Public Storage Reports Results for the Fourth Quarter and Year Ended December 31, 2018

Company Release - 2/26/2019 5:15 PM ET

GLENDALE, Calif.--(BUSINESS WIRE)-- Public Storage (NYSE:PSA) announced today operating results for the quarter and year ended December 31, 2018.

Operating Results for the Three Months Ended December 31, 2018

For the three months ended December 31, 2018, net income allocable to our common shareholders was $530.1 million or $3.04 per diluted common share, compared to $334.1 million or $1.92 per diluted common share in 2017 representing an increase of $196.0 million or $1.12 per diluted common share. The increase is due primarily to (i) $183.1 million in aggregate gains due to Shurgard Self Storage SA’s (“Shurgard Europe’s”) initial public offering and the sale of our facility in West London to Shurgard Europe, (ii) a $11.1 million increase in self-storage net operating income (described below) and (iii) a $11.0 million increase due to the impact of foreign currency exchange gains and losses associated with our euro denominated debt, offset partially by (iv) a $8.1 million increase in general and administrative expense due to the acceleration of share-based compensation expense accruals for our former CEO and CFO in 2018 as a result of their retirement on December 31, 2018.

The $11.1 million increase in self-storage net operating income is a result of a $1.9 million increase in our Same Store Facilities (as defined below) and a $9.2 million increase in our Non Same Store Facilities (as defined below). Revenues for the Same Store Facilities increased 1.2% or $6.7 million in the three months ended December 31, 2018 as compared to 2017, due primarily to higher realized annual rent per occupied square foot. Cost of operations for the Same Store Facilities increased by 4.1% or $4.8 million in the three months ended December 31, 2018 as compared to 2017, due primarily to increased property taxes and higher marketing expenses. The increase in net operating income of $9.2 million for the Non Same Store Facilities is due primarily to the impact of 164 self-storage facilities acquired and developed since January 2016.

Operating Results for the Year Ended December 31, 2018

In 2018, net income allocable to our common shareholders was $1,488.9 million or $8.54 per diluted common share, compared to $1,171.6 million or $6.73 per diluted common share in 2017 representing an increase of $317.3 million or $1.81 per diluted common share. The increase is due primarily to (i) $183.1 million in aggregate gains due to Shurgard Europe’s initial public offering and the sale of our facility in West London to Shurgard Europe, (ii) a $47.1 million increase in self-storage net operating income (described below), (iii) our $37.7 million equity share of gains recorded by PS Business Parks in 2018, (iv) a $68.2 million increase due to the impact of foreign currency exchange gains and losses associated with our euro denominated debt, (v) a $29.3 million allocation to preferred shareholders associated with preferred share redemptions in 2017 and (vi) a $7.8 million casualty loss and $5.2 million in incremental tenant reinsurance losses related to Hurricanes Harvey and Irma in 2017. These impacts were offset partially by a $36.1 million increase in general and administrative expense due to the acceleration of share-based compensation expense accruals for our former CEO and CFO in 2018 as a result of their retirement on December 31, 2018 and the reversal of share-based compensation accruals forfeited by retiring senior executive officers in 2017.

The $47.1 million increase in self-storage net operating income is a result of a $15.6 million increase in our Same Store Facilities and $31.5 million increase in our Non Same Store Facilities. Revenues for the Same Store Facilities increased 1.5% or $33.3 million in 2018 as compared to 2017, due primarily to higher realized annual rent per occupied square foot. Cost of operations for the Same Store Facilities increased by 3.2% or $17.7 million in 2018 as compared to 2017, due primarily to increased property taxes. The increase in net operating income of $31.5 million for the Non Same Store Facilities is due primarily to the impact of 164 self-storage facilities acquired and developed since January 2016.

Funds from Operations

For the three months ended December 31, 2018, funds from operations (“FFO”) was $2.77 per diluted common share, as compared to $2.70 in 2017, representing an increase of 2.6%. 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 year ended December 31, 2018, FFO was $10.45 per diluted common share, as compared to $9.70 in 2017, representing an increase of 7.7%.

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, (iii) accelerations of accruals due to the retirement of our former CEO and CFO and reversals of accruals with respect to share-based awards forfeited by retiring senior executive officers 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):

 
     

Three Months Ended December 31,

 

Year Ended December 31,

2018

 

2017

 

Percentage
Change

2018

 

2017

 

Percentage
Change

 
FFO per share

$

2.77

$

2.70

2.6 %

$

10.45

$

9.70

7.7 %
Eliminate the per share impact of
items excluded from Core FFO, including
our equity share from investments:
Foreign currency exchange (gain) loss (0.03 ) 0.03 (0.10 ) 0.29
Application of EITF D-42 - 0.01 - 0.19
Casualty losses and tenant claims due to
hurricanes - - - 0.07

Shurgard Europe - IPO costs and casualty

loss 0.02 - 0.03 -
Acceleration (reversal) of share-based
compensation expense due to
executive officer retirement 0.05 - 0.18 (0.03 )
Other items   -     0.01   -     0.01  
Core FFO per share

$

2.81

 

$

2.75

2.2 %

$

10.56

 

$

10.23

  3.2 %
 

Property Operations – Same Store Facilities

The Same Store Facilities represent those facilities that have been owned and operated on a stabilized level of occupancy, revenues and cost of operations since January 1, 2016. We review the operations 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, to more effectively evaluate the ongoing performance of our self-storage portfolio in 2016, 2017 and 2018. 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 2,046 facilities (131.2 million net rentable square feet) that represent approximately 81% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at December 31, 2018.

 

Selected Operating Data for the Same

Store Facilities (2,046 facilities)

(unaudited):

      Three Months Ended December 31,   Year Ended December 31,
   

Percentage

    Percentage
2018 2017 Change 2018 2017 Change
 
(Dollar amounts in thousands, except for per square foot amounts)
Revenues:
Rental income $ 537,032 $ 530,276 1.3 % $ 2,144,330 $ 2,111,164 1.6 %
Late charges and administrative fees   24,868     24,888   (0.1 )%   98,425     98,263   0.2 %
Total revenues (a)   561,900     555,164   1.2 %   2,242,755     2,209,427   1.5 %
 
Cost of operations:
Property taxes 34,136 32,320 5.6 % 210,637 200,005 5.3 %
On-site property manager payroll 24,647 24,936 (1.2 )% 109,713 108,477 1.1 %
Supervisory payroll 7,473 8,547 (12.6 )% 35,275 38,175 (7.6 )%
Repairs and maintenance 11,150 11,203 (0.5 )% 42,730 43,465 (1.7 )%
Snow removal 683 766 (10.8 )% 3,470 2,982 16.4 %
Utilities 9,837 9,239 6.5 % 41,075 39,477 4.0 %
Marketing 8,744 6,794 28.7 % 30,771 28,679 7.3 %
Other direct property costs 14,746 14,305 3.1 % 59,096 56,975 3.7 %
Allocated overhead   11,678     10,151   15.0 %   46,753     43,539   7.4 %
Total cost of operations (a)   123,094     118,261   4.1 %   579,520     561,774   3.2 %
Net operating income (b) $ 438,806   $ 436,903   0.4 % $ 1,663,235   $ 1,647,653   0.9 %
 
Gross margin 78.1 % 78.7 % (0.8 )% 74.2 % 74.6 % (0.5 )%
 
Weighted average for the period:
Square foot occupancy 92.6 % 93.1 % (0.5 )% 93.2 % 93.8 % (0.6 )%
Realized annual rental income per (c):
Occupied square foot $ 17.68 $ 17.37 1.8 % $ 17.54 $ 17.15 2.3 %
Available square foot (“REVPAF”) $ 16.38 $ 16.17 1.3 % $ 16.35 $ 16.09 1.6 %
At December 31:
Square foot occupancy 91.4 % 91.2 % 0.2 %
Annual contract rent per occupied
square foot (d) $ 18.17 $ 17.94 1.3 %
 
  (a)   Revenues and cost of operations do not include ancillary revenues and expenses generated at the facilities with respect to tenant reinsurance and retail sales.
 
(b) See attached reconciliation of self-storage NOI to net income.
 
(c) Realized annual rent per occupied square foot is computed by dividing annualized 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 annualized rental income, before late charges and administrative fees, by the total available 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) Contract rent represents the applicable contractual monthly rent charged to our tenants, excluding the impact of promotional discounts, late charges and administrative fees.
 

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

 
      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:

2018

$ 548,116 $ 558,216 $ 574,523 $ 561,900 $ 2,242,755

2017

$ 536,618 $ 549,676 $ 567,969 $ 555,164 $ 2,209,427
 
Total cost of operations:

2018

$ 153,532 $ 150,688 $ 152,206 $ 123,094 $ 579,520

2017

$ 148,577 $ 146,857 $ 148,079 $ 118,261 $ 561,774
 
Property taxes:

2018

$ 58,359 $ 59,138 $ 59,004 $ 34,136 $ 210,637

2017

$ 55,831 $ 56,032 $ 55,822 $ 32,320 $ 200,005
 
Repairs and maintenance, including

snow removal expenses:

2018

$ 11,523 $ 11,593 $ 11,251 $ 11,833 $ 46,200

2017

$ 11,684 $ 11,387 $ 11,407 $ 11,969 $ 46,447
 
Marketing:

2018

$ 6,516 $ 7,697 $ 7,814 $ 8,744 $ 30,771

2017

$ 6,792 $ 8,127 $ 6,966 $ 6,794 $ 28,679
 
REVPAF:

2018

$ 15.97 $ 16.31 $ 16.75 $ 16.38 $ 16.35

2017

$ 15.63 $ 16.03 $ 16.54 $ 16.17 $ 16.09
 
Weighted average realized annual
rent per occupied square foot:

2018

$ 17.30 $ 17.35 $ 17.83 $ 17.68 $ 17.54

2017

$ 16.79 $ 16.95 $ 17.49 $ 17.37 $ 17.15
 
Weighted average occupancy levels
for the period:

2018

92.3 % 94.0 % 94.0 % 92.6 % 93.2 %

2017

93.1 % 94.6 % 94.6 % 93.1 % 93.8 %
 

The following table sets forth selected market trends in our Same Store Facilities:

 
Same Store Facilities Operating Trends by Market (Unaudited)
 
      Three Months Ended December 31,   Year Ended December 31,
2018   2017   Change 2018   2017   Change
(Amounts in thousands, except for weighted average data)
 
Revenues:
Los Angeles $ 85,617 $ 82,881 3.3 % $ 339,037 $ 327,326 3.6 %
San Francisco 48,214 47,479 1.5 % 192,620 188,139 2.4 %
New York 35,416 34,517 2.6 % 140,463 136,654 2.8 %
Seattle-Tacoma 26,139 25,964 0.7 % 104,659 102,810 1.8 %
Washington DC 26,566 26,173 1.5 % 105,339 105,228 0.1 %
Miami 24,062 24,130 (0.3 )% 96,900 95,726 1.2 %
Chicago 29,230 29,766 (1.8 )% 117,715 120,500 (2.3 )%
Atlanta 21,250 20,877 1.8 % 84,275 82,534 2.1 %
Dallas-Ft. Worth 15,711 16,130 (2.6 )% 63,393 65,070 (2.6 )%
Houston 16,006 16,409 (2.5 )% 65,155 64,639 0.8 %
Philadelphia 14,599 13,994 4.3 % 57,469 55,759 3.1 %
Orlando-Daytona 13,643 13,461 1.4 % 54,635 52,700 3.7 %
West Palm Beach 11,674 11,628 0.4 % 46,614 45,650 2.1 %
Tampa 10,951 10,991 (0.4 )% 44,004 43,484 1.2 %
Portland 9,815 9,917 (1.0 )% 39,603 39,997 (1.0 )%
All other markets   173,007   170,847 1.3 %   690,874   683,211 1.1 %
Total revenues $ 561,900 $ 555,164 1.2 % $ 2,242,755 $ 2,209,427 1.5 %
 
Net operating income:
Los Angeles $ 72,351 $ 70,364 2.8 % $ 280,907 $ 272,106 3.2 %
San Francisco 39,909 39,742 0.4 % 156,691 153,787 1.9 %
New York 28,664 27,814 3.1 % 101,662 99,143 2.5 %
Seattle-Tacoma 20,988 21,110 (0.6 )% 82,007 81,271 0.9 %
Washington DC 20,806 20,370 2.1 % 78,780 79,292 (0.6 )%
Miami 21,976 22,003 (0.1 )% 72,881 72,307 0.8 %
Chicago 18,791 20,164 (6.8 )% 65,155 70,445 (7.5 )%
Atlanta 16,606 16,222 2.4 % 62,500 61,110 2.3 %
Dallas-Ft. Worth 12,906 13,754 (6.2 )% 44,642 46,572 (4.1 )%
Houston 10,650 10,453 1.9 % 43,039 42,546 1.2 %
Philadelphia 10,553 9,869 6.9 % 40,456 39,485 2.5 %
Orlando-Daytona 10,859 10,827 0.3 % 40,240 38,951 3.3 %
West Palm Beach 8,986 8,873 1.3 % 34,806 33,868 2.8 %
Tampa 8,552 8,744 (2.2 )% 31,796 31,591 0.6 %
Portland 7,864 8,021 (2.0 )% 30,767 31,304 (1.7 )%
All other markets   128,345   128,573 (0.2 )%   496,906   493,875 0.6 %
Total net operating income $ 438,806 $ 436,903 0.4 % $ 1,663,235 $ 1,647,653 0.9 %
 

Same Store Facilities Operating Trends by Market

 
        Three Months Ended December 31,   Year Ended December 31,
  2018   2017   Change 2018   2017   Change
Weighted average square foot
occupancy:
Los Angeles 94.8 % 95.2 % (0.4 )% 95.2 % 95.7 % (0.5 )%
San Francisco 93.6 % 94.5 % (1.0 )% 94.5 % 95.2 % (0.7 )%
New York 93.8 % 94.1 % (0.3 )% 94.3 % 94.3 % 0.0 %
Seattle-Tacoma 92.0 % 93.2 % (1.3 )% 93.2 % 94.5 % (1.4 )%
Washington DC 91.9 % 91.3 % 0.7 % 92.4 % 92.7 % (0.3 )%
Miami 92.1 % 93.5 % (1.5 )% 92.7 % 93.5 % (0.9 )%
Chicago 90.1 % 89.8 % 0.3 % 90.3 % 91.2 % (1.0 )%
Atlanta 93.1 % 93.0 % 0.1 % 93.2 % 93.5 % (0.3 )%
Dallas-Ft. Worth 91.5 % 92.0 % (0.5 )% 91.7 % 93.3 % (1.7 )%
Houston 89.7 % 94.2 % (4.8 )% 90.8 % 91.8 % (1.1 )%
Philadelphia 94.6 % 93.6 % 1.1 % 94.8 % 94.6 % 0.2 %
Orlando-Daytona 93.0 % 94.5 % (1.6 )% 94.4 % 95.0 % (0.6 )%
West Palm Beach 93.7 % 95.2 % (1.6 )% 94.1 % 94.9 % (0.8 )%
Tampa 91.8 % 93.8 % (2.1 )% 93.0 % 94.3 % (1.4 )%
Portland 92.9 % 94.1 % (1.3 )% 94.1 % 95.3 % (1.3 )%
All other markets   92.5 %   92.5 % 0.0 %   93.1 %   93.6 % (0.5 )%
Total weighted average
square foot occupancy   92.6 %   93.1 % (0.5 )%   93.2 %   93.8 % (0.6 )%
 
Realized annual rent per
occupied square foot:
Los Angeles $ 26.08 $ 25.12 3.8 % $ 25.72 $ 24.67 4.3 %
San Francisco 26.43 25.71 2.8 % 26.15 25.30 3.4 %
New York 25.49 24.80 2.8 % 25.17 24.50 2.7 %
Seattle-Tacoma 20.28 19.87 2.1 % 20.03 19.39 3.3 %
Washington DC 21.65 21.44 1.0 % 21.41 21.16 1.2 %
Miami 19.73 19.47 1.3 % 19.77 19.36 2.1 %
Chicago 15.24 15.61 (2.4 )% 15.33 15.56 (1.5 )%
Atlanta 13.32 13.13 1.4 % 13.19 12.89 2.3 %
Dallas-Ft. Worth 13.23 13.53 (2.2 )% 13.34 13.46 (0.9 )%
Houston 14.23 13.85 2.7 % 14.32 14.06 1.8 %
Philadelphia 16.39 15.86 3.3 % 16.10 15.66 2.8 %
Orlando-Daytona 14.06 13.64 3.1 % 13.88 13.31 4.3 %
West Palm Beach 18.71 18.31 2.2 % 18.59 18.08 2.8 %
Tampa 14.36 14.09 1.9 % 14.25 13.90 2.5 %
Portland 18.76 18.72 0.2 % 18.70 18.61 0.5 %
All other markets   14.37     14.20   1.2 %   14.27     14.03   1.7 %
Total realized rent per
occupied square foot $ 17.68   $ 17.37   1.8 % $ 17.54   $ 17.15   2.3 %
 

Same Store Facilities Operating Trends by Market

 
      Three Months Ended December 31,   Year Ended December 31,
2018   2017   Change 2018   2017   Change
REVPAF:
Los Angeles $ 24.72 $ 23.91 3.4 % $ 24.48 $ 23.60 3.7 %
San Francisco 24.75 24.30 1.9 % 24.71 24.10 2.5 %
New York 23.91 23.33 2.5 % 23.74 23.10 2.8 %
Seattle-Tacoma 18.66 18.53 0.7 % 18.67 18.31 2.0 %
Washington DC 19.89 19.57 1.6 % 19.78 19.62 0.8 %
Miami 18.18 18.20 (0.1 )% 18.32 18.10 1.2 %
Chicago 13.73 14.02 (2.1 )% 13.84 14.19 (2.5 )%
Atlanta 12.40 12.21 1.6 % 12.30 12.06 2.0 %
Dallas-Ft. Worth 12.10 12.45 (2.8 )% 12.23 12.57 (2.7 )%
Houston 12.76 13.04 (2.1 )% 13.00 12.91 0.7 %
Philadelphia 15.51 14.85 4.4 % 15.26 14.81 3.0 %
Orlando-Daytona 13.08 12.89 1.5 % 13.10 12.65 3.6 %
West Palm Beach 17.52 17.43 0.5 % 17.50 17.16 2.0 %
Tampa 13.19 13.22 (0.2 )% 13.26 13.11 1.1 %
Portland 17.43 17.61 (1.0 )% 17.59 17.74 (0.8 )%
All other markets   13.30   13.13 1.3 %   13.28   13.13 1.1 %
Total REVPAF $ 16.38 $ 16.17 1.3 % $ 16.35 $ 16.09 1.6 %
 

Property Operations – Non Same Store Facilities

The Non Same Store Facilities at December 31, 2018 represent 383 facilities that were not stabilized with respect to occupancies or rental rates since January 1, 2016 or that we did not own as of January 1, 2016. The following table summarizes operating data with respect to the Non Same Store Facilities (unaudited). Additional data and metrics with respect to these facilities is included in the MD&A in our December 31, 2018 Form 10-K.

 
NON SAME STORE       Three Months Ended December 31,   Year Ended December 31,
FACILITIES 2018   2017   Change 2018   2017   Change
 
(Dollar amounts in thousands, except for per square foot amounts)
Revenues:
2018 acquisitions $ 2,879 $ - $ 2,879 $ 5,167 $ - $ 5,167
2017 acquisitions 7,319 2,704 4,615 28,704 5,577 23,127
2016 acquisitions 9,945 9,427 518 39,166 36,336 2,830
2016 - 2018 new developments 11,460 6,310 5,150 37,625 17,391 20,234
2013 - 2015 new developments 6,842 6,470 372 26,725 24,910 1,815
Other facilities   53,903   54,143   (240 )   217,465   218,792   (1,327 )
Total revenues   92,348   79,054   13,294     354,852   303,006   51,846  
 
Cost of operations before

depreciation and amortization
expense:

2018 acquisitions 1,276 - 1,276 2,141 - 2,141
2017 acquisitions 2,225 993 1,232 9,669 2,006 7,663
2016 acquisitions 2,886 3,345 (459 ) 13,523 13,693 (170 )
2016 - 2018 new developments 6,737 3,028 3,709 22,120 11,433 10,687
2013 - 2015 new developments 1,714 2,038 (324 ) 8,031 8,093 (62 )
Other facilities   12,099   13,480   (1,381 )   60,727   60,634   93  
Total cost of operations   26,937   22,884   4,053     116,211   95,859   20,352  
 
Net operating income:
2018 acquisitions 1,603 - 1,603 3,026 - 3,026
2017 acquisitions 5,094 1,711 3,383 19,035 3,571 15,464
2016 acquisitions 7,059 6,082 977 25,643 22,643 3,000
2016 - 2018 new developments 4,723 3,282 1,441 15,505 5,958 9,547
2013 - 2015 new developments 5,128 4,432 696 18,694 16,817 1,877
Other facilities   41,804   40,663   1,141     156,738   158,158   (1,420 )
Net operating income (a) $ 65,411 $ 56,170 $ 9,241   $ 238,641 $ 207,147 $ 31,494  
  (a)   See attached reconciliation of self-storage net operating income (“NOI”) to net income.

Investing and Capital Activities

During the three months ended December 31, 2018, we acquired nine self-storage facilities (two each in Georgia and Nebraska and one each in Colorado, Indiana, Ohio, Oklahoma and Washington) with 0.6 million net rentable square feet for $73.2 million. During 2018, we acquired 25 self-storage facilities (six in Minnesota, three in Nebraska, two each in Georgia, Indiana, Ohio, South Carolina, Tennessee and Texas, and one each in Colorado, Kentucky, Oklahoma and Washington) with 1.6 million net rentable square feet for $181.0 million. Subsequent to December 31, 2018, we acquired or were under contract to acquire 14 self-storage facilities (nine in Virginia and one each in Colorado, Florida, Georgia, Kentucky and Michigan) with 0.9 million net rentable square feet for $102.4 million.

During the three months ended December 31, 2018, we opened two newly developed facilities and various expansion projects (0.6 million net rentable square feet – 0.2 million in Texas, 0.1 million each in Florida and Virginia and 0.2 million in other states) costing $70 million. During 2018, we completed 18 newly developed facilities and various expansion projects (3.0 million net rentable square feet – 1.2 million in Texas, 0.6 million in Colorado and 1.2 million in other states) costing an aggregate of $348 million. At December 31, 2018, we had various facilities in development (1.7 million net rentable square feet) estimated to cost $253 million and various expansion projects (3.5 million net rentable square feet) estimated to cost $354 million. Our aggregate 5.2 million net rentable square foot pipeline of development and expansion facilities includes 1.4 million in Texas, 1.0 million in Florida, 0.8 million in Minnesota, 0.4 million in Colorado, 0.3 million each in California and North Carolina and 1.0 million in other states. The remaining $322 million of development costs for these projects is expected to be incurred primarily in the next 18 months.

On October 15, 2018, Shurgard Europe completed an initial global offering (the “Offering”), and its shares commenced trading on Euronext Brussels under the “SHUR” symbol. In the Offering, Shurgard Europe issued 25.0 million of its common shares to third parties at a price of €23 per share. Our equity interest, comprised of a direct and indirect pro-rata ownership interest in 31.3 million shares, decreased from 49% to 35.2% as a result of the Offering. While we did not sell any shares in the Offering, and we have no current plans to do so, we recorded a gain on disposition of $151.6 million in the three months ending December 31, 2018, as if we had sold a proportionate share of our investment in Shurgard Europe. Shurgard Europe’s publicly reported information can be obtained on its website, https://corporate.shurgard.eu and on the website of the Luxembourg Stock Exchange, http://www.bourse.lu.

On October 18, 2018, we sold our property in West London to Shurgard Europe for $42.1 million in cash and recorded a gain on disposition of $31.5 million in the three months ended December 31, 2018.

On February 22, 2019, we called for redemption, and on March 28, 2019, we will redeem, our 6.375% Series Y Preferred Shares for $285 million.

Distributions Declared

On February 19, 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 March 28, 2019 to shareholders of record as of March 13, 2019.

Fourth Quarter Conference Call

A conference call is scheduled for February 27, 2019 at 10:00 a.m. (PST) to discuss the fourth 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 3294554). A simultaneous audio webcast may be accessed by using the link at www.publicstorage.com under “Company Info, Investor Relations, News and Events, Events Calendar.” A replay of the conference call may be accessed through March 13, 2019 by calling (800) 585-8367 (domestic), (404) 537-3406 (international) or by using the link at www.publicstorage.com under “Company Info, Investor Relations, News and Events, Events Calendar.” All forms of replay utilize conference ID number 3294554.

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. The Company’s headquarters are located in Glendale, California. At December 31, 2018, we had interests in 2,429 self-storage facilities located in 38 states with approximately 162 million net rentable square feet in the United States and we owned a 35.2% common equity interest in Shurgard Self Storage SA (Euronext Brussels:SHUR), which owned 232 self-storage facilities located in seven Western European nations with approximately 13 million net rentable square feet operated under the “Shurgard” brand. We also own a 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 December 31, 2018.

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

We expect to release our 2018 Annual Report on Form I0-K within approximately one business day.

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 March 1, 2018 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; 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.

 

PUBLIC STORAGE

SELECTED INCOME STATEMENT DATA

(Amounts in thousands, except per share data)

(Unaudited)

 
      Three Months Ended   Year Ended
December 31, December 31,
2018   2017 2018   2017
 
Revenues:
Self-storage facilities $ 654,248 $ 634,218 $ 2,597,607 $ 2,512,433
Ancillary operations   38,212     38,090     156,673     156,095  
  692,460     672,308     2,754,280     2,668,528  
 
Expenses:
Self-storage cost of operations 150,031 141,145 695,731 657,633
Ancillary cost of operations 10,343 10,734 43,991 50,345
Depreciation and amortization 121,374 120,100 483,646 454,526
General and administrative 28,442 20,551 118,720 82,882
Interest expense   7,953     8,137     32,542     12,690  
  318,143     300,667     1,374,630     1,258,076  
 
Other increase (decrease) to net income:
Interest and other income 7,550 6,049 26,442 18,771
Equity in earnings of unconsolidated real estate entities (a) 12,966 18,420 103,495 75,655
Gain on sale of real estate 36,078 446 37,903 1,421
Gain due to Shurgard Europe public offering 151,616 - 151,616 -
Foreign currency exchange gain (loss) 5,379 (5,593 ) 18,117 (50,045 )
Casualty loss   -     -     -     (7,789 )
Net income 587,906 390,963 1,717,223 1,448,465
Allocation to noncontrolling interests   (1,701 )   (1,564 )   (6,192 )   (6,248 )
Net income allocable to Public Storage shareholders 586,205 389,399 1,711,031 1,442,217
Allocation of net income to:
Preferred shareholders – distributions (54,078 ) (54,078 ) (216,316 ) (236,535 )
Preferred shareholders – redemptions - - - (29,330 )
Restricted share units   (2,025 )   (1,241 )   (5,815 )   (4,743 )
Net income allocable to common shareholders $ 530,102   $ 334,080   $ 1,488,900   $ 1,171,609  
 

Per common share:

Net income per common share – Basic $ 3.05   $ 1.92   $ 8.56   $ 6.75  
Net income per common share – Diluted $ 3.04   $ 1.92   $ 8.54   $ 6.73  
Weighted average common shares – Basic   174,075     173,771     173,969     173,613  
Weighted average common shares – Diluted   174,466     174,218     174,297     174,151  
  (a)   Equity in earnings reflects an aggregate reduction of $3.8 million for the three months ended December 31, 2018 and $5.2 million for the year ended December 31, 2018 with respect to Shurgard Europe due to a casualty loss due to a fire at one of Shurgard Europe’s facilities and costs associated with the Offering.
 

PUBLIC STORAGE

SELECTED BALANCE SHEET DATA

(Amounts in thousands, except share and per share data)

 
      December 31, 2018   December 31, 2017
ASSETS (Unaudited)
 
Cash and equivalents $ 361,218 $ 433,376
 
Operating real estate facilities:
Land and buildings, at cost 15,296,844 14,665,989
Accumulated depreciation   (6,140,072 )   (5,700,331 )
9,156,772 8,965,658
Construction in process 285,339 264,441
Investments in unconsolidated real estate entities 783,988 724,173
Goodwill and other intangible assets, net 209,856 214,957
Other assets   131,097     130,287  
Total assets $ 10,928,270   $ 10,732,892  
 
 
 
LIABILITIES AND EQUITY
 
Senior unsecured notes $ 1,384,880 $ 1,402,109
Mortgage notes 27,403 29,213
Accrued and other liabilities   371,259     337,201  
Total liabilities 1,783,542 1,768,523
 
Equity:
Public Storage shareholders’ equity:
Cumulative Preferred Shares, $0.01 par value, 100,000,000 shares
authorized, 161,000 shares issued (in series) and outstanding,
(161,000 at December 31, 2017) at liquidation preference 4,025,000 4,025,000
Common Shares, $0.10 par value, 650,000,000 shares authorized,
174,130,881 shares issued and outstanding, (173,853,370 shares
at December 31, 2017) 17,413 17,385
Paid-in capital 5,718,485 5,648,399
Accumulated deficit (577,360 ) (675,711 )
Accumulated other comprehensive loss   (64,060 )   (75,064 )
Total Public Storage shareholders’ equity 9,119,478 8,940,009
Noncontrolling interests   25,250     24,360  
Total equity   9,144,728     8,964,369  
Total liabilities and equity $ 10,928,270   $ 10,732,892  
 

PUBLIC STORAGE

SELECTED FINANCIAL DATA

Computation of Funds from Operations and Funds Available for Distribution

(Unaudited – amounts in thousands except per share data)

 
      Three Months Ended   Year Ended
December 31, December 31,
2018   2017 2018   2017
 

Computation of FFO per Share:

 
Net income allocable to common shareholders $ 530,102 $ 334,080 $ 1,488,900 $ 1,171,609
Eliminate items excluded from FFO:
Depreciation and amortization 121,374 120,100 483,646 454,526
Depreciation from unconsolidated real estate investments 21,630 19,296 79,868 71,931
Depreciation allocated to noncontrolling interests
and restricted share unitholders (822 ) (910 ) (3,646 ) (3,567 )
Gains on sale of real estate and Shurgard Europe
IPO, including our equity share from investments   (189,802 )   (1,831 )   (227,332 )   (4,908 )
FFO allocable to common shares (a) $ 482,482   $ 470,735   $ 1,821,436   $ 1,689,591  
Diluted weighted average common shares   174,466     174,218     174,297     174,151  
FFO per share (a) $ 2.77   $ 2.70   $ 10.45   $ 9.70  
 

Reconciliation of Earnings per Share to FFO per Share:

 
Earnings per share—Diluted $ 3.04 $ 1.92 $ 8.54 $ 6.73
Eliminate per share amounts excluded from FFO:
Depreciation and amortization allocable to
common shareholders 0.81 0.79 3.21 3.00
Gains on sale of real estate and Shurgard Europe
IPO, including our equity share from investments   (1.08 )   (0.01 )   (1.30 )   (0.03 )
FFO per share (a) $ 2.77   $ 2.70   $ 10.45   $ 9.70  
 

Computation of Funds Available for Distribution ("FAD"):

 
FFO allocable to common shares $ 482,482 $ 470,735 $ 1,821,436 $ 1,689,591
Eliminate effect of items included in FFO but not FAD:
Share-based compensation expense in excess of
cash paid 16,602 9,615 57,589 22,711
Foreign currency exchange (gain) loss (5,379 ) 5,593 (18,117 ) 50,045
Application of EITF D-42, including our equity
share from investments - 1,689 - 33,879
Less: Capital expenditures to maintain real estate facilities   (45,990 )   (42,255 )   (139,397 )   (124,780 )
 
FAD (a) $ 447,715   $ 445,377   $ 1,721,511   $ 1,671,446  
 
Distributions paid to common shareholders and restricted
share units $ 349,203   $ 348,672   $ 1,396,364   $ 1,393,812  
 
Distribution payout ratio   78.0 %   78.3 %   81.1 %   83.4 %
 
Distributions per common share $ 2.00   $ 2.00   $ 8.00   $ 8.00  
  (a)   FFO and FFO per share are non-GAAP measures defined by the National Association of Real Estate Investment Trusts and, along with the non-GAAP measure FAD, are considered helpful measures of REIT performance by REITs and many REIT analysts. FFO represents GAAP net income before depreciation and amortization, real estate gains or losses and impairment charges, which are excluded because they are based upon historical costs and assume that building values diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. FAD represents FFO adjusted to exclude certain non-cash charges and to deduct capital expenditures. We utilize FAD in evaluating our ongoing cash flow available for investment, debt repayment and common distributions. We believe investors and analysts utilize FAD in a similar manner. FFO and FFO per share are not a substitute for net income or earnings per share. FFO and FAD are not substitutes for GAAP net cash flow in evaluating our liquidity or ability to pay dividends, because they exclude 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.
 

PUBLIC STORAGE

SELECTED FINANCIAL DATA

Reconciliation of Self-Storage Net Operating Income to

Net Income

(Unaudited – amounts in thousands)

 
      Three Months Ended   Year Ended
December 31, December 31,
2018   2017 2018   2017
 
Self-storage revenues for:
Same Store Facilities $ 561,900 $ 555,164 $ 2,242,755 $ 2,209,427
Non Same Store Facilities   92,348     79,054     354,852     303,006  
Self-storage revenues 654,248 634,218 2,597,607 2,512,433
 
Self-storage cost of operations for:
Same Store Facilities 123,094 118,261 579,520 561,774
Non Same Store Facilities   26,937     22,884     116,211     95,859  
Self-storage cost of operations 150,031 141,145 695,731 657,633
 
Self-storage NOI for:
Same Store Facilities 438,806 436,903 1,663,235 1,647,653
Non Same Store Facilities   65,411     56,170     238,641     207,147  
Self-storage NOI (a) 504,217 493,073 1,901,876 1,854,800
Ancillary revenues 38,212 38,090 156,673 156,095
Ancillary cost of operations (10,343 ) (10,734 ) (43,991 ) (50,345 )
Depreciation and amortization (121,374 ) (120,100 ) (483,646 ) (454,526 )
General and administrative expense (28,442 ) (20,551 ) (118,720 ) (82,882 )
Interest and other income 7,550 6,049 26,442 18,771
Interest expense (7,953 ) (8,137 ) (32,542 ) (12,690 )
Equity in earnings of unconsolidated real estate entities 12,966 18,420 103,495 75,655
Gain on sale of real estate 36,078 446 37,903 1,421
Gain due to Shurgard Europe public offering 151,616 - 151,616 -
Foreign currency exchange gain (loss) 5,379 (5,593 ) 18,117 (50,045 )
Casualty loss   -     -     -     (7,789 )
Net income on our income statement $ 587,906   $ 390,963   $ 1,717,223   $ 1,448,465  
  (a)   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 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 operating trends. We believe that investors and analysts utilize NOI in a similar manner. NOI is not a substitute for net income, net operating cash flow, or other related GAAP financial measures, in evaluating our operating results. This table reconciles from NOI for our self-storage facilities to the net income presented on our income statement.

Ryan Burke
(818) 244-8080, Ext. 1141

Source: Public Storage