Public Storage (PSA) 8-K Results of Operations and Financial Condition

News Release

Public Storage

701 Western Avenue

Glendale, CA 91201-2349

PublicStorage.com

For Release	Immediately
Date	February 26,  2019
Contact	Ryan Burke
	(818) 244-8080, Ext. 1141

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

GLENDALE,  California – 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 $33.3million 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.

1

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,
					Percentage					Percentage
	2018		2017		Change	2018		2017		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%

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.  

3

(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%

4

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%

5

Same Store Facilities Operating Trends by Market (Continued)
		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%

6

Same Store Facilities Operating Trends by Market (Continued)
	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%

7

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

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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 10-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

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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.

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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.   

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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

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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. 

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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.

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