These forward lookingforward-looking statements speak only as of the date of this report or as of the dates indicated in the statements. All of our forward-looking statements, including those in this report, are qualified in their entirety by this cautionary 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 these forward lookingforward-looking statements, except when expressly required by law. Given these risks and uncertainties, you should not rely on any forward-looking statements in this report, or which management may make orally or in writing from time to time, neither as predictions of future events nor guarantees of future performance.

This structure is commonly referred to as an umbrella partnership REIT, or UPREIT. Subsequent to the reorganization, the primary assets of the parent entity, Public Storage, are general partner and limited partner interests in Public Storage OP, L.P.

We also manage approximately 272023, we held interests in and consolidated 3,044 self-storage facilities for third parties.  We are seeking to expand our third-party management operations to further increase our economies(an aggregate of scale and leverage our brand; however, there is no assurance that we will be able to do so.  We also own 0.9218 million net rentable square feet of commercial space whichspace) operating under the Public Storage® name.

5

Ownership and operation of self-storage facilities is highly fragmented.  As the largest owner of self-storage facilities,However, we believe that we own approximately 7%the economies of thescale inherent in this business result in our being able to operate self-storage facilities at a materially higher level of cash flow per square footage in the U.S. and that collectively the five largest self-storage owners in the U.S. own approximately 15%, with the remaining 85% owned by numerous regional and local operators. 

We generally own facilities in major markets.  foot than other operators without our scale.

Participate in the growth of PS Business Parks, Inc.:Our investment in PSB provides diversification into another asset type.  PSB is a stand-alone public company traded on the NYSE.  As of December 31, 2017, we have a 42% equity interest in PSB.

PSB seeks to grow its asset base in favorable markets as well as increase the cash flows from its existing portfolio.  As of December 31, 2017, PSB owned and operated approximately 28.0 million rentable square feet of commercial space, and had an enterprise value of approximately $5.4 billion (based upon the trading price of PSB’s common stock combined with the liquidation value of its preferred stock as of December 31, 2017). 

Participate in the growth of Shurgard Europe:  We believe Shurgard Europe is the largest self-storage company in Western Europe.  It owns and operates 221 self-storage facilities with approximately 12 million net rentable square feet in: France (principally Paris), Sweden (principally Stockholm), the United Kingdom (principally London), the Netherlands, Denmark (principally Copenhagen), Belgium and Germany.  We own 49% of Shurgard Europe, with the other 51% owned by a large U.S. institutional investor. 

Customer awareness and availabilityoperation of self-storage is significantly lowerfacilities. These include various laws and regulations concerning environmental matters, labor matters, and employee safety and health matters. Further, our insurance activities are subject to state insurance laws and regulations as determined by the particular insurance commission for each state in Europe than in the U.S.  However,accordance with more awareness and product supply, we believe there is potential for increased demand for storage space in Europe.  In the long run, we believe Shurgard Europe could capitalize on potential increased demand through the development of new facilities or,certain federal regulations.

addition, from 2014 through 2017,  Shurgard Europe opened six development properties in the United Kingdom containing 507,000 net rentable square feet at a cost of $81.1 million.

Financing of the Company’s Growth Strategies

Overview of financing strategy and sources of capital:  As a REIT, we generally distribute 100% of our taxable income to our shareholders, which relative to a taxable C corporation, limits the amount of cash flow from operations that we can retain for investments.  As a result, in order to grow our asset base, access to capital is important. 

Our financial profile is characterized by strong credit metrics, including low leverage relative to our total capitalizationbuilding and operating cash flows.properties with high structural resilience and low obsolescence. We are one of the highest rated REITs, as rated by major rating agencies Moody’saccrue environmental assessments and Standard & Poor’s.  Our senior debt has an “A” credit rating by Standard & Poor’s and “A2” by Moody’s.  Our credit ratings on each of our series of preferred shares are “A3” by Moody’s and “BBB+” by Standard & Poor’s.  Our credit profile and ratings enables us to effectively access both the public and private capital markets to raise capital.

Sources of capital available to us include retained operating cash flow, the issuance of preferred and common securities, the issuance of medium and long-term debt, joint venture financingestimated remediation costs when it is probable that such efforts will be required and the sale of properties.  We view our line of credit, as well as short-term bank loans, as bridge financing.  

Historically, we have financed our cash investment activities primarilyrelated costs can be reasonably estimated. Our current practice is to conduct environmental investigations in connection with retained operating cash flow and the issuance of preferred securities.  While we have issued common shares, such issuances have been minimal, because preferred securities have had a more attractive cost of capital.  In 2015 and 2016, we issued euro-denominated medium-term debt primarily as a hedge to our euro-denominated investment in Shurgard Europe.  On September 18, 2017, we completed a public offering of $1.0 billion in aggregate principal amount of unsecured notes in two equal tranches (collectively, the “U.S. Dollar Notes”), one maturing in September 2022 bearing interest at 2.370%, and another maturing in September 2027 bearing interest at 3.094%.    While we have increased the level of debt in our capital structure, we expect to continue to remain conservatively capitalized and not subject ourselves to significant refinancing risk.

We do not expect to use joint venture financing or the sale of properties as sources of capital; however,property acquisitions. Although there can be no assurance, we are not aware of any environmental contamination of any of our facilities that individually or in the aggregate would be material to our overall business, financial condition, or results of operations.

result in compliance costs that had or will have a material effect on our capital expenditures, earnings, or competitive position.

Retained operating cash flow:  Although we are requiredopportunity to generally distribute 100%ask questions of our taxable incomeleadership. To better understand the effectiveness of our engagement strategies, we conduct various surveys to evaluate employee commitment, motivation, and engagement, and to seek employee feedback. We use this feedback to refine and enhance our shareholders, we are nonetheless able to retain operating cash flow topolicies and programs for our employees. This includes the extent that our tax depreciation exceeds our maintenance capital expenditures.  In recent years, we have retained approximately $200 million to $300 million per year in cash flow. 

Preferred equity:  As noted above, we view preferred equity as an important sourcecreation of capital over the long term.  However, ratesadditional career advancement opportunities and market conditions for the issuance of preferred securities can be volatile or inefficient from time to time, particularly so in the last few years.  Since 2013, we have issued preferred securities at fixed rates ranging from 4.900% to 6.375%.  Most recently, in August 2017, we issued $300 million of preferred securities at a fixed rate of 5.050%.  development programs.

factors, includingBoard, and is viewed as critical to ensuring business continuity and providing for the rate at which we could issue replacement preferred securities.  NoneCompany’s long-term growth and success. Periodically throughout each year, the executive team meets to review and assess the Company’s succession bench strength, evaluate talent, and provide recommendations for developing and preparing future leaders within the organization. This collaborative approach to talent management works to ensure that employees are given opportunities to grow beyond their current roles and responsibilities.

Medium or long-term debt:  We have broad powers to issue debt to fund our business.  Our corporate credit ratings are “A” by Standard & Poor’srecognition that we must operate in a responsible and “A2” by Moody’s.  We believe this high rating, combinedsustainable manner that aligns with our current level of debt, could allow us to issue additional unsecured debt at lower interest rates than the coupon rates on preferred securities. 

At December 31, 2017,  we have $1.0 billion of U.S. Dollar Notes, as noted above,long-term corporate strategy and approximately €342 million of Euro-denominated senior unsecured notes (the “Euro Notes”) outstanding, which were issued to institutional investors in 2015 and 2016.  

Common equity:  Except in connection with mergers, most notably a merger in 2006 with Shurgard Storage Centers, we have not raised capital through the issuance of common equity because lower cost alternatives have been available.  However, we believe that the market forpromotes our common equity is liquid and, as a result, common equity is a significant potential source of capital.        

Bridge financing:  We have a $500.0 million revolving line of credit which we occasionally use as temporary “bridge” financing,best interests along with short-term bank loans, until we are able to raise longer-term capital.  Asthose of December 31, 2017, there were no borrowings outstanding on our revolving line of creditstakeholders, including our customers, investors, employees, and no short-term bank loans.  

Unlikely capital alternatives: We have issued both our common and preferred securities in exchange for real estate and other investments in the past.  We do not expect such issuances to be a material source of capital in the future, though there can be no assurance. 

We have participated in joint ventures with institutional investors in the past to acquire, develop, and operate self-storage facilities, most notably Shurgard Europe,communities in which we owndo business.

Generally, we have disposed of self-storage facilities only when compelled to do so through condemnation proceedings.  Because we believe that we are an optimal operator of self-storage facilities, we have generally found that we cannot obtain sufficient value in selling properties.  As a result, we do not expect to raise significant capital selling self-storage facilities; however, though there can be no assurance that we will not.

Investments in Real Estate and Unconsolidated Real Estate Entities

Investment Policies and Practices with respectclimate change. Please refer to our investments: Following are our investment practices and policies which, though we do not anticipate any significant alteration, can be changed by our board of trustees (the “Board”) without a shareholder vote:

Facilities Owned by Unconsolidated Real Estate Entities

At December 31, 2017, we had ownership interests in PSB and Shurgard Europe (each discussed above), which we do not control or consolidate.  On December 31, 2017, we acquired the remaining 74.25% of the interests which we did not own in a partnership owning 12 self-storage facilities. 

PSB and Shurgard Europe, have debt and other obligations that we do not consolidate in our financial statements.  Such debt or other obligations have no recourse to us.  See Note 4 to our December 31, 2017 financial statementsSustainability Report for further disclosure regarding the assets, liabilities and operating results of PSB and Shurgard Europe, as well as PSB’s public filings which are available at its website, www.psbusinessparks.com and on the SEC website.

Canadian self-storage facilities owned by Former Chairman and Member of Board of Trustees 

At December 31, 2017, B. Wayne Hughes, our former Chairman and his daughter, Tamara Hughes Gustavson, a member of our Board of Trustees together owned and controlled 58 self-storage facilities in Canada.  These facilities operate under the “Public Storage” tradename, which we license to the owners of these facilities for use in Canada on a royalty-free, non-exclusive basis.  We have no ownership interest in these facilities and we do not own or operate any facilities in Canada.  If we chose to acquire or develop our own facilities in Canada, we would have to share the use of the “Public Storage” name in Canada.  We have a right of first refusal, subject to limitations, to acquire the stock or assets of the corporation engaged in the operation of these facilities if their owners agree to sell them.  Our subsidiaries reinsure risks relating to loss of goods stored by customers in these facilities, and have received approximately $1.1 million, $848,000 and $562,000 for the years ended December 31, 2017, 2016 and 2015, respectively.  Our right to continue receiving these premiums may be qualified.

Limitations on Debt

Our revolving credit facility, U.S. Dollar Notes and Euro Notes contain various customary financial covenants, including limitations on our ability to encumber our properties with mortgages and limitations on the level of indebtedness.  We believe we were in compliance with each of these covenants as of December 31, 2017.

Employees

We had approximately 5,600 employees in the U.S. at December 31, 2017 who are engaged primarily in property operations.    

information.

Insurance

We have historically carried property, earthquake, general liability, employee medical insurance and workers compensation coverage through internationally recognized insurance carriers, subject to deductibles.  Our deductible for general liability is $2.0 million per occurrence.  Our annual deductibles for property losses are $25.0 million for first occurrence with an aggregate of $35.0 million for multiple occurrences and $5.0 million per occurrence thereafter.  Insurance carriers’ aggregate limits on these policies of $75.0 million for property losses and $102.0 million for general liability losses are higher than estimates of maximum probable losses that could occur from individual catastrophic events determined in recent engineering and actuarial studies; however, in case of multiple catastrophic events, these limits could be exceeded.

We have significant exposure

be damaged as a result of our involvement with activities perceived to be causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.

enacted, especially if new approaches are adopted or laws are enacted that result in increased property tax assessments in states or geographies where we have a high concentration of facilities. See also “We have exposure to increased property tax in California” below.

Development of self-storage facilities can subject

increasesinability to complete development projects due to changes in or failure to meet government or regulatory requirements, failure of revenue to meet our underwriting estimates, delays caused by weather issues, unforeseen site conditions, or personnel problems. Self-storage space is generally not pre-leased, and rent-up of newly developed space can be delayed or ongoing cash flow yields can be reduced due to competition, reductions in storage demand, or other factors.

The Hughes Family could control us and take actions adverse to other shareholders.

At December 31, 2017, B. Wayne Hughes, our former Chairman and his family, which includes his daughter, Tamara Hughes Gustavson and his son, B. Wayne Hughes, Jr., who are both members of our Board of Trustees (collectively, the “Hughes Family”), owned approximately 14.3% of our aggregate outstanding common shares. Our declaration of trust permits the Hughes Family to own up to 35.66% of our outstanding common shares while it generally restricts the ownership by other persons and entities to 3% of our outstanding common shares. Consequently, the Hughes Family may significantly influence matters submitted to a vote of our shareholders, including electing trustees, amending our organizational documents, dissolving and approving other extraordinary transactions, such as a takeover attempt, resulting in an outcome that may not be favorableable to pursue separately, or it could take actions that we do not agree with.

If we failed to qualify as a REIT, we would have to pay substantial income taxes.

REITs are subject to a range of complex organizational and operational requirements.  A qualifying REIT does not generally incur federal income tax on its net income that is distributed to its shareholders.  Our REIT status is also dependent upondue to concentration of ownership levels, our declaration of trust generally limits the ongoing REIT qualificationability of PSBa person, other than the Hughes family or “designated investment entities” (each as a resultdefined in our declaration of trust), to own, actually or constructively, more than 3% of our substantial ownershipoutstanding common shares or 9.9% of the outstanding shares of any class or series of preferred or equity shares. Our Board may grant, and has previously granted, a specific exemption. These limits could discourage, delay, or prevent a transaction involving a change in control of the Company not approved by our Board.

Recent

We have over 5,500 employees and 1.5 million customers at any point of time,2023 net operating income is from our properties in California, and we conduct business at facilities with 159incurred approximately $49.1 million net rentable square feet of storage space.  As a result, we are subjectin related property tax expense. Due to the riskimpact of legal claimsProposition 13, which generally limits increases in assessed values to 2% per year, the assessed value and proceedings (including class actions) and regulatory enforcement actionsresulting property tax we pay is less than it would be if the properties were assessed at current estimated market values. From time to time, proposals have been made to reduce the beneficial impact of Proposition 13, most recently in the ordinary course of our business and otherwise, and we could incur significant liabilities and substantial legal fees as a result of these actions.  Resolution of these claims and actions may divert time and attention by our management and could involve payment of damagesNovember 2020 ballot. While this ballot initiative failed, there can be no assurance that future initiatives or expenses by us, all of which may be significant.  In addition, any such resolution could involve our agreement to terms that restrict the operation of our business.  The results of legal proceedings cannot be predicted with certainty.  We cannot guarantee losses incurred in connection with any current or future legal or regulatory proceedings orother legislative actions will not exceed any provisions we may have set aside ineliminate or reduce the benefit of Proposition 13 with respect to our properties. If the beneficial effect of such proceedings or actions or will not exceed any available insurance coverage.  The impact of any such legal claims, proceedings, and regulatory enforcement actions andProposition 13 were ended for our properties, our property tax expense could negatively impactincrease substantially, adversely affecting our operating results, cash flow available for distribution or reinvestment, and or the price of our common shares.  

We are heavily dependent on computer systems, telecommunications and the Internet to process transactions, summarize results and manage our business.  Security breaches or a failure of such networks, systems or technology could adversely impact our business, customer, and employee relationships.

We are heavily dependent upon automated information technology and Internet commerce, with more than half of our new customers coming from the telephone or over the Internet, and the nature of our business involves the receipt and retention of personal information about our customers.  We also maintain personally identifiable information about our employees.  We centrally manage significant components of our operations with our computer systems, including our financial information, and we also rely extensively on third-party vendors to retain data, process transactions and provide other systems services.  These systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer worms, viruses and other destructive or disruptive security breaches and catastrophic events.

As a result, our operations could be severely impacted by a natural disaster, terrorist attack or other circumstance that results in a significant outage of our systems or those of our third party providers, despite our use of back up and redundancy measures.  Our or our customers’ or employees’ confidential information could be compromised or misappropriated, due to a breach of our network security.  Such cybersecurity and data security breaches as well as systems disruptions and shutdowns could result in additional costs to repair or replace such networks or information systems and possible legal liability, including government enforcement actions and private litigation.  In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to discontinue leasing our self-storage facilities.  Such events could lead to lost future revenues and adversely affect our results of operations and could result in remedial and other costs, fines or lawsuits, which could be in excess of any available insurance that we have procured.  

net income.

In responseenacted or are considering enacting privacy laws similar to current economic conditions or the current political environment or otherwise,those passed in California. Similar laws and regulations couldmay be implemented or changedin other jurisdictions in which we do business and in ways that adversely affect our operating results and financial condition, such as legislation that could facilitate union activity or that would otherwise increase operating costs.

Allmay be more restrictive than those in California, increasing the cost of our properties must comply with the Americans with Disabilities Act and with related regulations and similar state law requirements,compliance, as well as various real estate and zoning laws and regulations, which are subject to change and could become more costly to comply with in the future.  Compliance with these requirements can require us to incur significant expenditures, which would reduce cash otherwise available for distribution to shareholders.  A failure to comply with these laws could lead to fines or possible awardsrisk of damages to individuals affected by the non-compliance.  Failure to comply with these requirements could also affect the marketability ofnoncompliance, on our real estate facilities.

business.

Description of Self-Storage Facilities:Self-storageself-storage spaces, a more imposing and visible retail presence, and a prominent and large rental office designed to appeal to customers as an attractive and retail-focused “store.” Our self-storage portfolio includes facilities which comprise the majority of our investments, offer accessible storage space for personal and business use at a relatively low cost.  A user rents a fully enclosed space, securing the space with their lock, which is for the user's exclusive use and to which only the user has access.  Property managers operate the facility and are supervised by district managers.  Some self-storage facilities also include rentable uncovered parking areas for vehicle storage.  Space is rented on a month-to-month basis and rental rates vary according to the locationcharacteristics of the property, the sizeoldest facilities, characteristics of the storage spacemost recently constructed facilities, and otherthose with characteristics that affect the relative attractiveness of each particular space, such as whether the space has “drive-up” access, its proximity to elevators, or if the space is climate controlled.  All of our self-storage facilities in the U.S. are operated under the "Public Storage" brand name, while our facilities in Europe are operated under the “Shurgard” brand name.

Users include individuals from virtually all demographic groups, as well as businesses.  Individuals usually store furniture, household appliances, personal belongings, motor vehicles, boats, campers, motorcyclesboth older and other household goods.  Businesses normally store excess inventory, business records, seasonal goods, equipment and fixtures.

Our self-storage facilities generally consist of between 350 to 750 storage spaces.recently constructed facilities. Most spaces have between 25 and 400 square feet and an interior height of approximately eight to 12 feet.

We experience minor seasonal fluctuations in

As of February 26, 2018,13, 2024, there were approximately 12,7959,586 holders of record of our Common Shares.  Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

We have continuously paid quarterly distributions to our shareholders since 1981, our first full year of operations.  During 2017 we paid distributions to our common shareholders of $2.00 per common share for each of the quarters ended March 31, June 30, September 30 and December 31, representing an aggregate of $1.388 billion or $8.00 per share.  During 2016 we paid distributions to our common shareholders of $1.70 per common share for the quarter ended March 31, $1.80 per common share for each of the quarters ended June 30 and September 30 and $2.00 per common share for the quarter ended December 31, representing an aggregate of $1.263  billion or $7.30 per share.  During 2015 we paid distributions to our common shareholders of $1.40 per common share for the quarter ended March 31 and $1.70 per common share for each of the quarters ended June 30, September 30 and December 31, representing an aggregate of $1.122 billion or $6.50 per share. 

Holders of common shares are entitled to receive distributions when and if declared by our Board out of any funds legally available for that purpose.  As a REIT, we do not incur federal income tax on our REIT taxable income (generally, net rents and gains from real property, dividends, and interest) that is fully distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we meet certain organizational and operational rules.  We believe we have met these requirements in all periods presented herein, and we expect to continue to elect and qualify as a REIT.  

For Federal income tax purposes, distributions to shareholders are treated as ordinary income, capital gains, return of capital or a combination thereof.  For 2017, 0.0743%, 0.0805% and 0.5352% of the dividends paid in the first, second and fourth quarters, respectively, were classified as long-term capital gain, with the remainder and all other dividends being classified as 100% ordinary income.    For 2016, the dividends paid on common shares and preferred shares were all classified as 100% ordinary income.

We are authorized to issue 100,000,000 equity shares from time to time in one or more series and our Board has broad authority to fix the dividend and distribution rights, conversion and voting rights, redemption provisions and liquidation rights of each series of equity shares.  We had no equity shares outstanding for any period in the years ended December 31, 2017, 2016 or 2015.  We have no plans to issue equity shares.

Our Board has authorized management to repurchase up to 35,000,000 of our common shares on the open market or in privately negotiated transactions. From the inception of the repurchase program through February 28, 2018,20, 2024, we have repurchased a total of 23,721,916 common shares (all purchased prior to 2010) at an aggregate cost of approximately $679.1 million. Our common share repurchase program does not have an expiration date and there are 11,278,084 common shares that may yet be repurchased under our repurchase program as of December 31, 2017.2023. We have no current plans to repurchase shares; however, future levels of common share repurchases will be dependent upon our available capital, investment alternatives, and the trading price of our common shares.

determine reported amounts of assets, liabilities, revenues, and expenses that are not readily apparent from other sources.