Public Storage Reports Results for the Fourth Quarter and Year Ended December 31, 2010

GLENDALE, Calif.--(BUSINESS WIRE)-- Public Storage (NYSE:PSA) announced today operating results for the fourth quarter and year ended December 31, 2010.

Operating Results for the Three Months Ended December 31, 2010

For the three months ended December 31, 2010, net income allocable to our common shareholders was $121.4 million or $0.71 per diluted common share, compared to $117.5 million or $0.70 per diluted common share for the same period in 2009, representing an increase of $3.9 million or $0.01 per diluted common share. This increase is due to (i) improved operations of our Same Store Facilities (discussed below), (ii) the operating results of facilities acquired during 2010, partially offset by (iii) increased depreciation and amortization expense and (iv) a foreign currency exchange loss of $13.7 million during the quarter ended December 31, 2010 as compared to a loss of $10.2 million for the same period in 2009.

Revenues for the Same Store Facilities (see table below) increased 2.4% or $8.5 million in the quarter ended December 31, 2010 as compared to the same period in 2009, primarily due to a 1.7% increase in average occupancy and a 0.3% increase in realized rent per occupied square foot. Cost of operations for the Same Store Facilities decreased 2.1% or $2.1 million in the quarter ended December 31, 2010 as compared to the same period in 2009. Net operating income for our Same Store Facilities increased 4.2% or $10.6 million in the quarter ended December 31, 2010 as compared to the same period in 2009.

Operating Results for the Year Ended December 31, 2010

For the year ended December 31, 2010, net income allocable to our common shareholders was $399.2 million or $2.35 per diluted common share, compared to $586.0 million or $3.47 per diluted common share for the same period in 2009, representing a decrease of $186.8 million or $1.12 per diluted common share. This decrease is primarily due to (i) a foreign currency exchange loss of $42.3 million during the year ended December 31, 2010 compared to a $9.7 million gain during the same period in 2009, (ii) an aggregate $35.8 million increase in income allocated to the shareholders of redeemed securities, (including our equity share of PS Business Park’s (“PSB”) redemptions) in applying EITF D-42 to the redemption of securities in the year ended December 31, 2010, as compared to a $94.5 million decrease in income allocated to 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 real estate assets of $30.3 million related to an equity offering by PSB recorded in the year ended December 31, 2009.

Revenues for the Same Store Facilities increased 0.3% or $4.4 million for the year ended December 31, 2010 as compared to the same period in 2009. Cost of operations for the Same Store Facilities increased 0.7% or $3.4 million for the year ended December 31, 2010 as compared to the same period in 2009. Net operating income for our Same Store Facilities increased 0.1% or $1.0 million for the year ended December 31, 2010 as compared to the same period in 2009.

Funds from Operations

For the three months ended December 31, 2010, funds from operations (“FFO”) was $1.33 per common share on a diluted basis as compared to $1.27 per diluted common share for the same period in 2009, representing an increase of $0.06 per diluted common share or 4.7%.

For the three months ended December 31, 2010, FFO was impacted by (i) a foreign currency exchange loss totaling $13.7 million (compared to a loss of $10.2 million for the same period in 2009), (ii) application of EITF D-42 to the redemption of securities for the three months ended December 31, 2010 of $4.7 million, including our equity share of PSB’s redemptions and (iii) changes in accounting estimates with respect to our tenant insurance operations reflected as an increase in ancillary cost of operations totaling $1.9 million.

For the year ended December 31, 2010, FFO was $4.72 per common share on a diluted basis as compared to $5.61 per diluted common share for the same period in 2009, representing a decrease of $0.89 per diluted common share or 15.9%.

For the year ended December 31, 2010, FFO was impacted by (i) a $35.8 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 redemptions, and our equity share of PSB’s redemptions, of preferred equity in the same period in 2009), (ii) a foreign currency exchange loss totaling $42.3 million (compared to a gain of $9.7 million for the same period in 2009), (iii) incremental general and administrative expense associated with the acquisition of real estate facilities totaling $2.6 million and (iv) a $2.9 million impairment of long-lived assets (as compared to $8.2 million during the same period in 2009).

For the year ended December 31, 2009, FFO was further impacted by (i) a $4.1 million gain on the early retirement of debt, (ii) costs incurred to terminate and wind down our truck rental operations of $3.5 million, and (iii) changes in accounting estimates with respect to our tenant insurance operations reflected as a reduction in ancillary cost of operations totaling $2.0 million.

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

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 represent those 1,925 facilities that are stabilized and owned since January 1, 2008 and therefore provide meaningful comparisons for 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 December 31, 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 December 31, 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 €205.8 million ($272.7 million) of outstanding debt at December 31, 2010. The loans are payable to various banks and do not have recourse to Shurgard Europe or Public Storage. One of the JV loans, totaling €94.5 million ($125.2 million), is due May 2011 with an option to extend one additional year. The other JV loan, totaling €111.3 million ($147.5 million) matures in July 2013.

Our existing €373.7 million loan ($495.2 million at December 31, 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 €5.0 million ($6.8 million) in the three months ended December 31, 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 December 31, 2010, we acquired four self-storage facilities (302,000 net rentable square feet) for approximately $14.3 million located in Florida, New Jersey and Ohio. In addition, in January 2011, we acquired five facilities (386,000 net rentable square feet) in Nevada for approximately $19.5 million and in February 2011, we acquired the leasehold interest in the land at one of our existing self-storage facilities for approximately $6.6 million. We are also under contract to acquire another facility (138,000 net rentable square feet) in New York for approximately $17.0 million.

Capital and Other Investing Activities

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.

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 ended December 31, 2010, we recorded 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.

On November 5, 2010, we redeemed 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 $108.8 million. In applying EITF D-42 to this redemption, we allocated 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 ended December 31, 2010.

On February 9, 2011, we loaned PSB $121 million which PSB used to re-pay borrowings against its credit facility and repurchase preferred units. The loan has a six-month term, no prepayment penalties, and bears interest at a rate of three-month LIBOR plus 0.85%, which is favorable in comparison to our existing rate of return on cash balances. In addition, we repaid our $103 million 7.75% unsecured note that matured on February 22, 2011.

Liquidity Position

At December 31, 2010, we had approximately $456 million of cash and $102 million of short-term investments in high-grade corporate securities that matured in mid-February 2011. We also have access to our $300 million line of credit which does not expire until March 27, 2012. Our cash on hand is sufficient to fund debt payment requirements and other current payment commitments. As noted above, we loaned $121 million to PSB for a six-month term. In addition, our retained operating cash flow continues to provide a significant source of capital to fund our activities. During the quarter ended December 31, 2010, our funds from operations available to distribute to common shareholders (“FAD”) exceeded our regular common distributions by approximately $104 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 February 25, 2011, 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 March 31, 2011, to shareholders of record as of March 15, 2011.

Fourth Quarter Conference Call

A conference call is scheduled for Monday, February 28, 2011 at 10:00 a.m. (PST) to discuss the fourth quarter and year end December 31, 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 41792747). 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 March 15, 2011 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 41792747.

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 December 31, 2010, the Company had interests in 2,048 self-storage facilities located in 38 states with approximately 130 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 21.8 million rentable square feet of commercial space, primarily flex, multitenant office and industrial space, at December 31, 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, 2010 expected to be filed on or before March 1, 2011, 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. The following table reflects the operating results of these 91 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