |||||||||
Newly developed and expanded facilities | 29,756 | 18,508 | 60.8% | 54,557 | 37,117 | 47.0% | |||||||||
Other non-same store facilities | 3,730 | 2,692 | 38.6% | 6,904 | 5,649 | 22.2% | |||||||||
Total net operating income | 574,398 | 447,588 | 28.3% | 1,078,640 | 910,693 | 18.4% | |||||||||
Depreciation and amortization expense: | |||||||||||||||
Same Store facilities | (110,405) | (111,631) | (1.1)% | (219,811) | (221,948) | (1.0)% | |||||||||
Acquired facilities | (42,616) | (7,751) | 449.8% | (58,311) | (15,069) | 287.0% | |||||||||
Newly developed and expanded facilities | (14,597) | (13,155) | 11.0% | (31,219) | (26,323) | 18.6% | |||||||||
Other non-same store facilities | (5,110) | (5,081) | 0.6% | (10,246) | (10,178) | 0.7% | |||||||||
Total depreciation and | |||||||||||||||
amortization expense | (172,728) | (137,618) | 25.5% | (319,587) | (273,518) | 16.8% | |||||||||
Net income (loss): | |||||||||||||||
Same Store facilities | 403,259 | 310,442 | 29.9% | 760,658 | 637,627 | 19.3% | |||||||||
Acquired facilities | (15,368) | (3,436) | 347.3% | (21,601) | (6,717) | 221.6% | |||||||||
Newly developed and expanded facilities | 15,159 | 5,353 | 183.2% | 23,338 | 10,794 | 116.2% | |||||||||
Other non-same store facilities | (1,380) | (2,389) | (42.2)% | (3,342) | (4,529) | (26.2)% | |||||||||
Total net income | $ | 401,670 | $ | 309,970 | 29.6% | $ | 759,053 | $ | 637,175 | 19.1% | |||||
Number of facilities at period end: | |||||||||||||||
Same Store facilities | 2,278 | 2,278 | - | ||||||||||||
Acquired facilities | 205 | 59 | 247.5% | ||||||||||||
Newly developed and expanded facilities | 138 | 134 | 3.0% | ||||||||||||
Other non-same store facilities | 28 | 29 | (3.4)% | ||||||||||||
2,649 | 2,500 | 6.0% | |||||||||||||
Net rentable square footage at period end: | |||||||||||||||
Same Store facilities | 148,909 | 148,909 | - | ||||||||||||
Acquired facilities | 16,377 | 4,321 | 279.0% | ||||||||||||
Newly developed and expanded facilities | 16,358 | 15,346 | 6.6% | ||||||||||||
Other non-same store facilities | 1,866 | 2,027 | (7.9)% | ||||||||||||
183,510 | 170,603 | 7.6% |
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Self-Storage Operations |
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Summary | Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||
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|
| Percentage |
|
|
|
|
| Percentage | ||||
| 2017 |
| 2016 |
| Change |
| 2017 |
| 2016 |
| Change | ||||
| (Dollar amounts in thousands) | ||||||||||||||
Revenues: |
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|
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|
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|
|
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|
|
Same Store Facilities | $ | 564,394 |
| $ | 551,418 |
| 2.4% |
| $ | 1,644,643 |
| $ | 1,593,209 |
| 3.2% |
Non Same Store Facilities |
| 81,844 |
|
| 71,739 |
| 14.1% |
|
| 233,572 |
|
| 198,921 |
| 17.4% |
|
| 646,238 |
|
| 623,157 |
| 3.7% |
|
| 1,878,215 |
|
| 1,792,130 |
| 4.8% |
Cost of operations: |
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|
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|
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|
|
|
|
|
|
Same Store Facilities |
| 147,498 |
|
| 145,145 |
| 1.6% |
|
| 441,871 |
|
| 426,370 |
| 3.6% |
Non Same Store Facilities |
| 25,817 |
|
| 20,760 |
| 24.4% |
|
| 74,617 |
|
| 57,085 |
| 30.7% |
|
| 173,315 |
|
| 165,905 |
| 4.5% |
|
| 516,488 |
|
| 483,455 |
| 6.8% |
Net operating income (a): |
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|
|
Same Store Facilities |
| 416,896 |
|
| 406,273 |
| 2.6% |
|
| 1,202,772 |
|
| 1,166,839 |
| 3.1% |
Non Same Store Facilities |
| 56,027 |
|
| 50,979 |
| 9.9% |
|
| 158,955 |
|
| 141,836 |
| 12.1% |
Total net operating income |
| 472,923 |
|
| 457,252 |
| 3.4% |
|
| 1,361,727 |
|
| 1,308,675 |
| 4.1% |
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Depreciation and amortization expense: |
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|
|
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| ||||||||||
Same Store Facilities |
| (88,757) |
|
| (89,379) |
| (0.7)% |
|
| (263,095) |
|
| (268,124) |
| (1.9)% |
Non Same Store Facilities |
| (24,563) |
|
| (20,053) |
| 22.5% |
|
| (71,331) |
|
| (53,449) |
| 33.5% |
Total depreciation and |
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|
|
|
|
|
|
|
|
|
|
|
|
|
amortization expense |
| (113,320) |
|
| (109,432) |
| 3.6% |
|
| (334,426) |
|
| (321,573) |
| 4.0% |
|
|
|
|
|
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|
Net income: |
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|
|
|
|
|
|
|
|
|
|
|
|
| |
Same Store Facilities |
| 328,139 |
|
| 316,894 |
| 3.5% |
|
| 939,677 |
|
| 898,715 |
| 4.6% |
Non Same Store Facilities |
| 31,464 |
|
| 30,926 |
| 1.7% |
|
| 87,624 |
|
| 88,387 |
| (0.9)% |
Total net income | $ | 359,603 |
| $ | 347,820 |
| 3.4% |
| $ | 1,027,301 |
| $ | 987,102 |
| 4.1% |
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|
Number of facilities at period end: |
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| ||||||||||
Same Store Facilities |
|
|
|
|
|
|
|
|
| 2,042 |
|
| 2,042 |
| - |
Non Same Store Facilities |
|
|
|
|
|
|
|
|
| 321 |
|
| 266 |
| 20.7% |
Net rentable square footage at period end (in thousands): |
|
| |||||||||||||
Same Store Facilities |
|
|
|
|
|
|
|
|
| 130,264 |
|
| 130,264 |
| - |
Non Same Store Facilities |
|
|
|
|
|
|
|
|
| 26,463 |
|
| 20,859 |
| 26.9% |
|
|
(a)We revised our prior period financial statements to correct the presentation of share-based compensation expense and dividends paid on RSUs between general and administrative expense and self-storage cost of operations. As a result, we revised our statements of income for the three and six months ended June 30, 2020 with an increase in self-storage cost of operations of $3.1 million and $6.3 million, respectively, and a corresponding decrease to general and administrative expenses. This immaterial correction had no impact on our total expenses or net income. The correction also had no impact on our balance sheet, statements of comprehensive income, statements of equity, or cash flows as of and for the three and six months ended June 30, 2020.
(b)Net operating income or “NOI” is a non-GAAP financial measure that excludes the impact of depreciation and amortization expense, which is based upon historical real estate costs and assumes that building values diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. We utilize NOI in determining current property values, evaluating property performance, and in evaluating property operating trends. We believe that investors and analysts utilize NOI in a similar manner. NOI is not a substitute for net income, operating cash flow, or other related financial measures, in evaluating our operating results. See Note 11 to our June 30, 2021 financial statements for a reconciliation of NOI to our total net income for all periods presented.
Net operating income from our self-storage operations has increased 3.4%28.3% and 4.1%18.4% in the three and ninesix months ended SeptemberJune 30, 20172021, as compared to the same periods in 2016. These increases are2020. The increase is due primarily to higher revenues in ourincreased Same Store Facilities, as well asrevenues driven by increase in the realized annual rental income per occupied square foot for the three and six months ended June 30, 2021, respectively, combined with higher average occupancy and decreased Same Store expenses, the acquisition and development of new facilities and the fill-up of unstabilized facilities.
36
Same Store Facilities
The Same Store Facilities represent thoseconsist of facilities that have been owned and operated aton a stabilized level of occupancy, revenues and cost of operations since January 1, 2015. We review the operations2019. The composition of our Same Store Facilities which excludes facilities whose operating trends are significantly affected by factors such as casualty events, as well as recently developed or acquired facilities,allows us to more effectively evaluate the ongoing performance of our self-storage portfolio in 2015, 2016,2019, 2020, and 2017.2021 and exclude the impact of fill-up of unstabilized facilities, which can significantly affect operating trends. We believe the Same Store information is used by investors and analysts in a similar manner. TheHowever, because other REITs may not compute Same Store pool decreased from 2,055 facilities at June 30, 2017 to 2,042 facilities at September 30, 2017Facilities in the same manner as we do, may not use the same terminology or may not present such a result of damage caused by Hurricanes Harvey and Irma. measure, Same Store Facilities may not be comparable among REITs.
The following table summarizes the historical operating results of these 2,0422,278 facilities (130.3(148.9 million net rentable square feet) that represent approximately 83%81% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at SeptemberJune 30, 2017.2021. It includes various measures and detail that we do not include in the analysis of the developed, acquired, and other non-same store facilities, due to the relative magnitude and importance of our same store facilities relative to our self-storage facilities.
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Selected Operating Data for the Same Store Facilities (2,042 facilities) |
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|
|
|
|
|
|
| ||
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||
|
|
|
|
| Percentage |
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|
|
|
| Percentage | ||||
|
| 2017 |
| 2016 |
| Change |
|
| 2017 |
| 2016 |
| Change | ||
|
| (Dollar amounts in thousands, except weighted average amounts) | |||||||||||||
Revenues: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income | $ | 539,165 |
| $ | 525,719 |
| 2.6% |
| $ | 1,571,769 |
| $ | 1,520,048 |
| 3.4% |
Late charges and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative fees |
| 25,229 |
|
| 25,699 |
| (1.8)% |
|
| 72,874 |
|
| 73,161 |
| (0.4)% |
Total revenues (a) |
| 564,394 |
|
| 551,418 |
| 2.4% |
|
| 1,644,643 |
|
| 1,593,209 |
| 3.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property taxes |
| 55,874 |
|
| 53,479 |
| 4.5% |
|
| 167,963 |
|
| 160,799 |
| 4.5% |
On-site property manager |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payroll |
| 28,285 |
|
| 27,784 |
| 1.8% |
|
| 82,828 |
|
| 83,022 |
| (0.2)% |
Supervisory payroll |
| 9,586 |
|
| 9,449 |
| 1.4% |
|
| 29,499 |
|
| 28,386 |
| 3.9% |
Repairs and maintenance |
| 11,380 |
|
| 11,042 |
| 3.1% |
|
| 34,360 |
|
| 33,052 |
| 4.0% |
Utilities |
| 10,611 |
|
| 10,931 |
| (2.9)% |
|
| 29,973 |
|
| 30,266 |
| (1.0)% |
Advertising and selling |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
expense | 6,901 |
|
| 7,693 |
| (10.3)% |
|
| 21,694 |
|
| 18,558 |
| 16.9% | |
Other direct property costs |
| 14,296 |
|
| 13,917 |
| 2.7% |
|
| 43,418 |
|
| 41,698 |
| 4.1% |
Allocated overhead |
| 10,565 |
|
| 10,850 |
| (2.6)% |
|
| 32,136 |
|
| 30,589 |
| 5.1% |
Total cost of operations (a) |
| 147,498 |
|
| 145,145 |
| 1.6% |
|
| 441,871 |
|
| 426,370 |
| 3.6% |
Net operating income |
| 416,896 |
|
| 406,273 |
| 2.6% |
|
| 1,202,772 |
|
| 1,166,839 |
| 3.1% |
Depreciation and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization expense |
| (88,757) |
|
| (89,379) |
| (0.7)% |
|
| (263,095) |
|
| (268,124) |
| (1.9)% |
Net income | $ | 328,139 |
| $ | 316,894 |
| 3.5% |
| $ | 939,677 |
| $ | 898,715 |
| 4.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin (before depreciation |
|
|
|
|
|
| |||||||||
and amortization expense) | 73.9% |
|
| 73.7% |
| 0.3% |
|
| 73.1% |
|
| 73.2% |
| (0.1)% | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average for the period: |
|
|
|
|
| ||||||||||
Square foot occupancy | 94.5% |
|
| 95.3% |
| (0.8)% |
|
| 94.1% |
|
| 94.8% |
| (0.7)% | |
|
|
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|
|
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|
|
|
|
|
|
|
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|
|
Realized annual rental income per (b): |
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|
|
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| ||||||||||
Occupied square foot | $ | 17.52 |
| $ | 16.95 |
| 3.4% |
| $ | 17.12 |
| $ | 16.43 |
| 4.2% |
Available square foot | $ | 16.56 |
| $ | 16.14 |
| 2.6% |
| $ | 16.09 |
| $ | 15.56 |
| 3.4% |
|
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|
|
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At September 30: |
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|
|
Square foot occupancy |
|
|
|
|
|
|
|
|
| 93.2% |
|
| 94.2% |
| (1.1)% |
Annual contract rent per |
|
|
|
|
| ||||||||||
occupied square foot (c) |
|
|
|
|
|
|
|
| $ | 18.07 |
| $ | 17.59 |
| 2.7% |
Selected Operating Data for the Same Store Facilities (2,278 facilities) | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
Percentage | Percentage | ||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | ||||||||||
(Dollar amounts in thousands, except for per square foot data) | |||||||||||||||
Revenues (a): | |||||||||||||||
Rental income | $ | 661,684 | $ | 596,110 | 11.0% | $ | 1,289,495 | $ | 1,196,169 | 7.8% | |||||
Late charges and | |||||||||||||||
administrative fees | 19,154 | 18,308 | 4.6% | 39,160 | 44,940 | (12.9)% | |||||||||
Total revenues | 680,838 | 614,418 | 10.8% | 1,328,655 | 1,241,109 | 7.1% | |||||||||
Direct cost of operations (a): | |||||||||||||||
Property taxes | 67,194 | 72,458 | (7.3)% | 133,749 | 145,236 | (7.9)% | |||||||||
On-site property manager | |||||||||||||||
payroll | 25,641 | 38,698 | (33.7)% | 54,370 | 71,804 | (24.3)% | |||||||||
Repairs and maintenance | 13,077 | 11,670 | 12.1% | 26,108 | 24,383 | 7.1% | |||||||||
Utilities | 9,334 | 9,567 | (2.4)% | 20,079 | 20,416 | (1.7)% | |||||||||
Marketing | 6,844 | 17,630 | (61.2)% | 21,415 | 32,438 | (34.0)% | |||||||||
Other direct property costs | 18,289 | 16,953 | 7.9% | 36,630 | 33,842 | 8.2% | |||||||||
Total direct cost of operations | 140,379 | 166,976 | (15.9)% | 292,351 | 328,119 | (10.9)% | |||||||||
Direct net operating income (b) | 540,459 | 447,442 | 20.8% | 1,036,304 | 912,990 | 13.5% | |||||||||
Indirect cost of operations (a): | |||||||||||||||
Supervisory payroll | (9,184) | (10,927) | (16.0)% | (19,018) | (21,838) | (12.9)% | |||||||||
Centralized management costs | (13,066) | (11,180) | 16.9% | (26,083) | (24,992) | 4.4% | |||||||||
Share-based compensation | (4,545) | (3,262) | 39.3% | (10,734) | (6,585) | 63.0% | |||||||||
Net operating income | 513,664 | 422,073 | 21.7% | 980,469 | 859,575 | 14.1% | |||||||||
Depreciation and | |||||||||||||||
amortization expense | (110,405) | (111,631) | (1.1)% | (219,811) | (221,948) | (1.0)% | |||||||||
Net income | $ | 403,259 | $ | 310,442 | 29.9% | $ | 760,658 | $ | 637,627 | 19.3% | |||||
Gross margin (before indirect costs, | |||||||||||||||
depreciation and amortization expense) | 79.4% | 72.8% | 9.1% | 78.0% | 73.6% | 6.0% | |||||||||
Gross margin (before depreciation | |||||||||||||||
and amortization expense) | 75.4% | 68.7% | 9.8% | 73.8% | 69.3% | 6.5% | |||||||||
Weighted average for the period: | |||||||||||||||
Square foot occupancy | 97.0% | 94.2% | 3.0% | 96.3% | 93.6% | 2.9% | |||||||||
Realized annual rental income per (c): | |||||||||||||||
Occupied square foot | $ | 18.32 | $ | 17.00 | 7.8% | $ | 17.98 | $ | 17.16 | 4.8% | |||||
Available square foot | $ | 17.77 | $ | 16.01 | 11.0% | $ | 17.32 | $ | 16.07 | 7.8% | |||||
At June 30: | |||||||||||||||
Square foot occupancy | 96.5% | 94.6% | 2.0% | ||||||||||||
Annual contract rent per | |||||||||||||||
occupied square foot (d) | $ | 18.75 | $ | 17.24 | 8.8% |
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(a)Revenues and cost of operations do not include tenant reinsurance and merchandise sale revenues and expenses generated at the facilities. See “Ancillary Operations” below for more information.
(b)Direct net operating income (“Direct NOI”), a subtotal within NOI, is a non-GAAP financial measure that excludes the impact of supervisory payroll, centralized management costs and share-based compensation in addition to depreciation and amortization expense. We utilize direct net operating income in evaluating property performance and in evaluating property operating trends as compared to our competitors.
(c)Realized annual rent per occupied square foot is computed by dividing rental income, before late charges and administrative fees, by the weighted average occupied square feet for the period. Realized annual rent per available square foot (“REVPAF”) is computed by dividing rental income, before late charges and administrative fees, by the total available net rentable square feet for the period. These measures exclude late charges and administrative fees in order to provide a better measure of our ongoing level of revenue. Late charges are dependent upon the level of delinquency and administrative fees are dependent upon the level of move-ins. In addition, the rates charged for late charges and administrative fees can vary independently from rental rates. These measures take into consideration promotional discounts, which reduce rental income.
(d)Annual contract rent represents the agreed upon monthly rate that is paid by our tenants in place at the time of measurement. Contract rates are initially set in the lease agreement upon move-in and we adjust them from time to time with notice. Contract rent excludes other fees that are charged on a per-item basis, such as late charges and administrative fees, does not reflect the impact of promotional discounts, and does not reflect the impact of rents that are written off as uncollectible.
Analysis of Same Store Revenue
We believe a balanced occupancy and rate strategy maximizes our revenues over time. We regularly adjust the rental rates and promotional discounts offered (generally, “$1.00 rent for the first month”), as well as our marketing efforts to maximize revenue from new tenants to replace tenants that vacate.
We typically increase rental rates to our long-term tenants (generally, those that have been with us for at least a year) every six to twelve months. As a result, the number of long-term tenants we have in our facilities is an important factor in our revenue growth. The level of rate increases to long-term tenants is based upon balancing the additional revenue from the increase against the negative impact of incremental move-outs, by considering the customer’s in-place rent and prevailing market rents, among other factors.
Revenues generated by our Same Store Facilities increased by 2.4%10.8% and 3.2% in7.1% for the three and ninesix months ended SeptemberJune 30, 20172021, respectively, as compared to the same periods in 2016,2020. The increase is due primarily to increases of 3.4%(i) a 7.8% and 4.2% for the respective periods4.8% increase in realized annual rental incomerent per occupied square foot.
Year-over-yearfoot for the three and six months ended June 30, 2021, respectively, as compared to the same periods in 2020, and (ii) a 3.0% and 2.9% increase in average occupancy for the three and six months ended June 30, 2021, respectively, as compared to the same periods in 2020. The same store revenue growth for the six months ended June 30, 2021 was partially offset by a 12.9% decrease in our Same Store revenues has declined from 5.4% in the third quarter of 2016late charges and administrative fees as compared to the same period in 2015, to 2.4%2020.
Our growth in revenues, weighted average square foot occupancy, realized annual rent per occupied square foot, and REVPAF for the third quarter of 2017three and six months ended June 30, 2021 as compared to the same periodperiods in 2016. We are experiencing softness2020 was evident in demand in substantially all of our major markets, which has ledtop 15 markets.
For the three and six months ended June 30, 2020, our revenues were impacted by our decision to lower move-in volumes combined withtemporarily curtail our tenant rate increase program and additional pricing limitations to existing tenants imposed by local governments due to “State of Emergency” declarations in response to the COVID Pandemic and other disasters in the second quarter of 2020. Although most restrictions have recently been lifted, we continue to expect a lackportion of pricing power with respectour revenues to remain impacted throughout 2021.
The increase of realized annual rent per occupied square foot in the three and six months ended June 30, 2021 as compared to the same periods in 2020 was due to (i) a 47.6% and 30.9% year over year increase in average rates per square foot charged to new tenants. We attribute some of this softness to local economic conditions and,tenants moving in some markets most notably Atlanta, Austin, Charlotte, Chicago, Dallas, Denver, Houston, and New York, increased supply of newly constructed self-storage facilities.
Same Store weighted average square foot occupancy was 94.5% and 94.1% during the three and ninesix months, ended September 30, 2017 and 2016, respectively, as compared to 95.3% and 94.8% during the same periods in 2016. At September 30, 2017, occupancy was 1.1% lower than the occupancy at September 30, 2016.
We believe that high occupancies help maximize our rental income. We seek to maintain a weighted average square foot occupancy levelresult of at least 90%, by regularly adjusting the rental rates and promotions offered to attract new tenants as well as adjusting our marketing efforts on both television and the Internet in order to generate sufficient move-in volume to replace tenants that vacate.
Increasing rental rates to existing tenants, generally on an annual basis, is a key component of our revenue growth. We determine the level of rental increases based upon our expectations regarding the impact of existing tenant rate increases on incremental move-outs. Rentalstrong customer demand across all markets, combined with (ii) rate increases to existing tenants in 2021 as compared to the curtailed increases in 2020. At June 30, 2021, annual contract rent per occupied square foot was 8.8% higher as compared to June 30, 2020.
We experienced high occupancy levels throughout the first six months of 2021. Our average square foot occupancy levels increased 3.0% and 2.9% on a year over year basis during the three and ninesix months ended SeptemberJune 30, 2017 have been similar2021, respectively. At June 30, 2021, our square foot occupancy was 96.5%. The improvement in occupancy trends was due primarily to improved trends in move-outs, with year over year move-outs down 9.5% and 10.4% in the three and six months ended June 30, 2021, respectively. This resulted in an increased average length of stay for the three and six months ended June 30, 2021. An increased average length of stay supports revenue growth, due to more long-term tenants who are eligible for rate increases, and a reduced requirement to replace vacating tenants with new tenants which can lead to increased promotional costs and decrease our pricing leverage. With higher occupancy and pricing trends, we reduced promotional discounts given to new move-in customers for the three and six months ended June 30, 2021 by 59.1% and 38.8%, respectively, as compared to the same periods in 2016, and we expect rate increases to existing tenants in the remainder of 2017 to be similar to the same period in 2016. 2020.
Annual contract rent per occupied foot increased 2.7% from September 30, 2016 to September 30, 2017, as compared to a 4.9% increase from December 31, 2015 to December 31, 2016. These year-over-year increases were primarily driven by annual rate increases given to existing tenants, partially offset by the net impact of replacing vacating tenants with new tenants with lower contract rates, or “rent roll down.” The reduction in the year over year growth in average contract rent per occupied foot to 2.7% from 4.9% is due primarily to a greater degree of rent roll down.
During the three months ended September 30, 2017, the contract rent for tenants who moved in decreased 0.7% to $15.07 per foot as compared to $15.18 for the same period in 2016, and the contract rent for tenants who moved out increased 1.9% to $16.50 per foot as compared to $16.20 per foot for the same period in 2016. During the nine months ended September 30, 2017, the contract rent for tenants who moved in decreased 0.7% to $14.81 per foot as compared to $14.91 per foot for the same period in 2016, and the contract rent for tenants who moved out increased 2.8% to $16.08 per foot as compared to $15.64 per foot for the same period in 2016.
38
In order to stimulate move-in volume, we often give promotional discounts, generally in the form of a “$1.00 rent for the first month” offer. Promotional discounts, based upon the move-in contractual rates for the related promotional period, totaled $23.2 million and $64.6 million for the three and nine months ended September 30, 2017, respectively, as compared to $24.7 million and $66.8 million for the same periods in 2016.
Demand ishistorically has been higher in the summer months than in the winter months and, as a result, rental rates charged to new tenants arehave typically been higher in the summer months than in the winter months. Demand fluctuates due to various local and regional factors, including the overall economy. Demand into our system is also impacted by new supply of self-storage space as well as alternatives to self-storage.
Late Charges and Administrative Fees
Late charges and administrative fees increased 4.6% for the three months ended June 30, 2021 as compared to the same period of 2020 due primarily to delinquent rent fees being waived in 2020 during the COVID Pandemic. Late charges and administrative fees decreased 12.9% year over year for the six months ended June 30, 2021 due to (i) an acceleration in average collections whereby a greater percentage of tenants paid their monthly rent promptly to avoid the incurrence of such fees and, to a lesser extent (ii) reduced move-in administrative fees due to lower move-ins.
Selected Key Statistical Data
The following table sets forth average annual contract rent per square foot and total square footage for tenants moving in and moving out during the three and six months ended June 30, 2021 and 2020. It also includes promotional discounts, which vary based upon the move-in contractual rates, move-in volume, and percentage of tenants moving in who receive the discount.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | ||||||||||||
(Amounts in thousands, except for per square foot amounts) | |||||||||||||||||
Tenants moving in during the period: | |||||||||||||||||
Average annual contract rent | |||||||||||||||||
per square foot | $ | 17.43 | $ | 11.81 | 47.6% | $ | 16.16 | $ | 12.35 | 30.9% | |||||||
Square footage | 23,282 | 27,478 | (15.3)% | 47,817 | 53,664 | (10.9)% | |||||||||||
Promotional discounts given | $ | 7,665 | $ | 18,719 | (59.1)% | $ | 24,170 | $ | 39,467 | (38.8)% | |||||||
Tenants moving out during the period: | |||||||||||||||||
Average annual contract rent | |||||||||||||||||
per square foot | $ | 16.98 | $ | 15.22 | 11.6% | $ | 16.62 | $ | 15.53 | 7.0% | |||||||
Square footage | 22,234 | 24,561 | (9.5)% | 44,077 | 49,181 | (10.4)% | |||||||||||
Revenue Expectations
At June 30, 2021, in place contractual rent was 10.8% higher on a year-over-year basis (comprised of a 2.0% increase in square foot occupancy and an 8.8% increase in annual contract rent per occupied foot).
We believe rentalexpect continued year-over-year revenue growth supported by strength in rates as a result of stable customer demand in the remaindersecond half of 2017 will need2021. As we return to come primarily from continued annual rent increases to existing tenants. Our future rental growth will also be dependent upon many factors for each market that we operate in, including demand for self-storage space,a typical seasonal pattern of customer behavior (particularly the level of new supply of self-storage space and the average length of stay of our tenants.
We believe that the current trends in move-in, move-out in place contractual rents andactivity), we may experience lower occupancy levels are consistent with our expectation of continued revenue growth in the remainderfourth quarter of 2017. However, such trends, when viewed in the short-run, are volatile and not necessarily predictive of our revenues going forward because they are subject to many short-term factors. Such factors include initial move-in rates, seasonal factors, the unit size and geographical mix of the specific tenants moving in or moving out, the length of stay of the tenants moving in or moving out, changes in our pricing strategies, and the degree and timing of rate increases previously passed to existing tenants.2021.
We are taking a number of actions to improve demand into our system, including (i) increasing marketing spend on the Internet, and (ii) reducing rental rates and continuing to offer promotional discounts to new tenants. Even if these actions are successful in improving demand into our system, in at least the near term, we believe these actions may have a negative impact on our revenue trends due to less growth in initial rental rates and increased promotional discounts.
Analysis of Same Store Cost of Operations
Cost of operations (excluding depreciation and amortization) increased 1.6%decreased 13.1% and 3.6%8.7% in the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, as compared to the same periods in 2016. The increase during the three month period is2020, due primarily to increased property tax expense partially offset by a decrease in advertising and selling expense, while the increase for the nine month period is due primarily to increased property tax expense and advertising and selling expense.
Property tax expense increased 4.5% in each of the three and nine month periods ended September 30, 2017 as compared to the same periods in 2016, due primarily to higher assessed values. We expect property tax expense growth of approximately 4.5% in the remainder of 2017 due primarily to higher assessed values.
On-site property manager payroll expense increased 1.8% in the three months ended September 30, 2017, as compared to the same period in 2016, due primarily to higher wage rates. On-site property manager payroll expense was flat in the nine months ended September 30, 2017 as compared to the same period in 2016. We expectdecreased on-site property manager payroll, expense to increase on an inflationary basismarketing and property tax expense. Decrease of cost of operations in the remaindersix months ended June 30, 2021 was partially offset by the increase of 2017.share-based compensation.
Supervisory payrollProperty tax expense which represents compensation paid to the management personnel who directlydecreased 7.3% and indirectly supervise the on-site property managers, increased 1.4% and 3.9%7.9% in the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, as compared to the same periods in 2016,2020. In 2020 our property tax expense was recognized on an accelerated basis in each of the first three quarters. We expect decreases through the third quarter to be offset by an increase in the fourth quarter of 2021, resulting in an approximate increase of 5.0% for the year ended December 31, 2021 compared to the same period in 2020, due primarily to wage rate increaseshigher assessed values and, to a lesser extent, increased headcount. We expect greater than inflationary increases in wage ratestax rates. A summary of our 2020 actual and increased headcount2021 estimated quarterly property tax expense is presented below. Amounts for each of the remainderthree months ended September 30 and December 31, 2021 are based on our current estimates of 2017. 2021’s full-year property tax expense.
Repairs
Actual | |||||
2021 | 2020 | ||||
(Amounts in thousands) | |||||
For the three months ended: | |||||
March 31 | $ | 66,555 | $ | 72,778 | |
June 30 | 67,194 | 72,458 | |||
September 30 | 68,358 | 71,616 | |||
December 31 | 68,358 | 41,197 | |||
$ | 270,465 | $ | 258,049 | ||
On-site property manager payroll expense decreased 33.7% and maintenance expense increased 3.1% and 4.0%24.3% in the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, as compared to the same periods in 2016. Repair2020. The decrease is due to (i) a temporary $3.00 hourly incentive increase and enhancement of paid time off benefits to all of our property managers between April 1, 2020 and June 30, 2020 during the COVID Pandemic and (ii) a year over year decline in hours worked due to staffing reductions from reduced move-in and move-out activity and revisions to other operational processes. We expect reductions in hours worked to continue throughout the remainder of 2021.
Repairs and maintenance costs include snow removal expense totaling $2.2 millionincreased 12.1% and $3.4 million7.1% in the ninethree and six months ended SeptemberJune 30, 2017 and
39
2016, respectively. Excluding snow removal costs, repairs and maintenance increased 8.2% in the nine months ended September 30, 2017,2021, respectively, as compared to the same periodperiods in 2016.
2020. Repairs and maintenance expense levels are dependent upon many factors such as (i) sporadic occurrences such as accidents, damage, and equipment malfunctions, (ii) short-term local supply and demand factors for material and labor, and (iii) weather conditions, which can impact repair and maintenance needs includingcosts such as snow removal, inflation in material and labor costs, and random events. We expect inflationary increases inroof repairs, and HVAC maintenance expense in the remainder of 2017, excluding snow removal expense, which is primarily weather dependent and not predictable. repairs.
Our utility expenses are comprised primarily of electricity costs, which are dependent upon energy prices and usage levels. Changes in usage levels are driven primarily by weather and temperature. Utility expense decreased 2.9%2.4% and 1.0%1.7% in the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, as compared to the same periods in 2016. It2020. The decrease experienced in the three and six months ended June 30, 2021 is difficultdue primarily to estimate futureinvestments we are making in energy saving technology such as solar power and LED lights which generate favorable returns on investment in the form of lower utility costs, because weather, temperature, and energy prices are volatile and not predictable. usage. We continue to expect a decline in utility expense throughout the remainder of 2021.
Advertising and sellingMarketing expense is comprised principally of Internet advertising, television advertising and the operating costs of our telephone reservation center. Advertising and sellingInternet advertising expense, comprised primarily of keyword search fees assessed on a “per
click” basis, varies based upon demand for self-storage space, the quantity of people inquiring about self-storage through online search, occupancy levels, the number and aggressiveness of bidding competitors and other factors. Television andThese factors are volatile; accordingly, Internet advertising in particular, can increase or decrease significantly in the short term. Advertisingshort-term. We decreased marketing expense by 61.2% and selling expenses decreased 10.3%34.0% in the three and six months ended SeptemberJune 30, 2017,2021, respectively, as compared to the same periodperiods in 2016, due primarily to reduced television advertising offset partially by increased Internet marketing;2020, given strong demand and increased 16.9%high occupancies in the nine months ended September 30, 2017, as compared to themany of our same period in 2016, due primarily to increased Internet marketing and television advertising expenditures. We expect continued increases in advertising and selling expense in the remainder of 2017, with less emphasis on television and more on Internet advertising. store properties.
Other direct property costs include administrative expenses incurred at thespecific to each self-storage facilities,facility, such as property insurance, telephone and data communication lines, business license costs, bank charges related to processing the facilities’ cash receipts, tenant mailings, credit card fees, eviction costs and the cost of operating each property’s rental office. These costs increased 2.7%7.9% and 4.1%8.2% in the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, as compared to the same periods in 2016. The increases were due primarily2020. We continue to higherexperience increased credit card fees due to a higher proportionlong-term trend of collections being received frommore customers paying with credit cards rather than cash, checks, or other methods of payment with lower transaction costs.
Supervisory payroll expense, which represents cash compensation paid to the management personnel who directly and higher revenues. We expect moderate increases in other directindirectly supervise the on-site property costsmanagers, decreased 16.0% and 12.9% in the remainder of 2017.three and six months ended June 30, 2021, respectively, as compared to the same periods in 2020, due primarily to lower headcount in 2021 and incentives related to the COVID Pandemic in 2020.
Allocated overheadCentralized management costs represents administrative and cash compensation 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,information technology support, hardware, and software, as well as centralized administration of payroll, benefits, training, repairs and maintenance, customer service, pricing and marketing, operational accounting and finance, marketing, and legal costs. Centralized management costs of senior executives (other than the Chief Executive Officerincreased 16.9% and Chief Financial Officer, which are included in general and administrative expense). Allocated overhead decreased 2.6%4.4% in the three and six months ended SeptemberJune 30, 2017,2021, respectively, as compared to the same periodperiods in 2016,2020. The increase was due primarily to the timing of our annual sales conference. The last sales conference occurredan increase in IT team costs that support property operations, offset partially by lower travel expenses. We expect increases in centralized management costs in the third quarterremainder 2021 due to increased headcount.
Share-based compensation expense includes the amortization of 2016, whilerestricted share units and stock options granted to management personnel who directly and indirectly supervise the next sales conference is not expectedon-site property managers, as well as those employees responsible for providing shared general corporate functions to occur until 2018. Allocated overhead increased 5.1% in the nineextent their efforts are devoted to self-storage operations. Such functions are listed above under centralized management costs. Share-based compensation expense also includes related employer taxes and varies based upon the level of grants and their related vesting and amortization periods, forfeitures, as well as the Company’s common share price on the date of each grant. For the three and six months ended SeptemberJune 30, 20172021, share-based compensation expense increased 39.3% and 63.0%, respectively, as compared to the same periodperiods in 20162020, due primarily to increased headcount offset partially by the timingabsence of our annual sales conference. We expect similar increases in allocated overheadcomparable performance-based share-based compensation expense for the three and six months ended June 30, 2020 and the accelerated compensation costs recognized in the remainder of 2017. three and six months ended June 30, 2021 associated with modifying our share-based compensation plans in July 2020, to allow immediate vesting upon retirement.
Analysis of Same Store Depreciation and Amortization
Depreciation and amortization for Same Store Facilities decreased 0.7%1.1% and 1.9%1.0% in the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, as compared to the same periods in 2016.2020. We expect modest increases in depreciation to be flatexpense in the remainder of 2017 as compared2021 due to the same period in 2016.elevated levels of capital expenditures.
Quarterly Financial Data
The following table summarizes selected quarterly financial data with respect to the Same Store Facilities:
For the Quarter Ended | ||||||||||||||
March 31 | June 30 | September 30 | December 31 | Entire Year | ||||||||||
(Amounts in thousands, except for per square foot amounts) | ||||||||||||||
Total revenues: | ||||||||||||||
2021 | $ | 647,817 | $ | 680,838 | ||||||||||
2020 | $ | 626,691 | $ | 614,418 | $ | 629,169 | $ | 638,149 | $ | 2,508,427 | ||||
Total cost of operations: | ||||||||||||||
2021 | $ | 181,012 | $ | 167,174 | ||||||||||
2020 | $ | 189,189 | $ | 192,345 | $ | 184,329 | $ | 146,584 | $ | 712,447 | ||||
Property taxes: | ||||||||||||||
2021 | $ | 66,555 | $ | 67,194 | ||||||||||
2020 | $ | 72,778 | $ | 72,458 | $ | 71,616 | $ | 41,197 | $ | 258,049 | ||||
Repairs and maintenance: | ||||||||||||||
2021 | $ | 13,031 | $ | 13,077 | ||||||||||
2020 | $ | 12,713 | $ | 11,670 | $ | 12,973 | $ | 13,485 | $ | 50,841 | ||||
Marketing: | ||||||||||||||
2021 | $ | 14,571 | $ | 6,844 | ||||||||||
2020 | $ | 14,808 | $ | 17,630 | $ | 16,158 | $ | 13,526 | $ | 62,122 | ||||
REVPAF: | ||||||||||||||
2021 | $ | 16.86 | $ | 17.77 | ||||||||||
2020 | $ | 16.12 | $ | 16.01 | $ | 16.39 | $ | 16.62 | $ | 16.29 | ||||
Weighted average realized annual rent per occupied square foot: | ||||||||||||||
2021 | $ | 17.63 | $ | 18.32 | ||||||||||
2020 | $ | 17.33 | $ | 17.00 | $ | 17.16 | $ | 17.46 | $ | 17.24 | ||||
Weighted average occupancy levels for the period: | ||||||||||||||
2021 | 95.6% | 97.0% | ||||||||||||
2020 | 93.0% | 94.2% | 95.5% | 95.2% | 94.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Quarter Ended |
|
|
| ||||||||||
| March 31 |
| June 30 |
| September 30 |
| December 31 |
| Entire Year | |||||
| (Amounts in thousands, except for per square foot amounts) | |||||||||||||
Total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 | $ | 533,706 |
| $ | 546,543 |
| $ | 564,394 |
|
|
|
|
|
|
2016 | $ | 512,971 |
| $ | 528,820 |
| $ | 551,418 |
| $ | 540,147 |
| $ | 2,133,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||
2017 | $ | 148,032 |
| $ | 146,341 |
| $ | 147,498 |
|
|
|
|
|
|
2016 | $ | 142,437 |
| $ | 138,788 |
| $ | 145,145 |
| $ | 114,154 |
| $ | 540,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 | $ | 55,889 |
| $ | 56,200 |
| $ | 55,874 |
|
|
|
|
|
|
2016 | $ | 53,555 |
| $ | 53,765 |
| $ | 53,479 |
| $ | 31,113 |
| $ | 191,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repairs and maintenance: |
|
|
|
|
|
|
|
|
|
|
|
| ||
2017 | $ | 11,639 |
| $ | 11,341 |
| $ | 11,380 |
|
|
|
|
|
|
2016 | $ | 11,420 |
| $ | 10,590 |
| $ | 11,042 |
| $ | 11,126 |
| $ | 44,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and selling expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||
2017 | $ | 6,741 |
| $ | 8,052 |
| $ | 6,901 |
|
|
|
|
|
|
2016 | $ | 5,187 |
| $ | 5,678 |
| $ | 7,693 |
| $ | 7,266 |
| $ | 25,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVPAF: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 | $ | 15.65 |
| $ | 16.05 |
| $ | 16.56 |
|
|
|
|
|
|
2016 | $ | 15.01 |
| $ | 15.52 |
| $ | 16.14 |
| $ | 15.83 |
| $ | 15.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average realized annual rent per occupied square foot: |
|
|
| |||||||||||
2017 | $ | 16.83 |
| $ | 17.00 |
| $ | 17.52 |
|
|
|
|
|
|
2016 | $ | 16.04 |
| $ | 16.29 |
| $ | 16.95 |
| $ | 16.89 |
| $ | 16.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average occupancy levels for the period: |
|
|
|
|
|
|
|
| ||||||
2017 |
| 93.1% |
|
| 94.6% |
|
| 94.5% |
|
|
|
|
|
|
2016 |
| 93.6% |
|
| 95.4% |
|
| 95.3% |
|
| 93.8% |
|
| 94.5% |
41
Analysis of Market Trends
The following table setstables set forth selected market trends in our Same Store Facilities:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store Facilities Operating Trends by Market |
|
|
|
|
|
| |||||||||
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | |||||||||||
|
| 2017 |
|
| 2016 |
| Change |
|
| 2017 |
|
| 2016 |
| Change |
| (Amounts in thousands, except for weighted average data) | ||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles (201 facilities) | $ | 85,594 |
| $ | 81,285 |
| 5.3% |
| $ | 248,724 |
| $ | 235,249 |
| 5.7% |
San Francisco (123 facilities) |
| 47,366 |
|
| 45,710 |
| 3.6% |
|
| 137,525 |
|
| 132,296 |
| 4.0% |
New York (84 facilities) |
| 36,415 |
|
| 35,505 |
| 2.6% |
|
| 105,801 |
|
| 103,179 |
| 2.5% |
Chicago (129 facilities) |
| 30,872 |
|
| 31,134 |
| (0.8)% |
|
| 90,734 |
|
| 90,081 |
| 0.7% |
Miami (76 facilities) |
| 25,749 |
|
| 25,996 |
| (1.0)% |
|
| 76,724 |
|
| 75,657 |
| 1.4% |
Washington DC (84 facilities) |
| 27,657 |
|
| 27,404 |
| 0.9% |
|
| 80,475 |
|
| 79,029 |
| 1.8% |
Atlanta (98 facilities) |
| 20,997 |
|
| 20,785 |
| 1.0% |
|
| 61,299 |
|
| 59,550 |
| 2.9% |
Seattle-Tacoma (69 facilities) |
| 21,186 |
|
| 20,333 |
| 4.2% |
|
| 60,821 |
|
| 57,817 |
| 5.2% |
Houston (74 facilities) |
| 16,978 |
|
| 17,587 |
| (3.5)% |
|
| 50,605 |
|
| 51,852 |
| (2.4)% |
Dallas-Ft. Worth (81 facilities) |
| 17,206 |
|
| 17,171 |
| 0.2% |
|
| 50,476 |
|
| 49,527 |
| 1.9% |
Philadelphia (56 facilities) |
| 13,987 |
|
| 13,474 |
| 3.8% |
|
| 40,508 |
|
| 38,756 |
| 4.5% |
West Palm Beach (41 facilities) |
| 12,634 |
|
| 12,350 |
| 2.3% |
|
| 37,361 |
|
| 35,753 |
| 4.5% |
Orlando-Daytona (62 facilities) |
| 13,060 |
|
| 12,540 |
| 4.1% |
|
| 38,069 |
|
| 36,193 |
| 5.2% |
Minneapolis-St Paul |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44 facilities) |
| 11,625 |
|
| 11,357 |
| 2.4% |
|
| 33,369 |
|
| 32,413 |
| 2.9% |
Portland (40 facilities) |
| 9,946 |
|
| 9,716 |
| 2.4% |
|
| 28,975 |
|
| 27,989 |
| 3.5% |
All other markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(780 facilities) |
| 173,122 |
|
| 169,071 |
| 2.4% |
|
| 503,177 |
|
| 487,868 |
| 3.1% |
Total revenues | $ | 564,394 |
| $ | 551,418 |
| 2.4% |
| $ | 1,644,643 |
| $ | 1,593,209 |
| 3.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles | $ | 71,049 |
| $ | 66,841 |
| 6.3% |
| $ | 205,512 |
| $ | 192,528 |
| 6.7% |
San Francisco |
| 38,759 |
|
| 37,161 |
| 4.3% |
|
| 111,689 |
|
| 107,213 |
| 4.2% |
New York |
| 25,732 |
|
| 25,161 |
| 2.3% |
|
| 73,843 |
|
| 72,594 |
| 1.7% |
Chicago |
| 17,517 |
|
| 17,997 |
| (2.7)% |
|
| 50,281 |
|
| 50,109 |
| 0.3% |
Miami |
| 18,115 |
|
| 18,693 |
| (3.1)% |
|
| 54,308 |
|
| 54,438 |
| (0.2)% |
Washington DC |
| 20,929 |
|
| 20,948 |
| (0.1)% |
|
| 59,989 |
|
| 59,742 |
| 0.4% |
Atlanta |
| 15,447 |
|
| 15,217 |
| 1.5% |
|
| 44,612 |
|
| 43,320 |
| 3.0% |
Seattle-Tacoma |
| 16,782 |
|
| 16,095 |
| 4.3% |
|
| 47,536 |
|
| 45,291 |
| 5.0% |
Houston |
| 11,186 |
|
| 11,874 |
| (5.8)% |
|
| 33,709 |
|
| 35,487 |
| (5.0)% |
Dallas-Ft. Worth |
| 11,565 |
|
| 11,776 |
| (1.8)% |
|
| 33,685 |
|
| 33,711 |
| (0.1)% |
Philadelphia |
| 9,989 |
|
| 9,608 |
| 4.0% |
|
| 28,663 |
|
| 27,359 |
| 4.8% |
West Palm Beach |
| 9,249 |
|
| 9,081 |
| 1.9% |
|
| 27,279 |
|
| 26,186 |
| 4.2% |
Orlando-Daytona |
| 9,405 |
|
| 8,853 |
| 6.2% |
|
| 27,291 |
|
| 25,469 |
| 7.2% |
Minneapolis-St. Paul |
| 8,143 |
|
| 7,901 |
| 3.1% |
|
| 22,823 |
|
| 22,175 |
| 2.9% |
Portland |
| 7,822 |
|
| 7,575 |
| 3.3% |
|
| 22,438 |
|
| 21,745 |
| 3.2% |
All other markets |
| 125,207 |
|
| 121,492 |
| 3.1% |
|
| 359,114 |
|
| 349,472 |
| 2.8% |
Total net operating income | $ | 416,896 |
| $ | 406,273 |
| 2.6% |
| $ | 1,202,772 |
| $ | 1,166,839 |
| 3.1% |
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store Facilities Operating Trends by Market (Continued) |
|
|
|
|
|
| |||||||||
|
|
|
|
|
| ||||||||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, | ||||||||||
|
| 2017 |
| 2016 |
| Change |
|
| 2017 |
| 2016 |
| Change | ||
Weighted average square foot |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
occupancy: |
|
|
|
|
|
|
|
|
| ||||||
Los Angeles |
| 95.9% |
|
| 96.4% |
| (0.5)% |
|
| 95.8% |
|
| 96.0% |
| (0.2)% |
San Francisco |
| 95.6% |
|
| 96.4% |
| (0.8)% |
|
| 95.6% |
|
| 96.3% |
| (0.7)% |
New York |
| 95.2% |
|
| 95.3% |
| (0.1)% |
|
| 94.4% |
|
| 94.7% |
| (0.3)% |
Chicago |
| 92.4% |
|
| 94.0% |
| (1.7)% |
|
| 91.7% |
|
| 92.6% |
| (1.0)% |
Miami |
| 93.5% |
|
| 95.3% |
| (1.9)% |
|
| 93.5% |
|
| 95.2% |
| (1.8)% |
Washington DC |
| 93.9% |
|
| 94.6% |
| (0.7)% |
|
| 93.2% |
|
| 93.6% |
| (0.4)% |
Atlanta |
| 94.4% |
|
| 95.9% |
| (1.6)% |
|
| 93.7% |
|
| 95.1% |
| (1.5)% |
Seattle-Tacoma |
| 96.0% |
|
| 97.0% |
| (1.0)% |
|
| 95.2% |
|
| 96.4% |
| (1.2)% |
Houston |
| 92.2% |
|
| 93.2% |
| (1.1)% |
|
| 90.8% |
|
| 92.6% |
| (1.9)% |
Dallas-Ft. Worth |
| 93.7% |
|
| 95.3% |
| (1.7)% |
|
| 93.6% |
|
| 95.1% |
| (1.6)% |
Philadelphia |
| 95.3% |
|
| 95.3% |
| 0.0% |
|
| 94.9% |
|
| 94.7% |
| 0.2% |
West Palm Beach |
| 94.6% |
|
| 95.3% |
| (0.7)% |
|
| 94.6% |
|
| 95.5% |
| (0.9)% |
Orlando-Daytona |
| 95.4% |
|
| 95.7% |
| (0.3)% |
|
| 95.2% |
|
| 95.3% |
| (0.1)% |
Minneapolis-St. Paul |
| 94.3% |
|
| 94.4% |
| (0.1)% |
|
| 92.7% |
|
| 93.2% |
| (0.5)% |
Portland |
| 95.5% |
|
| 97.1% |
| (1.6)% |
|
| 95.7% |
|
| 97.0% |
| (1.3)% |
All other markets |
| 94.5% |
|
| 95.1% |
| (0.6)% |
|
| 94.0% |
|
| 94.6% |
| (0.6)% |
Total weighted average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
square foot occupancy |
| 94.5% |
|
| 95.3% |
| (0.8)% |
|
| 94.1% |
|
| 94.8% |
| (0.7)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized annual rent per |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
occupied square foot: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles | $ | 25.32 |
| $ | 23.91 |
| 5.9% |
| $ | 24.57 |
| $ | 23.17 |
| 6.0% |
San Francisco |
| 26.04 |
|
| 24.97 |
| 4.3% |
|
| 25.24 |
|
| 24.09 |
| 4.8% |
New York |
| 25.24 |
|
| 24.57 |
| 2.7% |
|
| 24.68 |
|
| 23.98 |
| 2.9% |
Chicago |
| 15.70 |
|
| 15.56 |
| 0.9% |
|
| 15.54 |
|
| 15.26 |
| 1.8% |
Miami |
| 20.11 |
|
| 19.77 |
| 1.7% |
|
| 19.90 |
|
| 19.22 |
| 3.5% |
Washington DC |
| 21.56 |
|
| 21.16 |
| 1.9% |
|
| 21.06 |
|
| 20.56 |
| 2.4% |
Atlanta |
| 13.03 |
|
| 12.68 |
| 2.8% |
|
| 12.77 |
|
| 12.22 |
| 4.5% |
Seattle-Tacoma |
| 19.50 |
|
| 18.50 |
| 5.4% |
|
| 18.82 |
|
| 17.64 |
| 6.7% |
Houston |
| 13.98 |
|
| 14.14 |
| (1.1)% |
|
| 14.02 |
|
| 14.00 |
| 0.1% |
Dallas-Ft. Worth |
| 13.60 |
|
| 13.36 |
| 1.8% |
|
| 13.35 |
|
| 12.89 |
| 3.6% |
Philadelphia |
| 16.07 |
|
| 15.46 |
| 3.9% |
|
| 15.60 |
|
| 14.95 |
| 4.3% |
West Palm Beach |
| 18.15 |
|
| 17.50 |
| 3.7% |
|
| 17.84 |
|
| 16.86 |
| 5.8% |
Orlando-Daytona |
| 13.61 |
|
| 12.94 |
| 5.2% |
|
| 13.22 |
|
| 12.52 |
| 5.6% |
Minneapolis-St. Paul |
| 14.98 |
|
| 14.58 |
| 2.7% |
|
| 14.60 |
|
| 14.08 |
| 3.7% |
Portland |
| 19.09 |
|
| 18.32 |
| 4.2% |
|
| 18.52 |
|
| 17.63 |
| 5.0% |
All other markets |
| 14.30 |
|
| 13.85 |
| 3.2% |
|
| 13.94 |
|
| 13.41 |
| 4.0% |
Total realized rent per |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
occupied square foot | $ | 17.52 |
| $ | 16.95 |
| 3.4% |
| $ | 17.12 |
| $ | 16.43 |
| 4.2% |
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store Facilities Operating Trends by Market (Continued) |
|
|
|
|
|
| |||||||||
|
|
|
|
|
| ||||||||||
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, | |||||||||||
|
| 2017 |
| 2016 |
| Change |
|
| 2017 |
| 2016 |
| Change | ||
REVPAF: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles | $ | 24.29 |
| $ | 23.06 |
| 5.3% |
| $ | 23.55 |
| $ | 22.24 |
| 5.9% |
San Francisco |
| 24.91 |
|
| 24.06 |
| 3.5% |
|
| 24.13 |
|
| 23.19 |
| 4.1% |
New York |
| 24.02 |
|
| 23.42 |
| 2.6% |
|
| 23.30 |
|
| 22.70 |
| 2.6% |
Chicago |
| 14.52 |
|
| 14.62 |
| (0.7)% |
|
| 14.24 |
|
| 14.12 |
| 0.8% |
Miami |
| 18.80 |
|
| 18.83 |
| (0.2)% |
|
| 18.61 |
|
| 18.29 |
| 1.7% |
Washington DC |
| 20.24 |
|
| 20.01 |
| 1.1% |
|
| 19.63 |
|
| 19.24 |
| 2.0% |
Atlanta |
| 12.30 |
|
| 12.16 |
| 1.2% |
|
| 11.96 |
|
| 11.62 |
| 2.9% |
Seattle-Tacoma |
| 18.71 |
|
| 17.94 |
| 4.3% |
|
| 17.92 |
|
| 17.01 |
| 5.3% |
Houston |
| 12.89 |
|
| 13.18 |
| (2.2)% |
|
| 12.73 |
|
| 12.97 |
| (1.9)% |
Dallas-Ft. Worth |
| 12.75 |
|
| 12.73 |
| 0.2% |
|
| 12.49 |
|
| 12.26 |
| 1.9% |
Philadelphia |
| 15.31 |
|
| 14.74 |
| 3.9% |
|
| 14.81 |
|
| 14.15 |
| 4.7% |
West Palm Beach |
| 17.17 |
|
| 16.68 |
| 2.9% |
|
| 16.88 |
|
| 16.10 |
| 4.8% |
Orlando-Daytona |
| 12.98 |
|
| 12.38 |
| 4.8% |
|
| 12.59 |
|
| 11.93 |
| 5.5% |
Minneapolis-St. Paul |
| 14.13 |
|
| 13.76 |
| 2.7% |
|
| 13.53 |
|
| 13.12 |
| 3.1% |
Portland |
| 18.23 |
|
| 17.79 |
| 2.5% |
|
| 17.73 |
|
| 17.11 |
| 3.6% |
All other markets |
| 13.52 |
|
| 13.18 |
| 2.6% |
|
| 13.11 |
|
| 12.69 |
| 3.3% |
Total REVPAF | $ | 16.56 |
| $ | 16.14 |
| 2.6% |
| $ | 16.09 |
| $ | 15.56 |
| 3.4% |
We believe that our geographic diversification and scale provide some insulation from localized economic effects and add to the stability of our cash flows. It is difficult to predict localized trends in short-term self-storage demand and operating results. Over the long run, we believe that markets that experience population growth, high employment, and otherwise exhibit economic strength and consistency will outperform markets that do not exhibit these characteristics.
44
Non Same Store Facilities
The Non Same Store Facilities at September 30, 2017Operating Trends by Market
As of | For the Three Months Ended June 30, | ||||||||||||||
Number | Square | Realized Rent per | Realized Rent Per | ||||||||||||
of | Feet | Occupied Square Foot | Average Occupancy | Available Square Foot | |||||||||||
Facilities | (millions) | 2021 | 2020 | Change | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||
Los Angeles | 214 | 15.3 | $ | 27.08 | $ | 25.49 | 6.2% | 98.4% | 96.3% | 2.2% | $ | 26.64 | $ | 24.54 | 8.6% |
San Francisco | 130 | 8.1 | 27.60 | 26.18 | 5.4% | 97.8% | 95.2% | 2.7% | 26.99 | 24.91 | 8.4% | ||||
New York | 91 | 6.5 | 26.88 | 25.43 | 5.7% | 97.0% | 94.3% | 2.9% | 26.06 | 23.97 | 8.7% | ||||
Seattle-Tacoma | 129 | 8.1 | 21.61 | 20.10 | 7.5% | 96.3% | 94.2% | 2.2% | 20.81 | 18.93 | 9.9% | ||||
Miami | 89 | 5.5 | 21.65 | 19.58 | 10.6% | 97.3% | 93.2% | 4.4% | 21.07 | 18.24 | 15.5% | ||||
Washington DC | 87 | 5.9 | 22.21 | 20.88 | 6.4% | 96.4% | 94.3% | 2.2% | 21.40 | 19.69 | 8.7% | ||||
Chicago | 83 | 5.8 | 16.15 | 14.70 | 9.9% | 96.8% | 93.6% | 3.4% | 15.64 | 13.75 | 13.7% | ||||
Atlanta | 103 | 6.6 | 14.06 | 13.20 | 6.5% | 96.8% | 92.1% | 5.1% | 13.61 | 12.15 | 12.0% | ||||
Dallas-Ft. Worth | 92 | 6.4 | 14.32 | 13.24 | 8.2% | 96.9% | 92.9% | 4.3% | 13.87 | 12.30 | 12.8% | ||||
Houston | 98 | 6.4 | 13.35 | 12.61 | 5.9% | 95.0% | 91.4% | 3.9% | 12.69 | 11.53 | 10.1% | ||||
Philadelphia | 56 | 3.5 | 18.06 | 16.54 | 9.2% | 97.8% | 95.7% | 2.2% | 17.66 | 15.83 | 11.6% | ||||
Orlando-Daytona | 50 | 3.8 | 14.39 | 13.38 | 7.5% | 97.0% | 94.3% | 2.9% | 13.95 | 12.62 | 10.5% | ||||
West Palm Beach | 52 | 3.5 | 20.34 | 17.87 | 13.8% | 97.3% | 93.6% | 4.0% | 19.78 | 16.72 | 18.3% | ||||
Tampa | 40 | 2.9 | 15.01 | 13.58 | 10.5% | 96.5% | 92.6% | 4.2% | 14.49 | 12.57 | 15.3% | ||||
Charlotte | 70 | 4.5 | 12.08 | 10.99 | 9.9% | 96.3% | 91.8% | 4.9% | 11.63 | 10.08 | 15.4% | ||||
All other markets | 894 | 56.1 | 15.17 | 13.92 | 9.0% | 97.0% | 94.6% | 2.5% | 14.70 | 13.17 | 11.6% | ||||
Totals | 2,278 | 148.9 | $ | 18.32 | $ | 17.00 | 7.8% | 97.0% | 94.2% | 3.0% | $ | 17.77 | $ | 16.01 | 11.0% |
Same Store Facilities Operating Trends by Market (Continued)
For the Three Months Ended June 30, | ||||||||||||||||||||
Net Operating | ||||||||||||||||||||
Revenues ($000's) | Direct Expenses ($000's) | Indirect Expenses ($000's) | Income ($000's) | |||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||
Los Angeles | $ | 103,423 | $ | 95,085 | 8.8% | $ | 13,771 | $ | 17,328 | (20.5)% | $ | 2,636 | $ | 2,538 | 3.9% | $ | 87,016 | $ | 75,219 | 15.7% |
San Francisco | 55,718 | 51,460 | 8.3% | 8,086 | 9,755 | (17.1)% | 1,643 | 1,561 | 5.3% | 45,989 | 40,144 | 14.6% | ||||||||
New York | 43,266 | 39,869 | 8.5% | 10,151 | 11,970 | (15.2)% | 1,322 | 1,273 | 3.8% | 31,793 | 26,626 | 19.4% | ||||||||
Seattle-Tacoma | 31,399 | 28,692 | 9.4% | 5,584 | 6,726 | (17.0)% | 1,008 | 970 | 3.9% | 24,807 | 20,996 | 18.2% | ||||||||
Miami | 31,508 | 27,341 | 15.2% | 6,345 | 8,373 | (24.2)% | 1,008 | 1,015 | (0.7)% | 24,155 | 17,953 | 34.5% | ||||||||
Washington DC | 30,083 | 27,768 | 8.3% | 6,446 | 7,463 | (13.6)% | 961 | 922 | 4.2% | 22,676 | 19,383 | 17.0% | ||||||||
Chicago | 32,809 | 28,932 | 13.4% | 11,767 | 12,250 | (3.9)% | 1,432 | 1,373 | 4.3% | 19,610 | 15,309 | 28.1% | ||||||||
Atlanta | 22,926 | 20,525 | 11.7% | 4,604 | 5,697 | (19.2)% | 1,209 | 1,058 | 14.3% | 17,113 | 13,770 | 24.3% | ||||||||
Dallas-Ft. Worth | 23,838 | 21,223 | 12.3% | 5,401 | 7,320 | (26.2)% | 1,124 | 1,041 | 8.0% | 17,313 | 12,862 | 34.6% | ||||||||
Houston | 20,963 | 19,068 | 9.9% | 6,671 | 7,090 | (5.9)% | 1,054 | 991 | 6.4% | 13,238 | 10,987 | 20.5% | ||||||||
Philadelphia | 16,121 | 14,549 | 10.8% | 3,878 | 4,145 | (6.4)% | 657 | 674 | (2.5)% | 11,586 | 9,730 | 19.1% | ||||||||
Orlando-Daytona | 16,141 | 14,632 | 10.3% | 3,321 | 4,271 | (22.2)% | 832 | 702 | 18.5% | 11,988 | 9,659 | 24.1% | ||||||||
West Palm Beach | 14,529 | 12,300 | 18.1% | 2,970 | 3,364 | (11.7)% | 537 | 521 | 3.1% | 11,022 | 8,415 | 31.0% | ||||||||
Tampa | 13,001 | 11,290 | 15.2% | 2,864 | 3,630 | (21.1)% | 623 | 546 | 14.1% | 9,514 | 7,114 | 33.7% | ||||||||
Charlotte | 11,506 | 10,019 | 14.8% | 2,071 | 2,547 | (18.7)% | 544 | 510 | 6.7% | 8,891 | 6,962 | 27.7% | ||||||||
All other markets | 213,607 | 191,665 | 11.4% | 46,449 | 55,047 | (15.6)% | 10,205 | 9,674 | 5.5% | 156,953 | 126,944 | 23.6% | ||||||||
Totals | $ | 680,838 | $ | 614,418 | 10.8% | $ | 140,379 | $ | 166,976 | (15.9)% | $ | 26,795 | $ | 25,369 | 5.6% | $ | 513,664 | $ | 422,073 | 21.7% |
Same Store Facilities Operating Trends by Market (Continued)
As of | For the Six Months Ended June 30, | ||||||||||||||
Number | Square | Realized Rent per | Realized Rent Per | ||||||||||||
of | Feet | Occupied Square Foot | Average Occupancy | Available Square Foot | |||||||||||
Facilities | (millions) | 2021 | 2020 | Change | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||
Los Angeles | 214 | 15.3 | $ | 26.77 | $ | 25.77 | 3.9% | 98.1% | 95.7% | 2.5% | $ | 26.27 | $ | 24.66 | 6.5% |
San Francisco | 130 | 8.1 | 27.22 | 26.34 | 3.3% | 97.6% | 94.5% | 3.3% | 26.58 | $ | 24.88 | 6.8% | |||
New York | 91 | 6.5 | 26.62 | 25.76 | 3.3% | 96.5% | 93.9% | 2.8% | 25.68 | $ | 24.18 | 6.2% | |||
Seattle-Tacoma | 129 | 8.1 | 21.14 | 20.22 | 4.5% | 95.6% | 93.4% | 2.4% | 20.21 | $ | 18.89 | 7.0% | |||
Miami | 89 | 5.5 | 21.06 | 19.85 | 6.1% | 96.8% | 93.0% | 4.1% | 20.39 | $ | 18.46 | 10.5% | |||
Washington DC | 87 | 5.9 | 21.82 | 21.07 | 3.6% | 95.7% | 93.5% | 2.4% | 20.89 | $ | 19.70 | 6.0% | |||
Chicago | 83 | 5.8 | 15.79 | 14.93 | 5.8% | 95.8% | 92.6% | 3.5% | 15.13 | $ | 13.82 | 9.5% | |||
Atlanta | 103 | 6.6 | 13.72 | 13.26 | 3.5% | 95.7% | 92.0% | 4.0% | 13.13 | $ | 12.21 | 7.5% | |||
Dallas-Ft. Worth | 92 | 6.4 | 13.96 | 13.37 | 4.4% | 95.8% | 92.5% | 3.6% | 13.38 | $ | 12.37 | 8.2% | |||
Houston | 98 | 6.4 | 13.09 | 12.74 | 2.7% | 94.2% | 91.3% | 3.2% | 12.33 | $ | 11.63 | 6.0% | |||
Philadelphia | 56 | 3.5 | 17.77 | 16.61 | 7.0% | 97.3% | 95.3% | 2.1% | 17.29 | $ | 15.82 | 9.3% | |||
Orlando-Daytona | 50 | 3.8 | 14.06 | 13.55 | 3.8% | 96.1% | 94.0% | 2.2% | 13.52 | $ | 12.73 | 6.2% | |||
West Palm Beach | 52 | 3.5 | 19.67 | 18.07 | 8.9% | 96.8% | 93.7% | 3.3% | 19.05 | $ | 16.93 | 12.5% | |||
Tampa | 40 | 2.9 | 14.56 | 13.76 | 5.8% | 96.1% | 92.2% | 4.2% | 13.98 | $ | 12.69 | 10.2% | |||
Charlotte | 70 | 4.5 | 11.74 | 11.12 | 5.6% | 95.6% | 91.4% | 4.6% | 11.22 | $ | 10.16 | 10.4% | |||
All other markets | 894 | 56.1 | 14.85 | 14.04 | 5.8% | 96.2% | 93.8% | 2.6% | 14.28 | $ | 13.18 | 8.3% | |||
Totals | 2,278 | 148.9 | $ | 17.98 | $ | 17.16 | 4.8% | 96.3% | 93.6% | 2.9% | $ | 17.32 | $ | 16.07 | 7.8% |
Same Store Facilities Operating Trends by Market (Continued)
For the Six Months Ended June 30, | ||||||||||||||||||||
Net Operating | ||||||||||||||||||||
Revenues ($000's) | Direct Expenses ($000's) | Indirect Expenses ($000's) | Income ($000's) | |||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||
Los Angeles | $ | 203,937 | $ | 192,332 | 6.0% | $ | 29,105 | $ | 33,335 | (12.7)% | $ | 5,598 | $ | 5,302 | 5.6% | $ | 169,234 | $ | 153,695 | 10.1% |
San Francisco | 109,625 | 103,070 | 6.4% | 16,900 | 19,110 | (11.6)% | 3,494 | 3,253 | 7.4% | 89,231 | 80,707 | 10.6% | ||||||||
New York | 85,371 | 81,003 | 5.4% | 21,477 | 24,606 | (12.7)% | 2,799 | 2,715 | 3.1% | 61,095 | 53,682 | 13.8% | ||||||||
Seattle-Tacoma | 61,046 | 57,500 | 6.2% | 11,674 | 12,970 | (10.0)% | 2,115 | 2,064 | 2.5% | 47,257 | 42,466 | 11.3% | ||||||||
Miami | 61,071 | 55,676 | 9.7% | 12,767 | 16,185 | (21.1)% | 2,140 | 2,100 | 1.9% | 46,164 | 37,391 | 23.5% | ||||||||
Washington DC | 58,769 | 55,916 | 5.1% | 13,215 | 14,650 | (9.8)% | 2,046 | 1,979 | 3.4% | 43,508 | 39,287 | 10.7% | ||||||||
Chicago | 63,560 | 58,515 | 8.6% | 24,287 | 26,425 | (8.1)% | 2,934 | 2,936 | (0.1)% | 36,339 | 29,154 | 24.6% | ||||||||
Atlanta | 44,359 | 41,630 | 6.6% | 9,266 | 10,607 | (12.6)% | 2,462 | 2,183 | 12.8% | 32,631 | 28,840 | 13.1% | ||||||||
Dallas-Ft. Worth | 46,096 | 42,942 | 7.3% | 11,371 | 14,047 | (19.1)% | 2,283 | 2,188 | 4.3% | 32,442 | 26,707 | 21.5% | ||||||||
Houston | 40,813 | 38,744 | 5.3% | 13,133 | 13,612 | (3.5)% | 2,169 | 2,141 | 1.3% | 25,511 | 22,991 | 11.0% | ||||||||
Philadelphia | 31,642 | 29,279 | 8.1% | 7,725 | 8,095 | (4.6)% | 1,382 | 1,451 | (4.8)% | 22,535 | 19,733 | 14.2% | ||||||||
Orlando-Daytona | 31,360 | 29,737 | 5.5% | 6,866 | 8,210 | (16.4)% | 1,685 | 1,451 | 16.1% | 22,809 | 20,076 | 13.6% | ||||||||
West Palm Beach | 28,035 | 25,059 | 11.9% | 6,044 | 6,455 | (6.4)% | 1,123 | 1,056 | 6.3% | 20,868 | 17,548 | 18.9% | ||||||||
Tampa | 25,156 | 22,980 | 9.5% | 5,943 | 7,066 | (15.9)% | 1,270 | 1,131 | 12.3% | 17,943 | 14,783 | 21.4% | ||||||||
Charlotte | 22,255 | 20,326 | 9.5% | 4,386 | 4,906 | (10.6)% | 1,116 | 1,070 | 4.3% | 16,753 | 14,350 | 16.7% | ||||||||
All other markets | 415,560 | 386,400 | 7.5% | 98,192 | 107,840 | (8.9)% | 21,219 | 20,395 | 4.0% | 296,149 | 258,165 | 14.7% | ||||||||
Totals | $ | 1,328,655 | $ | 1,241,109 | 7.1% | $ | 292,351 | $ | 328,119 | (10.9)% | $ | 55,835 | $ | 53,415 | 4.5% | $ | 980,469 | $ | 859,575 | 14.1% |
Acquired Facilities
The Acquired Facilities represent 321205 facilities that were not stabilized with respect to occupancies or rental rates since January 1, 2015, or that we did not own asacquired in 2019, 2020, and within the first six months of January 1, 2015.2021. As a result of the stabilization process and timing of when these facilities were newly acquired, or development activities were completed, year-over-year changes can be significant.
The following table summarizes operating data with respect to the Non Same StoreAcquired Facilities:
ACQUIRED FACILITIES | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | Change (a) | 2021 | 2020 | Change (a) | ||||||||||||
($ amounts in thousands, except for per square foot amounts) | |||||||||||||||||
Revenues (b): | |||||||||||||||||
2019 Acquisitions | $ | 10,023 | $ | 7,533 | $ | 2,490 | $ | 19,069 | $ | 14,594 | $ | 4,475 | |||||
2020 Acquisitions | 12,547 | 1,826 | 10,721 | 22,838 | 2,508 | 20,330 | |||||||||||
2021 Acquisitions | 19,825 | - | 19,825 | 20,657 | - | 20,657 | |||||||||||
Total revenues | 42,395 | 9,359 | 33,036 | 62,564 | 17,102 | 45,462 | |||||||||||
Cost of operations (b): | |||||||||||||||||
2019 Acquisitions | 3,186 | 3,557 | (371) | 6,716 | 6,926 | (210) | |||||||||||
2020 Acquisitions | 6,251 | 1,487 | 4,764 | 12,877 | 1,824 | 11,053 | |||||||||||
2021 Acquisitions | 5,710 | - | 5,710 | 6,261 | - | 6,261 | |||||||||||
Total cost of operations | 15,147 | 5,044 | 10,103 | 25,854 | 8,750 | 17,104 | |||||||||||
Net operating income: | |||||||||||||||||
2019 Acquisitions | 6,837 | 3,976 | 2,861 | 12,353 | 7,668 | 4,685 | |||||||||||
2020 Acquisitions | 6,296 | 339 | 5,957 | 9,961 | 684 | 9,277 | |||||||||||
2021 Acquisitions | 14,115 | - | 14,115 | 14,396 | - | 14,396 | |||||||||||
Net operating income | 27,248 | 4,315 | 22,933 | 36,710 | 8,352 | 28,358 | |||||||||||
Depreciation and | |||||||||||||||||
amortization expense | (42,616) | (7,751) | (34,865) | (58,311) | (15,069) | (43,242) | |||||||||||
Net loss | $ | (15,368) | $ | (3,436) | $ | (11,932) | $ | (21,601) | $ | (6,717) | $ | (14,884) | |||||
At June 30: | |||||||||||||||||
Square foot occupancy: | |||||||||||||||||
2019 Acquisitions | 94.9% | 91.8% | 3.4% | ||||||||||||||
2020 Acquisitions | 88.7% | 68.6% | 29.3% | ||||||||||||||
2021 Acquisitions | 86.2% | - | - | ||||||||||||||
88.6% | 85.6% | 3.5% | |||||||||||||||
Annual contract rent per | |||||||||||||||||
occupied square foot: | |||||||||||||||||
2019 Acquisitions | $ | 13.72 | $ | 10.63 | 29.1% | ||||||||||||
2020 Acquisitions | 12.75 | 12.56 | 1.5% | ||||||||||||||
2021 Acquisitions | 17.97 | - | - | ||||||||||||||
$ | 15.48 | $ | 11.04 | 40.2% | |||||||||||||
Number of facilities: | |||||||||||||||||
2019 Acquisitions | 44 | 44 | - | ||||||||||||||
2020 Acquisitions | 62 | 15 | 47 | ||||||||||||||
2021 Acquisitions | 99 | - | 99 | ||||||||||||||
205 | 59 | 146 | |||||||||||||||
Net rentable square feet (in thousands): | |||||||||||||||||
2019 Acquisitions | 3,154 | 3,154 | - | ||||||||||||||
2020 Acquisitions | 5,075 | 1,167 | 3,908 | ||||||||||||||
2021 Acquisitions | 8,148 | - | 8,148 | ||||||||||||||
16,377 | 4,321 | 12,056 |
Analysis of Depreciation and Amortization of Acquired Facilities
Depreciation and amortization with respect to the Non Same StoreAcquired Facilities for the three months ended June 30, 2021 and 2020 totaled $24.6$42.6 million and $71.3$7.8 million, respectively, and $58.3 million and $15.1 million for the three and ninesix months ended SeptemberJune 30, 2017, respectively, as compared to $20.1 million2021 and $53.4 million for the same periods in 2016.2020, respectively. These amounts include i)(i) depreciation of the buildings acquired or developed,buildings, which is recorded generally on a straight line basis over a 25 year period, and ii)(ii) amortization of cost allocated to the tenants in place upon acquisition of a facility, which is recorded based upon the benefit of such existing tenants to each period and thus is highest when the facility is first acquired and declines as such tenants vacate. With respect to Non Same Storethe Acquired Facilities owned at SeptemberJune 30, 2017,2021, depreciation of buildings and amortization of tenant intangibles is expected to total $19.9aggregate approximately $154.4 million in the year ending December 31, 2021. There will be additional depreciation and $2.3 million, respectively,amortization of tenant intangibles with respect to new buildings that are acquired in the remainder of 2017. 2021.
Developed and Expanded Facilities
The leveldeveloped and expanded facilities include 67 facilities that were developed on new sites since January 1, 2016, and 71 facilities subject to expansion of future depreciationtheir net rentable square footage. Of these expansions, 44 were completed at January 1, 2020, 13 were completed in the 18 months ended June 30, 2021, and amortization will also depend14 are currently in process or are expected to commence renovation in 2021. The following table summarizes operating data with respect to the Developed and Expanded Facilities:
DEVELOPED AND EXPANDED | |||||||||||||||||
FACILITIES | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | Change (a) | 2021 | 2020 | Change (a) | ||||||||||||
($ amounts in thousands, except for per square foot amounts) | |||||||||||||||||
Revenues (b): | |||||||||||||||||
Developed in 2016 | $ | 8,446 | $ | 6,896 | $ | 1,550 | $ | 16,218 | $ | 13,705 | $ | 2,513 | |||||
Developed in 2017 | 6,661 | 5,180 | 1,481 | 12,704 | 10,241 | 2,463 | |||||||||||
Developed in 2018 | 6,769 | 4,699 | 2,070 | 12,822 | 9,200 | 3,622 | |||||||||||
Developed in 2019 | 2,819 | 1,443 | 1,376 | 5,157 | 2,518 | 2,639 | |||||||||||
Developed in 2020 | 662 | 7 | 655 | 1,031 | 7 | 1,024 | |||||||||||
Developed in 2021 | 144 | - | 144 | 148 | - | 148 | |||||||||||
Expansions completed before 2020 | 15,480 | 11,076 | 4,404 | 29,202 | 21,760 | 7,442 | |||||||||||
Expansions completed in 2020 or 2021 | 3,396 | 2,437 | 959 | 6,291 | 4,976 | 1,315 | |||||||||||
Expansions in process | 3,642 | 3,879 | (237) | 7,385 | 7,911 | (526) | |||||||||||
Total revenues | 48,019 | 35,617 | 12,402 | 90,958 | 70,318 | 20,640 | |||||||||||
Cost of operations (b): | |||||||||||||||||
Developed in 2016 | 2,372 | 2,588 | (216) | 4,830 | 5,104 | (274) | |||||||||||
Developed in 2017 | 2,418 | 2,517 | (99) | 4,921 | 4,983 | (62) | |||||||||||
Developed in 2018 | 2,543 | 2,742 | (199) | 5,105 | 5,388 | (283) | |||||||||||
Developed in 2019 | 1,287 | 1,299 | (12) | 2,695 | 2,387 | 308 | |||||||||||
Developed in 2020 | 444 | 52 | 392 | 843 | 52 | 791 | |||||||||||
Developed in 2021 | 407 | - | 407 | 490 | - | 490 | |||||||||||
Expansions completed before 2020 | 6,108 | 5,753 | 355 | 12,189 | 11,115 | 1,074 | |||||||||||
Expansions completed in 2020 or 2021 | 1,728 | 1,084 | 644 | 3,302 | 2,102 | 1,200 | |||||||||||
Expansions in process | 956 | 1,074 | (118) | 2,026 | 2,070 | (44) | |||||||||||
Total cost of operations | 18,263 | 17,109 | 1,154 | 36,401 | 33,201 | 3,200 | |||||||||||
Net operating income (loss): | |||||||||||||||||
Developed in 2016 | 6,074 | 4,308 | 1,766 | 11,388 | 8,601 | 2,787 | |||||||||||
Developed in 2017 | 4,243 | 2,663 | 1,580 | 7,783 | 5,258 | 2,525 | |||||||||||
Developed in 2018 | 4,226 | 1,957 | 2,269 | 7,717 | 3,812 | 3,905 | |||||||||||
Developed in 2019 | 1,532 | 144 | 1,388 | 2,462 | 131 | 2,331 | |||||||||||
Developed in 2020 | 218 | (45) | 263 | 188 | (45) | 233 | |||||||||||
Developed in 2021 | (263) | - | (263) | (342) | - | (342) | |||||||||||
Expansions completed before 2020 | 9,372 | 5,323 | 4,049 | 17,013 | 10,645 | 6,368 | |||||||||||
Expansions completed in 2020 or 2021 | 1,668 | 1,353 | 315 | 2,989 | 2,874 | 115 | |||||||||||
Expansions in process | 2,686 | 2,805 | (119) | 5,359 | 5,841 | (482) | |||||||||||
Net operating income | 29,756 | 18,508 | 11,248 | 54,557 | 37,117 | 17,440 | |||||||||||
Depreciation and | |||||||||||||||||
amortization expense | (14,597) | (13,155) | (1,442) | (31,219) | (26,323) | (4,896) | |||||||||||
Net income | $ | 15,159 | $ | 5,353 | $ | 9,806 | $ | 23,338 | $ | 10,794 | $ | 12,544 | |||||
DEVELOPED AND EXPANDED | |||||||||||||||||
FACILITIES (Continued) | |||||||||||||||||
As of June 30, | |||||||||||||||||
2021 | 2020 | Change (a) | |||||||||||||||
($ amounts in thousands, | |||||||||||||||||
except for per square foot amounts) | |||||||||||||||||
Square foot occupancy: | |||||||||||||||||
Developed in 2016 | 94.3% | 91.1% | 3.5% | ||||||||||||||
Developed in 2017 | 94.5% | 89.8% | 5.2% | ||||||||||||||
Developed in 2018 | 92.2% | 86.2% | 7.0% | ||||||||||||||
Developed in 2019 | 91.3% | 80.0% | 14.1% | ||||||||||||||
Developed in 2020 | 84.6% | 5.2% | 1526.9% | ||||||||||||||
Developed in 2021 | 45.7% | - | - | ||||||||||||||
Expansions completed before 2020 | 90.8% | 78.9% | 15.1% | ||||||||||||||
Expansions completed in 2020 or 2021 | 74.7% | 71.7% | 4.2% | ||||||||||||||
Expansions in process | 91.2% | 86.3% | 5.7% | ||||||||||||||
89.2% | 81.9% | 8.9% | |||||||||||||||
Annual contract rent per occupied square foot: | |||||||||||||||||
Developed in 2016 | $ | 16.98 | $ | 14.08 | 20.6% | ||||||||||||
Developed in 2017 | 14.05 | 11.33 | 24.0% | ||||||||||||||
Developed in 2018 | 14.91 | 11.13 | 34.0% | ||||||||||||||
Developed in 2019 | 12.51 | 7.83 | 59.8% | ||||||||||||||
Developed in 2020 | 13.01 | 11.08 | 17.4% | ||||||||||||||
Developed in 2021 | 11.48 | - | - | ||||||||||||||
Expansions completed before 2020 | 12.47 | 9.77 | 27.6% | ||||||||||||||
Expansions completed in 2020 or 2021 | 12.74 | 13.22 | (3.6)% | ||||||||||||||
Expansions in process | 19.84 | 19.26 | 3.0% | ||||||||||||||
$ | 14.03 | $ | 11.54 | 21.6% | |||||||||||||
Number of facilities: | |||||||||||||||||
Developed in 2016 | 16 | 16 | - | ||||||||||||||
Developed in 2017 | 16 | 16 | - | ||||||||||||||
Developed in 2018 | 18 | 18 | - | ||||||||||||||
Developed in 2019 | 11 | 11 | - | ||||||||||||||
Developed in 2020 | 3 | 2 | 1 | ||||||||||||||
Developed in 2021 | 3 | - | 3 | ||||||||||||||
Expansions completed before 2020 | 44 | 44 | - | ||||||||||||||
Expansions completed in 2020 or 2021 | 13 | 13 | - | ||||||||||||||
Expansions in process | 14 | 14 | - | ||||||||||||||
138 | 134 | 4 | |||||||||||||||
Net rentable square feet (in thousands) (c): | |||||||||||||||||
Developed in 2016 | 2,141 | 2,141 | - | ||||||||||||||
Developed in 2017 | 2,040 | 2,040 | - | ||||||||||||||
Developed in 2018 | 2,069 | 2,069 | - | ||||||||||||||
Developed in 2019 | 1,057 | 1,057 | - | ||||||||||||||
Developed in 2020 | 347 | 246 | 101 | ||||||||||||||
Developed in 2021 | 359 | - | 359 | ||||||||||||||
Expansions completed before 2020 | 5,822 | 5,820 | 2 | ||||||||||||||
Expansions completed in 2020 or 2021 | 1,695 | 1,044 | 651 | ||||||||||||||
Expansions in process | 828 | 929 | (101) | ||||||||||||||
16,358 | 15,346 | 1,012 | |||||||||||||||
As of | |||||||||||||||||
Costs to develop (in thousands): | |||||||||||||||||
Developed in 2016 | $ | 257,585 | |||||||||||||||
Developed in 2017 | 239,871 | ||||||||||||||||
Developed in 2018 | 262,187 | ||||||||||||||||
Developed in 2019 | 150,387 | ||||||||||||||||
Developed in 2020 | 42,063 | ||||||||||||||||
Developed in 2021 | 71,455 | ||||||||||||||||
Expansions completed before 2020 (d) | 381,940 | ||||||||||||||||
Expansions completed in 2020 or 2021 (d) | 110,837 | ||||||||||||||||
$ | 1,516,325 |
(a)Represents the percentage change with respect to square foot occupancy and annual contract rent per occupied square foot, and the absolute nominal change with respect to all other items.
(b)Revenues and cost of operations do not include tenant reinsurance and merchandise sales generated at the facilities. See “Ancillary Operations” below for more information.
(c)The facilities included above have an aggregate of approximately 16.4 million net rentable square feet at June 30, 2021, including 5.9 million in Texas, 2.2 million in Florida, 1.7 million in California, 1.5 million in Colorado, 1.1 million in Minnesota, 0.8 million in North Carolina, 0.6 million in Washington, 0.4 million in each of Missouri and Virginia, 0.3 million in each of Georgia, Michigan, New Jersey and South Carolina and 0.6 million in other states.
(d)These amounts only include the direct cost incurred to expand and renovate these facilities, and do not include (i) the original cost to develop or acquire the facility or (ii) the lost revenue on space demolished during the construction and fill-up period.
It typically takes at least three to four years for a newly developed or expanded self-storage facility to stabilize with respect to revenues. Physical occupancy can be achieved as early as two to three years following completion of the development or expansion, through offering lower rental rates during fill-up. As a result, even after achieving high occupancy, there can still be a period of elevated revenue growth as the tenant base matures and higher rental rates are achieved.
We believe that our development and redevelopment activities generate favorable risk-adjusted returns over the long run. However, in the short run, our earnings are diluted during the construction and stabilization period due to the cost of capital to fund the development cost, as well as the related construction and development overhead expenses included in general and administrative expense.
Our existing unstabilized facilities continued to fill up in terms of occupancies consistent with our general expectations during the six months ended June 30, 2021, and we expect that trend to continue. Our unstabilized facilities are affected by the same market dynamics that affect our Same Store properties. Accordingly, whether we ultimately achieve our yield expectations, and the timeframe for reaching stabilized cash flows, depends largely upon the levelsame factors affecting aggregate demand, move-ins, move-outs, and realized annual rent per occupied square foot for our Same Store Facilities as set forth under “Analysis of acquisitionsSame Store Revenue” above.
At June 30, 2021, we had a development pipeline to develop 22 new self-storage facilities and expand 30 existing self-storage facilities, which will add approximately 4.3 million net rentable square feet at a cost of $661.0 million. We expect to continue to seek to add projects to maintain a robust pipeline. Our ability to do so continues to be challenged by various constraints such as difficulty in finding projects that meet our risk-adjusted yield expectations, and challenges in obtaining building permits for self-storage facilities in certain municipalities.
The facilities included under “Developed in 2016” had high occupancies at June 30, 2021, but had an 18.3% year over year revenue growth during the six months ended June 30, 2021 which exceeds the 7.1% increase in year over year revenue growth in the Same Store facilities. This outperformance relative to the Same Store Facilities reflects the maturity of the existing tenant base following attainment of high occupancy, illustrating the latter stage of the stabilization process noted above. The annualized yield on cost for these facilities, based upon the net operating income for the six months ended June 30, 2021 was 8.8%.
We typically underwrite new developments to stabilize at approximately an 8.0% NOI yield on cost. Our developed facilities have thus far leased-up as expected and are at various stages of their revenue stabilization periods. The actual annualized yields that may be achieved on these facilities upon stabilization will depend on many factors, including local and current market conditions in the vicinity of each property and the level of new and existing supply.
We have 22 additional newly developed facilities in process, which will have a total of 1.9 million net rentable square feet of storage space and have an aggregate development cost totaling approximately $307.9 million. We expect these facilities to open over the next 18 to 24 months.
The expansion of an existing facility involves the construction of new space on an existing facility, either on existing unused land or through the demolition of existing buildings in order to facilitate densification. The construction costs for an expanded facility may include, in addition to adding space, adding amenities such as climate control to existing space, improving the visual appeal of the facility, and to a much lesser extent, the replacement of existing doors, roofs, and HVAC.
The return profile on the expansion of existing facilities differs from a new facility, due to a lack of land cost, and there can be less cash flow risk because we have more direct knowledge of the local demand for space on the site as compared to a new facility. However, many expansions involve the demolition of existing revenue-generating space with the loss of the related revenues during the construction and fill-up period.
The facilities under “expansions completed” represent those facilities where the expansions have been completed at June 30, 2021. We incurred a total of $492.8 million in direct cost to expand these facilities, demolished a total of 1.0 million net rentable square feet of storage space, and built a total of 4.7 million net rentable square feet of new storage space.
The facilities under “expansions in process” represent those facilities where development is in process at June 30, 2021 or which will commence construction by December 31, 2021. We have a pipeline to add a total of 2.4 million net rentable square feet of storage space by expanding existing self-storage facilities for an aggregate direct development cost of $353.1 million.
Analysis of Depreciation and Amortization of Developed and Expanded Facilities
Depreciation and amortization with respect to the Developed and Expanded Facilities totaled $14.6 million and $31.2 million for the three and six months ended June 30, 2021, respectively, as compared to $13.2 million and $26.3 million for the same periods in 2020. These amounts represent depreciation of the developed buildings and, in the case of the expanded facilities, the legacy depreciation on the existing buildings. With respect to the Developed and Expanded Facilities completed at June 30, 2021, depreciation of buildings is expected to aggregate approximately $62.4 million in the year ending December 31, 2021. There will be additional depreciation of new buildings that are developed or expanded in the remainder of 2021.
Other non-same store facilities
The “other non-same store facilities” represent facilities which, while not newly acquired, developed, or expanded, are not fully stabilized since January 1, 2019, due primarily to casualty events such as hurricanes, floods, and fires.
The other non-same store facilities have an aggregate of 1.9 million net rentable square feet, including 0.5 million in Texas, 0.2 million in each of California, Georgia, Ohio and Tennessee and 0.6 million in other states.
The net operating income for these facilities was $3.7 million and $6.9 million in the three and six months ended June 30, 2021, respectively, as compared to $2.7 million and $5.6 million for the same periods in 2020. During the three and six months ended June 30, 2021, the average occupancy for these facilities totaled 93.0% and 91.0%, respectively, as compared to 83.3% and 79.8% for the same periods in 2020, and the realized rent per occupied square feet totaled $13.23 and $13.13, respectively, as compared to $12.79 and $13.25 for the same periods in 2020.
Over the longer term, we expect the growth in operations of these facilities to be similar to that of our Same Store facilities. However, in the short run, year over year comparisons will vary due to the impact of the underlying events which resulted in these facilities being classified as non-same store.
Depreciation and amortization with respect to the other non-same store facilities totaled $5.1 million and $10.2 million for the three and six months ended June 30, 2021, respectively, as compared to $5.1 million and $10.2 million for the same periods in 2020. We expect that depreciation for the remainder of 2021 will approximate the level experienced in the six months ended June 30, 2021.
Ancillary Operations
Ancillary revenues and expenses include amounts associated with the reinsurance of policies against losses to goods stored by tenants in our self-storage facilities in the U.S., management of property owned by unrelated third parties, and the sale of merchandise at our self-storage facilities. The following table sets forth our ancillary operations:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | ||||||||||||
(Amounts in thousands) | |||||||||||||||||
Revenues: | |||||||||||||||||
Tenant reinsurance premiums | $ | 40,816 | $ | 36,933 | $ | 3,883 | $ | 80,497 | $ | 71,629 | $ | 8,868 | |||||
Merchandise | 7,512 | 7,810 | (298) | 14,548 | 14,995 | (447) | |||||||||||
Third party property management | 3,994 | 3,658 | 336 | 8,192 | 6,620 | 1,572 | |||||||||||
Total revenues | 52,322 | 48,401 | 3,921 | 103,237 | 93,244 | 9,993 | |||||||||||
Cost of operations: | |||||||||||||||||
Tenant reinsurance | 7,262 | 7,285 | (23) | 15,086 | 14,067 | 1,019 | |||||||||||
Merchandise | 4,706 | 4,497 | 209 | 8,672 | 8,660 | 12 | |||||||||||
Third party property management | 4,023 | 3,553 | 470 | 8,551 | 6,180 | 2,371 | |||||||||||
Total cost of operations | 15,991 | 15,335 | 656 | 32,309 | 28,907 | 3,402 | |||||||||||
Net operating income (loss): | |||||||||||||||||
Tenant reinsurance | 33,554 | 29,648 | 3,906 | 65,411 | 57,562 | 7,849 | |||||||||||
Merchandise | 2,806 | 3,313 | (507) | 5,876 | 6,335 | (459) | |||||||||||
Third party property management | (29) | 105 | (134) | (359) | 440 | (799) | |||||||||||
Total net operating income | $ | 36,331 | $ | 33,066 | $ | 3,265 | $ | 70,928 | $ | 64,337 | $ | 6,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||||
| 2017 |
| 2016 |
| Change |
| 2017 |
| 2016 |
| Change | ||||||
| (Amounts in thousands) | ||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant reinsurance premiums | $ | 31,175 |
| $ | 30,489 |
| $ | 686 |
| $ | 92,094 |
| $ | 88,960 |
| $ | 3,134 |
Merchandise |
| 8,948 |
|
| 9,502 |
|
| (554) |
|
| 25,911 |
|
| 28,032 |
|
| (2,121) |
Total revenues |
| 40,123 |
|
| 39,991 |
|
| 132 |
|
| 118,005 |
|
| 116,992 |
|
| 1,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Tenant reinsurance |
| 11,916 |
|
| 6,939 |
|
| 4,977 |
|
| 24,179 |
|
| 23,371 |
|
| 808 |
Merchandise |
| 5,388 |
|
| 5,783 |
|
| (395) |
|
| 15,432 |
|
| 17,091 |
|
| (1,659) |
Total cost of operations |
| 17,304 |
|
| 12,722 |
|
| 4,582 |
|
| 39,611 |
|
| 40,462 |
|
| (851) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant reinsurance |
| 19,259 |
|
| 23,550 |
|
| (4,291) |
|
| 67,915 |
|
| 65,589 |
|
| 2,326 |
Merchandise |
| 3,560 |
|
| 3,719 |
|
| (159) |
|
| 10,479 |
|
| 10,941 |
|
| (462) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net income | $ | 22,819 |
| $ | 27,269 |
| $ | (4,450) |
| $ | 78,394 |
| $ | 76,530 |
| $ | 1,864 |
Tenant reinsurance operations:Our tenantscustomers have the option of purchasing insurance from a non-affiliated insurance company to cover certain losses to their goods stored at our facilities. A wholly-owned, consolidated subsidiary of Public Storage fully reinsures such policies, and thereby assumes all risk of losses under these policies from the insurance company. The subsidiaryand receives reinsurance premiums substantially equal to the premiums collected from our tenants, from the non-affiliated insurance company. Such reinsurance premiums are shown as “Tenant reinsurance premiums” in the above table.
47
The subsidiary pays a fee to Public Storage to assist with the administration of the program and to allow the insurance to be marketed to our tenants. This fee represents a substantial amount of the reinsurance premiums received by our subsidiary. The fee is eliminated in consolidation and is therefore not shown in the above table.
Tenant reinsurance premium revenue increased $0.7$3.9 million and $3.1 million inor 10.5 % for the three and nine months ended SeptemberJune 30, 2017, respectively,2021, and increased $8.9 million or 12.4% for the six months ended June 30, 2021, in each case as compared to the
same periodsperiod in 2016,2020. The increase is due primarily to higher average premiums and an increase in our tenant base duewith respect to acquired, newly developed, and expanded facilities. Tenant reinsurance revenue with respect to the Same Store Facilities totaled $33.3 million and $66.4 million for the three and six months ended June 30, 2021, respectively, as compared to $31.9 million and $62.4 million for the same periods in 2020.
We expect future growth will come primarily from customers of newly acquired and developed facilities, as well as additional tenants at our existing unstabilized self-storage facilities.
Cost of operations primarily includes claims paid that are not covered by our outside third-party insurers, as well as claims adjustment expenses. Tenant reinsurance costClaims expenses vary based upon the number of insured tenants and the volume of events which drive covered customer losses, such as burglary, as well as catastrophic weather events affecting multiple properties such as hurricanes and floods. Cost of operations were $7.3 million and $15.1 million for the three and nine month periods ended September 30, 2017 include $5.2 million in incremental tenant reinsurance losses related to Hurricanes Harvey and Irma. Excluding these incremental hurricane related losses, tenant reinsurance cost of operations decreased $0.2 million and $4.4 million in the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, as compared to $7.3 million and $14.1 million for the same periods in 2016. These decreases are due primarily to lower claims, primarily water related claims which were elevated in the nine months ended September 30, 2016 due mostly to flooding in Houston and South Carolina. 2020.
Merchandise sales:We sell locks, boxes, and packing supplies at our self-storage facilities and the level of sales of these items is primarily impacted by the level of move-ins and other customer traffic at our self-storage facilities. We do not expect any significant changes in revenues or profitability from our merchandise sales in the remainder of 2017.2021.
Third party property management: At June 30, 2021, we manage 102 facilities for unrelated third parties, and were under contract to manage 28 additional facilities including 26 facilities that are currently under construction. While we expect this business to increase in scope and size, we don’t expect any significant changes in overall profitability of this business in the near term as we seek new properties to manage and are in the earlier stages of lease-up for newly managed properties.
Equity in earnings of unconsolidated real estate entities
At September 30, 2017,For all periods presented, we have equity investments in PSB and Shurgard, Europe and various limited partnerships. Wewhich we account for such investments usingon the equity method and record our pro-rata share of the net income of these entities for each period. entities. The following table, and the discussion below, sets forth the significant components of our equity in earnings of unconsolidated real estate entities:
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Equity in earnings: |
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PSB | $ | 9,261 |
| $ | 10,118 |
| $ | (857) |
| $ | 35,694 |
| $ | 25,318 |
| $ | 10,376 | $ | 20,908 | $ | 13,228 | $ | 7,680 | $ | 35,384 | $ | 34,965 | $ | 419 | |||||
Shurgard Europe |
| 7,243 |
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| 6,362 |
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| 881 |
| 19,484 |
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| 14,304 |
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| 5,180 | ||||||||||||||||||
Other Investments |
| 714 |
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| 757 |
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| (43) |
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| 2,057 |
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| 2,006 |
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| 51 | |||||||||||||||||
Shurgard | 8,158 | 4,427 | 3,731 | 13,138 | 6,658 | 6,480 | ||||||||||||||||||||||||||||
Total equity in earnings | $ | 17,218 |
| $ | 17,237 |
| $ | (19) |
| $ | 57,235 |
| $ | 41,628 |
| $ | 15,607 | $ | 29,066 | $ | 17,655 | $ | 11,411 | $ | 48,522 | $ | 41,623 | $ | 6,899 |
Investment in PSB:At September 30, 2017 and December 31, 2016,Throughout all periods presented, we had approximately a 42% common equity interest inowned 7,158,354 shares of PS Business Parks, Inc. (“PSB”), comprised of our ownership of 7,158,354 shares of PSB’s common stockand 7,305,355 limited partnership units in an operating partnership controlled by PSB.PSB, representing an approximate 42% common equity interest. The limited partnership units are convertible at our option, subject to certain conditions, on a one-for-one basis into PSB common stock.
At SeptemberJune 30, 2017,2021, PSB wholly-owned approximately 28 million rentable square feet of commercial space and had ana 95% interest in 395 apartments.a 395-unit apartment complex. PSB also manages commercial space that we own pursuant to property management agreements.
Equity in earnings from PSB decreased $0.9 million in the three months ended September 30, 2017, as compared to the same period in 2016, due primarily to our $2.9 million equity share of PSB’s allocation of income to its preferred stockholders in connection with the redemption of preferred stock in September 2017, offset partially by improved real estate facility operating results. Equity in earnings from PSB increased $10.4$7.7 million and $0.4 million in the ninethree and six months ended SeptemberJune 30, 2017,2021, respectively, as compared to the same periodperiods in 2016 due primarily to improved real estate facility operating results, reduced depreciation expense, a gain on sale of real estate in the nine month period in 2017, and lower interest expense due to the repayment of debt, offset partially by the allocation of income to
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preferred stockholders in connection with the redemption of preferred stock as noted above. See Note 4 to our September 30, 2017 financial statements for selected financial information on PSB, as well as2020. PSB’s filings and selected financial information, including discussion of the factors that affect its earnings, can be accessed through the SEC, and on PSB’s website, www.psbusinessparks.com. Information on this website is not incorporated by reference herein and is not a part of this Quarterly Report on Form 10-Q.
Investment in Shurgard:Throughout all periods presented, we effectively owned, directly and indirectly, 31,268,459 Shurgard Europe:We have a 49%common shares, representing an approximate 35% equity shareinterest in Shurgard. Shurgard’s common shares trade on Euronext Brussels under the “SHUR” symbol.
At June 30, 2021, Shurgard Europe’s net income. At September 30, 2017, Shurgard Europe’s operations are comprised of 219 wholly-ownedowned 243 self-storage facilities with 12approximately 13 million net rentable square feet. See Note 4 to our September 30, 2017 financial statementsShurgard pays us license fees for selected financial data on Shurgard Europe foruse of the nine months ended September 30, 2017 and 2016. As“Shurgard” trademark, as described in more detail in Note 4 we receive trademark license fees from Shurgard Europe. to our June 30, 2021 financial statements.
Our equityEquity in earnings from Shurgard Europe increased $0.9$3.7 million and $5.2$6.5 million in the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, as compared to the same periods in 2016. The increases are due primarily to improved property operations;2020. Shurgard’s public filings and publicly reported information, including discussion of the increase forfactors that affect its earnings, can be obtained on its website, https://corporate.shurgard.eu and on the nine month period also reflects decreased amortization expense associated with tenant intangibleswebsite of the Luxembourg Stock Exchange, http://www.bourse.lu. Information on newly acquired facilities. these websites is not incorporated by reference herein and is not a part of this Quarterly Report on Form 10-Q.
For purposes of recording our equity in earnings from Shurgard, Europe, the Euro was translated at exchange rates of approximately 1.1811.188 U.S. Dollars per Euro at SeptemberJune 30, 2017 (1.0522021 (1.226 at December 31, 2016)2020), and average exchange rates of 1.1751.205 and 1.1161.101 for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and average exchange rates of 1.1131.205 and 1.1161.102 for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
Our future earnings from Shurgard Europe will be affected primarily by the operating results of its existing facilities, the exchange rate between the U.S. Dollar and currencies in the countries in which Shurgard Europe conducts its business (principally the Euro), the impact of income taxes, and the degree to which Shurgard Europe reinvests the cash it generates from operations into real estate investments or distributes the amounts to its shareholders.
Unlike our operations in the United States, Shurgard Europe operates through taxable corporations in each of the countries in which it does business and incurs tax expense. Our equity share of such income tax expense was approximately $2.7 million and $6.2 million for the three and nine months ended September 30, 2017, respectively, as compared to $1.5 million and $4.3 million for the same periods in 2016.
Analysis of items not allocated to segments
General and administrative expense: The following table sets forth our general and administrative expense:
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Share-based compensation expense | $ | 12,991 |
| $ | 11,416 |
| $ | 1,575 |
| $ | 26,153 |
| $ | 27,899 |
| $ | (1,746) | $ | 12,471 | $ | 3,446 | $ | 9,025 | $ | 20,368 | $ | 6,488 | $ | 13,880 | |||||
Costs of senior executives |
| 419 |
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| 419 |
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| - |
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| 5,455 |
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| 5,635 |
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| (180) | 354 | 327 | 27 | 1,240 | 1,967 | (727) | |||||||||||
Development and acquisition costs |
| 1,655 |
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| 2,211 |
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| (556) |
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| 6,844 |
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| 7,300 |
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| (456) | 1,955 | 4,255 | (2,300) | 3,554 | 6,699 | (3,145) | |||||||||||
Tax compliance costs and taxes paid | Tax compliance costs and taxes paid | 1,063 |
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| 847 |
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| 216 |
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| 3,510 |
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| 3,052 |
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| 458 | Tax compliance costs and taxes paid | 1,748 | 1,316 | 432 | 3,446 | 3,029 | 417 | ||||||||||
Legal costs |
| 1,500 |
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| 2,051 |
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| (551) |
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| 5,181 |
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| 5,859 |
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| (678) | 1,734 | 824 | 910 | 3,554 | 3,256 | 298 | |||||||||||
Public company costs |
| 981 |
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| 916 |
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| 65 |
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| 3,129 |
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| 2,839 |
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| 290 | 1,858 | 1,049 | 809 | 3,243 | 2,273 | 970 | |||||||||||
Other costs |
| 3,702 |
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| 4,280 |
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| (578) |
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| 12,059 |
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| 10,924 |
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| 1,135 | 7,620 | 5,887 | 1,733 | 11,909 | 11,260 | 649 | |||||||||||
Total | $ | 22,311 |
| $ | 22,140 |
| $ | 171 |
| $ | 62,331 |
| $ | 63,508 |
| $ | (1,177) | $ | 27,740 | $ | 17,104 | $ | 10,636 | $ | 47,314 | $ | 34,972 | $ | 12,342 |
Share-based compensation expense includes the amortization of restricted share units and stock options granted to certain corporate employees and trustees, as well as related employer taxes. We corrected our prior period financial statement presentation of share-based compensation expense and dividends paid on RSUs between general and administrative expense and self-storage cost of operations. As a result, we revised our statement of income for the three and six months ended June 30, 2020 with an increase in self-storage cost of operations of $3.1 million and $6.3 million, respectively, and a corresponding decrease to general and administrative expenses. This immaterial correction had no impact on our total expenses or net income. The correction also had no impact on the balance sheet, statements of comprehensive income, statements of equity, or cash flows as of and for the three and six months ended June 30, 2020.
Share-based compensation expense, as well as related employer taxes, for management personnel who directly and indirectly supervise the on-site property managers, as well as those employees responsible for providing shared general corporate functions to the extent their efforts are devoted to self-storage operations, are included as self-storage cost of operations. See “Same Store Facilities” for further information. Share-based compensation expense varies based upon the level of grants and their related vesting and amortization periods, forfeitures, as well as the Company’s common share price on the date of each grant. Share-based compensation costs in the nine months ended September 30, 2017 include a $5.4 million reversal of previously amortized costs, due to the forfeiture of
In July 2020, our share-based compensation resulting fromplans were modified to allow immediate vesting upon retirement (“Retirement Acceleration”), and to extend the exercisability of outstanding stock options up to a year after retirement, for currently outstanding and future grants. Employees are eligible for Retirement Acceleration if they meet certain conditions including length of service, age, notice of intent to retire, and facilitation of succession for their role.
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certain senior executives inFor the quarterthree and six months ended June 30, 2017. Share-based2021, share-based compensation expense increased $9.0 million and $13.9 million, respectively, as compared to the same periods in 2020, primarily due to (i) the absence of comparable performance-based share-based compensation expense for the three and six months ended June 30, 2020, (ii) the accelerated compensation costs recognized in the lastthree and six months ended June 30, 2021 associated with modifying our share-based compensation plans in July 2020, to allow immediate vesting upon retirement and (iii) revaluation of certain awards previously classified as a liability during the second quarter of 2017 is expected to increase modestly from the amounts expensed in the last quarter of 2016. See Note 10 to our September 30, 2017 financial statements for further information on our share-based compensation. 2021.
Costs of senior executives represent the cash compensation paid to our chief executive officer and chief financial officer.
Development and acquisition costs primarily represent internal and external expenses related to our development activities and the acquisition of real estate facilities and varies primarily based upon the level of development activities undertaken.activities. The amounts in the above table are net of $2.4$3.3 million and $6.5 million for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, and $2.2as compared to $3.0 million and $6.5$6.1 million for the same periods in 2016,2020, in development costs that were capitalized to newly developed and redeveloped self-storage facilities. Development and acquisitionDuring the six months ended June 30, 2020, we incurred $3.2 million in costs are expected to increase modestly inassociated with the remainderwrite-off of 2017.cancelled development projects.
Tax compliance costs and taxes paid include taxes paid to various state and local authorities, the internal and external costs of filing tax returns, costs associated with complying with federal and state tax laws, and maintaining our compliance with Internal Revenue Service REIT rules. Such costs vary primarily based upon the tax rates of the various states in which we do business.
Legal costs include internal personnel as well as fees paid to legal firms and other third parties with respect to general corporate legal matters and risk management, and varies based upon the level of legal activity. The future level of legal costs is not determinable.
Public company costs represent the incremental costs of operating as a publicly-traded company, such as internal and external investor relations expenses, stock listing and transfer agent fees, board of trustees’ (our “Board”)Board costs, and costs associated with maintaining compliance with applicable laws and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and Sarbanes-Oxley Act of 2002.
Other costs represent certain professional and consulting fees, payroll, and overhead that are not directly attributable to our property operations. Such costs vary depending uponinclude nonrecurring and variable items, including $1.6 million in due diligence costs incurred in the three months ended June 30, 2020, in connection with our non-binding proposal, which we did not proceed with, to acquire 100% of the stapled securities of National Storage REIT. The level of these costs depends upon corporate activities and initiatives and, as such, are not predictable.initiatives.
Our future general and administrative expenses are difficult to estimate, due to their dependence upon many factors, including those noted above.
Interest and other income: Interest and other income is comprised primarily of the net operating income from our commercial operations, and property management operations and to a lesser extent interest earned on cash balances, and trademark license fees received from Shurgard, Europe, as well as sundry other income items that are received from time to time in varying amounts. AmountsNet operating income of commercial operations was $2.2 million and $4.2 million in the three and six months ended June 30, 2021, respectively, as compared to the $2.1 million and $4.3 million for the same periods of 2020. Excluding amounts attributable to our commercial operations, interest and property management operations totaled $2.5other income decreased $2.7 million and $7.8$5.7 million forin the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, as compared to $2.5the same periods in 2020. The reduction was primarily due to $2.0 million in interest income associated with the early repayment of a note receivable in the three and six months ended June 30, 2020 and $3.3 million of interest earned on cash balances during the six months ended June 30, 2020. The level of other interest and income items in the remainder of 2021 will be dependent upon the level of cash balances we retain, interest rates, and the level of other income items.
Interest expense: For the three and six months ended June 30, 2021, we incurred $22.7 million and $8.1$38.9 million, respectively, of interest on our outstanding debt, as compared to $14.9 million and $29.5 million for the same periods in 2016. We do not expect any significant changes in2020. In determining interest expense, these amounts were offset by capitalized interest of $0.7 million and other income in the remainder of 2017.
Interest expense: For$1.7 million during the three and ninesix months ended SeptemberJune 30, 2017, interest expense was $2.4 million and $4.6 million,2021, respectively, associated with our development activities, as compared to $1.2$0.7 million and $3.3$1.7 million for the same periods in 2016. During2020. The increase of interest expense in the three and ninesix months ended SeptemberJune 30, 2017, we capitalized $1.0 million and $3.1 million, respectively, in interest on our outstanding debt ($1.2 million and $3.9 million for2021, as compared to the same periods in 2016). On September 18, 2017, we completed a public offering2020, is due to
our issuances of the U.S. Dollar Notes. The first tranche(i) $700 million, $650 million and $650 million of $500.0 million aggregate principal amount bearssenior notes on April 23, 2021 bearing interest at an annual rate of 2.370%SOFR +0.47% (reset quarterly), was issued at par value1.85% and matures2.30%, respectively, and (ii) $500 million of senior notes on September 15, 2022. The second tranche of $500.0 million aggregate principal amount bearsJanuary 19, 2021 bearing interest at an annual rate of 3.094%, was issued at par value0.875% and maturesmaturing on SeptemberFebruary 15, 2027. We incurred $1.0 million in interest expense on the U.S. Dollar Notes in the three and nine months ended September2026. At June 30, 2017. At September 30, 2017,2021, we had $1.4$5.0 billion of debt outstanding, with ana weighted average interest rate of 2.6%approximately 2.0%. See Note 6 to our September 30, 2017 financial statements for further information on our debt balances.
Future interest expense will be dependent upon the level of outstanding debt and the amount of in-process development costs.
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Foreign Currency Exchange Gain Loss:(Loss) Gain: For the three and ninesix months ended SeptemberJune 30, 2017,2021, we recorded foreign currency translation losses of $13.4$12.7 million and $44.5gains of $32.7 million, respectively, representing the changechanges in the U.S. Dollar equivalent of our Euro-denominated unsecured notes due to fluctuations in exchange rates (lossesrates. For the three and six months ended June 30, 2020, we recorded foreign currency translation losses of $3.7$19.3 million and $6.0$10.4 million, for the same periods in 2016).respectively. The Euro was translated at exchange rates of approximately 1.1811.188 U.S. Dollars per Euro at SeptemberJune 30, 2017, 1.1422021, 1.226 at December 31, 2020, 1.123 at June 30, 20172020 and 1.0521.122 at December 31, 2016.2019. Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of the Euro to the U.S. Dollar, and the level of Euro-denominated debt outstanding.
Casualty Loss: The $7.8 million casualty lossGain on our income statements forSale of Real Estate: In the three and ninesix months ended SeptemberJune 30, 2017 represents $3.32021, we recorded $4.0 million resulting from physical damageand $13.4 million in gains, respectively, and in the six months ended June 30, 2020, we recorded gains totaling $1.1 million, primarily in connection with the partial or complete sale of real estate facilities pursuant to our facilities and $4.5 million incurred for repairs, cleanup, and disposal with respect to Hurricanes Harvey and Irma.eminent domain proceedings.
Net Income Allocable to Preferred Shareholders: Net income allocable to preferred shareholders based upon distributions increased in the three and nine months ended September 30, 2017 as compared to the same periods in 2016, due primarily to higher outstanding preferred shares offset partially by lower average rates. We also allocated $14.7decreased from $53.0 million and $29.3$105.0 million in the three and ninesix months ended SeptemberJune 30, 2017,2020, respectively, to $46.2 million and $26.9$92.3 million in the nine months ended September 30, 2016 (nonesame period in the three months ended September 30, 2016),2021. This decrease is due primarily to lower average coupon rates of income from our common shareholdersrecently issued preferred stock compared to the holders of our Preferred Shares due to redemptions of preferred securities.recent series we have redeemed. Based upon our preferred shares outstanding at SeptemberJune 30, 2017,2021, our quarterly distribution to our preferred shareholders is expected to be approximately $54.1$44.6 million.
Liquidity and Capital Resources
Financing Strategy: AsWhile being a REIT allows us to minimize the payment of U.S. federal corporate income tax expense, we generallyare required to distribute 100%at least 90% of our taxable income to our shareholders, which relative to a taxable C corporation,shareholders. This requirement limits the amount of cash flow from operations that we can retain for investments. As a result,be retained and reinvested in orderthe business, increasing our reliance upon raising capital to grow our asset base, access tofund growth.
Because raising capital is important. Historicallyimportant to our growth, we have primarily financed our cash investment activities with retained operating cash flow combined with the proceeds from the issuance of preferred securities. Over the past eighteen months, we beganendeavor to diversify our capital sources by issuing medium term debt.
Ourmaintain a strong financial profile is characterized by strong credit metrics, including low leverage relative to our total capitalization and operating cash flows. We are one of the highest rated REITs, as rated by major rating agencies Moody’s and Standard & Poor’s. Our unsecuredsenior debt has an “A” credit rating by Standard & Poor’s and “A2” by Moody’s. Our credit ratings on each of our series of preferred shares are “A3” by Moody’s and “BBB+” by Standard & Poor’s. Our credit profile and ratings enablesenable us to effectively access both the public and private capital markets to raise capital.
While we must distribute our taxable income, we are nonetheless able to retain operating cash flow to the extent that our tax depreciation exceeds our maintenance capital expenditures. In recent years, we have retained approximately $200 million to $300 million per year in cash flow.
Capital needs in excess of retained cash flow are met with: (i) medium and long-term debt, (ii) preferred equity, and (iii) common equity. We select among these sources of capital based upon relative cost, availability, the desire for leverage, and considering potential constraints caused by certain features of capital sources, such as debt covenants. We view our line of credit, as well as short-term bank loans, as bridge financing.
We have a $500.0 million revolving line of credit which we occasionally use as temporary “bridge” financing until we are able to raise longer term capital. As of SeptemberJune 30, 20172021 and October 31, 2017,August 3, 2021, there were no borrowings outstanding on the revolving line of credit, however, we do have approximately $18.7$25.1 million of outstanding letters of credit which limits our borrowing capacity to $481.3$474.9 million. Our line of credit matures on April 19, 2024.
We believe that we expecthave significant financial flexibility to fundadapt to changing conditions and opportunities. Currently, market rates of interest for our debt, and market coupon rates for our preferred equity, are at historically low levels and we have significant access to these sources of capital. Based upon our substantial current liquidity relative to our capital requirements with retained operating cash flow,noted below, we would not expect any potential capital market dislocations to have a material impact upon our expected capital and growth plans over the issuancenext 12 months. However, if capital market conditions were to change significantly in the long run, our access to or cost of additional medium or long term debt and proceeds from the issuance of commonpreferred equity capital could be negatively impacted and preferred securities. We will select among these sources of capital based upon availability, relative cost, the desire for leverage, and considering potential constraints caused by certain features of capital sources, such as debt covenants. potentially affect future investment activities.
Liquidity and Capital Resource Analysis: We believe that our net cash provided by our operating activities will continue to be sufficient to enable us to meet our ongoing requirements for principal payments on debt, maintenance capital expenditures and distributions to our shareholders for the foreseeable future.
As of September 30, 2017, ourWe expect capital resources over the next year are expected to beof approximately $1.4$1.3 billion, which exceeds our current plannedcurrently identified capital needs over the next year of approximately $447.8 million.$1.2 billion. Our expected capital resources include: (i) $694.2$480.8 million of cash as of SeptemberJune 30, 2017,2021, (ii) $481.3$474.9 million of available borrowing capacity on our revolving line of credit and (iii) approximately $250.0$300 million of expected retained
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operating cash flow for the next twelve months.over 2021. Retained operating cash flow represents our expected cash flow provided by operating activities, less shareholder distributions and capital expenditures to maintain our real estate facilities. expenditures.
Our plannedcurrently identified capital needs over the next year consist primarily of (i) $378.3 million of remaining spend on our current development pipeline, (ii) $67.8$466.6 million in property acquisitions currently under contract, (ii) $325.0 million to redeem our Series D Preferred Shares on July 20, 2021 and (iii) $1.7$411.3 million of remaining spending on our current development pipeline, which will be incurred primarily in the next 18 to 24 months. We have no substantial principal repaymentspayments on existing debt. Ourdebt until 2022. We expect our capital needs mayto increase significantly over the next year as we expectadd projects to increase our development pipeline and acquire additional properties. We may also redeemAdditional potential capital needs could result from various activities including the redemption of outstanding preferred securities, or repurchase sharesrepurchases of our common stock, or mergers and acquisition activities; however, there can be no assurance of any such activities transpiring in the future. near or longer term.
To the extent that our retained operating cash flow and line of credit are insufficient to fundcapital needs exceed our activities,capital resources, we believe we have a variety of possibilities to raise additional capital including issuing common or preferred securities, issuing debt, or entering into joint venture arrangements to acquire or develop facilities.
Required Debt Repayments:As of SeptemberJune 30, 2017,2021, the principal outstanding on our outstanding debt totaled approximately $1.4$5.0 billion, consisting of $29.7$24.2 million of secured debt, $404.1 million$1.0 billion of Euro-denominated unsecured debt and $1.0$4.0 billion of U.S. Dollar denominated unsecured debt. Approximate principal maturities are as follows (amounts in thousands):
Remainder of 2021 | $ | 789 |
2022 | 502,574 | |
2023 | 19,219 | |
2024 | 818,910 | |
2025 | 287,609 | |
Thereafter | 3,395,257 | |
$ | 5,024,358 |
On April 23, 2021, we completed a public offering of $700 million, $650 million and $650 million aggregate principal amount of senior notes bearing interest at an annual rate of SOFR + 0.47%, 1.85% and 2.30%, respectively, and maturing on April 23, 2024, May 1, 2028 and May 1, 2031, respectively.
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Remainder of 2017 | $ | 432 |
2018 |
| 11,241 |
2019 |
| 1,505 |
2020 |
| 1,585 |
2021 |
| 1,503 |
2022 |
| 502,071 |
Thereafter |
| 915,388 |
| $ | 1,433,725 |
The remaining maturities on ourOur debt over at least the next five years are nominal compared to our expected annual retained operating cash flow.is well-laddered and we have no material debt maturity until September 2022.
Capital Expenditure Requirements: Capital expenditures include general maintenance, major repairs or replacements to elements of our facilities to keep our facilities in good operating condition and maintain their visual
appeal. Capital expenditures do not include costs relating to the development of new facilities or redevelopment of existing facilities to increase their available rentable square footage.
Capital expenditures totaled $82.5$94.6 million in the ninefirst six months ended September 30, 2017of 2021, and are expected to be approximately $120approximate $250.0 million to $300.0 million for the year ending December 31, 2017. For2021. In addition to standard capital repairs of building elements reaching the last four years,end of their useful lives, our capital expenditures in recent years have ranged betweenincluded incremental expenditures to enhance the competitive position of certain of our facilities relative to local competitors pursuant to a multi-year program. Such investments include development of more pronounced, attractive, and clearly identifiable color schemes and signage, upgrades to the configuration and layout of the offices and other customer zones to improve the customer experience. We expect to spend approximately $0.45$133 million over 2021 on this effort. In addition, we have made investments in LED lighting and $0.56 per net rentable square foot per year.the installation of solar panels, which are expected to approximate $51 million for the year ending December 31, 2021.
We believe that these incremental investments improve customer satisfaction, the attractiveness and competitiveness of our facilities to new and existing customers and, in the case of LED lighting and solar panels, reduce operating costs.
Requirement to Pay Distributions: For all periods presented herein, we have elected to be treated as a REIT, as defined in the Code. AsFor each taxable year in which we qualify for taxation as a REIT, we dowill not incurbe subject to U.S. federal corporate income tax on our REIT“REIT taxable income” (generally, taxable income (generally,subject to specified adjustments, including a deduction for dividends paid and excluding our net rents and gains from real property, dividends, and interest)capital gain) that is fully distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we meet certain organizational and operational rules.to our shareholders. We believe we have met these requirements in all periods presented herein, and we expect to continue to elect and qualify as a REIT.
Distributions paid during the nine months ended September 30, 2017 totaled $1.2 billion, consisting of $182.5 million to preferred shareholders and $1.0 billion to common shareholders and restricted share unitholders. All of these distributions were REIT qualifying distributions.
We estimate the annual distribution requirements with respect to our Preferred Shares outstanding at September 30, 2017, to be approximately $216.3 million per year.
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On October 25, 2017,July 28, 2021, our Board declared a regular common quarterly dividend of $2.00 per common share.share totaling approximately $350 million, which will be paid at the end of September 2021. Our consistent, long-term dividend policy has been to distribute only our taxable income. Future quarterly distributions with respect to the common shares will continue to be determined based upon our REIT distribution requirements after taking into consideration distributions to the preferred shareholders and will be funded with cash provided byflows from operating activities.
We estimate the annual distribution requirements with respect to our Preferred Shares outstanding at June 30, 2021 to be approximately $178.5 million per year.
We estimate we will pay approximately $7.4$6.0 million per year in distributions to noncontrolling interests outstanding at SeptemberJune 30, 2017. 2021.
Real Estate Investment Activities:We continue to seek to acquire additional self-storage facilities from third parties. Subsequent to SeptemberJune 30, 2017,2021, we acquired or were under contract to acquire (subject to customary closing conditions) eight36 self-storage facilities for $67.8a total purchase price of $466.6 million. Eight of these properties are under construction and expected to close as they are completed in the remainder of 2021 and first quarter of 2022.
We will continue to seekare actively seeking to acquire properties; however, there is significant competitionadditional facilities. However, future acquisition volume will depend upon whether additional owners will be motivated to acquire existingmarket their facilities, and there can be no assurancewhich will in turn depend upon factors such as toeconomic conditions and the level of facilities we may acquire. seller confidence.
As of SeptemberJune 30, 20172021, we had development and redevelopmentexpansion projects at a total cost of approximately $600.2$661.0 million. A total of $221.9 million of these costs wereCosts incurred through SeptemberJune 30, 2017,2021 were $249.7 million, with the remaining cost to complete of $378.3$411.3 million expected to be incurred primarily in the next 18 to 24 months. Some of these projects are subject to significant contingencies such as entitlement approval. We expect to continue to seek additional projects; however, the level of future developmentto add projects to maintain and redevelopment mayincrease our robust pipeline. Our ability to do so continues to be limited due tochallenged by various constraints such as difficulty in finding projects that meet our risk-adjusted yield expectations, and challenges in obtaining building permits for self-storage activitiesfacilities in certain municipalities.
Redemption of Preferred Securities: Historically, we have taken advantage of refinancing higher coupon preferred securities with lower coupon preferred securities. In the future, we may also elect to finance the redemption
of preferred securities with proceeds from the issuance of debt. As of October 31, 2017,August 3, 2021, we have twono series of preferred securities that are eligible for redemption, at our option and with 30 days’ notice;notice. See Note 8 to our 5.625% Series U Preferred Shares, with $287.5 million outstanding andJune 30, 2021 financial statements for the redemption dates of all of our 5.375% Series V Preferred Shares with $495.0 million outstanding.series of preferred shares. Redemption of such preferred shares will depend upon many factors.factors, including the rate at which we could issue replacement preferred securities. None of our preferred securities are redeemable at the option of the holders.
Repurchases of Common Shares: Our Board has authorized management to repurchase up to 35,000,000 of our common shares on the open market or in privately negotiated transactions. During the three months ended SeptemberJune 30, 2017,2021, we did not repurchase any of our common shares. From the inception of the repurchase program through October 31, 2017,August 3, 2021, we have repurchased a total of 23,721,916 common shares at an aggregate cost of approximately $679.1 million. Future levels of common share repurchases will be dependent upon our available capital, investment alternatives and the trading price of our common shares.
Contractual Obligations
Our significant contractual obligations at Septemberas June 30, 20172021 and their impact on our cash flows and liquidity are summarized below for the years ending December 31 (amounts in thousands):
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Interest and principal payments |
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on debt (1) | $ | 1,713,911 |
| $ | 9,578 |
| $ | 47,965 |
| $ | 37,680 |
| $ | 37,680 |
| $ | 37,492 |
| $ | 535,101 |
| $ | 1,008,415 | $ | 5,616,157 | $ | 47,490 | $ | 592,452 | $ | 100,184 | $ | 896,145 | $ | 360,271 | $ | 3,619,615 | ||||||
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Operating leases (2) |
| 86,344 |
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| 1,107 |
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| 4,401 |
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| 4,338 |
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| 4,331 |
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| 4,384 |
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| 3,718 |
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| 64,065 | ||||||||||||||||||||
Leases commitments (2) | 66,470 | 1,428 | 3,065 | 2,910 | 2,917 | 2,892 | 53,258 | ||||||||||||||||||||||||||||||||||||
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Construction commitments (3) |
| 186,720 |
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| 149,376 |
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| 37,344 |
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| - |
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| - |
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| - |
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| - |
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| - | 151,771 | 81,028 | 70,177 | 566 | - | - | - | |||||||||||||
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Total | $ | 1,986,975 |
| $ | 160,061 |
| $ | 89,710 |
| $ | 42,018 |
| $ | 42,011 |
| $ | 41,876 |
| $ | 538,819 |
| $ | 1,072,480 | $ | 5,834,398 | $ | 129,946 | $ | 665,694 | $ | 103,660 | $ | 899,062 | $ | 363,163 | $ | 3,672,873 |
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(1)Represents contractual principal and interest payments. Amounts with respect to certain Euro-denominated debt are based upon exchange rates at June 30, 2021. See Note 6 to our June 30, 2021 financial statements for further information.
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(2)Represents future contractual payments on land, equipment and office space under various operating leases. lease commitments.
(3)Represents future expected development spending that waspayments for construction under contract at SeptemberJune 30, 2017.2021.
We estimate the annual distribution requirements with respect to our Preferred Shares outstanding at SeptemberJune 30, 20172021 to be approximately $216.3$178.5 million per year. Dividends are paid when and if declared by our Board and accumulate if not paid.
Off-Balance Sheet Arrangements: At SeptemberJune 30, 2017,2021, we had no material off-balance sheet arrangements as defined under Regulation S-K 303(a)(4) and the instructions thereto.
ITEM 3.Quantitative and Qualitative Disclosures about Market Risk
To limit our exposure to market risk, we are capitalized primarily with preferred and common equity. Our preferred shares are redeemable at our option generally five years after issuance, but the holder has no redemption option. Our debt is our only market-risk sensitive portion of our capital structure, which totals approximately $1.4$5.0 billion and represents 16.0%57.1% of the book value of our equity at SeptemberJune 30, 2017. 2021.
We have foreign currency exposure at September 30, 2017 related to i) our investment in Shurgard Europe, with a book value of $318.2 million and ii) €342.0 million ($404.1 million) of Euro-denominated unsecured notes payable.
The fair value of our fixed rate debt at SeptemberJune 30, 20172021 is approximately $1.4$5.2 billion. The table below summarizes the annual maturities of our fixed rate debt, which had a weighted average effective rate of 2.6%2.0% at SeptemberJune 30, 2017.2021. See Note 6 to our SeptemberJune 30, 20172021 financial statements for further information regarding our fixed rate debt (amounts in thousands).
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| 2017 |
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| 2018 |
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| 2019 |
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| 2020 |
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| 2021 |
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| 2022 |
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Fixed rate debt | $ | 432 |
| $ | 11,241 |
| $ | 1,505 |
| $ | 1,585 |
| $ | 1,503 |
| $ | 502,071 |
| $ | 915,388 |
| $ | 1,433,725 |
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2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | |||||||||||||||
Debt | $ | 789 | $ | 502,574 | $ | 19,219 | $ | 818,910 | $ | 287,609 | $ | 3,395,257 | $ | 5,024,358 |
We have foreign currency exposure at June 30, 2021 related to (i) our investment in Shurgard, with a book value of $329.4 million, and a fair value of $1.5 billion based upon the closing price of Shurgard’s stock on June 30, 2021, and (ii) €842.0 million ($1.0 billion) of Euro-denominated unsecured notes payable.
ITEM 4.Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports we file and submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in accordance with SEC guidelines and that such information is communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure based on the definition of "disclosure“disclosure controls and procedures"procedures” in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures in reaching that level of reasonable assurance. We also have investments in certain unconsolidated real estate entities and because we do not control these entities, our disclosure controls and procedures with respect to such entities are substantially more limited than those we maintain with respect to our consolidated subsidiaries.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report. Based on that evaluation, our
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Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at a reasonable assurance level.
Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended SeptemberJune 30, 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. | OTHER INFORMATION |
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ITEM 1. | Legal Proceedings |
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We are a party to various legal proceedings and subject to various claims and complaints; however, we believe that the likelihood of these contingencies resulting in a material loss to the Company, either individually or in the aggregate, is remote.
ITEM 1A. | Risk Factors |
In addition to the other information in this Quarterly Report on Form 10-Q, you should carefully consider the risks described in our Annual Report on Form 10-K filed for the year ended December 31, 2016,2020, in Part I, Item 1A, Risk Factors, and in our other filings with the SEC. These factors may materially affect our business, financial condition and operating results and could causeresults. There have been no material changes to the risk factors relating to the Company disclosed in our actual results to differ materially from expectations. Form 10-K for the year ended December 31, 2020.
In addition, in considering the forward-looking statements contained in this Form 10-Q and elsewhere, you should refer to the qualifications and limitations on our forward-looking statements that are described in Forward Looking Statements at the beginning of Part I, Item 2 of this Form 10-Q.
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Common Share Repurchases
Our Board has authorized management to repurchase up to 35,000,000 of our common shares on the open market or in privately negotiated transactions. From the inception of the repurchase program through October 31, 2017,August 3, 2021, we have repurchased a total of 23,721,916 common shares (all purchased prior to 2010) at an aggregate cost of approximately $679.1 million. Our common share repurchase program does not have an expiration date and there are 11,278,084 common shares that may yet be repurchased under our repurchase program as of SeptemberJune 30, 2017.2021. We have no current plans to repurchase shares; however, future levels of common share repurchases will be dependent upon our available capital, investment alternatives, and the trading price of our common shares.
Preferred Share Redemptions
We redeemed, pursuant to our option to redeem such shares, 18,400,0008,000,000 of our 5.125% Series SC preferred shares in July 2017 and 18,500,000 of our Series T preferred shares in September 2017,June 2021, at $25.00 per share. No other preferred redemptions were made during the three months ended September 30, 2017.
ITEM 6. | Exhibits |
Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index which is incorporated herein by reference.
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PUBLIC STORAGE | |
INDEX TO EXHIBITS (1) | |
(Items 15(a)(3) and 15(c)) | |
3.1 | |
4.1 | |
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10.1 | Form of 2021 Plan Employee Stock Unit Agreement. Filed herewith. |
10.2 | Form of 2021 Plan Employee Non-Qualified Stock Option Agreement. Filed herewith. |
10.3 | Form of 2021 Plan Performance-Based Non-Qualified Stock Option Agreement. Filed herewith. |
31.1 | |
31.2 | |
32 | |
101 .INS | Inline XBRL Instance Document. Filed herewith. |
101 .SCH | Inline XBRL Taxonomy Extension Schema. Filed herewith. |
101 .CAL | Inline XBRL Taxonomy Extension Calculation Linkbase. Filed herewith. |
101 .DEF | Inline XBRL Taxonomy Extension Definition Linkbase. Filed herewith. |
101 .LAB | Inline XBRL Taxonomy Extension Label Linkbase. Filed herewith. |
101 .PRE | |
| Inline XBRL Taxonomy Extension Presentation Link. Filed herewith. |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
_ (1) SEC | File No. 001-33519 unless otherwise indicated. |
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57
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
4 | ||||
DATED: PUBLIC STORAGE | ||||
By: /s/ | ||||
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