Public Storage Reports Results for the Third Quarter Ended September 30, 2010

GLENDALE, Calif.--(BUSINESS WIRE)-- Public Storage (NYSE:PSA) announced today operating results for the third quarter ended September 30, 2010.

Operating Results for the Three Months Ended September 30, 2010

For the three months ended September 30, 2010, net income allocable to our common shareholders was $182.2 million or $1.07 per diluted common share, compared to $173.5 million or $1.03 per diluted common share, for the same period in 2009, representing an increase of $8.7 million or $0.04 per diluted common share. This increase is due to improved operations of our Same Store Facilities (discussed below), a foreign currency exchange gain of $55.5 million during the quarter ended September 30, 2010 as compared to $21.4 million for the same period in 2009, partially offset by a gain on disposition of $30.3 million related to an equity offering by PS Business Parks, Inc. (“PSB”) recorded in the quarter ended September 30, 2009.

Revenues for the Same Store Facilities (see table below) increased 1.2% or $4.3 million in the quarter ended September 30, 2010 as compared to the same period in 2009, primarily due to a 1.6% increase in average occupancy offset partially by a 0.5% reduction in realized rent per occupied square foot. Cost of operations for the Same Store Facilities increased 3.2% or $3.7 million in the quarter ended September 30, 2010 as compared to the same period in 2009. Net operating income for our Same Store Facilities increased 0.2% or $0.6 million in the quarter ended September 30, 2010 as compared to the same period in 2009.

Operating Results for the Nine Months Ended September 30, 2010

For the nine months ended September 30, 2010, net income allocable to our common shareholders was $277.8 million or $1.64 per diluted common share, compared to $468.5 million or $2.78 per diluted common share, for the same period in 2009, representing a decrease of $190.7 million or $1.14 per diluted common share. This decrease is primarily due to (i) a foreign currency exchange loss of $28.6 million during the nine months ended September 30, 2010 compared to a $19.9 million gain during the same period in 2009, (ii) an aggregate $31.1 million reduction in income allocated to our common shareholders, and an increase in income allocated to the shareholders of redeemed securities, (including our equity share of PSB’s redemptions) in applying EITF D-42 to the redemption of securities in the nine months ended September 30, 2010, as compared to a $94.5 million increase in income allocated to our common shareholders from the shareholders of redeemed securities (including our equity share of PSB’s redemptions), in applying EITF D-42 to the redemption of securities in the same period in 2009 and (iii) a gain on disposition of $30.3 million related to an equity offering by PSB recorded in the nine months ended September 30, 2009.

Revenues for the Same Store Facilities decreased 0.4% or $4.1 million in the nine months ended September 30, 2010 as compared to the same period in 2009, primarily due to a 1.7% reduction in realized rent per occupied square foot, partially offset by a 1.0% increase in average occupancy. Cost of operations for the Same Store Facilities increased 1.5% or $5.5 million in the nine months ended September 30, 2010 as compared to the same period in 2009. Net operating income for our Same Store Facilities decreased 1.4% or $9.6 million in the nine months ended September 30, 2010 as compared to the same period in 2009.

Funds from Operations

For the three months ended September 30, 2010, funds from operations (“FFO”) was $1.69 per common share on a diluted basis as compared to $1.44 per diluted common share for the same period in 2009, representing an increase of $0.25 per diluted common share or 17.4%.

For the three months ended September 30, 2010, FFO was impacted by (i) a foreign currency exchange gain totaling $55.5 million (compared to a gain of $21.4 million for the same period in 2009) and (ii) changes in accounting estimates with respect to our tenant insurance operations reflected as a reduction in ancillary cost of operations totaling $1.7 million ($2.0 million for the same period in 2009).

For the nine months ended September 30, 2010, FFO was $3.39 per common share on a diluted basis as compared to $4.35 per diluted common share for the same period in 2009, representing a decrease of $0.96 per diluted common share or 22.1%.

For the nine months ended September 30, 2010, FFO was impacted by (i) a $31.1 million reduction in applying EITF D-42 to the redemption of preferred shares and our Equity Shares, Series A, including our equity share of PSB’s redemptions (compared to an aggregate $94.5 million increase recorded for our redemption, and our equity share of PSB’s redemption, of preferred equity in the same period in 2009), (ii) a foreign currency exchange loss totaling $28.6 million (compared to a gain of $19.9 million for the same period in 2009), (iii) changes in accounting estimates with respect to our tenant insurance operations reflected as a reduction in ancillary cost of operations totaling $1.7 million ($2.0 million for the same period in 2009), (iv) incremental general and administrative expense associated with the acquisition of real estate facilities totaling $2.4 million and (v) a $2.5 million impairment of long-lived assets (as compared to $8.2 million during the same period in 2009).

For the nine months ended September 30, 2009, FFO was further impacted by (i) a $4.1 million gain on the early retirement of debt, and (ii) costs incurred to terminate and wind down our truck rental operations of $3.5 million.

The following table provides a summary of the per-share impact of the items noted above:

FFO is a term defined by the National Association of Real Estate Investment Trusts (“NAREIT”). It is generally defined as net income before depreciation with respect to real estate assets and gains and losses on real estate assets. FFO is presented because management and many analysts consider FFO to be one measure of the performance of real estate companies. In addition, we believe that FFO is helpful to investors as an additional measure of the performance of a REIT, because net income includes the impact of depreciation, which assumes that the value of real estate diminishes predictably over time, while we believe that the value of real estate fluctuates due to market conditions and in response to inflation. FFO computations do not consider scheduled principal payments on debt, capital improvements, distributions and other obligations of the Company. FFO is not a substitute for our cash flow or net income as a measure of our liquidity or operating performance or our ability to pay dividends. Other REITs may not compute FFO in the same manner; accordingly, FFO may not be comparable among REITs. See the attached reconciliation of net income to funds from operations included in the selected financial data attached to this press release.

Property Operations – Same Store Facilities

The Same Store Facilities represents those 1,925 facilities that are stabilized and owned since January 1, 2008 and therefore provide meaningful comparisons for 2008, 2009, and 2010. The following table summarizes the historical operating results of these 1,925 facilities (120.3 million net rentable square feet) that represent approximately 94% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at September 30, 2010.

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

Shurgard Europe

We own a 49% equity interest in Shurgard Europe, with the remaining 51% equity interest owned by an institutional investor. We account for our investment in Shurgard Europe under the equity method.

At September 30, 2010, Shurgard Europe had an interest in 188 facilities (10 million net rentable square feet) located in seven Western European countries. Included in this total are 72 facilities (3.6 million net rentable square feet) that are owned by two joint ventures in which Shurgard Europe has a 20% interest.

The two joint ventures collectively had approximately €213 million ($290 million) of outstanding debt at September 30, 2010. The loans are payable to various banks and do not have recourse to Shurgard Europe. One of the JV loans, totaling €99 million ($135 million), is due May 2011. In July 2010, the other JV loan, totaling €114 million ($155 million) was refinanced with interest rates and terms that were similar to the previous loan, and matures in July 2013.

Our existing €378.7 million loan ($515.4 million at September 30, 2010) to Shurgard Europe matures on March 31, 2013, and accrues interest at 9.0% per annum. We received principal payments on this loan totaling €12.1 million ($17.4 million) in the three months ended September 30, 2010. The loan currently is not hedged for future currency exchange fluctuations; accordingly, the amount of U.S. Dollars that will be received on repayment will depend upon the currency exchange rates at the time. The timing of future early principal payments will depend on Shurgard Europe’s available cash flow from operations or financing and its alternative uses for that cash flow.

Acquisition of Self-Storage Facilities

During the three months ended September 30, 2010, we acquired seven self-storage facilities (390,000 square feet) for approximately $27 million. Four of these facilities are located in California, with the remainder of the facilities located in Hawaii, Illinois and Louisiana. We incurred approximately $0.7 million in transaction-related expenses which are included in general and administrative expense in the three months ended September 30, 2010.

We are currently under contract to acquire four properties for approximately $14.4 million, located in Florida, New Jersey and Ohio. We expect the acquisition of these properties to occur during the fourth quarter of 2010. The contracts to acquire these facilities are subject to customary closing conditions, and there can be no assurance that we will be able to complete these acquisitions.

Capital Activities

As previously announced, on October 7, 2010, we issued 5,000,000 depositary shares (including the subsequent exercise, in part, of the underwriters' over-allotment option) at $25.00 per depositary share, with each depositary share representing 1/1,000 of a 6.5% Cumulative Preferred Share of Beneficial Interest, Series P. The offering resulted in gross proceeds of $125 million.

During the quarter ended September 30, 2010, we repurchased 400,000 shares of our 6.85% Cumulative Preferred Shares, Series Y for an amount that was $800,000 lower than the original issuance proceeds for these preferred shares and, accordingly, we recorded an allocation of income from the preferred shareholders to the common shareholders of $800,000 in the quarter ended September 30, 2010.

On October 25, 2010, we repurchased our 7.25% Series J Preferred Partnership Units for an aggregate of $100.4 million ($100 million par value) plus accrued and unpaid dividends. In the quarter ending December 31, 2010, we expect to record an allocation of income pursuant to EITF D-42 to the holders of these units of $400,000, representing the excess paid to redeem these units over the original issuance proceeds. These preferred units were otherwise redeemable at par on May 9, 2011.

As previously announced, on November 5, 2010 we will redeem all outstanding depositary shares representing interests of our 7.125% Cumulative Preferred Shares, Series B, for an aggregate redemption amount, before payment of accrued dividends, of approximately $109 million. In applying EITF D-42 to this redemption, we will allocate approximately $3.6 million of income from our common shareholders to the holders of our Preferred Shares, representing the excess of the amount paid over the initial issuance proceeds, in the quarter ending December 31, 2010.

Liquidity Position

At September 30, 2010, we had approximately $513.5 million of cash and $102.1 million of short-term investments in high-grade corporate securities. We also have access to our $300 million line of credit which does not expire until March 27, 2012. On October 7, 2010, we raised net proceeds of $121.2 million from the issuance of the Series P Cumulative Preferred Shares. Our capital commitments after September 30, 2010, for the next year of approximately $364.7 million include (i) $100.4 million paid to redeem our Series J Preferred Partnership Units, (ii) $108.8 million to redeem our Series B Cumulative Preferred Shares, (iii) $141.1 million in principal payments on debt and (iv) $14.4 million for the aforementioned acquisition of four facilities. We have no further significant commitments until 2013, when $265.6 million of existing debt comes due.

Our retained operating cash flow continues to provide a significant source of capital to fund our activities. During the quarter ended September 30, 2010, our funds from operations available to distribute to common shareholders (“FAD”) exceeded our regular common distributions by approximately $67 million. Our ability to continue to retain operating cash flow in the future will be contingent upon a number of factors including, but not limited to, the growth in our operations and our distribution requirements to maintain our REIT status.

Distributions Declared

On November 4, 2010, our Board of Trustees declared a regular common dividend of $0.80 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, 2010, to shareholders of record as of December 15, 2010.

Third Quarter Conference Call

A conference call is scheduled for Friday, November 5, 2010, at 10:00 A.M. (PDT) to discuss the third quarter ended September 30, 2010 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 18251273). A simultaneous audio web cast may be accessed by using the link at www.publicstorage.com under “Company Info, Investor Relations, Upcoming Events”. A replay of the conference call may be accessed through November 19, 2010 by calling (800) 642-1687 (domestic) or (706) 645-9291 (international) or by using the link at www.publicstorage.com under “Company Info, Investor Relations, Webcasts.” All forms of replay utilize conference ID number 18251273.

About Public Storage

Public Storage, a member of the S&P 500, The Forbes Global 2000 and FT Global 500, is a fully integrated, self-administered and self-managed real estate investment trust that primarily acquires, develops, owns and operates self-storage facilities. The Company’s headquarters are located in Glendale, California. At September 30, 2010, the Company had interests in 2,044 self-storage facilities located in 38 states with approximately 129 million net rentable square feet in the United States and 189 storage facilities located in seven Western European nations with approximately ten million net rentable square feet operated under the “Shurgard” brand. The Company also owns a 41% common equity interest in PS Business Parks, Inc. (NYSE:PSB) which owned and operated approximately 21 million rentable square feet of commercial space, primarily flex, multitenant office and industrial space, at September 30, 2010.

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

Forward-Looking Statements

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 Public Storage’s 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 are described from time to time in Public Storage’s filings with the Securities and Exchange Commission, including in Item 1A, “Risk Factors” in Public Storage’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, Form 10-Q for the period ended September 30, 2010 expected to be filed on or before November 9, 2010, our other Quarterly Reports on Form 10-Q and current reports on Form 8-K. These risks include, but are not limited to, the following: general risks associated with the ownership and operation of real estate, including changes in demand for our storage facilities, potential liability for environmental contamination, adverse changes in tax, real estate and zoning laws and regulations, and the impact of natural disasters; risks associated with downturns in the national and local economies in the markets in which we operate; the impact of competition from new and existing 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 related to our participation in joint ventures; risks associated with international operations including, but not limited to, unfavorable foreign currency rate fluctuations that could adversely affect our earnings and cash flows; the impact of the regulatory environment as well as national, state, and local laws and regulations including, without limitation, those governing REITs; risks associated with a possible failure by us to qualify as a REIT under the Internal Revenue Code of 1986, as amended; disruptions or shutdowns of our automated processes and systems; difficulties in raising capital at a reasonable cost; delays in the development process; and economic uncertainty due to the impact of war or terrorism. Public Storage disclaims 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.

Shurgard Europe Same Store Selected Operating Data

Shurgard Europe has an ownership interest in 188 facilities located in Europe. Since January 1, 2008, 91 of Shurgard Europe’s 116 wholly-owned facilities (the “Europe Same Store Facilities”) have been operating on a stabilized basis. During the quarter ended September 30, 2010, we removed two facilities from the Europe Same Store Facilities because they were no longer stabilized, and as a result the number of such facilities declined from 93 to 91. The following table reflects the operating results of these 91 facilities. Comparisons should not be made between this group of 91 facilities and amounts presented for the former group of 93 facilities. We account for our investment in Shurgard Europe on the equity method of accounting; accordingly, our pro-rata share of the operating results for these facilities is included in “equity in earnings of real estate entities” on our income statement.

Source: Public Storage

Public Storage

Clemente Teng

(818) 244-8080, Ext. 1141