Public Storage Reports Results for the Three and Nine Months Ended September 30, 2019

Public Storage (NYSE:PSA) announced today operating results for the three and nine months ended September 30, 2019.

Operating Results for the Three Months Ended September 30, 2019

For the three months ended September 30, 2019, net income allocable to our common shareholders was $337.4 million or $1.93 per diluted common share, compared to $322.7 million or $1.85 per diluted common share in 2018 representing an increase of $14.7 million or $0.08 per diluted common share. The increase is due primarily to (i) a $13.0 million increase in foreign currency exchange gains associated with our euro denominated debt, (ii) a $4.4 million increase in self-storage net operating income (described below), and (iii) a reduction in general and administrative expense attributable to $7.1 million in incremental share-based compensation expense in the three months ended September 30, 2018 for the planned retirement of our former CEO and CFO. These increases were offset partially by (iv) a $9.1 million allocation to our preferred shareholders associated with our preferred share redemption activities in the three months ended September 30, 2019.

The $4.4 million increase in self-storage net operating income is a result of an $8.2 million increase in our non-Same Store Facilities (Same Store Facilities, as defined below), offset partially by a $3.8 million decrease in our Same Store Facilities. The increase in net operating income of $8.2 million for the non-Same Store Facilities is due primarily to the impact of facilities acquired in 2018 and 2019 and the fill-up of recently developed and expanded facilities. Revenues for the Same Store Facilities increased 1.1% or $6.5 million in the three months ended September 30, 2019 as compared to 2018, due to higher realized annual rent per occupied square foot and higher occupancy. Cost of operations for the Same Store Facilities increased by 6.4% or $10.3 million in the three months ended September 30, 2019 as compared to 2018, due primarily to a 69.5% ($5.7 million) increase in marketing expenses and a 4.9% ($3.1 million) increase in property taxes.

Operating Results for the Nine Months Ended September 30, 2019

For the nine months ended September 30, 2019, net income allocable to our common shareholders was $945.5 million or $5.42 per diluted common share, compared to $958.8 million or $5.50 per diluted common share in 2018 representing a decrease of $13.3 million or $0.08 per diluted common share. The decrease is due primarily to (i) our $34.9 million equity share of gains recorded by PS Business Parks in the nine months ended September 30, 2018 and (ii) a $26.5 million allocation to our preferred shareholders associated with our preferred share redemption activities in the nine months ended September 30, 2019. These decreases were offset partially by (iii) a $19.8 million increase in self-storage net operating income (described below) and (iv) a reduction in general and administrative expense attributable to $22.7 million in incremental share-based compensation expense in the nine months ended September 30, 2018 for the planned retirement of our former CEO and CFO.

The $19.8 million increase in self-storage net operating income is a result of a $2.0 million increase in our Same Store Facilities and a $17.8 million increase in our non-Same Store Facilities. Revenues for the Same Store Facilities increased 1.5% or $26.7 million in the nine months ended September 30, 2019 as compared to 2018, due primarily to higher realized annual rent per occupied square foot. Cost of operations for the Same Store Facilities increased by 5.1% or $24.7 million in the nine months ended September 30, 2019 as compared to 2018, due primarily to a 50.1% ($11.6 million) increase in marketing expenses as well as a 5.0% ($9.3 million) increase in property taxes. The increase in net operating income of $17.8 million for the non-Same Store Facilities is due primarily to the impact of facilities acquired in 2018 and 2019 and the fill-up of recently developed and expanded facilities.

Funds from Operations

For the three months ended September 30, 2019, funds from operations (“FFO”) was $2.76 per diluted common share, as compared to $2.66 in the same period in 2018, representing an increase of 3.8%. FFO is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts and generally represents net income before depreciation and amortization expense, gains and losses and impairment charges with respect to real estate assets. A reconciliation of GAAP diluted net income per share to FFO per share, and additional descriptive information regarding this non-GAAP measure, is attached.

For the nine months ended September 30, 2019, FFO was $7.86 per diluted common share, as compared to $7.68 in the same period in 2018, representing an increase of 2.3%.

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, (ii) EITF D-42 charges related to the redemption of preferred securities, (iii) accelerations of accruals or reductions in accruals due to the departure of senior executives and (iv) certain other non-cash and/or nonrecurring income or expense items. 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.

The following table reconciles from FFO per share to Core FFO per share (unaudited):

Property Operations – Same Store Facilities

The Same Store Facilities consist of facilities that have been owned and operated on a stabilized level of occupancy, revenues and cost of operations since January 1, 2017. Accordingly, our Same Store Facilities exclude (i) facilities acquired after December 31, 2016, (ii) newly developed or expanded facilities, (iii) facilities where expansion is under construction or that we expect to commence by December 31, 2019, (iv) facilities whose operating trends are significantly affected by factors such as casualty events, and (v) facilities which were otherwise not stabilized at December 31, 2016 (such as recently developed facilities acquired from third parties before December 31, 2016). Our Same Store Facilities decreased from 2,165 facilities at June 30, 2019 to 2,159 at September 30, 2019. The composition of our Same Store Facilities allows us to more effectively evaluate the ongoing performance of our self-storage portfolio in 2017, 2018, and 2019 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 REIT analysts in a similar manner. The following table summarizes the historical operating results of these 2,159 facilities (139.3 million net rentable square feet) that represent approximately 83% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at September 30, 2019.

The following table summarizes selected quarterly financial data with respect to the Same Store Facilities (unaudited):

Property Operations – Non-Same Store Facilities

In addition to the 2,159 Same Store Facilities, we have 309 facilities that were not stabilized with respect to occupancies, revenues or cost of operations since January 1, 2017 or that we did not own as of January 1, 2017, including 91 facilities that were acquired from third parties, 78 newly developed facilities, 60 facilities that have been expanded or are targeted for expansion, and 80 facilities that are unstabilized due to the impact of casualties and other factors (collectively, the “Non-Same Store Facilities”). Operating data, metrics, and further commentary with respect to these facilities, including detail by vintage, is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Self-Storage Operations” in our September 30, 2019 Form 10-Q.

Investing and Capital Activities

During the three months ended September 30, 2019, we acquired ten self-storage facilities (two each in Georgia and Massachusetts and one each in Florida, Indiana, Minnesota, North Carolina, Tennessee and Texas) with 0.8 million net rentable square feet for $110.7 million. During the nine months ended September 30, 2019, we acquired 32 self-storage facilities (eleven in Virginia, six in Florida, three in Georgia, two each in Massachusetts and Texas and one each in Arizona, Colorado, Indiana, Kentucky, Michigan, Minnesota, North Carolina and Tennessee) with 2.2 million net rentable square feet for $308.7 million. Subsequent to September 30, 2019, we acquired or were under contract to acquire eight self-storage facilities (three in South Carolina, two in North Carolina and one each in Arizona, Texas and Virginia) with 0.6 million net rentable square feet for $69.6 million.

During the three months ended September 30, 2019, we opened two newly developed facilities and various expansion projects (0.6 million net rentable square feet – 0.3 million in Minnesota, 0.2 million in Colorado and 0.1 million in Washington) costing $72.4 million. During the nine months ended September 30, 2019, we opened eight newly developed facilities and various expansion projects (3.2 million net rentable square feet – 1.5 million in Texas, 0.3 million each in Colorado, Minnesota and North Carolina, 0.2 million each in Georgia and Tennessee and 0.1 million each in California, Florida, Michigan and Washington) costing $295.5 million. At September 30, 2019, we had various facilities in development (1.3 million net rentable square feet) estimated to cost $219 million and various expansion projects (2.4 million net rentable square feet) estimated to cost $313 million. Our aggregate 3.7 million net rentable square foot pipeline of development and expansion facilities includes 1.2 million in Florida, 0.8 million in California, 0.4 million each in Minnesota and Washington, 0.2 million each in Colorado, Missouri, Texas and Virginia and 0.1 million in New York. The remaining $348 million of development costs for these projects is expected to be incurred primarily in the next 18 months.

On September 11, 2019, we called our 5.625% Series U Preferred Shares for redemption. These shares were redeemed at their $287.5 million liquidation value plus accrued dividends on October 15, 2019.

On September 12, 2019, we issued our 4.875% Series I Preferred Shares for gross proceeds of $316 million.

On September 17, 2019, we acquired the remaining 74.25% equity interests we did not own in consolidated partnerships that owned two stabilized self-storage facilities located in California with 144,000 net rentable square feet for $35 million in cash.

Distributions Declared

On October 23, 2019, our Board of Trustees declared a regular common quarterly dividend of $2.00 per common share. The Board also declared dividends with respect to our various series of preferred shares. All the dividends are payable on December 30, 2019 to shareholders of record as of December 13, 2019.

Third Quarter Conference Call

A conference call is scheduled for October 30, 2019 at 9:00 a.m. (PDT) to discuss the third quarter earnings results. The domestic dial-in number is (866) 406-5408, and the international dial-in number is (973) 582-2770 (conference ID number for either domestic or international is 2795945). A simultaneous audio webcast may be accessed by using the link at www.publicstorage.com under “About Us, Investor Relations, News and Events, Event Calendar.” A replay of the conference call may be accessed through November 13, 2019 by calling (800) 585-8367 (domestic), (404) 537-3406 (international) or by using the link at www.publicstorage.com under “About Us, Investor Relations, News and Events, Event Calendar.” All forms of replay utilize conference ID number 2795945.

About Public Storage

Public Storage, a member of the S&P 500 and FT Global 500, is a REIT that primarily acquires, develops, owns and operates self-storage facilities. At September 30, 2019, we had: (i) interests in 2,468 self-storage facilities located in 38 states with approximately 167 million net rentable square feet in the United States, (ii) an approximate 35% common equity interest in Shurgard Self Storage SA (Euronext Brussels:SHUR) which owned 231 self-storage facilities located in seven Western European nations with approximately 13 million net rentable square feet operated under the “Shurgard” brand and (iii) an approximate 42% common equity interest in PS Business Parks, Inc. (NYSE:PSB) which owned and operated approximately 29 million rentable square feet of commercial space at September 30, 2019. Our headquarters are located in Glendale, California.

Additional information about Public Storage is available on our website, www.publicstorage.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this press release, 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” 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” in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2019 and in our other filings with the SEC and the following: general risks associated with the ownership and operation of real estate, including changes in demand, risk related to development 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; the impact of competition from new and existing self-storage and commercial facilities and other storage alternatives; difficulties in our ability to successfully evaluate, finance, integrate into our existing operations and manage acquired and developed properties; 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 regulatory environment as well as national, state and local laws and regulations including, without limitation, those governing environmental, taxes, our tenant reinsurance business and labor, and 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 REIT, or with challenges to the determination of taxable income for our taxable REIT subsidiaries; risks due to a potential November 2020 statewide ballot initiative (or other equivalent 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 federal or state tax laws related to the taxation of REITs and other corporations; security breaches or a failure of our networks, systems or technology could adversely impact our business, customer and employee relationships; 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 in the development process; 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. These forward-looking statements speak only as of the date of this press release. All of our forward-looking statements, including those in this press release, 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 result of new information, new estimates, or other factors, events or circumstances after the date of this press release, except where expressly required by law. Given these risks and uncertainties, you should not rely on any forward-looking statements in this press release, or which management may make orally or in writing from time to time, as predictions of future events nor guarantees of future performance.

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