Public Storage Reports Results for the Third Quarter Ended September 30, 2011

GLENDALE, Calif.--(BUSINESS WIRE)-- Public Storage (NYSE:PSA) announced today operating results for the third quarter ended September 30, 2011.

Operating Results for the Three Months Ended September 30, 2011

For the three months ended September 30, 2011, net income allocable to our common shareholders was $118.0 million or $0.69 per diluted common share, compared to $182.2 million or $1.07 per diluted common share for the same period in 2010, representing a decrease of $64.2 million or $0.38 per diluted common share. This decrease is due to (i) a foreign currency exchange loss of $28.3 million during the quarter ended September 30, 2011 as compared to a gain of $55.5 million for the same period in 2010 and (ii) $16.2 million in Emerging Issues Task Force D-42 (“EITF D-42”) charges related to the redemption of our preferred securities, partially offset by (iii) improved operations of our Same Store Facilities (discussed below) and our non-same store facilities and (iv) increased equity in earnings from Shurgard Europe, due primarily to Shurgard Europe’s acquisition of its joint venture partner’s interests on March 2, 2011.

Revenues for the Same Store Facilities (see table below) increased 5.8% or $21.4 million in the quarter ended September 30, 2011 as compared to the same period in 2010, primarily due to a 1.3% increase in average occupancy and a 4.0% increase in realized rent per occupied square foot. Cost of operations for the Same Store Facilities remained flat in the quarter ended September 30, 2011 as compared to the same period in 2010. Net operating income for our Same Store Facilities increased 8.6% or $21.3 million in the quarter ended September 30, 2011 as compared to the same period in 2010.

Operating Results for the Nine Months Ended September 30, 2011

For the nine months ended September 30, 2011, net income allocable to our common shareholders was $397.5 million or $2.33 per diluted common share, compared to $277.8 million or $1.64 per diluted common share for the same period in 2010, representing an increase of $119.7 million or $0.69 per diluted common share. This increase is due to (i) improved operations of our Same Store Facilities (discussed below) and our non-same store facilities, (ii) a foreign currency exchange gain of $13.5 million during the nine months ended September 30, 2011 as compared to a loss of $28.6 million for the same period in 2010, (iii) increased equity in earnings and interest and other income from Shurgard Europe, due primarily to Shurgard Europe’s acquisition of its joint venture partner’s interests on March 2, 2011.

Revenues for the Same Store Facilities (see table below) increased 4.4% or $47.7 million in the nine months ended September 30, 2011 as compared to the same period in 2010, primarily due to a 1.6% increase in average occupancy and a 2.4% increase in realized rent per occupied square foot. Cost of operations for the Same Store Facilities remained flat in the nine months ended September 30, 2011 as compared to the same period in 2010. Net operating income for our Same Store Facilities increased 6.8% or $47.9 million in the nine months ended September 30, 2011 as compared to the same period in 2010.

Funds from Operations

For the three months ended September 30, 2011, funds from operations (“FFO”) was $1.29 per common share on a diluted basis as compared to $1.69 per diluted common share for the same period in 2010, representing a decrease of $0.40 per diluted common share.

For the three months ended September 30, 2011, FFO was impacted by a foreign currency exchange loss of $28.3 million (compared to a gain of $55.5 million for the same period in 2010), and a $16.2 million charge related to our redemptions of preferred shares in applying EITF D-42.

For the nine months ended September 30, 2011, FFO was $4.17 per common share on a diluted basis as compared to $3.39 per diluted common share for the same period in 2010, representing an increase of $0.78 per diluted common share.

For the nine months ended September 30, 2011, FFO was impacted by a foreign currency exchange gain of $13.5 million (compared to a loss of $28.6 million for the same period in 2010), and a $29.1 million net charge related to our redemptions of preferred shares, including our equity share from PSB, in applying EITF D-42 (compared to $31.1 million due to our redemptions of preferred shares, including our equity share from PSB, and our redemption of our Equity Shares, Series A for the same period in 2010).

Our FFO for each period was also impacted by various items such as impairment charges, acquisition due diligence costs, changes in accounting estimates, gains on early redemption of debt, as well as our equity share of PSB’s lease termination benefits. The net impact of these items was a $0.01 reduction in FFO per share for the three months ended September 30, 2011 and for each of the nine months ended September 30, 2011 and 2010, and a $0.01 increase in FFO per share for the three months ended September 30, 2010.

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 represent those 1,931 facilities that are stabilized and owned since January 1, 2009 and therefore provide meaningful comparisons for 2010 and 2011. The following table summarizes the historical operating results of these 1,931 facilities (121.6 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, 2011.

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, 2011, Shurgard Europe had an interest in 188 facilities (10 million net rentable square feet) located in seven Western European countries.

Our €343.0 million loan ($466.3 million at September 30, 2011) to Shurgard Europe matures on March 31, 2013, and accrues interest at 9.0% per annum. We received principal payments on this loan totaling €30.7 million ($42.7 million) in the nine months ended September 30, 2011. The loan is denominated in Euros, and 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.

Shurgard Europe expects to obtain a new three year term loan of €215 million, and will use the proceeds to repay its existing two JV loans totaling €187 million at September 30, 2011 and make an additional principal payment on our loan to Shurgard Europe. The new loan will have a lower interest rate than the existing JV loans and will provide Shurgard Europe the flexibility to simplify its ownership structure and eliminate various costs associated with the former joint ventures. In connection with this financing, we expect to extend the maturity date for our loan to Shurgard Europe to the first quarter of 2015. Completion of this financing is subject to certain contingencies.

Investing Activities

During the three months ended September 30, 2011, we acquired three properties, one each in California, Florida and Maryland for approximately $27 million and having 217,000 net rentable square feet. On October 25, 2011, we acquired an additional property in California for approximately $10.5 million with 87,000 net rentable square feet.

On August 23, 2011, we completed the acquisition of the remaining interests we did not already own in five partnerships for $155.4 million consisting of $98.3 million in cash and approximately 478,000 Public Storage common shares with a market value on the date of closing of $57.1 million. In addition, in late October 2011, we acquired the remaining interests we did not own in two previously consolidated partnerships for $6.3 million in cash.

Capital Activities

On July 26, 2011, we issued 19,500,000 depositary shares at $25.00 per depositary share, with each depositary share representing 1/1,000 of a 6.35% Cumulative Preferred Share of Beneficial Interest, Series R. The offering resulted in net proceeds of approximately $488 million.

On August 22, 2011, we redeemed all outstanding depositary shares representing interest in our 7.25% Cumulative Preferred Share of Beneficial Interest, Series K for $424.8 million, excluding accrued dividends. In the quarter ended September 30, 2011, we recorded an allocation of income pursuant to EITF D-42 to the holders of these shares of approximately $13 million.

On September 30, 2011, we redeemed all outstanding depositary shares representing interest in our 7.00% Cumulative Preferred Share of Beneficial Interest, Series G for $100 million, excluding accrued dividends. In the quarter ended September 30, 2011, we recorded an allocation of income pursuant to EITF D-42 to the holders of these shares of approximately $3 million.

On October 26, 2011, we called for redemption all outstanding depositary shares representing interest in our 6.95% Cumulative Preferred Share of Beneficial Interest, Series H for an aggregate of $105 million, excluding accrued dividends. The redemption will occur on November 28, 2011. In the quarter ending December 31, 2011, we expect to record an allocation of income pursuant to EITF D-42 to the holders of these shares of approximately $3.5 million.

Distributions Declared

On November 3, 2011, our Board of Trustees declared a regular common dividend of $0.95 per common share. The Board also declared dividends with respect to our various series of preferred shares. All the dividends are payable on December 29, 2011, to shareholders of record as of December 14, 2011.

Third Quarter Conference Call

A conference call is scheduled for Friday, November 4, 2011 at 10:00 a.m. (PDT) to discuss the third quarter ended September 30, 2011 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 15951474). 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 11, 2011 by calling (800) 585-8367 (domestic) or (404) 537-3406 (international) or by using the link at www.publicstorage.com under “Company Info, Investor Relations, Webcasts.” All forms of replay utilize conference ID number 15951474.

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, 2011, the Company had interests in 2,056 self-storage facilities located in 38 states with approximately 131 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 42% 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 September 30, 2011.

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, Form 10-Q for the period ended September 30, 2011 expected to be filed on or before November 9, 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

The Shurgard Europe Same Store Pool presented below represents those 150 facilities that are wholly-owned and have been operated by Shurgard Europe at a stabilized occupancy level since January 1, 2009 and therefore provide meaningful comparisons for 2009, 2010 and 2011. 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.

Public Storage
Clemente Teng
(818) 244-8080, Ext. 1141

Source: Public Storage