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

GLENDALE, Calif.--(BUSINESS WIRE)--

Public Storage (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 $33.3 million 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.

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,

2018

 

2017

 

Percentage
Change

2018

 

2017

 

Percentage
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 %
 

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.
 
(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 %
 

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 %
null
 

Same Store Facilities Operating Trends by Market

 
        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 %