Public Storage (NYSE:PSA) announced today operating results for the three and nine months ended September 30, 2022.

“Public Storage’s performance and improved outlook reflect the strength and quality of our assets and management team, backed by several industry-leading platforms,” said Joe Russell, President and Chief Executive Officer. “Our digital innovation centers on enhanced customer service, which has contributed to direct operating margins in excess of 80%, the highest in the self-storage industry. The recent acquisition, development, and redevelopment properties comprise more than 50 million square feet, or 25% of the portfolio, and are generating significant growth. And our long-standing focus on utilizing a disciplined balance sheet provides exceptional capital access to execute on a wide set of potential opportunities in the evolving macro environment. We are well-positioned heading into 2023.”

Highlights for the Three Months Ended September 30, 2022

• Reported net income allocable to common shareholders of $15.38 per diluted share.

• Reported core FFO allocable to common shareholders (“Core FFO”) of $4.13 per diluted share, an increase of 20.8% relative to the same period in 2021.

• Increased Same Store (as defined below) direct net operating income by 16.5%, resulting from a 14.7% increase in Same Store revenues.

• Achieved 80.3% Same Store direct net operating income margin, an increase of 1.6% relative to the same period in 2021.

• Acquired 24 self-storage facilities with 1.7 million net rentable square feet for $250.6 million. Subsequent to September 30, 2022, we acquired or were under contract to acquire 33 self-storage facilities with 1.7 million net rentable square feet, for $262.6 million.

• Opened five newly developed facilities and completed various expansion projects with 0.5 million net rentable square feet costing $69.7 million. At September 30, 2022, we had various facilities in development and expansion with 5.1 million net rentable square feet estimated to cost $1.0 billion.

• Distributed a one-time dividend of $13.15 per common share totaling $2.3 billion in August 2022, in connection with the sale of our equity investment of PS Business Park, Inc. (“PSB”), upon completion of its merger transaction with the affiliates of Blackstone Real Estate (“Blackstone”) on July 20, 2022.

Operating Results for the Three Months Ended September 30, 2022

For the three months ended September 30, 2022, net income allocable to our common shareholders was $2,712.2 million or $15.38 per diluted common share, compared to $442.3 million or $2.52 per diluted common share in 2021, representing an increase of $2,269.9 million or $12.86 per diluted common share. The increase is due primarily to (i) a $2.1 billion gain on sale of our equity investment in PSB, (ii) a $148.4 million increase in self-storage net operating income, and (iii) a $59.3 million increase in foreign currency exchange gains primarily associated with our Euro denominated notes payable, partially offset by (iv) a $32.2 million increase in depreciation and amortization expense, (v) a $24.7 million decrease in equity in earnings of unconsolidated real estate entities due to the sale of our equity investment in PSB, and (vi) a $10.4 million increase in interest expense.

The $148.4 million increase in self-storage net operating income in the three months ended September 30, 2022 as compared to the same period in 2021 is a result of a $91.9 million increase attributable to our Same Store Facilities and a $56.5 million increase attributable to our Non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities increased 14.7% or $105.4 million in the three months ended September 30, 2022 as compared to the same period in 2021, due primarily to higher realized annual rent per occupied square foot, partially offset by decline in occupancy. Cost of operations for the Same Store Facilities increased by 7.7% or $13.5 million in the three months ended September 30, 2022 as compared to the same period in 2021, due primarily to increased property tax expense, marketing expense, other direct property costs, and centralized management costs. The increase in net operating income of $56.5 million for the Non-Same Store Facilities is due primarily to the impact of facilities acquired in 2021 and the fill-up of recently developed and expanded facilities.

Operating Results for the Nine Months Ended September 30, 2022

For the nine months ended September 30, 2022, net income allocable to our common shareholders was $3,779.7 million or $21.44 per diluted common share, compared to $1,174.4 million or $6.70 per diluted common share in 2021, representing an increase of $2,605.3 million or $14.74 per diluted common share. The increase is due primarily to (i) a $2.1 billion gain on sale of our equity investment in PSB, (ii) a $476.6 million increase in self-storage net operating income, and (iii) a $163.7 million increase in foreign currency exchange gains primarily associated with our Euro denominated notes payable, partially offset by (iv) a $153.5 million increase in depreciation and amortization expense, and (v) a $39.2 million increase in interest expense.

The $476.6 million increase in self-storage net operating income in the nine months ended September 30, 2022 as compared to the same period in 2021 is a result of a $283.2 million increase attributable to our Same Store Facilities and a $193.4 million increase attributable to our Non-Same Store Facilities. Revenues for the Same Store Facilities increased 15.4% or $315.9 million in the nine months ended September 30, 2022 as compared to the same period in 2021, due primarily to higher realized annual rent per occupied square foot, partially offset by decline in occupancy. Cost of operations for the Same Store Facilities increased by 6.2% or $32.7 million in the nine months ended September 30, 2022 as compared to the same period in 2021, due primarily to increased property tax expense, on-site property manager payroll expense, other direct property costs, and centralized management costs. The increase in net operating income of $193.4 million for the Non-Same Store Facilities is due primarily to the impact of facilities acquired in 2021 and the fill-up of recently developed and expanded facilities.

Funds from Operations

Funds from Operations (“FFO”) and FFO per share are non-GAAP measures defined by the National Association of Real Estate Investment Trusts and are considered helpful measures of REIT performance by REITs and many REIT analysts. FFO represents net income before depreciation and amortization, which is excluded because it 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. FFO also excludes gains or losses on sale of real estate assets and real estate impairment charges, which are also based upon historical costs and are impacted by historical depreciation. FFO and FFO per share are not a substitute for net income or earnings per share. FFO is not a substitute for net cash flow in evaluating our liquidity or ability to pay dividends, because it excludes investing and financing activities presented on our consolidated statements of cash flows. In addition, other REITs may compute these measures differently, so comparisons among REITs may not be helpful.

For the three months ended September 30, 2022, FFO was $4.66 per diluted common share as compared to $3.61 in the same period in 2021, representing an increase of 29.1%.

For the nine months ended September 30, 2022, FFO was $13.08 per diluted common share, as compared to $9.69 in the same period in 2021, representing an increase of 35.0%.

We also present “Core FFO” and “Core FFO per share,�� non-GAAP measures that represent FFO and FFO per share excluding the impact of (i) foreign currency exchange gains and losses, (ii) charges related to the redemption of preferred securities, and (iii) certain other non-cash and/or nonrecurring income or expense items primarily representing, with respect to the periods presented below, the impact of loss contingency accruals and casualties, unrealized gain on private equity investments and our equity share of merger transaction costs, severance of a senior executive, and casualties from our equity investees. We review Core FFO and Core FFO per share to evaluate our ongoing operating performance, and we believe they are used by investors and REIT analysts in a similar manner. However, Core FFO and Core FFO per share are not substitutes for net income and net income per share. Because other REITs may not compute Core FFO or Core FFO per share in the same manner as we do, may not use the same terminology, or may not present such measures, Core FFO and Core FFO per share may not be comparable among REITs.

The following table reconciles net income to FFO and Core FFO and reconciles diluted earnings per share to FFO per share and Core FFO per share (unaudited):

Property Operations – Same Store Facilities

The Same Store Facilities consist of facilities that have been owned and operated on a stabilized level of occupancy, revenues, and cost of operations since January 1, 2020. The composition of our Same Store Facilities allows us to more effectively evaluate the ongoing performance of our self-storage portfolio in 2020, 2021, and 2022 and exclude the impact of fill-up of unstabilized facilities, which can significantly affect operating trends. We believe the Same Store information is used by investors and analysts in a similar manner. However, because other REITs may not compute Same Store Facilities in the same manner as we do, may not use the same terminology, or may not present such a measure, Same Store Facilities may not be comparable among REITs. The following table summarizes the historical operating results of these 2,282 facilities (149.5 million net rentable square feet) that represent approximately 74% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at September 30, 2022 (unaudited):

Property Operations – Non-Same Store Facilities

In addition to the 2,282 Same Store Facilities, we have 554 facilities that were not stabilized with respect to occupancies, revenues, or cost of operations since January 1, 2020 or that we did not own as of January 1, 2020, including 338 facilities that were acquired, 59 newly developed facilities, 91 facilities that have been expanded or are targeted for expansion, and 66 facilities that are unstabilized because they are undergoing fill-up or were damaged in casualty events (collectively, the “Non-Same Store Facilities”). Operating data, metrics, and further commentary with respect to these facilities, including detail by vintage, are included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Analysis of Net Income – Self-Storage Operations” in our September 30, 2022 Form 10-Q.

Investing and Capital Activities

During the three months ended September 30, 2022, we acquired 24 self-storage facilities (ten in Oklahoma, three in South Carolina, two each in Alabama and Texas, and one each in Arizona, Florida, Iowa, Nevada, New Jersey, North Carolina and Ohio) with 1.7 million net rentable square feet for $250.6 million. During the nine months ended September 30, 2022, we acquired 44 self-storage facilities (ten in Oklahoma, seven in Texas, four in North Carolina, three in South Carolina, two each in Alabama, Arizona, Florida, Maryland and Nevada, and one each in Colorado, Georgia, Indiana, Iowa, Minnesota, New Jersey, Ohio, Oregon, Pennsylvania and Tennessee) with 3.2 million net rentable square feet for $501.9 million.

Additionally, on July 8, 2022, we acquired from PSB the commercial interests in five properties at three sites jointly occupied with our self-storage facilities located in Maryland and Virginia, for $47.3 million.

Subsequent to September 30, 2022, we acquired or were under contract to acquire 33 self-storage facilities across six states with 1.7 million net rentable square feet, for $262.6 million.

During 2021, we acquired a portfolio of 48 properties (4.1 million net rentable square feet) operated under the brand name of ezStorage for $1.8 billion. These facilities generated revenues of $74.7 million, NOI of $59.0 million (including Direct NOI of $61.1 million), and average square footage occupancy of 90.1% for the nine months ended September 30, 2022.

During 2021, we acquired a portfolio of 56 properties (7.5 million net rentable square feet) operated under the brand name of All Storage for $1.5 billion. These facilities generated revenues of $57.3 million, NOI of $33.5 million (including Direct NOI of $35.7 million), and average square footage occupancy of 79.3% for the nine months ended September 30, 2022.

During the three months ended September 30, 2022, we opened five newly developed facilities and completed various expansion projects (0.5 million net rentable square feet – 0.1 million each in Florida, Illinois, Kentucky, Michigan and Texas) costing $69.7 million. During nine months ended September 30, 2022, we opened five newly developed facilities and completed various expansion projects (0.9 million net rentable square feet – 0.2 million each in Florida and Minnesota, and 0.1 million each in Illinois, Kentucky, Michigan, New Jersey and Texas) costing $126.0 million. At September 30, 2022, we had various facilities in development (2.1 million net rentable square feet) estimated to cost $421.0 million and various expansion projects (3.0 million net rentable square feet) estimated to cost $590.9 million. Our aggregate 5.1 million net rentable square foot pipeline of development and expansion facilities includes 1.8 million in California, 0.6 million in Texas, 0.5 million in Florida, 0.4 million in Maryland, 0.3 million in Washington, 0.2 million each in Hawaii, Michigan, Nevada, New Jersey and New York, and 0.5 million in other states. The remaining $605.5 million of development costs for these projects is expected to be incurred primarily in the next 18 to 24 months.

On April 24, 2022, PSB entered into an Agreement and Plan of Merger whereby affiliates of Blackstone agreed to acquire all outstanding shares of PSB’s common stock for $187.50 per share in cash. On July 20, 2022, PSB announced that it completed the merger transaction with Blackstone. Each share of PSB common stock and each common unit of partnership interest we held in PSB were converted into the right to receive the merger consideration of $187.50 per share or unit, including a $5.25 closing cash dividend per share or unit, and a $0.22 prorated quarterly cash dividend per share or unit, for a total of $187.72 per share or unit. At the close of the merger transaction, we received a total of $2.7 billion of cash proceeds and recognized a gain of $2.1 billion, which was classified within gain on sale of our equity investment in PS Business Parks, Inc. in the Consolidated Statement of Income.

In connection with the sale of our equity investment in PSB, on August 4, 2022, we paid a special cash dividend of $13.15 per common share, totaling approximately $2.3 billion, to shareholders of record as of August 1, 2022.

On August 15, 2022, the Company redeemed its 2.370% Senior Notes due September 15, 2022, with an aggregate principal amount of $500.0 million.

Distributions Declared

On October 26, 2022, 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 December 29, 2022 to shareholders of record as of December 14, 2022.

Outlook for the Year Ending December 31, 2022

The following table outlines the Company’s Core FFO per share estimate and certain underlying assumptions for the year ending December 31, 2022, including the impact of the sale of our investment in PSB to Blackstone on July 20, 2022:

Forward-looking Core FFO per share measures exclude estimates for the impact of (i) foreign currency exchange gains and losses, (ii) charges related to the redemption of preferred securities, and (iii) certain other significant non-cash and/or nonrecurring income or expense items such as loss contingency accruals, casualties, transactional due diligence, and advisory costs. Public Storage is unable to provide a reconciliation of Core FFO per share guidance measures to corresponding U.S. GAAP measures on a forward-looking basis without unreasonable effort due to the overall high variability of most of the foregoing items that have been excluded. The items that are being excluded are difficult to predict and a reconciliation could result in disclosure that would be imprecise or potentially misleading. Material changes to any one of these items could have a significant effect on our guidance and future U.S. GAAP results.

Third Quarter Conference Call

A conference call is scheduled for November 2, 2022 at 9:00 a.m. (PDT) to discuss the third quarter earnings results. The domestic dial-in number is (800) 343-4849, and the international dial-in number is (203) 518-9848 (conference ID number for either domestic or international is PSAQ322). A simultaneous audio webcast may be accessed by using the link at www.publicstorage.com under “About Us, Investor Relations, News and Events, Event Calendar.” A replay of the conference call may be accessed through November 9, 2022 by calling (800) 727-1367 (domestic), (402) 220-2669 (international) or by using the link at www.publicstorage.com under “About Us, Investor Relations, News and Events, Event Calendar.”

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. At September 30, 2022, we had: (i) interests in 2,836 self-storage facilities located in 40 states with approximately 202 million net rentable square feet in the United States and (ii) a 35% common equity interest in Shurgard Self-Storage SA (Euronext Brussels:SHUR), which owned 259 self-storage facilities located in seven Western European nations with approximately 14 million net rentable square feet operated under the Shurgard® brand. Our headquarters are located in Glendale, California.

This press release, our Form 10-Q for the third quarter of 2022, a financial supplement, and additional information about Public Storage are available on our website, www.publicstorage.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include statements relating to our 2022 outlook and all underlying assumptions, our expected acquisition, disposition, development and redevelopment activity, supply and demand for our self-storage facilities, information relating to operating trends in our markets, expectations regarding operating expenses, including property tax changes, expectations regarding the impacts from inflation and a potential future recession, our strategic priorities, expectations with respect to financing activities, rental rates, cap rates and yields, leasing expectations, our credit ratings, and all other statements other than statements of historical fact. Such statements are based on management’s beliefs and assumptions made based on information currently available to management. All statements in this press release, other than statements of historical fact, are forward-looking statements that may be identified by the use of the words “outlook,” “guidance,” “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 factors and risks 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 February 22, 2022 and in our other filings with the SEC. These include changes in demand for our facilities, impacts of natural disasters, adverse changes in laws and regulations including governing property tax, evictions, rental rates, minimum wage levels, and insurance, adverse economic effects from the COVID-19 pandemic, international military conflicts, or similar events impacting public health and/or economic activity, increases in the costs of our primary customer acquisition channels, adverse impacts to us and our customers from inflation, unfavorable foreign currency rate fluctuations, changes in federal or state tax laws related to the taxation of REITs, and security breaches, including ransomware, or a failure of our networks, systems or technology.

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