Public Storage Reports Results for the Three and Six Months Ended June 30, 2020

Public Storage (NYSE:PSA) announced today operating results for the three and six months ended June 30, 2020.

Comment by CEO

“We are proud of the way our employees, customers, and business partners have come together,” said Joe Russell, Chief Executive Officer. “I want to thank all Public Storage employees for their extraordinary efforts in keeping our more than 2,500 self-storage properties open for customers throughout the pandemic. We are committed to health and safety as we continue to support our customers and communities through difficult times.”

Operating Results for the Three Months Ended June 30, 2020

For the three months ended June 30, 2020, net income allocable to our common shareholders was $246.1 million or $1.41 per diluted common share, compared to $306.4 million or $1.76 per diluted common share in 2019 representing a decrease of $60.3 million or $0.35 per diluted common share. The decrease is due primarily to (i) a $22.5 million decrease in self-storage net operating income (described below), (ii) a $14.1 million decrease due to the impact of foreign currency exchange losses associated with our Euro denominated debt, and (iii) a $10.8 million increase in depreciation and amortization expense.

The $22.5 million decrease in self-storage net operating income is a result of a $30.2 million decrease in our Same Store Facilities (as defined below), offset by a $7.6 million increase in our non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities decreased 3.0% or $18.7 million in the three months ended June 30, 2020 as compared to 2019, due primarily to lower realized annual rent per occupied square foot and reduced late charges and administrative fees. Cost of operations for the Same Store Facilities increased by 6.7% or $11.5 million in the three months ended June 30, 2020 as compared to 2019, due primarily to a 20.7% ($6.4 million) increase in on-site property manager payroll and 36.9% ($4.6 million) increase in marketing expenses. The increase in net operating income of $7.6 million for the non-Same Store Facilities is due primarily to the impact of facilities acquired in 2019 and 2020 and the fill-up of recently developed and expanded facilities.

Operating Results for the Six Months Ended June 30, 2020

For the six months ended June 30, 2020, net income allocable to our common shareholders was $559.3 million or $3.20 per diluted common share, compared to $608.2 million or $3.49 per diluted common share in 2019 representing a decrease of $48.9 million or $0.29 per diluted common share. The decrease is due primarily to (i) a $13.0 million decrease in self-storage net operating income (described below), (ii) a $12.9 million decrease due to the impact of foreign currency exchange gains and losses associated with our Euro denominated debt, and (iii) a $24.7 million increase in depreciation and amortization expense.

The $13.0 million decrease in self-storage net operating income is a result of a $29.9 million decrease in our Same Store Facilities (as defined below), offset by a $16.9 million increase in our non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities decreased 0.9% or $11.5 million in the six months ended June 30, 2020 as compared to 2019, due primarily to reduced late charges and administrative fees. Cost of operations for the Same Store Facilities increased by 5.3% or $18.4 million in the six months ended June 30, 2020 as compared to 2019, due primarily to a 46.1% ($9.9 million) increase in marketing expenses and a 12.0% ($7.4 million) increase in on-site property manager payroll expense. The increase in net operating income of $16.9 million for the non-Same Store Facilities is due primarily to the impact of facilities acquired in 2019 and 2020 and the fill-up of recently developed and expanded facilities.

Funds from Operations

For the three months ended June 30, 2020, funds from operations (“FFO”) was $2.28 per diluted common share, as compared to $2.57 in the same period in 2019, representing a decrease of 11.3%. 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 six months ended June 30, 2020, FFO was $4.90 per diluted common share, as compared to $5.09 in the same period in 2019, representing a decrease of 3.7%.

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, and (iii) certain other non-cash and/or nonrecurring income or expense items primarily representing, with respect to the periods presented below, the impact of casualties, due diligence costs incurred in strategic transactions, and contingency resolutions. 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, 2018. The composition of our Same Store Facilities allows us to more effectively evaluate the ongoing performance of our self-storage portfolio in 2018, 2019, and 2020 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 2,224 facilities (143.9 million net rentable square feet) that represent approximately 84% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at June 30, 2020.

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 2,224 Same Store Facilities, we have 276 facilities that were not stabilized with respect to occupancies, revenues or cost of operations since January 1, 2018 or that we did not own as of January 1, 2018, including 84 facilities that were acquired from third parties, 76 newly developed facilities, 71 facilities that have been expanded or are targeted for expansion, and 45 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 June 30, 2020 Form 10-Q.

Investing and Capital Activities

During the three months ended June 30, 2020, we acquired six self-storage facilities (four in Ohio and one in California and Florida) with 0.4 million net rentable square feet for $67.1 million. During the six months ended June 30, 2020, we acquired 15 self-storage facilities (four in Ohio, three in California, two each in New York and Tennessee and one each in Florida, Indiana, Massachusetts and Nebraska) with 1.2 million net rentable square feet for $253.3 million. Subsequent to June 30, 2020, we acquired or were under contract to acquire five self-storage facilities (two in Minnesota and one each in Colorado, Michigan and Utah) with 0.3 million net rentable square feet for $33.3 million.

During the three months ended June 30, 2020, we opened two newly developed facilities and various expansion projects (0.4 million net rentable square feet – 0.2 million in Florida and 0.1 million in California and Minnesota) costing $44.7 million. During the six months ended June 30, 2020, we opened two newly developed facilities and various expansion projects (0.5 million net rentable square feet – 0.2 million each in Florida and Minnesota and 0.1 million in California) costing $70.0 million. At June 30, 2020, we had various facilities in development (1.1 million net rentable square feet) estimated to cost $195 million and various expansion projects (2.7 million net rentable square feet) estimated to cost $361 million. Our aggregate 3.8 million net rentable square foot pipeline of development and expansion facilities includes 1.5 million in California, 1.0 million in Florida, 0.2 million each in Missouri, Texas, Virginia and Washington and 0.5 million in other states. The remaining $403 million of development costs for these projects is expected to be incurred primarily in the next 18 to 24 months.

On June 9, 2020, we called for redemption, and on July 10, 2020 we redeemed, our 5.375% Series V Preferred Shares for $495 million, plus accrued dividends.

On June 17, 2020, we issued our 4.625% Series L Preferred Shares for gross proceeds of $565 million.

COVID-19 Pandemic

The COVID-19 Pandemic (the “COVID Pandemic”) and the resulting economic recession has and will continue to impact our operations, revenues, cost of operations, as well as our investments and capital availability, as described in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our June 30, 2020 Form 10-Q.

Distributions Declared

On August 3, 2020, 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 September 30, 2020 to shareholders of record as of September 15, 2020.

Second Quarter Conference Call

A conference call is scheduled for August 6, 2020 at 9:00 a.m. (PDT) to discuss the second 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 2158058). 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 August 20, 2020 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 2158058.

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 June 30, 2020, we had: (i) interests in 2,500 self-storage facilities located in 38 states with approximately 171 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 238 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 28 million rentable square feet of commercial space at June 30, 2020. Our headquarters are located in Glendale, California.

This press release, our Form 10-Q for the second quarter of 2020, and 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 25, 2020 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 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; risk that even though many initial restrictions due to the COVID Pandemic have eased, they could be reinstituted in case of future waves of infection or if additional pandemics occur; risk that we could experience a change in the move-out patterns of our long-term customers due to economic uncertainty and the significant increase in unemployment resulting from the COVID Pandemic. This could lead to lower occupancies and rent “roll down” as long-term customers are replaced with new customers at lower rates; 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; 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 as a customer acquisition channel; 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; 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 REIT, or with challenges to the determination of taxable income for our taxable REIT subsidiaries; risks due to a November 2020 California 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 United States 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 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; 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 because of new information, new estimates, or other factors, events or circumstances after the date of these forward looking statements, except when 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, neither as predictions of future events nor guarantees of future performance.

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