Public Storage Reports Results for the Three and Nine Months Ended September 30, 2021

GLENDALE, Calif.–(BUSINESS WIRE)–Public Storage (NYSE:PSA) announced today operating results for the three and nine months ended September 30, 2021.

Highlights for the Three Months Ended September 30, 2021

Reported net income allocable to common shareholders of $2.52 per diluted share.
Reported core FFO allocable to common shareholders (“Core FFO”) of $3.42 per diluted share, an increase of 30.0% relative to the same period in 2020.
Increased Same Store (as defined below) direct net operating income by 20.8%, resulting from a 14.0% increase in Same Store revenues and a 6.2% decrease in Same Store direct cost of operations.
Achieved 79.1% Same Store direct net operating income margin, an increase of 4.5% relative to the year ended December 31, 2020.
Acquired 27 self-storage facilities with 2.2 million net rentable square feet for $0.3 billion. Subsequent to September 30, 2021, we acquired or were under contract to acquire 107 self-storage facilities across 16 states with 11.8 million net rentable square feet, for $2.3 billion.
Opened one newly developed facility and various expansion projects with 0.7 million net rentable square feet costing $85.5 million. At September 30, 2021, we had various facilities in development and expansion with 4.6 million net rentable square feet estimated to cost $730.6 million.
Issued €700.0 million of unsecured senior note bearing an annual rate of 0.500% and $143.8 million of 3.950% preferred equity, continuing to lower our in place cost of capital.

Operating Results for the Three Months Ended September 30, 2021

For the three months ended September 30, 2021, net income allocable to our common shareholders was $442.3 million or $2.52 per diluted common share, compared to $246.9 million or $1.41 per diluted common share in 2020 representing an increase of $195.4 million or $1.11 per diluted common share. The increase is due primarily to (i) a $148.7 million increase in self-storage net operating income (described below), (ii) a $82.8 million increase due to the impact of foreign currency exchange gains and losses associated with our Euro denominated debt, (iii) a $23.3 million increase due to the impact of the redemption of preferred shares in the three months ended September 30, 2020, partially offset by (iv) a $50.2 million increase in depreciation and amortization expense.

The $148.7 million increase in self-storage net operating income is a result of a $96.2 million increase in our Same Store Facilities (as defined below), and a $52.5 million increase in our Non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities increased 14.0% or $87.8 million in the three months ended September 30, 2021 as compared to 2020, due primarily to higher realized annual rent per available square foot and weighted average square foot occupancy. Cost of operations for the Same Store Facilities decreased by 4.6% or $8.5 million in the three months ended September 30, 2021 as compared to 2020, due primarily to a 43.3% ($7.0 million) decrease in marketing expenses, an 8.4% ($2.6 million) decrease in on-site property manager payroll, and a change in property tax timing contributing to a 2.7% ($2.0 million) decrease in property tax expense. The increase in net operating income of $52.5 million for the Non-Same Store Facilities is due primarily to the impact of facilities acquired in 2020 and 2021 and the fill-up of recently developed and expanded facilities.

Operating Results for the Nine Months Ended September 30, 2021

For the nine months ended September 30, 2021, net income allocable to our common shareholders was $1,174.4 million or $6.70 per diluted common share, compared to $806.2 million or $4.62 per diluted common share in 2020 representing an increase of $368.2 million or $2.08 per diluted common share. The increase is due primarily to (i) a $316.7 million increase in self-storage net operating income (described below), (ii) a $125.8 million increase due to the impact of foreign currency exchange gains and losses associated with our Euro denominated debt, partially offset by (iii) a $96.3 million increase in depreciation and amortization expense and (iv) a $25.8 million increase in general and administrative expense due primarily to increased share-based compensation expense.

The $316.7 million increase in self-storage net operating income is a result of a $216.9 million increase in our Same Store Facilities (as defined below), and a $99.8 million increase in our Non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities increased 9.4% or $175.2 million in the nine months ended September 30, 2021 as compared to 2020, due primarily to higher realized annual rent per available square foot and weighted average square foot occupancy. Cost of operations for the Same Store Facilities decreased by 7.4% or $41.7 million in the nine months ended September 30, 2021 as compared to 2020, due primarily to (i) a 19.5% ($20.0 million) decrease in on-site property manager payroll, (ii) a 37.1% ($18.0 million) decrease in marketing expenses and (iii) a change in property tax timing contributing to our 6.2% ($13.4 million) decrease in property tax expense. The increase in net operating income of $99.8 million for the Non-Same Store Facilities is due primarily to the impact of facilities acquired in 2020 and 2021 and the fill-up of recently developed and expanded facilities.

Funds from Operations

For the three months ended September 30, 2021, funds from operations (“FFO”) was $3.61 per diluted common share, as compared to $2.28 in the same period in 2020, representing an increase of 58.3%. 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 nine months ended September 30, 2021, FFO was $9.69 per diluted common share, as compared to $7.18 in the same period in 2020, representing an increase of 35.0%.

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) 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, casualties, transactional due diligence, and advisory costs . 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 September 30,								Nine Months Ended September 30,
	2021			2020			Percentage Change		2021			2020			Percentage Change

FFO per share	$	3.61		$	2.28		58.3	%	$	9.69		$	7.18		35.0	%
Eliminate the per share impact of items excluded from Core FFO, including our equity share from investments:
Foreign currency exchange (gain) loss	(0.23		)	0.24					(0.42		)	0.30
Preferred share redemption charge	—			0.13					0.10			0.22
Property losses and tenant claims due to casualties	0.03			—					0.03			—
Other items	0.01			(0.02		)			(0.01		)	(0.02		)
Core FFO per share	$	3.42		$	2.63		30.0	%	$	9.39		$	7.68		22.3	%

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, 2019. Our Same Store Facilities decreased from 2,278 facilities at June 30, 2021 to 2,274 at September 30, 2021. The composition of our Same Store Facilities allows us to more effectively evaluate the ongoing performance of our self-storage portfolio in 2019, 2020, and 2021 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 2,274 facilities (148.7 million net rentable square feet) that represent approximately 80% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at September 30, 2021 (unaudited):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020		Percentage Change	2021		2020		Percentage Change
	(Dollar amounts in thousands, except for per square foot data)
Revenues (a):
Rental income	$	694,589	$	609,150	14.0%	$	1,982,274	$	1,803,659	9.9%
Late charges and administrative fees	21,461		19,136		12.1%	60,558		64,004		(5.4)%
Total revenues	716,050		628,286		14.0%	2,042,832		1,867,663		9.4%

Direct cost of operations (a):
Property taxes (b)	69,573		71,533		(2.7)%	203,172		216,595		(6.2)%
On-site property manager payroll	28,116		30,701		(8.4)%	82,412		102,390		(19.5)%
Repairs and maintenance	13,078		12,954		1.0%	39,139		37,302		4.9%
Utilities	11,051		11,278		(2.0)%	31,102		31,665		(1.8)%
Marketing	9,143		16,131		(43.3)%	30,535		48,512		(37.1)%
Other direct property costs	18,851		17,071		10.4%	55,433		50,872		9.0%
Total direct cost of operations	149,812		159,668		(6.2)%	441,793		487,336		(9.3)%
Direct net operating income (c)	566,238		468,618		20.8%	1,601,039		1,380,327		16.0%
Indirect cost of operations (a):
Supervisory payroll	(8,320)		(9,831)		(15.4)%	(27,768)		(31,786)		(12.6)%
Centralized management costs	(13,757)		(11,464)		20.0%	(39,990)		(36,510)		9.5%
Share-based compensation (d)	(3,720)		(3,105)		19.8%	(13,772)		(9,425)		46.1%
Net operating income (e)	$	540,441	$	444,218	21.7%	$	1,519,509	$	1,302,606	16.7%

Gross margin (before indirect costs, depreciation and amortization expense)	79.1%		74.6%		6.0%	78.4%		73.9%		6.1%

Gross margin (before depreciation and amortization expense)	75.5%		70.7%		6.8%	74.4%		69.7%		6.7%

Weighted average for the period:
Square foot occupancy	96.8%		95.5%		1.4%	96.5%		94.3%		2.3%
Realized annual rental income per (f):
Occupied square foot	$	19.30	$	17.16	12.5%	$	18.42	$	17.16	7.3%
Available square foot	$	18.68	$	16.39	14.0%	$	17.77	$	16.18	9.8%
At September 30:
Square foot occupancy						95.7%		94.6%		1.2%
Annual contract rent per occupied square foot (g)						$	19.56	$	17.67	10.7%

(a)		Revenues and cost of operations do not include tenant reinsurance and merchandise sales and expenses generated at the facilities.
(b)		Property tax expense for 2021 will be expensed ratably through the year, as described in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our September 30, 2021 Form 10-Q. We expect decreases through the third quarter to be offset by an increase in the fourth quarter of 2021, resulting in an approximate increase of 4.8% for the year ending December 31, 2021, compared to the same period in 2020.
(c)		Direct net operating income (“Direct NOI”), a subtotal within NOI, is a non-GAAP financial measure that excludes the impact of supervisory payroll, centralized management costs, and share-based compensation in addition to depreciation and amortization expense. We utilize direct net operating income in evaluating property performance and in evaluating property operating trends as compared to our competitors.
(d)		For the three and nine months ended September 30, 2021, share-based compensation expense increased 19.8% and 46.1%, respectively, as compared to the same periods in 2020, primarily due to the absence of comparable performance-based share-based compensation expense for the three and nine months ended September 30, 2020 and the accelerated compensation costs recognized in the three and nine months ended September 30, 2021 associated with modifying our share-based compensation plans in July 2020, to allow immediate vesting upon retirement.
(e)		See attached reconciliation of self-storage NOI to net income.
(f)		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.
(g)		Annual contract rent represents the agreed upon monthly rate that is paid by our tenants in place at the time of measurement. Contract rates are initially set in the lease agreement upon move-in, and we adjust them from time to time with notice. Contract rent excludes other fees that are charged on a per-item basis, such as late charges and administrative fees, does not reflect the impact of promotional discounts, and does not reflect the impact of rents that are written off as uncollectible.

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 data)
Total revenues:
2021	$	646,897	$	679,885	$	716,050
2020	$	625,818	$	613,559	$	628,286	$	637,256	$	2,504,919

Total cost of operations:
2021	$	180,768	$	166,946	$	175,609
2020	$	188,922	$	192,067	$	184,068	$	146,394	$	711,451

Property taxes:
2021	$	66,481	$	67,118	$	69,573
2020	$	72,692	$	72,370	$	71,533	$	41,164	$	257,759

Repairs and maintenance:
2021	$	13,008	$	13,053	$	13,078
2020	$	12,698	$	11,650	$	12,954	$	13,461	$	50,763

Marketing:
2021	$	14,558	$	6,834	$	9,143
2020	$	14,782	$	17,599	$	16,131	$	13,505	$	62,017

REVPAF:
2021	$	16.86	$	17.77	$	18.68
2020	$	16.12	$	16.01	$	16.39	$	16.62	$	16.29

Weighted average realized annual rent per occupied square foot:
2021	$	17.63	$	18.32	$	19.30
2020	$	17.33	$	17.00	$	17.16	$	17.46	$	17.24

Weighted average occupancy levels for the period:
2021	95.6%		97.0%		96.8%
2020	93.0%		94.2%		95.5%		95.2%		94.5%

Property Operations – Non-Same Store Facilities

In addition to the 2,274 Same Store Facilities, we have 404 facilities that were not stabilized with respect to occupancies, revenues, or cost of operations since January 1, 2019 or that we did not own as of January 1, 2019, including 232 facilities that were acquired, 68 newly developed facilities, 71 facilities that have been expanded or are targeted for expansion, and 33 facilities that are unstabilized due to the impact of casualties and other factors (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 “Self-Storage Operations” in our September 30, 2021 Form 10-Q.

Investing and Capital Activities

During the three months ended September 30, 2021, we acquired 27 self-storage facilities (nine in Texas, three in South Carolina, two each in Georgia, North Carolina, Tennessee and Utah, and one each in California, Illinois, Minnesota, Nebraska, Nevada, Oregon and Virginia) with 2.2 million net rentable square feet for $326.8 million. During the nine months ended September 30, 2021, we acquired 126 self-storage facilities (39 in Maryland, 13 in Virginia, 12 in Texas, six each in Idaho and South Carolina, five each in Arizona, California, Nebraska and North Carolina, four each in Georgia and Indiana, three in Florida, two each in Illinois, Louisiana, Nevada, Ohio, Tennessee, Utah and Washington, and one each in Colorado, Kansas, Minnesota, Oregon, and Pennsylvania) with 10.3 million net rentable square feet for $2.8 billion.

The preceding discussion of properties acquired, includes our acquisition of the ezStorage portfolio on April 28, 2021, consisting of 48 properties (4.1 million net rentable square feet) for an acquisition cost of $1.8 billion, which includes 47 self-storage facilities and a property that is under construction. For the quarter ended September 30, 2021, these facilities generated revenues of $22.7 million, NOI of $17.8 million (including Direct NOI of $18.4 million) and square footage occupancy of 93.8%.

Subsequent to September 30, 2021, we acquired or were under contract to acquire 107 self-storage facilities across 16 states with 11.8 million net rentable square feet, for $2.3 billion. These include a portfolio of 56 properties (7.5 million net rentable square feet) currently operated under the brand name of All Storage that we are under contract to purchase for $1.5 billion. These properties are located in submarkets with strong demand drivers and other desirable characteristics across Dallas-Ft. Worth (52 properties) and Oklahoma City. The acquisition, which is subject to the satisfaction of customary closing conditions, is expected to close in two separate tranches, with seven self-storage facilities closing in November 2021 and 49 self-storage facilities closing in December 2021.

During the three months ended September 30, 2021, we opened one newly developed facility and various expansion projects (0.7 million net rentable square feet – 0.4 million in Florida, 0.2 million in California and 0.1 million in Texas) costing $85.5 million. During the nine months ended September 30, 2021, we opened four newly developed facilities and various expansion projects (1.2 million net rentable square feet – 0.6 million in Florida, 0.2 million each in California and Virginia and 0.1 million each in Colorado and Texas) costing $171.1 million. At September 30, 2021, we had various facilities in development (1.7 million net rentable square feet) estimated to cost $272.8 million and various expansion projects (2.9 million net rentable square feet) estimated to cost $457.8 million. Our aggregate 4.6 million net rentable square foot pipeline of development and expansion facilities includes 1.4 million in California, 0.7 million in Florida, 0.4 million Maryland, 0.3 million each in New Jersey, Texas and Washington, 0.2 million each in Michigan, Minnesota and New York and 0.6 million in other states. The remaining $502.2 million of development costs for these projects is expected to be incurred primarily in the next 18 to 24 months.

On August 17, 2021, we issued our 3.950% series Q Preferred Shares for gross proceeds of $143.8 million.

On September 9, 2021, we completed a public offering of €700.0 million ($817.6 million in net proceeds) of Euro denominated Senior Unsecured Notes, bearing interest at a fixed rate of 0.500% and maturing on September 9, 2030.

Distributions Declared

On October 27, 2021, 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 30, 2021 to shareholders of record as of December 15, 2021.

Outlook for the Twelve Months Ending December 31, 2021

The following table outlines the Company’s Core FFO per share estimate and certain underlying assumptions for the year ending December 31, 2021:

	Guidance Ranges for 2021
	Low	High
	(Amounts in thousands, except per share data)
Same Store:
Revenue growth	9.50%	10.50%
Expense growth	0.00%	0.50%
Net operating income growth	13.10%	14.70%

Acquisitions	$5,000,000
Development openings	$215,000
Non-Same Store net operating income	$270,000	$280,000
Ancillary net operating income	$137,000	$141,000
General and administrative expense	$96,000	$99,000
Interest expense	$94,000	$96,000
Preferred dividends	$185,000
Capital expenditures	Approximately $250,000

Core FFO per share	$12.50	$12.80

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 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, 2021 at 9:00 a.m. (PDT) to discuss the third quarter earnings results. The domestic dial-in number is (866) 342-8591, and the international dial-in number is (203) 518-9713 (conference ID number for either domestic or international is PSAQ321). 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, 2021 by calling (800) 839-5679 (domestic), (402) 220-2566 (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, 2021, we had: (i) interests in 2,678 self-storage facilities located in 39 states with approximately 186 million net rentable square feet in the United States, (ii) an approximate 35% common equity interest in Shurgard Self-Storage SA (Euronext Brussels:SHUR) which owned 247 self-storage facilities located in seven Western European nations with approximately 13 million net rentable square feet operated under the “Shurgard” brand and (iii) an approximate 42% common equity interest in PS Business Parks, Inc.

Contacts

Ryan Burke

(818) 244-8080, Ext. 1141

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