Public Storage
2 0 1 6
A n n u a l
R e p o r t
WA
94/3
OR
39
NV
27
CA
4
424/
47
HIHH
1111
CO
67
UT
8
AZ
44
NE
1
KS
21
OK
21
MN
47
WI
15
MII
44
OH
IL
IN
126 32 44
MO
38
KY
11
TN
32
AL
22
GA
108
MS
1
MA
RI
CT
25
3
15
NJ
DE
MD
57
5
62/6
HHHNHH
22
NY
66
PA
29
VA
91/17
NC
86
SC
56
TX
281/23
LA
11
FL
28 3
28888282/
UNITED
UNITED
UUNITED
KINGDOM
KINGDOM
KINGDOM
26
SWEDENENN
N
30
DENMARKKK
NNMANN
NMANMAR
10
NETHERRERREREHHERRRLAALLLALALALLLALAARRRRRR NNNDSNDAAAAA
61
BELBELBELELELLLELELGGGIUGIUUMU
21
GERMANNNYNY
NYN
16
P R O P E RT I E S (as of December 31, 2016)
Number
of Properties
Net Rentable
Square Feet
Number
of Properties
Net Rentable
Square Feet
FRANCE
55
Public Storage
Alabama
Arizona
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Nebraska
Nevada
New Hampshire
New Jersey
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
22
44
424
67
15
5
282
108
11
126
32
21
11
11
62
25
44
47
1
38
1
27
2
57
66
86
44
21
39
29
3
56
890,000
2,833,000
28,863,000
4,295,000
966,000
324,000
19,024,000
7,129,000
801,000
7,952,000
2,031,000
1,268,000
608,000
777,000
3,761,000
1,691,000
2,869,000
3,313,000
63,000
2,236,000
46,000
1,818,000
132,000
3,630,000
4,622,000
5,959,000
2,854,000
1,477,000
2,040,000
1,993,000
155,000
3,075,000
Public Storage (cont.)
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
32
281
8
91
94
15
1,952,000
19,485,000
517,000
5,593,000
6,438,000
968,000
2,348
154,448,000
Shurgard Europe
Belgium
Denmark
France
Germany
Netherlands
Sweden
United Kingdom
Self-storage totals
21
10
55
16
61
30
26
219
2,567
PS Business Parks, Inc.
California
Florida
Maryland
Texas
Virginia
Washington
47
3
6
23
17
3
99
1,263,000
572,000
2,879,000
889,000
3,110,000
1,640,000
1,417,000
11,770,000
166,218,000
11,233,000
3,866,000
2,578,000
5,088,000
3,917,000
1,390,000
28,072,000
Grand Totals
2,666
194,290,000
SELECTED FINANCIAL HIGHLIGHTS
For the year ended December 31,
2016
2015
2014
2013
2012
(Amounts in thousands, except share and per share data)
Operating Revenue
$ 2,560,549 $ 2,381,696 $ 2,177,296 $ 1,964,942 $ 1,826,186
Operating Expenses:
Cost of operations
Depreciation and amortization
General and administrative
Operating income
Interest and other income
Interest expense
Equity in earnings of unconsolidated
real estate entities
Foreign currency exchange gain (loss)
Gain on real estate investment sales
Income from continuing operations
Discontinued operations
Net income
Net income allocated to noncontrolling
669,083
433,314
83,656
635,502
426,008
88,177
613,324
437,114
71,459
559,759
387,402
66,679
550,805
357,781
56,837
1,186,053
1,149,687
1,121,897
1,013,840
965,423
1,374,496
15,138
(4,210)
1,232,009
16,544
(610)
1,055,399
17,638
(6,781)
951,102
33,979
(6,444)
860,763
33,293
(19,813)
56,756
17,570
689
1,460,439
—
1,460,439
50,937
306
18,503
1,317,689
—
1,317,689
88,267
(7,047)
2,479
1,149,955
—
1,149,955
57,579
17,082
4,233
1,057,531
—
1,057,531
45,586
8,876
1,456
930,161
12,874
943,035
equity interests
(6,863)
(6,445)
(5,751)
(5,078)
(3,777)
Net income allocable to Public Storage
shareholders
$ 1,453,576 $ 1,311,244 $ 1,144,204 $ 1,052,453 $
939,258
Per Common Share:
Distributions
Net income - diluted
Weighted average common shares - diluted
Balance Sheet Data:
Total assets
Total debt
Total preferred equity
Public Storage shareholders’ equity
Permanent noncontrolling interests’ equity
Cash Flow Information:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
$
$
7.30 $
6.81 $
6.50 $
6.07 $
5.60 $
5.25 $
5.15 $
4.89 $
173,878
173,510
173,138
172,688
4.40
3.90
171,664
319,016 $
390,749 $
$10,130,338 $ 9,778,232 $ 9,818,676 $ 9,876,266 $ 8,793,403
$
468,828
$ 4,367,500 $ 4,055,000 $ 4,325,000 $ 3,562,500 $ 2,837,500
$ 9,411,910 $ 9,170,641 $ 9,480,796 $ 8,791,730 $ 8,093,756
29,108
$
839,053 $
29,744 $
64,364 $
26,375 $
26,997 $
27,125 $
$ 1,945,336 $ 1,748,279 $ 1,603,542 $ 1,438,407 $ 1,293,315
(716,726) $ (440,105) $ (198,331) $ (1,412,393) $ (290,465)
$
(24,228) $ (1,124,961)
$ (1,148,826) $(1,391,283) $ (1,236,864) $
1
To the Shareholders of Public Storage:
Our businesses delivered solid results in 2016. Free cash flow per share1, core funds from operations
per share1 and dividends per share all increased. We improved our competitive position and
further strengthened our “fortress” balance sheet. Overall, 2016 was an excellent year.
Free cash flow
Dividends
Core funds from operations
AA
Amounts per share
2016
2015
2014
$
$
$
9.39
7.30
9.79
$
$
$
8.56
6.50
8.90
$
$
$
7.66
5.60
8.09
Below are the key revenue and net operating income (NOI)1 figures for our businesses. They are
presented as if Public Storage owned 100% of each.
(Amounts in millions)
Revenues1
2016
2015
2014
$ 2,406
$ 2,236
$ 2,050
223
399
187
206
387
176
185
392
155
$ 3,215
$ 3,005
$ 2,782
Net Operating Income
2016
2015
2014
$ 1,788
$ 1,649
$ 1,483
130
272
131
119
261
122
106
259
104
$ 2,321
$ 2,151
$ 1,952
U.S. self-storage
European self-storage
Commercial properties
Ancillary businesses
Total
U.S. self-storage
European self-storage
Commercial properties
Ancillary businesses
Total
Public Storage’s share
$ 2,089
$ 1,933
$ 1,744
(1) See accompanying schedule “Supplemental Non-GAAP Disclosures.”
1
Overall, our combined revenues increased to $3.2 billion from $3.0 billion. Most of this
incremental revenue flowed to the bottom line, resulting in a higher NOI of $170 million.
As noted in previous letters, our goal is to grow free cash flow per share on a long-term, sustainable
basis. I believe this is the best metric to calculate our intrinsic business value and key to measuring
long-term management performance. It does not, however, capture other key attributes of
our company, such as brand, scale, quality of our properties and people that should, over time,
enhance our intrinsic value.
Below are the trends over the last five and ten years.
Free cash flow
Dividends
Net income
Amounts per share
Annual
growth rates
2016
2011
2006
Five-year
Ten-year
$ 9.39
$ 5.62
$ 3.75
11% 10%
$ 7.30
$ 3.65
$ 2.00
15%
$ 6.81
$ 3.29
$ 0.33
16%
14%
35%
9%
Core funds from operations
$ 9.79
$ 5.93
$ 4.17
11%
As explained below, we expect our growth to moderate over the next few years as our U.S.
self-storage operations organic growth rate declines.
U.S. Self-Storage
Our U.S. self-storage operations delivered solid operating results in 2016, with same store revenue
and NOI up by 5.5% and 6.6%, respectively. These results were well above our historical
20-year average growth rates of 3.9% and 4.6%.
We continue to benefit from effective cost controls and from high occupancies consistent with last
year’s record level of 94.5%. In addition, we benefited from our strong presence in the high growth
markets of Los Angeles, San Francisco, Portland and Seattle, which combine for about one-third
of our same store operations. We are the dominant operator in these markets (three to ten times
the market share of our largest competitor), which have enjoyed some of the country’s best job
and income growth. During 2016, they produced revenue and NOI growth of 7.4% and 8.3%,
respectively.
Conversely, the Houston, Chicago, Denver and Washington, D.C. markets, which have experienced
an increasing supply of new self-storage facilities and/or difficult economic conditions,
adversely impacted our 2016 results.
2
Same Store Properties
(Amounts in millions, except sq. ft. occupancy and REVPAF)
Revenues
Costs of operations
Net operating income
Sq. ft. occupancy
2016
2015
2014
$ 2,098
$ 1,988
$ 1,865
528
514
507
$ 1,570
$ 1,474
$ 1,358
94.5%
94.5%
93.9%
Revenue per available foot (REVPAF)
$ 15.73
$ 14.90
$ 13.96
Our field operations group, led by Charlie Barr, Pete Panos and John Sambuco, did a solid job in
2016 but will be challenged in 2017 with more difficult market conditions. The idyllic operating
environment of the last several years combined with the high purchase prices for existing facilities
has prompted local developers to start building. Going into 2017, we face the most new supply in
over a decade. We also face costs pressures such as changes in the minimum wage laws, higher
medical insurance premiums, aggressive property tax assessments and increased marketing
spend, along with greater promotional discounts. Our brand, leading market share, talented
marketing and pricing teams and exceptional customer facing personnel should enable us to
compete effectively in this more challenging environment.
An increasing portion of our overall earnings growth will come from investment in new
properties (acquisitions, developments or redevelopments) instead of organic growth. Income
from non-same stores has almost doubled in the last two years as we continue to acquire and
develop additional properties and integrate them into our operating platform.
Non-Same Stores
(Amounts in millions, except sq. ft. occupancy and REVPAF)
Revenues
Costs of operations
Net operating income
Sq. ft.
Sq. ft. occupancy
REVPAF
2016
2015
2014
$
$
308
$
248
90
73
218
$
175
$
$
185
60
125
26.6
20.1
17.7
88.6%
90.5%
87.7%
$ 12.87
$ 12.75
$ 11.91
3
European Self-Storage
Our European self-storage business operates under the “Shurgard” brand. Like Public Storage, it
is the leading owner and operator of self-storage in Western Europe. Self-storage is a much smaller
business in Western Europe with less than 2,000 properties, nearly half of which are in the United
Kingdom. Shurgard is a leading provider of self-storage in many markets.
Shurgard delivered excellent results in 2016. Led by Marc Oursin, Shurgard’s CEO, the Company
achieved its second consecutive year-over-year increase in same store occupancies and improved
NOI.
A breakdown of operating results on a constant exchange-rate basis is as follows.
Net Operating Income
(Amounts in millions, except sq. ft. occupancy and REVPAF)
2016
2015
2014
Same store
$
115
$
108
$
102
Acquired/developed properties
15
11
Total
Public Storage’s share
$
$
130
64
$
$
119
58
$
$
4
106
52
Total assets (before depreciation reserves)
$ 1,558
$ 1,532
$ 1,357
Same store:
Sq. ft. occupancy
REVPAF
90.4%
89.8%
85.3%
$ 19.64
$ 18.97
$ 18.13
During 2016, the 2015 property acquisitions in the Netherlands and Germany continued to
stabilize, generating increasing cash flow.
We anticipate Shurgard will grow in three ways: (1) organically by improving occupancies and
revenues for its same store properties, (2) driving higher occupancies and rental rates in the
recently acquired and developed properties and (3) acquisitions and new developments.
4
Commercial Properties
Our commercial properties business consists of a 42% equity interest in PS Business Parks, Inc.
(PSB) and direct ownership of one million square feet, which is managed primarily by PSB.
Unlike Public Storage and Shurgard, PSB does not have a commanding market share, leading
brand or significant scale in any of its markets. Instead, it has a niche, focusing on small to
mid-size businesses requiring intensive property management. The key to shareholder returns
in this business are bargain purchases (acquiring properties well below replacement costs)
and aggressively managing them through nimble leasing, tight expense control and good
capital management (broker commissions and tenant improvements). This business is more
economically sensitive than self-storage. If done correctly, this business can produce reasonable
returns on invested capital.
Solid execution and an improving economy enabled PSB to achieve 5.0% same park NOI growth
in 2016 compared with 5.6% in 2015. After retiring its only debt in 2016, a $250 million
5.5% mortgage, and redeeming $230 million of 6.45% preferred securities, PSB enters 2017 in
excellent financial position. Maria Hawthorne, PSB’s new CEO, and her team will continue to
drive future growth from PSB’s well-located portfolio in the West Coast, Texas, Washington,
D.C. and Miami, Florida markets.
Net Operating Income
(Amounts in millions)
2016
2015
2014
PSB’s same park operations
$
259
$
247
$
233
PSB’s acquired/developed properties
Public Storage’s owned commercial properties
5
8
5
9
Total
Public Storage’s share
$
$
272
119
$
$
261
115
$
$
16
10
259
115
Total assets (before depreciation reserves)
$ 3,086
$ 3,097
$ 3,136
This year marks the 20th anniversary since we established a separate commercial property
business. The company was formed in January 1997 and went public in March 1998. The
original shares were valued at $16.69 and closed 2016 at $116.52, paying annual dividends
of $3.00 per share. Since formation, total return to shareholders has been 942% or a 13%
compounded annual return. Like Public Storage, PSB’s growth has been funded without much
debt.
5
Ancillary Businesses
We have four ancillary businesses–merchandise (mainly locks and boxes sold to self-storage
customers), tenant reinsurance (reinsurance of policies sold to our self-storage customers by a
third-party insurance company), third-party property management (fees received for managing
other owners’ properties) and European ancillary businesses (Shurgard’s sales of merchandise and
insurance commissions)–that complement our self-storage business. Each generates respectable
revenue and cash flow with no significant capital investment.
While modest in relative size, each ancillary business meaningfully contributes to Public Storage’s
overall profitability. By far, the largest of these businesses is tenant reinsurance, managed by
John Reyes and Capri Haga. Once again this business had a solid year as revenues increased by 8%.
Net Operating Income
(Amounts in millions)
2016
2015
2014
Tenant reinsurance
$
90
$
84
$
European ancillary businesses
Merchandise
Third-party management
Total
Public Storage’s share
Total assets
Financing
25
14
2
131
118
10
$
$
$
22
14
2
122
111
10
$
$
$
$
$
$
69
21
12
2
104
94
10
In April 2016, we issued a €100 million, 1.54% eight-year note to a large insurance company.
Including 2015’s issuance, we have total unsecured debt of €342 million at a blended rate of
1.99%. Besides the attractive rate and term, these issuances have the additional benefit of being
denominated in Euros, acting as a currency hedge against our Euro denominated equity
investment in Shurgard. The Euro has declined about 20% over the past couple of years, so these
issuances will help protect us against further depreciation.
During 2016, we also issued $1.175 billion of preferred securities at a blended rate of 5.1%. Our
4.90% Series E preferred set a historical low by any preferred issuer. Once again our CFO, John
Reyes, demonstrated impeccable market timing. The overall blended rate of our $4.4 billion of
preferred securities is now just 5.5%.
6
Development program
In 2013 we began our current development program prompted by several considerations:
(cid:0)(cid:115)(cid:0) (cid:36)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83) (cid:83)(cid:72)(cid:79)(cid:85)(cid:76)(cid:68) (cid:71)(cid:69)(cid:78)(cid:69)(cid:82)(cid:65)(cid:84)(cid:69) (cid:18)(cid:5) (cid:84)(cid:79) (cid:19)(cid:5) (cid:72)(cid:73)(cid:71)(cid:72)(cid:69)(cid:82) (cid:82)(cid:69)(cid:84)(cid:85)(cid:82)(cid:78)(cid:83) (cid:79)(cid:78) (cid:73)(cid:78)(cid:86)(cid:69)(cid:83)(cid:84)(cid:69)(cid:68) (cid:67)(cid:65)(cid:80)(cid:73)(cid:84)(cid:65)(cid:76) (cid:84)(cid:72)(cid:65)(cid:78)
acquisitions.
(cid:0)(cid:115)(cid:0) (cid:47)(cid:86)(cid:69)(cid:82) (cid:84)(cid:72)(cid:69) (cid:76)(cid:79)(cid:78)(cid:71) (cid:84)(cid:69)(cid:82)(cid:77)(cid:12) (cid:84)(cid:72)(cid:69) (cid:72)(cid:73)(cid:71)(cid:72)(cid:69)(cid:82) (cid:82)(cid:69)(cid:84)(cid:85)(cid:82)(cid:78)(cid:83) (cid:79)(cid:78) (cid:73)(cid:78)(cid:86)(cid:69)(cid:83)(cid:84)(cid:69)(cid:68) (cid:67)(cid:65)(cid:80)(cid:73)(cid:84)(cid:65)(cid:76) (cid:77)(cid:79)(cid:82)(cid:69) (cid:84)(cid:72)(cid:65)(cid:78) (cid:79)(cid:70)(cid:70)(cid:83)(cid:69)(cid:84)(cid:83) (cid:83)(cid:72)(cid:79)(cid:82)(cid:84)(cid:13)(cid:84)(cid:69)(cid:82)(cid:77)
earnings dilution. However, the cost of ramping up the program creates an “earnings
headwind” until the program stabilizes.
(cid:0)(cid:115)(cid:0) (cid:55)(cid:69) (cid:72)(cid:65)(cid:86)(cid:69) (cid:84)(cid:72)(cid:69) (cid:83)(cid:73)(cid:90)(cid:69) (cid:65)(cid:78)(cid:68) (cid:108)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76) (cid:83)(cid:84)(cid:82)(cid:69)(cid:78)(cid:71)(cid:84)(cid:72) (cid:84)(cid:79) (cid:85)(cid:78)(cid:68)(cid:69)(cid:82)(cid:84)(cid:65)(cid:75)(cid:69) (cid:83)(cid:85)(cid:67)(cid:72) (cid:65) (cid:80)(cid:82)(cid:79)(cid:71)(cid:82)(cid:65)(cid:77)(cid:14)
(cid:0)
(cid:0) (cid:115)(cid:0) (cid:52)(cid:72)(cid:69) (cid:80)(cid:82)(cid:79)(cid:71)(cid:82)(cid:65)(cid:77) (cid:83)(cid:72)(cid:79)(cid:85)(cid:76)(cid:68) (cid:67)(cid:82)(cid:69)(cid:65)(cid:84)(cid:69) (cid:67)(cid:79)(cid:77)(cid:80)(cid:69)(cid:84)(cid:73)(cid:84)(cid:73)(cid:86)(cid:69) (cid:65)(cid:68)(cid:86)(cid:65)(cid:78)(cid:84)(cid:65)(cid:71)(cid:69)(cid:83) (cid:70)(cid:79)(cid:82) (cid:48)(cid:85)(cid:66)(cid:76)(cid:73)(cid:67) (cid:51)(cid:84)(cid:79)(cid:82)(cid:65)(cid:71)(cid:69)(cid:14)
Our development program has required significant investment in people and properties, as
reflected in the table below.
$ Amounts in millions
2016
2015
2014
Annual costs of development team mm
$
15.1
$
15.2
Amounts capitalized
Net amount expensed
$ (8.5)
$ (8.1)
$
6.6
$
7.1
Cumulative amount invested in properties opened
$ 445.8
$ 188.1
Annual NOI from properties opened
$ 12.5
$
5.5
$
$
$
$
$
10.9
(5.0)
5.9
68.8
0.5
Return on investment
3%
3%
1%
Our 3% return on invested capital is BEFORE the net amount expensed for our development
team or the cost of capital to fund the investments. Upon achieving a stabilized occupancy of
90% or better, we anticipate earning an 8% to 10% yield on invested capital. Accordingly, we
anticipate significant earnings from these investments as the properties attain a stabilized
occupancy. Were we to terminate our development program and achieve an 8% return on
our invested capital, our annual earnings would increase by approximately $30 million.
7
Management Changes
In 2016, we made two changes to our senior management team. Joe Russell, former CEO of
PS Business Parks, joined Public Storage to serve as our President. Joe joined PS Business Parks
in 2002 and served as CEO since August 2003. We are fortunate to have someone with Joe’s
experience and track record in the Public Storage family of companies to be a part of the Public
Storage management team. I’ve worked with Joe for over a decade as he led PS Business Parks
and delivered consistent growth and sector-leading performance. He brings tremendous skills and
experience to Public Storage.
Maria Hawthorne, a 31-year veteran of PSB, was promoted to CEO of PS Business Parks. Maria
worked her way up from leasing director to CEO, having participated in just about every major
transaction at PSB over its 20-year history. She has been a key part of PSB’s success and knows how
to create shareholder value.
Conclusion
We are well positioned going into 2017. We have the financial flexibility, best brand and product
as well as management talent to continue to grow free cash flow per share.
Ronald L. Havner, Jr.
Chairman of the Board and Chief Executive Officer
February 28, 2017
8
CUMULATIVE TOTAL RETURN
Public Storage, S&P 500 Index and NAREIT Equity Index
December 31, 2011 - December 31, 2016
$225
$200
$175
$150
$125
$100
Public Storage
S&P 500 Index
NAREIT Equity Index
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
Public Storage
S&P 500 Index
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
$100.00
$ 111.30
$ 119.54
$ 151.62
$209.75
$ 195.28
$100.00
$ 116.00
$ 153.57
$ 174.60
$177.01
$ 198.18
NAREIT Equity Index
$100.00
$ 119.70
$ 123.12
$ 157.63
$162.08
$ 176.07
The graph set forth above compares the yearly change in the Company’s cumulative total shareholder return on its Common
Shares for the five-year period ended December 31, 2016 to the cumulative total return of the Standard & Poor’s 500 Stock Index
(“S&P 500 Index”) and the National Association of Real Estate Investment Trusts Equity Index (“NAREIT Equity Index”) for the
same period (total shareholder return equals price appreciation plus dividends). The stock price performance graph assumes that the
value of the investment in the Company’s Common Shares and each index was $100 on December 31, 2011 and that all dividends
were reinvested. The share price performance shown in the graph is not necessarily indicative of future price performance.
Supplemental Non-GAAP Disclosures (unaudited)
Core funds from operations per share (“Core FFO”) represents diluted net income per share (“EPS”) before the
impact of i) depreciation expense and disposition gains or losses and ii) foreign currency gains and losses, the
application of EITF D-42, and certain other items. Free cash flow per share (“Free Cash Flow”) represents Core FFO,
less per share capital expenditures and non-cash stock based compensation and other expense. Core FFO and Free
Cash Flow are not substitutes for EPS and may not be comparable with other REITs due to calculation differences;
however, we believe they are helpful measures for investors and REIT analysts to understand our performance.
Net Operating Income (“NOI”) represents revenues less pre-depreciation cost of operations earned directly at our
properties, and we believe is a useful performance measure that we and the investment community use to evaluate
performance and real estate values. Each of these non-GAAP measures exclude the impact of depreciation, which
is based upon historical cost and assumes the value of buildings diminish ratably over time, while we believe that
real estate values fluctuate due to market conditions. We also present supplemental measures of our revenues and
NOI including PSB and Shurgard Europe as if we owned them, to provide a measure of the performance of all the
businesses we have a significant interest in. However, the inclusion of these entities in these supplemental measures
does not substitute for “equity in earnings of unconsolidated real estate entities” on our income statement.
Reconciliation of Core FFO and Free Cash Flow per Share
EPS
Eliminate noncore items (including our equity share):
Depreciation expense
Real estate gains
For the year ended December 31,
2016
2015
2014
2011
2006
$ 6.81
$ 6.07 $ 5.25
$ 3.29
$ 0.33
2.90
(0.01) (0.17)
2.89
2.96
(0.23)
2.46
3.29
(0.08) (0.05)
Foreign currency, EITF D-42, and other noncore items
0.09
0.11
0.11
0.26
0.60
Core FFO per share
$ 9.79
$ 8.90 $ 8.09
$ 5.93
$ 4.17
Deduct capital expenditures and adjust non-cash comp/other
(0.40) (0.34)
(0.43)
(0.31) (0.42)
Free Cash Flow per share
$ 9.39
$ 8.56 $ 7.66
$ 5.62
$ 3.75
Reconciliation of Revenues including PSB and Shurgard Europe
(Amounts in millions)
For the year ended December 31,
Consolidated revenues
Commercial and property management included in interest
and other income
PSB’s revenues
Shurgard Europe’s revenues
2016
2015
2014
$ 2,561
$ 2,382
$ 2,177
15
387
252
17
373
233
18
376
211
Revenues as if we owned PSB and Shurgard Europe
$ 3,215
$ 3,005
$ 2,782
Reconciliation of NOI
(Amounts in millions)
For the year ended December 31,
2016
2015
2014
Operating income on our income statement
$ 1,374
$ 1,232
$ 1,055
Commercial and property management included in interest
and other income
Eliminate depreciation and G&A expense
Add - PSB and Shurgard Europe NOI
Total net operating income
11
517
419
12
514
393
13
509
375
2,321
2,151
1,952
Less - NOI of Shurgard Europe and PSB allocable to others
(232)
(218)
(208)
Public Storage’s share of NOI
$ 2,089
$ 1,933
$ 1,744
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FORM 10-K
For the fiscal year ended December 31, 2016.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to .
Commission File Number: 001-33519
PUBLIC STORAGE
(Exact name of Registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
95-3551121
dd
(I.R.S. Employer Id
((
entification Number
)
701 Western Avenue, Glendale, California 91201-2349
((
(Address of principal executive offices
) (Zip Code)
(818) 244-8080
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange
on which registered
Depositary Shares Each Representing 1/1,000 of a 5.900% Cumulative Preferred Share, Series
S $.01 par value ..........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.750% Cumulative Preferred Share, Series
T $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.625% Cumulative Preferred Share, Series
U $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.375% Cumulative Preferred Share, Series
V $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.200% Cumulative Preferred Share, Series
W $.01 par value ..........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.200% Cumulative Preferred Share, Series
X $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.375% Cumulative Preferred Share, Series
Y $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.000% Cumulative Preferred Share, Series
Z $.01 par value ...........................................................................................................
New York Stock Exchange
1
Depositary Shares Each Representing 1/1,000 of a 5.875% Cumulative Preferred Share, Series
A $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.400% Cumulative Preferred Share, Series
B $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.125% Cumulative Preferred Share, Series
C $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.950% Cumulative Preferred Share, Series
D $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.900% Cumulative Preferred Share, Series
E $.01 par value ...........................................................................................................
New York Stock Exchange
Common Shares, $.10 par value ..........................................................................................
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None (Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes [X]
No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act.
Yes [ ]
No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]
No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
Yes [X]
No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [X] Accelerated Filer [ ] Non-accelerated Filer [ ] Smaller Reporting Company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]
No [X]
2
The aggregate market value of the voting and non-voting common shares held by non-affiliates of the Registrant as
of June 30, 2016:
Common Shares, $0.10 Par Value Per Share – $37,898,005,000 (computed on the basis of $255.59 per share, which
was the reported closing sale price of the Company's Common Shares on the New York Stock Exchange (the
“NYSE”) on June 30, 2016).
–
As of February 27, 2017, there were 173,638,361 outstanding Common Shares, $.10 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed in connection with the Annual Meeting of Shareholders to be
held in 2017 are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described
therein.
n
3
ITEM 1.
Business
Forward Looking Statements
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements in this document, other than statements of historical fact,
are
the words
"expects," "believes," "anticipates," "should," "estimates" and similar expressions.
statements which may
forward-looking
identified
use
the
by
be
of
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" and in our other filings with the Securities and Exchange Commission
(the “SEC”) including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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 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 real
estate investment trust (“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;
4
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
risks associated with the self-insurance of certain business risks, including property and casualty
n
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 report or as of the dates indicated in the
statements. All of our forward-looking statements, including those in this report, are qualified in their entirety by
this statement. We expressly disclaim any obligation to update publicly or otherwise revise any forward-looking
statements, whether as a result of new information, new estimates, or other factors, events or circumstances after the
date of these forward looking statements, except where expressly required by law. Given these risks and
uncertainties, you should not rely on any forward-looking statements in this report, or which management may make
orally or in writing from time to time, as predictions of future events nor guarantee
s of future performance.
f
General
Public Storage (referred to herein as “the Company”, “we”, “us”, or “our”), a Maryland REIT, was
organized in 1980.
At December 31, 2016, our principal business activities were as follows:
(i) Self-storage Operations: We acquire, develop, own, and operate self-storage facilities which offer
ww
storage spaces for lease on a month-to-month basis, for personal and business use. We are the
largest owner and operator of self-storage facilities in the United States (the “U.S.”). We have
direct and indirect equity interests in 2,336 self-storage facilities that we consolidate (an aggregate
of 154 million net rentable square feet of space) located in 38 states within the U.S. operating
under the “Public Storage” brand name. We also own one self-storage facility in London, England
which is managed by Shurgard Europe (defined below).
ff
(ii) Ancillary Operations: We reinsure policies against losses to goods stored by customers in our
self-storage facilities, and sell merchandise, primarily locks and cardboard boxes, at our self-
storage facilities.
(iii) Investment in PS Business Parks: We have a 42% equity interest in PS Business Parks, Inc.
(“PSB”), a publicly held REIT that owns, operates, acquires and develops commercial properties,
primarily multi-tenant flex, office, and industrial parks. At December 31, 2016, PSB owns and
operates 28.1 million rentable square feet of commercial space.
(iv) Investment in Shurgard Europe: We have a 49% equity interest in Shurgard Self Storage Europe
Limited (“Shurgard Europe”) which owns 218 self-storage facilities (twelve million net rentable
square feet) located in seven countries in Western Europe operated under the “Shurgard” brand
name. We believe Shurgard Europe is the largest owner and operator of
self-storage facilities in
t
Western Europe.
We also manage approximately 28 self-storage facilities for third parties, own 1.0 million net rentable
square feet of commercial space which is managed primarily by PSB, and have equity interests in and manage
12 additional self-storage facilities.
5
For all periods presented herein, we have elected to be treated as a REIT, as defined in the Code. As a
REIT, we do not incur federal income tax if we distribute 100% of our REIT taxable income (generally, net rents
and gains from real property, dividends, and interest) each year (for this purpose, certain distributions paid in a
subsequent year may be considered), and if we meet certain organizational and operational rules. We believe we
met these requirements in all periods presented herein, and we expect to continue to elect and qualify as a REIT.
We report annually to the SEC on Form 10-K, which includes financial statements certified by our
independent registered public accountants. We also report quarterly to the SEC on Form 10-Q, which includes
unaudited financial statements. We expect to continue such reporting.
On our website, www.publicstorage.com, we make available, free of charge, our Annual Reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as
soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the
SEC.
Competition
We believe that our customers generally store their goods within a five mile radius of their home or
business. Our facilities compete with nearby self-storage facilities owned by other operators using marketing
channels similar to ours, including Internet advertising, signage, and banners and offer services similar to ours. As a
result, competition is significant and affects the occupancy levels, rental rates, rental income and operating expenses
of our facilities.
Ownership and operation of self-storage facilities is highly fragmented. As the largest owner of self-
f
storage facilities, we believe that we own approximately 6% of the self-storage square footage in the U.S. and that
collectively the five largest self-storage owners in the U.S. own approximately 13%, with the remaining 87% owned
by numerous regional and local operators.
We generally focus our ownership of facilities in major markets. We believe that we have significant
market share and concentration in major metropolitan centers, with approximately 72% of our 2016 same-store
revenues generated in the 20 Metropolitan Statistical Areas (each, an “MSA”, as defined by the U.S. Census Bureau)
with the highest population levels. We believe this is a competitive advantage relative to other self-storage
operators, which do not have our geographic concentration and market share.
Industry fragmentation also provides opportunities for us to acquire additional facilities; however, we
compete with a wide variety of institutions and other investors who also view self-storage facilities as attractive
investments. The amount of capital available for real estate investments greatly influences the competition for
ownership interests in facilities and, by extension, the yields that we can achieve on newly acquired investments.
Business Attributes
We believe that we possess several primary business attributes that permit us to compete effectively:
Centralized information networks: Our centralized reporting and information network enables us to
identify changing market conditions and operating trends as well as analyze customer data and quickly change each
of our individual properties’ pricing and promotions on an automated basis.
Convenient shopping experience: Customers can conveniently shop for available storage space, reviewing
attributes such as facility location, size, amenities such as climate-control, as well as pricing, through the following
marketing channels:
(cid:120) Our Desktop and Mobile Websites: The online marketing channel continues to grow in
prominence, with approximately 67% of our move-ins in 2016 sourced through our websites, as
compared to 36% in 2010. In addition, we believe that many of our customers who directly call
6
our call center, or who move-in to a facility without making a reservation, have already reviewed
our pricing and space availability through our websites. We invest extensively in advertising on
the Internet to attract potential customers, primarily through the use of search engines, and we
regularly update our websites to enhance their productivity.
(cid:120) Our Call Center: Our call center is staffed by skilled sales specialists. Customers reach our call
center by calling our advertised toll-free telephone referral number, (800) 44-STORE, or telephone
numbers provided on the Internet. We believe giving customers the option to interact with a call
center agent, despite the higher marginal cost relative to an internet reservation, enhances our
ability to close sales with potential customers.
(cid:120) Our Properties: Customers can also shop at any one of our facilities. Property managers access
the same information that is available on our website and to our call center agents, and can inform
the customer of available space at that site or our other nearby storage facilities. Property
managers are extensively trained to maximize the conversion of such “walk in” shoppers into
customers.
Economies of scale: The size and scope of our operations have enabled us to achieve high operating
margins and a low level of administrative costs relative to revenues through the centralization of many functions,
such as facility maintenance, employee compensation and benefits programs, revenue management, as well as the
development and documentation of standardized operating procedures. We also believe that our major market
concentration provides managerial efficiencies stemming from having a large percentage of our facilities in close
proximity to each other.
Brand name recognition: We believe that the “Public Storage” brand name is the most recognized and
established name in the self-storage industry in the U.S, due to our national reach in major markets in 38 states, our
highly visible facilities, and our facilities’ distinct orange colored doors and signage. We believe the “Public
Storage” name is one of the most frequently used search terms used by customers using Internet search engines for
self-storage. We believe that the “Shurgard” brand, used by Shurgard Europe, is a well-established and valuable
brand in Europe. We believe that the awareness of our brand name results in a high percentage of potential storage
customers considering our facilities relative to other operators.
h
Marketing and advertising efficiencies: Our major-market concentration relative to the fragmented
ownership and operation of the rest of the industry, combined with our well-recognized brand name, improves our
prominence in unpaid search results for self-storage on major online search engines and enhances the efficiency of
our bidding for paid multiple-keyword advertising. The large number of facilities we have in major metropolitan
centers enables us to efficiently use television advertising. Our competitors do not use television advertising
because they lack the scale in major metropolitan centers.
Growth and Investment Strategies
Our growth strategies consist of: (i) improving the operating performance of our existing self-storage
facilities, (ii) acquiring more facilities, (iii) developing new facilities and adding more self-storage space to existing
facilities, (iv) participating in the growth of our investment in PSB, and (v) participating in the growth of our
investment in Shurgard Europe. While our long-term strategy includes each of these elements, in the short run the
level of growth in our asset base in any period is dependent upon the cost and availability of capital, as well as the
relative attractiveness of available investment alternatives.
y
rr
Improve the operating performance of existing facilities:
We seek to increase the net cash flow of our
existing self-storage facilities by (i) regularly analyzing our call volume, reservation activity, Internet activity,
move-in/move-out rates and other market supply and demand factors and responding by adjusting our marketing and
promotional activities and rental rates charged to new and existing customers, (ii) attempting to maximize revenues
through evaluating the appropriate balance between occupancy, rental rates, and promotional discounting and (iii)
tt
controlling operating costs. We believe that our property management personnel, information technology, our
7
convenient shopping options for the customer, our economies of scale, and our Internet marketing and advertising
programs will continue to enhance our ability to meet these goals.
Acquire properties owned by others in the U.S.: We seek to capitalize on the fragmentation of the self-
storage business through acquiring attractively priced, well-located existing self-storage facilities. We believe our
presence in and knowledge of substantially all of the major markets in the U.S. enhances our ability to identify
attractive acquisition opportunities. Data on the rental rates and occupancy levels of our existing facilities provides
us an advantage in evaluating the potential of acquisition opportunities. Self-storage owners decide whether to
market their facilities for sale based upon many factors, including potential reinvestment returns, expectations of
future growth, estimated value, the cost of debt financing, as well as personal considerations. Our aggressiveness in
bidding for particular marketed facilities depends upon many factors including the potential for future growth, the
quality of construction and location, the cash flow we expect from the facility when operated on our platform, how
well the facility fits into our current geographic footprint, as well as our yield expectations. During 2016, 2015 and
2014, we acquired 55, 17 and 44 facilities, respectively, from third parties for approximately $429 million,
$169 million and $431 million, respectively, primarily through one to five property portfolio acquisitions. We will
continue to seek to acquire properties in 2017; however, there is significant competition to acquire existing facilities.
As a result, there can be no assurance as to the level of facilities we may acquire.
Develop new self-storage facilities and expansion of existing facilities: The development of new self-
storage locations and the expansion of existing facilities has been an important source of growth. Since the
beginning of 2013, we have expanded our development efforts due in part to the significant increase in prices being
paid for existing facilities, in many cases well above the cost of developing new facilities. At December 31, 2016,
we had a development pipeline to develop new self-storage facilities and, to a lesser extent, expand existing self-
storage facilities, which will add approximately 5.3 million net rentable square feet of self-storage space, at a total
cost of $660.2 million. Some of these projects are subject to significant contingencies such as entitlement approval.
We expect to continue to seek additional development projects; however, the level of future development may be
limited due to various constraints such as difficulty in finding projects that meet our risk-adjusted yield expectations,
challenges in obtaining building permits for self-storage activities in certain municipalities, as well as challenges in
sourcing quality construction materials, labor, and design elements.
Participate in the growth of PS Business Parks, Inc.: Our investment in PSB provides diversification into
another asset type. PSB is a stand-alone public company traded on the NYSE. As of December 31, 2016, we have a
42% equity interest in PSB.
PSB seeks to grow its asset base in favorable markets as well as increase the cash flows from its existing
portfolio. From 2010 through 2016, PSB has acquired an aggregate total of 11.5 million rentable square feet in key
markets for an aggregate purchase price of approximately $1.1 billion, and has disp
osed of an aggregate of
2.7 million rentable square feet in markets deemed non-strategic for an aggregate of $282 million in net proceeds.
As of December 31, 2016, PSB owned and operated approximately 28.1 million rentable square feet of commercial
space, and had an enterprise value of approximately $5.1 billion (based upon the trading price of PSB’s common
stock combined with the liquidation value of its preferred stock as of December 31, 2016).
y
Participate in the growth of Shurgard Europe: We believe Shurgard Europe is the largest self-storage
company in Western Europe. It owns and operates 218 self-storage facilities with approximately 12 million net
rentable square feet in: France (principally Paris), Sweden (principally Stockholm), the United Kingdom (principally
London), the Netherlands, Denmark (principally Copenhagen), Belgium and Germany. We own 49% of Shurgard
Europe, with the other 51% owned by a large U.S. institutional investor.
Customer awareness and availability of self-storage is significantly lower in Europe than in the U.S.
However, with more awareness and product supply, we believe there is potential for increased demand for storage
space in Europe. In the long run, we believe Shurgard Europe could capitalize on potential increased demand
through the development of new facilities or, to a lesser extent, acquiring existing facilities. In 2014, 2015 and
2016, Shurgard Europe acquired 27 facilities with 1.3 million net rentable square feet in Germany, the Netherlands,
and the United Kingdom for an aggregate purchase price of approximately $250.5 million. In addition, during 2015
8
and 2016 Shurgard Europe opened four development properties in the United Kingdom containing 314,000 net
rentable square feet at a cost of $52.3 million.
Financing of the Company’s Growth Strategies
Overview of financing strategy and sources of capital: As a REIT, we generally distribute 100% of our
taxable income to our shareholders, which relative to a taxable C corporation, limits the amount of cash flow from
operations that we can retain for investments. As a result, in order to grow our asset base, access to capital is
important.
Our financial profile is characterized by strong credit metrics, including low leverage relative to our total
capitalization and operating cash flows. We are one of the highest rated REITs, as rated by major rating agencies
Moody’s and Standard & Poor’s. Our senior debt has an “A” credit rating by Standard & Poor’s and “A2” by
Moody’s. Our credit ratings on each of our series of preferred shares are “A3” by Moody’s and “BBB+” by
Standard & Poor’s. Our credit profile and ratings enables us to effectively access both the public and private capital
markets to raise capital.
Sources of capital available to us include retained cash flow, the issuance of preferred and common
securities, the issuance of medium and long-term debt, joint venture financing, and the sale of properties. We view
our line of credit, as well as short-term bank loans, as bridge financing.
Historically, we have financed our cash investment activities primarily with retained operating cash flow
and the issuance of preferred securities. While we have issued common shares, such issuances have been minimal,
because preferred securities have had a more attractive cost of capital. In 2015 and 2016, we issued euro-
denominated medium-term debt primarily as a hedge to our euro-denominated investment in Shurgard Europe. We
expect to continue to use these same sources of capital, supplemented potentially by the issuance of long-term debt.
While we may increase the level of debt in our capital structure, we expect to continue to remain conservatively
capitalized and not subject ourselves to significant refinancing risk.
We do not expect to use joint venture financing or the sale of properties as sources of capital; however,
there can be no assurance that we will not.
We select among the sources of capital available to us based upon relative cost, availability, the desire for
leverage, as well as intangibles such as covenants in the case of debt.
Retained operating cash flow: Although we are required to generally distribute 100% of our taxable
income to our shareholders, we are nonetheless able to retain cash flow to the extent that our tax depreciation
t
exceeds our maintenance capital expenditures. In recent years, we have retained approximately $300 million per
year in cash flow, and we expect to retain $250 million in 2017.
Preferred equity: As noted above, we view preferred equity as an important source of capital over the long
term. However, rates and market conditions for the issuance of preferred securities can be volatile or inefficient
from time to time, particularly so in the last few years. Since 2013, we have issued preferred securities at fixed rates
ranging from 4.900% to 6.375%. Most recently, in October 2016, we issued $350 million of preferred securities at a
fixed rate of 4.900%. We believe that the market coupon rate of our preferred securities is influenced by long-term
interest rates, as well as demand specifically from retail investors. Institutional investors are generally not buyers of
our preferred securities. Currently, we believe that the cost to issue preferred securities would be approximately
5.875%. At December 31, 2016, we have approximately $4.4 billion in preferred securities outstanding with an
average coupon rate of 5.5% and an average market yield of 5.9%.
Medium or long-term debt: We have broad powers to issue debt to fund our business. These powers are
subject to a limitation on unsecured borrowings in our Bylaws described in “Limitations on Debt” below. Our
corporate credit ratings are “A” by Standard & Poor’s and “A2” by Moody’s. We believe this high rating, combined
9
with our low level of debt, could allow us to issue a significant amount of unsecured debt at lower interest rates than
the coupon rates on preferred securities.
At December 31, 2016, we have approximately €342 million of Euro-denominated senior unsecured notes
(collectively, the “Senior Notes”) outstanding, which were issued to institutional investors in 2015 and 2016.
Common equity: Except in connection with mergers, most notably a merger in 2006 with Shurgard
Storage Centers, we have not raised capital through the issuance of common equity, because lower cost alternatives
have been available. However, we believe that the market for our common equity is liquid and, as a result, common
equity is a significant potential source of capital.
Bridge financing: We have a $500.0 million revolving line of credit which we occasionally use as
temporary “bridge” financing, along with short-term bank loans, until we are able to raise longer-term capital. As of
December 31, 2016, there we no borrowings outstanding on our revolving line of credit and no short-term bank
loans.
Unlikely capital alternatives: We have issued both our common and preferred securities in exchange for
real estate and other investments in the past. We do not expect such issuances to be a material source of capital in
the future, though there can be no assurance.
We have participated in joint ventures with institutional investors in the past to acquire, develop, and
operate self-storage facilities, most notably Shurgard Europe, in which we own a 49% interest and an institutional
investor owns the remaining 51%. We do not expect joint venture financing to be a material source of capital in the
future because we have other sources of capital that are less expensive and because of potential constraints resulting
from joint management. However, there can be no assurance that we will not.
Generally, we have disposed of self-storage facilities only when compelled to do so through condemnation
proceedings. Because we believe that we are an optimal operator of self-storage facilities, we have generally found
that we cannot obtain sufficient value in selling properties. As a result, we do not expect to raise significant capital
h
selling self-storage facilities; however, though there can be no assurance that we will not.
Investments in Real Estate and Unconsolidated Real Estate Entities
Investment Policies and Practices with respect to our investments: Following are our investment practices
and policies which, though we do not anticipate any significant alteration, can be changed by our board of trustees
(the “Board”) without a shareholder vote:
(cid:120) Our investments primarily consist of direct ownership of self-storage facilities (the nature of our self-
storage facilities is described in Item 2, “Properties”), as well as partial interests in entities that own
self-storage facilities.
(cid:120) Our partial ownership interests primarily reflect general and limited partnership interests in entities that
own self-storage facilities that are managed by us under the “Public Storage” brand name in the U.S.,
as well as storage facilities located in Europe managed by Shurgard Europe under the “Shurgard”
brand name.
(cid:120) Additional acquired interests in real estate (other than the acquisition of properties from third parties)
will include common equity interests in entities in which we already have an interest.
(cid:120)
To a lesser extent, we have interests in existing commercial properties (described in Item 2,
“Properties”), containing commercial and industrial rental space, primarily through our investment in
PSB.
10
Facilities Owned by Unconsolidated Real Estate Entities
At December 31, 2016, we had ownership interests in entities that we do not control or consolidate. These
entities include PSB, Shurgard Europe (each discussed above), and various limited partnerships that own an
aggregate of 12 self-storage facilities. These entities are referred to collectively as the “Unconsolidated Real Estate
Entities.”
PSB, which files financial statements with the SEC, and Shurgard Europe, have debt and other obligations
that we do not consolidate in our financial statements. Such debt or other obligations have no recourse to us. None
of the other Unconsolidated Real Estate Entities have significant amounts of debt or other obligations. See Note 4 to
our December 31, 2016 financial statements for further disclosure regarding the assets, liabilities and operating
results of PSB and Shurgard Europe.
Canadian self-storage facilities owned by Former Chairman and Member of Board of Trustees
At December 31, 2016, B. Wayne Hughes, our former Chairman and his daughter, Tamara Hughes
Gustavson, a member of our Board of Trustees, owned and controlled 57 self-storage facilities in Canada. These
facilities operate under the “Public Storage” tradename, which we license to the owners of these facilities for use in
Canada on a royalty-free, non-exclusive basis. Our subsidiaries reinsure risks relating to loss of goods stored by
customers in these facilities, and have received approximately and $848,000, $562,000 and $480,000 for the years
ended December 31, 2016, 2015 and 2014, respectively. Our right to continue receiving these premiums may be
qualified.
We have no ownership interest in these facilities and we do not own or operate any facilities in Canada. If
we chose to acquire or develop our own facilities in Canada, we would have to share the use of the “Public Storage”
name in Canada with the facilities’ owners. We have a right of first refusal, subject to limitations, to acquire the
stock or assets of the corporation engaged in the operation of these facilities if their owners agree to sell them.
Limitations on Debt
Without the consent of holders of the various series of Preferred Shares, we may not take any action that
would result in our “Debt Ratio” exceeding 50%. “Debt Ratio”, as defined in the related governing documents,
represents generally the ratio of debt to total assets before accumulated depreciation and amortization on our balance
sheet, in accordance with U.S. generally accepted accounting principles (“GAAP”). As of December 31, 2016, the
Debt Ratio was approximately 3%.
Our revolving credit facility and senior unsecured debt agreements contain various customary financial
covenants, including limitations on the level of indebtedness and the prohibition of the payment of dividends upon
the occurrence of defined events of default. We believe we were in compliance with each of these covenants as of
December 31, 2016.
Employees
We had approximately 5,500 employees in the U.S. at December 31, 2016 who are engaged primarily in
property operations.
Seasonality
We experience minor seasonal fluctuations in the demand for self-storage space, with demand and rental
rates generally higher in the summer months than in the winter months. We believe that these fluctuations result in
part from increased moving activity during the summer months.
11
Insurance
We have historically carried property, earthquake, general liability, employee medical insurance and
workers compensation coverage through internationally recognized insurance carriers, subject to deductibles.
Deductibles for property and general liability are $25.0 million and $2.0 million, respectively, per occurrence. The
aggregate limits on these policies of $75.0 million for property losses and $102.0 million for general liability losses
are higher than estimates of maximum probable losses that could occur from individual catastrophic events
determined in recent engineering and actuarial studies; however, in case of multiple catastrophic events, these limits
could be exceeded.
We reinsure a program that provides insurance to our customers from an independent third-party insurer.
This program covers tenant claims for losses to goods stored at our facilities as a result of specific named perils
(earthquakes are not covered by this program), up to a maximum limit of $5,000 per storage unit. We reinsure all
risks in this program. We are subject to licensing requirements and regulations in several states. At December 31,
2016, there were approximately 894,000 certificates held by our self-storage customers, representing aggregate
coverage of approximately $2.7 billion.
ITEM 1A. Risk Factors
In addition to the other information in our Annual Report on Form 10-K, you should consider the risks
described below that we believe may be material to investors in evaluating the Company. This section contains
forward-looking statements, and in considering these statements, you should refer to the qualifications and
limitations on our forward-looking statements that are described in Item 1, “Forward Looking Statements.”
We have significant exposure to real estate risk.
Since our business consists primarily of acquiring and operating real estate, we are subject to the risks
related to the ownership and operation of real estate that can adversely impact our business and financial condition.
These risks include the following:
Natural disasters or terrorist attacks could cause damage to our facilities, resulting in increased costs and
reduced revenues. Natural disasters, such as earthquakes, hurricanes and floods, or terrorist attacks could cause
significant damage and require significant repair costs, and make facilities temporarily uninhabitable, reducing our
revenues. Damage and business interruption losses could exceed the aggregate limits of our insurance coverage. In
addition, because we self-insure a portion of our risks, losses below a certain level may not be covered by insurance.
See Note 12 to our December 31, 2016 financial statements for a description of the risks of losses that are not
covered by third-party insurance contracts. We may not have sufficient insurance coverage for losses caused by a
terrorist attack, or such insurance may not be maintained, available or cost-effective. In addition, significant natural
disasters, terrorist attacks, threats of future terrorist attacks, or resulting wider armed conflicts could have negative
impacts on the U.S. economy, reducing storage demand and impairing our operating results.
Operating costs could increase. We could be subject to increases in insurance premiums, increased or new
property tax assessments or other taxes, repair and maintenance costs, payroll, utility costs, workers compensation,
and other operating expenses due to various factors such as inflation, labor shortages, commodity and energy price
increases, weather, increases to minimum wage rates, changes to governmental safety and real estate use limitations,
as well as other governmental actions.
n
The acquisition of existing properties is subject to risks that may adversely affe
ct our growth and financial
results. We have acquired self-storage facilities from third parties in the past, and we expect to continue to do so in
the future. We face significant competition for suitable acquisition properties from other real estate investors. As a
result, we may be unable to acquire additional properties we desire or the purchase price for desirable properties
may be significantly increased. Failures or unexpected circumstances in integrating newly acquired properties into
our operations or circumstances we did not detect during due diligence, such as environmental matters, needed
repairs or deferred maintenance, or the effects of increased property tax following reassessment of a newly-acquired
h
ii
12
property, as well as the general risks of real estate investment, could jeopardize realization of the anticipated
earnings from an acquisition.
Development of self-storage facilities can subject us to risks. At December 31, 2016, we have a pipeline of
development projects totaling $660 million (subject to contingencies), and we expect to continue to seek additional
development projects. There are significant risks involved in developing self-storage facilities, such as delays or
cost increases due to changes in or failure to meet government or regulatory requirements, failure of revenue to meet
our underwriting estimates, weather issues, unforeseen site conditions, or personnel problems. Self-storage space is
generally not pre-leased, and rent-up of newly developed space can be delayed or ongoing cash flow yields can be
reduced due to competition, reductions in storage demand, or other factors.
ff
There is significant competition among self-storage operators and from other storage alternatives. Our
self-storage facilities generate most of our revenue and earnings. Competition in the local market areas in which
many of our properties are located is significant and has affected our occupancy levels, rental rates and operating
expenses. Development of self-storage facilities has increased in recent years, which has intensified competition
and will continue to do so as newly developed facilities are opened. Development of self-storage facilities by other
operators could continue to increase, due to increases in availability of funds for investment or other reasons, and
further intensify competition.
We may incur significant liabilities from environmental contamination or moisture infiltration
. Existing or
future laws impose or may impose liability on us to clean up environmental contamination on or around properties
that we currently or previously owned or operated, even if we were not responsible for or aware of the
environmental contamination or even if such environmental contamination occurred prior to our involvement with
the property. We have conducted preliminary environmental assessments on most of our properties, which have not
identified material liabilities. These assessments, commonly referred to as “Phase 1 Environmental Assessments,”
include an investigation (excluding soil or groundwater sampling or analysis) and a review of publicly available
information regarding the site and other nearby properties.
r
We are also subject to potential liability relating to moisture infiltration, which can result in mold or other
damage to our or our customers’ property, as well as potential health concerns. When we receive a complaint or
otherwise become aware that an air quality concern exists, we implement corrective measures and seek to work
proactively with our customers to resolve issues, subject to our contractual limitations on liability for such claims.
We are not aware of any environmental contamination or moisture infiltration related liabilities that could
be material to our overall business, financial condition, or results of operation. However, we may not have detected
all material liabilities, we could acquire properties with material undetected liabilities, or new conditions could arise
or develop in the future. Settling any such liabilities could negatively impact our earnings and cash available for
distribution to shareholders, and could also adversely affect our ability to sell, lease, operate, or encumber affected
facilities.
r
We incur liability from tenant and employment-related claims. From time to time we have to make
monetary settlements or defend actions or arbitration (including class actions) to resolve tenant or employment-
related claims and disputes. Settling any such liabilities could negatively impact our earnings and cash available for
distribution to shareholders, and could also adversely affect our ability to sell, lease, operate, or encumber affected
facilities.
Economic conditions can adversely affect our business, financial condition, growth and access to capital.
Our revenues and operating cash flow can be negatively impacted by reductions in employment and
population levels, household and disposable income, and other general economic factors that lead to a reduction in
demand for rental space in each of the markets in which we operate.
13
Our ability to raise capital to fund our activities may be adversely affected by challenging market
conditions. If we were unable to raise capital at reasonable rates, prospective earnings growth through expanding
our asset base could be limited.
We have exposure to European operations through our ownership in Shurgard Europe.
We own a 49% equity interest in Shurgard Europe, with our investment having a $280 million book value
at December 31, 2016, and $22.3 million in equity in earnings in 2016. As a result, we are exposed to additional
risks related to international operations that may adversely impact our business and financial results, including the
following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Currency risks: Currency fluctuations can impact the fair value of our equity investment in Shurgard
Europe, as well as future repatriation of cash.
Legislative, tax, and regulatory risks: We are subject to complex foreign laws and regulations related to
permitting and land use, the environment, labor, and other areas, as well as income, property, sales,
value added and employment tax laws. These laws can be difficult to apply or interpret and can vary in
each country or locality, and are subject to unexpected changes in their form and application due to
regional, national, or local political uncertainty and other factors. Such changes, or Shurgard’s failure to
comply with these laws, could subject it to penalties or other sanctions, adverse changes in business
processes, as well as potentially adverse income tax, property tax, or other tax burdens.
Impediments to capital repatriation could negatively impact the realization of our investment in
Shurgard Europe: Laws in Europe and the U.S. may create, impede or increase our cost to repatriate
capital or earnings from Shurgard Europe.
Risks of collective bargaining and intellectual property: Collective bargaining, which is prevalent in
certain areas in Europe, could negatively impact Shurgard Europe’s labor costs or operations. Many of
Shurgard Europe’s employees participate in various national unions.
Potential operating and individual country risks: Economic slowdowns or extraordinary political or
social change in the countries in which it operates have posed, and could continue to pose, challenges or
result in future reductions of Shurgard Europe’s operating cash flows.
nn
Impediments of Shurgard Europe’s joint venture structure: Shurgard Europe’s strategic decisions,
involving activities such as borrowing money, capital contributions, raising capital from third parties, as
well as selling or acquiring significant assets, require the consent of our joint venture partner. As a
result, Shurgard Europe may be precluded from taking advantage of opportunities that we would find
attractive and we could be unable to separately pursue such opportunities due to certain market
exclusivity provisions, which expire on March 31, 2018, of the Shurgard Europe joint venture
agreement. In addition, our 49% equity investment may not be easily sold or readily accepted as
collateral by potential lenders to Public Storage due to the joint venture structure.
The Hughes Family could control us and take actions adverse to other shareholders.
At December 31, 2016, B. Wayne Hughes, our former Chairman and his family, which includes his
daughter, Tamara Hughes Gustavson and his son, B. Wayne Hughes, Jr., who are both members of our Board of
Trustees (collectively, the “Hughes Family”), owned approximately 14.3% of our aggregate outstanding common
shares. Our declaration of trust permits the Hughes Family to own up to 35.66% of our outstanding common shares
y
while it generally restricts the ownership by other persons and entities to 3% of our outstanding common shares.
Consequently, the Hughes Family may significantly influence matters submitted to a vote of our shareholders,
including electing trustees, amending our organizational documents, dissolving and approving other extraordinary
transactions, such as a takeover attempt, resulting in an outcome that may not be favorable to other shareholders.
14
Takeover attempts or changes in control could be thwarted, even if beneficial to shareholders.
In certain circumstances, shareholders might desire a change of control or acquisition of us, in order to
realize a premium over the then-prevailing market price of our shares or for other reasons. However, the following
could prevent, deter, or delay such a transaction:
(cid:120)
(cid:120)
(cid:120)
Provisions of Maryland law may impose limitations that may make it more difficult for a third
party to negotiate or effect a business combination transaction or control share acquisition with
Public Storage. Currently, the Board has opted not to subject the Company to these provisions of
Maryland law, but it could choose to do so in the future without shareholder approval.
To protect against the loss of our REIT status due to concentration of ownership levels, our
declaration of trust generally limits the ability of a person, other than the Hughes Family or
“designated investment entities” (each as defined in our declaration of trust), to own, actually or
constructively, more than 3% of our outstanding common shares or 9.9% of the outstanding shares
of any class or series of preferred or equity shares, in either case unless a specific exemption is
uu
granted by our Board. These limits could discourage, delay or prevent a transaction involving a
change in control of the Company not approved by our Board.
f
Similarly, current provisions of our declaration of trust and powers of our Board could have the
same effect, including (1) limitations on removal of trustees in our declaration of trust, (2)
restrictions on the acquisition of our shares of beneficial interest, (3) the power to issue additional
common shares, preferred shares or equity shares on terms approved by the Board without
obtaining shareholder approval, (4) the advance notice provisions of our bylaws and (5) the
Board’s ability under Maryland law, without obtaining shareholder approval, to implement
takeover defenses that we may not yet have and to take, or refrain from taking, other actions that
could have the effect of delaying, deterring or preventing a transaction or a change in control.
r
If we failed to qualify as a REIT, we would have to pay substantial income taxes.
REITs are subject to a range of complex organizational and operational requirements. A qualifying REIT
does not generally incur federal income tax on its net income that is distributed to its shareholders. Our REIT status
is also dependent upon the ongoing REIT qualification of PSB as a result of our substantial ownership interest in it.
We believe we have qualified as a REIT and we intend to continue to maintain our REIT status.
nn
There can be no assurance that we qualify or will continue to qualify as a REIT. The highly technical
nature of the REIT rules, the ongoing importance of factual determinations, the possibility of unidentified issues in
prior periods or changes in our circumstances, all could adversely affect our ability to comply. For any taxable year
that we fail to qualify as a REIT and statutory relief provisions did not apply, we would be taxed at the regular
federal corporate rates on all of our taxable income and we also could be subject to penalties and interest. We would
generally not be eligible to seek REIT status again until the fifth taxable year after the first year of our failure to
qualify. Any taxes, interest and penalties incurred would reduce the amount of cash available for distribution to our
shareholders or for reinvestment and would adversely affect our earnings, which could have a material adverse
effect.
ff
Holders of our preferred shares have dividend, liquidation and other rights that are senior to the rights of the
holders of shares of our common stock.
Holders of our preferred shares are entitled to cumulative dividends before any dividends may be declared
or set aside on our common stock. Upon liquidation, holders of our preferred shares will receive a liquidation
preference of $25,000 per share (or $25.00 per depositary share) plus any accrued and unpaid distributions before
any payment is made to the common shareholders. These preferences may limit the amount received by our
common shareholders either from ongoing distributions or upon liquidation. In addition, our preferred shareholders
n
15
have the right to elect two additional directors to our Board whenever dividends are in arrears in an aggregate
amount equivalent to six or more quarterly dividends, whether or not consecutive.
Potential changes in tax laws could negatively impact us.
The Trump Administration and the Republican-led Congress are exploring potential changes to U.S. tax
law, such as reducing income tax rates, reducing the deductibility of interest, changing the allowable recovery
periods for acquired assets, and eliminating or limiting many other deductions and credits. These potential changes,
and others we may not be aware of, could have negative impacts such as reducing the value of our common stock,
mm
reducing our access to capital, or making the acquisition of real estate assets less attractive. In response, we may
need to take actions such as changing our sources of capital, revising our capital allocation and asset acquisition
strategy, or reconsidering our status as a REIT. Such responses could be costly, reduce cash available for
distributions to shareholders, and present certain business and tax risks. We cannot predict whether, when, or to
what extent new federal tax laws, regulations, interpretations or rulings will be adopted.
We may pay some taxes, reducing cash available for shareholders.
uu
Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, foreign,
state and local taxes on our income and property. Since January 1, 2001, certain consolidated corporate subsidiaries
of the Company have elected to be treated as “taxable REIT subsidiaries” for federal income tax purposes, and are
taxable as regular corporations and subject to certain limitations on intercompany transactions. If tax authorities
determine that amounts paid by our taxable REIT subsidiaries to us are not reasonable compared to similar
arrangements among unrelated parties, we could be subject to a 100% penalty tax on the excess payments, and
ongoing intercompany arrangements could have to change, resulting in higher ongoing tax payments. To the extent
the Company is required to pay federal, foreign, state or local taxes or federal penalty taxes due to existing laws or
changes thereto, we will have less cash available for distribution to shareholders. In addition, certain local and state
governments have imposed taxes on self-storage rent. While in most cases those taxes are paid by our customers,
they increase the cost of self-storage rental to our customers and can negatively impact our revenues. Other local
and state governments may impose self-storage rent taxes in the future.
mm
We are exposed to 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.
We are subject to the risk of legal claims and proceedings and regulatory enforcement actions in the
ordinary course of our business and otherwise, and we could incur significant liabilities and substantial legal fees as
a result of these actions. Resolution of these claims and actions may divert time and attention by our management
and could involve payment of damages or expenses by us, all of which may be significant. In addition, any such
resolution could involve our agreement to terms that restrict the operation of our business. The results of legal
proceedings cannot be predicted with certainty. We cannot guarantee losses incurred in connection with any current
or future legal or regulatory proceedings or actions will not exceed any provisions we may have set aside in respect
of such proceedings or actions or will not exceed any available insurance coverage. The impact of any such legal
claims, proceedings, and regulatory enforcement actions could have a material adverse effect on us.
We are heavily dependent on computer systems, telecommunications and the Internet to process transactions,
summarize results and manage our business. Security breaches or a failure of such networks, systems or
technology could adversely impact our business, customer, and employee relationships.
We are heavily dependent upon automated information technology and Internet commerce, with more than
half of our new customers coming from the telephone or over the Internet, and the nature of our business involves
the receipt and retention of personal information about our customers. We also maintain personally identifiable
information about our employees. We centrally manage significant components of our operations with our
computer systems, including our financial information, and we also rely extensively on third-party vendors to retain
data, process transactions and provide other systems services. These systems are subject to damage or interruption
from power outages, computer and telecommunications failures, computer worms, viruses and other destructive or
disruptive security breaches and catastrophic events.
16
As a result, our operations could be severely impacted by a natural disaster, terrorist attack or other
circumstance that results in a significant outage of our systems or those of our third party providers, despite our use
of back up and redundancy measures. Our or our customers’ or employees’ confidential information could be
compromised or misappropriated, due to a breach of our network security. Such cybersecurity and data security
breaches as well as systems disruptions and shutdowns could result in additional costs to repair or replace such
networks or information systems and possible legal liability, including government enforcement actions and private
litigation. In addition, our customers could lose confidence in our ability to protect their personal information,
which could cause them to discontinue leasing our self-storage facilities. Such events could lead to lost future
revenues and adversely affect our results of operations and could result in remedial and other costs, fines or lawsuits,
which could be in excess of any available insurance that we have procured.
We are subject to laws and governmental regulations and actions that require us to incur compliance costs
affecting our operating results and financial condition.
Our business is subject to regulation under a wide variety of U.S. federal, state and local laws, regulations
and policies including those imposed by the SEC, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street
Reform and Consumer Protection Act and NYSE, as well as applicable local, state, and national labor laws.
Although we have policies and procedures designed to comply with applicable laws and regulations, failure to
comply with the various laws and regulations may result in civil and criminal liability, fines and penalties, increased
n
costs of compliance, restatement of our financial statements and could also affect the marketability of our real estate
facilities.
In response to current economic conditions or the current political environment or otherwise, laws and
regulations could be implemented or changed in ways that adversely affect our operating results and financial
condition, such as legislation that could facilitate union activity or that would otherwise increase operating costs.
All of our properties must comply with the Americans with Disabilities Act and with related regulations
and similar state law requirements, as well as various real estate and zoning laws and regulations, which are subject
to change and could become more costly to comply with in the future. Compliance with these requirements can
h
require us to incur significant expenditures, which would reduce cash otherwise available for distribution to
shareholders. A failure to comply with these laws could lead to fines or possible awards of damages to individuals
affected by the non-compliance. Failure to comply with these requirements could also affect the marketability of
our real estate facilities.
Our tenant reinsurance business is subject to governmental regulation which could reduce our profitability
or limit our growth.
We hold Limited Lines Self-Service Storage Insurance Agent licenses from a number of individual state
Departments of Insurance and are subject to state governmental regulation and supervision. Our continued ability to
maintain these Limited Lines Self-Service Storage Insurance Agent licenses in the jurisdictions in which we are
licensed depends on our compliance with related rules and regulations. The regulatory authorities in each
jurisdiction generally have broad discretion to grant, renew and revoke licenses and approvals, to promulgate,
interpret, and implement regulations, and to evaluate compliance with regulations through periodic examinations,
audits and investigations of the affairs of insurance agents. As a result of regulatory or private action in any
jurisdiction, we may be temporarily or permanently suspended from continuing some or all of our reinsurance
activities, or otherwise fined or penalized or suffer an adverse judgment, which could reduce our net income.
ITEM 1B. Unresolved Staff Comments
None.
17
ITEM 2.
Properties
At December 31, 2016, we had direct and indirect ownership interests in 2,348 (including 12 owned by
Unconsolidated real estate entities) self-storage facilities located in 38 states within the U.S. and 219 (including one
wholly-owned facility) storage facilities located in seven Western European nations:
At December 31, 2016
Number of Storage
Facilities (a)
Net Rentable Square Feet
(in thousands)
U.S.:
California
Southern
Northern
Texas
Florida
Illinois
Georgia
Washington
North Carolina
Virginia
New York
Colorado
Maryland
New Jersey
Minnesota
South Carolina
Michigan
Ohio
Arizona
Missouri
Oregon
Indiana
Pennsylvania
Tennessee
Nevada
Massachusetts
Oklahoma
Kansas
Other states (12 states)
Total - U.S.
Europe (b):
Netherlands
France
Sweden
United Kingdom
Belgium
Germany
Denmark
Total - Europe
Grand Total
247
177
281
282
126
108
94
86
91
66
67
62
57
47
56
44
44
44
38
39
32
29
32
27
25
21
21
105
17,901
10,962
19,485
19,024
7,952
7,129
6,438
5,959
5,593
4,622
4,295
3,761
3,630
3,313
3,075
2,869
2,854
2,833
2,236
2,040
2,031
1,993
1,952
1,818
1,691
1,477
1,268
6,247
2,348
154,448
61
55
30
26
21
16
10
219
2,567
3,110
2,879
1,640
1,417
1,263
889
572
11,770
166,218
18
(a) See Schedule III: Real Estate and Accumulated Depreciation in the Company’s 2016 financials, for a summary of land,
building, and accumulated depreciation by market.
(b) The facilities located in Europe include one facility in the United Kingdom that we wholly own, as well as the facilities
owned by Shurgard Europe.
We seek to maximize our facilities’ cash flow through the regular review and adjustment of rents charged
and promotions granted to our existing and new incoming customers, and controlling expenses. For the year ended
December 31, 2016, the weighted average occupancy level and the average realized rent per occupied square foot
for our self-storage facilities were approximately 93.6% and $16.34, respectively, in the U.S. and 86.7% and $21.68,
respectively, in Europe.
At December 31, 2016, 30 of our U.S. facilities with a net book value of $122 million were encumbered by
an aggregate of $31 million in mortgage notes payable.
We have no specific policy as to the maximum size of any one particular self-storage facility. However,
none of our facilities involves, or is expected to involve, 1% or more of our total assets, gross revenues or net
income.
f
Description of Self-Storage Facilities: Self-storage facilities, which comprise the majority of our
investments, offer accessible storage space for personal and business use at a relatively low cost. A user rents a
fully enclosed space, securing the space with their lock, which is for the user's exclusive use and to which only the
user has access. Property managers operate the facility and are supervised by district managers. Some self-storage
facilities also include rentable uncovered parking areas for vehicle storage. Space is rented on a month-to-month
basis and rental rates vary according to the location of the property, the size of
the storage space and other
f
characteristics that affect the relative attractiveness of each particular space, such as whether the space has “drive-
up” access, its proximity to elevators, or if the space is climate controlled. All of our self-storage facilities in the
U.S. are operated under the "Public Storage" brand name, while our facilities in Europe are operated under the
“Shurgard” brand name.
Users include individuals from virtually all demographic groups, as well as businesses. Individuals usually
store furniture, household appliances, personal belongings, motor vehicles, boats, campers, motorcycles and other
household goods. Businesses normally store excess inventory, business records, seasonal goods, equipment and
fixtures.
Our self-storage facilities generally consist of between 350 to 750 storage spaces. Most spaces have
between 25 and 400 square feet and an interior height of approximately eight to 12 feet.
We experience minor seasonal fluctuations in the occupancy levels of self-storage facilities with
occupancies generally higher in the summer months than in the winter months. We believe that these fluctuations
result in part from increased demand from moving activity during the summer months and incremental demand from
y
college students.
Our self-storage facilities are geographically diversified and are located primarily in or near major
metropolitan markets in 38 states in the U.S. Generally our self-storage facilities are located in heavily populated
areas and close to concentrations of apartment complexes, single family residences and commercial developments.
ff
Competition from other self-storage facilities is significant and affects the occupancy levels, rental rates,
rental income and operating expenses of our facilities.
We believe that self-storage facilities, upon achieving stabilized occupancy levels of approximately 90%,
have attractive characteristics consisting of high profit margins, a broad tenant base, low levels of capital
expenditures to maintain their condition and appearance, and excellent returns on invested capital. Historically,
upon reaching stabilization, our U.S. self-storage facilities have generally shown a high degree of stability in
generating cash flows.
ff
19
Description of Commercial Properties: We have an interest in PSB, which, as of December 31, 2016,
owns and operates approximately 28.1 million rentable square feet of commercial space in six states. At
December 31, 2016, the $402.8 million book value and $1.7 billion market value, respectively, of our investment in
PSB represents approximately 4% and 17%, respectively, of our total assets. We also directly own 1.0 million net
rentable square feet of commercial space managed primarily by PSB.
f
The commercial properties owned by PSB consist primarily of flex, multi-tenant office and industrial
space. Flex space is defined as buildings that are configured with a combination of office and warehouse space and
can be designed to fit a wide variety of uses (including office, assembly, showroom, laboratory, light manufacturing
and warehouse space).
Environmental Matters: We accrue environmental assessments and estimated remediation cost when it is
probable that such efforts will be required and the related costs can be reasonably estimated. Our current practice is
to conduct environmental investigations in connection with property acquisitions. Although there can be no
assurance, we are not aware of any environmental contamination of any of our facilities, which individually or in the
aggregate would be material to our overall business, financial condition, or results of operations.
ITEM 3.
Legal Proceedings
We are a party to various legal proceedings and subject to various claims and complaints; however, we
believe that the likelihood of these contingencies resulting in a material loss to the Company, either individually or
in the aggregate, is remote.
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ITEM 4. Mine Safety Disclosures
Not applicable.
20
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
a.
Market Information of the Registrant’s Common Equity:
Our Common Shares of beneficial interest (the “Common Shares”) (NYSE: PSA) have been listed
on the NYSE since October 19, 1984. The following table sets forth the high and low sales prices of our
Common Shares on the NYSE composite tapes for the applicable periods.
Year
2015
2016
Quarter
1st
2nd
3rd
4th
1st
2nd
3rd
4th
Range
High
Low
206.92
200.60
217.99
253.93
276.83
277.60
260.83
224.40
185.05
182.91
182.08
210.87
224.71
234.98
212.69
200.65
As of February 27, 2017, there were approximately 13,532 holders of record of our Common
Shares. Because many of our shares of common stock are held by brokers and other institutions on behalf
of stockholders, we are unable to estimate the total number of stockholders represented by these record
holders.
b. Dividends
We have continuously paid quarterly distributions to our shareholders since 1981, our first full
year of operations. During 2016 we paid distributions to our common shareholders of $1.70 per common
share for the quarter ended March 31, $1.80 per common share for each of the quarters ended June 30 and
September 30 and $2.00 per common share for the quarter ended December 31, representing an aggregate
of $1.263 billion or $7.30 per share. During 2015 we paid distributions to our common shareholders of
$1.40 per common share for the quarter ended March 31 and $1.70 per common share for each of the
quarters ended June 30, September 30 and December 31, representing an aggregate of $1.122 billion or
$6.50 per share. During 2014 we paid distributions to our common shareholders of $1.40 per common
share for each of the quarters ended March 31, June 30, September 30 and December 31, representing an
aggregate of $964.6 million or $5.60 per share.
n
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Holders of common shares are entitled to receive distributions when and if declared by our Board
out of any funds legally available for that purpose. As a REIT, we do not incur federal income tax on our
REIT taxable income (generally, net rents and gains from real property, dividends, and interest) that is fully
distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered),
and if we meet certain organizational and operational rules. We believe we have met these requirements in
all periods presented herein, and we expect to continue to elect and qualify as a REIT.
For Federal income tax purposes, distributions to shareholders are treated as ordinary income,
capital gains, return of capital or a combination thereof. For 2016, the dividends paid on common shares
and preferred shares were all classified as 100% ordinary income. For 2015, 1.5117% of the dividends
paid in the third quarter were classified as long-term capital gain, with the remainder and all other
dividends being classified as 100% ordinary income.
21
c. Equity Shares
We are authorized to issue 100,000,000 equity shares from time to time in one or more series and
our Board has broad authority to fix the dividend and distribution rights, conversion and voting rights,
redemption provisions and liquidation rights of each series of equity shares. We had no equity shares
outstanding for any period in the years ended December 31, 2016 and 2015.
d. Common Share Repurchases
Our Board has authorized management to repurchase up to 35,000,000 of our common shares on
the open market or in privately negotiated transactions. From the inception of the repurchase program
through February 28, 2017, we have repurchased a total of 23,721,916 common shares (all purchased prior
to 2010) at an aggregate cost of approximately $679.1 million. Our common share repurchase program
does not have an expiration date and there are 11,278,084 common shares that may yet be repurchased
under our repurchase program as of December 31, 2016. We have no current plans to repurchase shares;
however, future levels of common share repurchases will be dependent upon our available capital,
investment alternatives, and the trading price of our common shares.
e. Preferred Share Redemptions
We had no preferred redemptions during the three months ended December 31, 2016.
22
ITEM 6.
Selected Financial Data
2016
For the year ended December 31,
2014
(Amounts in thousands, except share and per share data)
2015
2013
2012
Revenues
Expenses:
Cost of operations
Depreciation and amortization
General and administrative
Operating income
Interest and other income
Interest expense
Equity in earnings of unconsolidated real
estate entities
Foreign currency exchange gain (loss)
Gain on real estate investment sales
Income from continuing operations
Discontinued operations
Net income
Net income allocated to noncontrolling
$
2,560,549 $
2,381,696 $
2,177,296 $
1,964,942 $
1,826,186
669,083
433,314
83,656
1,186,053
1,374,496
15,138
(4,210)
56,756
17,570
689
1,460,439
-
1,460,439
635,502
426,008
88,177
1,149,687
1,232,009
16,544
(610)
50,937
306
18,503
1,317,689
-
1,317,689
613,324
437,114
71,459
1,121,897
1,055,399
17,638
(6,781)
88,267
(7,047)
2,479
1,149,955
-
1,149,955
559,759
387,402
66,679
1,013,840
951,102
33,979
(6,444)
57,579
17,082
4,233
1,057,531
-
1,057,531
550,805
357,781
56,837
965,423
860,763
33,293
(19,813)
45,586
8,876
1,456
930,161
12,874
943,035
equity interests
(6,863)
(6,445)
(5,751)
(5,078)
(3,777)
Net income allocable to Public Storage
shareholders
$
1,453,576 $
1,311,244 $
1,144,204 $
1,052,453 $
939,258
Per Common Share:
Distributions
–
Net income – Basic
Net income – Diluted
–
Weighted average common shares –
$7.30
$6.84
$6.81
$6.50
$6.10
$6.07
$5.60
$5.27
$5.25
$5.15
$4.92
$4.89
$4.40
$3.93
$3.90
Basic
173,091
172,699
172,251
171,640
170,562
Weighted average common shares –
Diluted
173,878
173,510
173,138
172,688
171,664
Balance Sheet Data:
Total assets
Total debt
Total preferred equity
Public Storage shareholders’ equity
Permanent noncontrolling interests’
equity
Net cash flow:
Provided by operating activities
Used in investing activities
Used in financing activities
$ 10,130,338 $
390,749 $
$
4,367,500 $
$
9,411,910 $
$
9,778,232 $
319,016 $
4,055,000 $
9,170,461 $
9,818,676 $
64,364 $
4,325,000 $
9,480,796 $
9,876,266 $
839,053 $
3,562,500 $
8,791,730 $
8,793,403
468,828
2,837,500
8,093,756
$
29,744 $
26,997 $
26,375 $
27,125 $
29,108
1,945,336 $
(716,726) $
$
$
$ (1,148,826) $ (1,391,283) $ (1,236,864) $
1,748,279 $
(440,105) $
1,438,407 $
1,603,542 $
(198,331) $ (1,412,393) $
1,293,315
(290,465)
(24,228) $ (1,124,961)
23
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
should be read in conjunction with our financial statements and notes thereto.
Critical Accounting Policies
Our MD&A discusses our financial statements, which have been prepared in accordance with United States
(“U.S.”) generally accepted accounting principles (“GAAP”), and are affected by our judgments, assumptions and
estimates. The notes to our December 31, 2016 financial statements, primarily Note 2, summarize our significant
accounting policies.
We believe the following are our critical accounting policies, because they have a material impact on the
portrayal of our financial condition and results, and they require us to make judgments and estimates about matters
that are inherently uncertain.
Income Tax Expense: We have elected to be treated as a REIT, as defined in the Internal Revenue Code
of 1986, as amended (the “Code”). As a REIT, we do not incur federal income tax on our REIT taxable income that
is fully distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered),
and if we meet certain organizational and operational rules. We believe we have met these REIT requirements for
all periods presented herein. Accordingly, we have recorded no federal income tax expense related to our REIT
taxable income.
Our evaluation that we have met the REIT requirements could be incorrect, because compliance with the
tax rules requires factual determinations, and circumstances we have not identified could result in noncompliance
with the tax requirements in current or prior years. For any taxable year that we fail to qualify as a REIT and for
which applicable statutory relief provisions did not apply, we would be taxed at the regular corporate rates on all of
our taxable income for at least that year and the ensuing four years, we could be subject to penalties and interest, and
our net income would be materially different from the amounts estimated in our financial statements.
In addition, certain of our consolidated corporate subsidiaries have elected to be treated as “taxable REIT
subsidiaries” for federal income tax purposes, which are taxable as regular corporations and subject to certain
limitations on intercompany transactions. If tax authorities determine that amounts paid by our taxable REIT
subsidiaries to us are not reasonable compared to similar arrangements among unrelated parties, we could be subject
to a 100% penalty tax on the excess payments. Such a penalty tax could have a material adverse impact on our net
income.
Impairment of Long-Lived Assets: The analysis of impairment of our long-lived assets involves
identification of indicators of impairment, projections of future operating cash flows, and estimates of fair values, all
of which require significant judgment and subjectivity. Others could come to materially different conclusions. In
addition, we may not have identified all current facts and circumstances that may affect impairment. Any
unidentified impairment loss, or change in conclusions, could have a material adverse impact on our net income.
Accrual for Uncertain and Contingent Liabilities: We accrue for certain contingent and other liabilities
that have significant uncertain elements, such as property taxes, workers compensation claims, tenant reinsurance
claims, as well as other legal claims and disputes involving customers, employees, governmental agencies and other
third parties. We estimate such liabilities based upon many factors such as assumptions of past and future trends
and our evaluation of likely outcomes. However, the estimates of known liabilities could be incorrect or we may not
aa
be aware of all such liabilities, in which case our accrued liabilities and net income could be misstated.
d
Accounting for Acquired Real Estate Facilities:
We estimate the fair values of the land, buildings and
intangible assets acquired for purposes of allocating the purchase price. Such estimates are based upon many
assumptions and judgments, including (i) market rates of return and capitalization rates on real estate and intangible
assets, (ii) building and material cost levels, (iii) comparisons of the acquired underlying land parcels to recent land
24
transactions, and (iv) future cash flows from the real estate and the existing tenant base. Others could come to
materially different conclusions as to the estimated fair values, which would result in different depreciation and
amortization expense, gains and losses on sale of real estate assets, and real estate and intangible assets.
Overview
Our self-storage operations generate most of our net income, and we believe that our earnings growth is
most impacted by the level of organic growth in our existing self-storage portfolio. Accordingly, a significant
portion of management’s time is devoted to maximizing cash flows from our existing self-storage facilities.
ff
Most of our facilities compete with other well-managed and well-located competitors and we are subject to
d
general economic conditions, particularly those that affect the spending habits of consumers and moving trends. We
believe that our centralized information networks, national telephone and online reservation system, the brand name
“Public Storage,” and our economies of scale enable us to meet such challenges effectively.
We plan on growing organically, as well as through the acquisition and development of additional facilities.
Since the beginning of 2013 through December 31, 2016, we acquired a total of 237 facilities with 16.9 million net
rentable square feet from third parties for approximately $2.2 billion, and we opened newly developed and
redeveloped self-storage space for a total cost of $575.8 million, adding approximately 5.3 million net rentable
square feet.
Subsequent to December 31, 2016, we acquired or were under contract to acquire five self-storage facilities
for $26.4 million. We will continue to seek to acquire properties; however, there is significant competition to
acquire existing facilities and there can be no assurance as to the level of facilities we may acquire.
As of December 31, 2016, we had additional development projects which will add approximately
5.3 million net rentable square feet of storage space at a total cost of approximately $660.2 million. We expect to
continue to seek additional development projects; however, the level of future development may be limited due to
various constraints such as difficulty in finding available sites that meet our risk-adjusted yield expectations, as well
as challenges in obtaining building permits for self-storage activities in certain municipalities.
ff
We believe that our real estate development activities are beneficial to our business operations over the
long run. However, in the short run, development activities dilute our earnings due to the three to four year period
that it takes to fill up newly developed and redeveloped storage facilities and reach a stabilized level of cash flows
offset by the cost of capital to fund the development cost, combined with related overhead expenses flowing through
general and administrative expense. We believe this dilution will increase in 2017 and beyond, because of an
increased level of unstabilized newly developed and redeveloped facilities in our portfolio due to continued
development efforts.
We also have equity investments in Shurgard Europe and PS Business Parks, Inc. (“PSB”). We may make
further investments in these companies.
As of December 31, 2016, our capital resources over the next year are expected to be approximately
$918.5 million which exceeds our current planned capital needs over the next year of approximately $458.0 million.
Our capital resources include: (i) $183.7 million of cash as of December 31, 2016, (ii) $484.8 million of available
borrowing capacity on our revolving line of credit, and (iii) approximately $250.0 million of expected retained
operating cash flow for the next twelve months. Retained operating cash flow represents our expected cash flow
provided by operating activities, less shareholder distributions and capital expenditures to maintain real estate
facilities.
Our planned capital needs over the next year consist of (i) $429.9 million of remaining spend on our current
development pipeline, (ii) $26.4 million in property acquisitions currently unde
r contract, and (iii) $1.7 million in
n
principal repayments on existing debt. Our capital needs may increase significantly over 2017 as we expect to
25
increase our development pipeline and acquire additional properties. We may also redeem outstanding preferred
securities or repurchase shares of our common stock in the future.
See Liquidity and Capital Resources for further information regarding our capital requirements and
anticipated sources of capital to fund such requirements.
Results of Operations
Operating results for 2016 and 2015
For the year ended December 31, 2016, net income allocable to our common shareholders was
$1,183.9 million or $6.81 per diluted common share, compared to $1,053.1 million or $6.07 per share in 2015
representing an increase of $130.8 million or $0.74 per share. The increase is primarily due to (i) a $139.1 million
increase in self-storage net operating income (defined below) and (ii) a $17.3 million increase in foreign exchange
translation gains associated with our euro denominated debt offset partially by (iii) a $29.0 million reduction in
gains on sales of real estate investments, including our equity share and (iv) a $20.0 million increase in EITF D-42
charges, including our equity share, as a result of preferred redemption activities.
The $139.1 million increase in self-storage net operating income is a result of a $96.9 million increase in
our Same Store Facilities and a $42.2 million increase in our Non Same Store Facilities. Revenues for the Same
Store Facilities increased 5.5% or $110.0 million in the year ended December 31, 2016 as compared to 2015, due
primarily to higher realized annual rent per occupied square foot. Cost of operations for the Same Store Facilities
increased by 2.5% or $13.1 million in the year ended December 31, 2016 as compared to 2015, due primarily to
increased property taxes, on-site property manager payroll and repairs and maintenance, offset partially by lower
Store Facilities is due primarily to the
snow removal costs. The increase in net operating income for the Non Same
impact of 337 self-storage facilities acquired, developed or expanded since January 2013.
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Operating results for 2015 and 2014
For the year ended December 31, 2015, net income allocable to our common shareholders was
$1,053.1 million or $6.07 per diluted common share, compared to $908.2 million or $5.25 per share in 2014
representing an increase of $144.9 million or $0.82 per diluted common share. The increase is primarily due to (i) a
$165.8 million increase in self-storage net operating income and (ii) a $16.0 million increase in gains on sale of real
estate, offset partially by (iii) a $22.1 million reduction in equity in earnings of PSB due primarily to reduced gains
on disposition in 2015 as compared to 2014 and (iv) a $15.6 million reduction in equity in earnings of Shurgard
Europe due primarily to Shurgard Europe’s repayment of a loan payable to us.
The $165.8 million increase in self-storage net operating income is a result of a $115.3 million increase in
our Same Store Facilities and a $50.5 million increase in our Non Same Store Facilities. Revenues for the Same
Store Facilities increased 6.6% or $122.4 million in the year ended December 31, 2015 as compared to 2014, due
primarily to higher realized annual rent per occupied square foot. Cost of operations for the Same Store Facilities
increased by 1.4% or $7.0 million in the year ended December 31, 2015 as compared to 2014, due primarily to
increases in snow removal and property taxes, offset partially by lower advertising and selling expenses. The
increase in net operating income for the Non Same Store Facilities is due primarily to the impact of the development
and acquisition of 186 self-storage facilities in 2013, 2014 and 2015.
r
Funds from Operations and Core 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 real estate depreciation, gains and losses, and
impairment charges, which are excluded because they are based upon historical real estate costs and assume that
building values diminish ratably over time, while we believe that real estate values fluctuate due to market
conditions. FFO and FFO per share are not a substitute for net income or earnings per share. FFO is not a substitute
26
for GAAP net cash flow in evaluating our liquidity or ability to pay dividends, because it excludes 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.
For the year ended December 31, 2016, FFO was $9.70 per diluted common share, as compared to $8.79
for the same period in 2015, representing an increase of 10.4%, or $0.91 per diluted common share.
For the year ended December 31, 2015, FFO was $8.79 per diluted common share, as compared to $7.98
for the same period in 2014, representing an increase of 10.2%, or $0.81 per diluted common share.
The following tables reconcile diluted earnings per share to FFO per share and set forth the computation of
FFO per share:
Reconciliation of Diluted Earnings per Share to
FFO per Share:
Diluted Earnings per Share
Eliminate amounts per share excluded from FFO:
Depreciation and amortization, including
amounts from investments and excluding
amounts allocated to noncontrolling
interests and restricted share unitholders
Gains on sale of real estate investments,
including our equity share from
investments, and other
FFO per share
Computation of FFO per Share:
Year Ended December 31,
2015
2016
2014
(Amounts in thousands, except per share data)
$
6.81
$
6.07
$
5.25
2.90
2.89
2.96
$
(0.01)
9.70
$
(0.17)
8.79
$
(0.23)
7.98
Net income allocable to common shareholders
$
1,183,879
$
1,053,050
$
908,176
Eliminate items excluded from FFO:
Depreciation and amortization
Depreciation from unconsolidated
real estate investments
Depreciation allocated to noncontrolling
interests and restricted share unitholders
Gains on sale of real estate investments,
including our equity share from
investments, and other
FFO allocable to common shares
Diluted weighted average common shares
FFO per share
433,314
426,008
437,114
74,407
78,985
79,413
(3,549)
(3,519)
(3,638)
(768)
$
1,687,283
173,878
9.70
$
$
$
(29,721)
1,524,803
173,510
8.79
(39,083)
1,381,982
173,138
7.98
$
$
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) general and administrative expenses associated with the acquisition of self-storage facilities
and (iv) certain other noncash and/or nonrecurring income or expense items. We review Core FFO per share to
evaluate our ongoing operating performance, and we believe it is useful for investors and REIT analysts in the same
manner. However, Core FFO per share is not a substitute for net income per share. Because other REITs may not
27
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 FFO per share to Core FFO per share:
Year Ended December 31,
Year Ended December 31,
2016
2015
Percentage
Change
2015
2014
Percentage
Change
$
9.70
$
8.79
10.4% $
8.79
$
7.98
10.2%
FFO per share
Eliminate the per share impact of
items excluded from Core FFO,
including our equity share from
investments:
Foreign currency exchange (gain) loss
Application of EITF D-42
Property acquisition costs
Other items
Core FFO per share
(0.11)
0.17
0.01
0.02
9.79
$
-
0.06
0.04
0.01
8.90
$
-
0.06
0.04
0.01
8.90
$
0.04
-
0.03
0.04
8.09
10.0%
10.0% $
Analysis of Net Income by Reportable Segment
The following discussion and analysis is presented and organized in accordance with Note 10 to our
d
December 31, 2016 financial statements, “Segment Information.” Accordingly, refer to the tables presented in
Note 10 in order to reconcile such amounts to our total net income and for further information on our reportable
segments.
Self-Storage Operations
Our self-storage operations are analyzed in two groups: (i) the 2,000 facilities that we have owned and
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operated on a stabilized basis since January 1, 2014 (the “Same Store Facilities”), and (ii) all other facilities, which
are newly acquired, newly developed, or recently redeveloped (the “Non Same Store Facilities”). See Note 10 to
our December 31, 2016 financial statements “Segment Information,” for a reconciliation of the amounts in the tables
below to our total net income.
28
Self-Storage Operations
Summary
Revenues:
Same Store Facilities
Non Same Store Facilities
Cost of operations:
Same Store Facilities
Non Same Store Facilities
Net operating income (a):
Same Store Facilities
Non Same Store Facilities
Total net operating income
Year Ended December 31,
Year Ended December 31,
2016
2015
Percentage
Change
2015
2014
Percentage
Change
(Dollar amounts in thousands)
$ 2,097,696 $ 1,987,725
247,800
2,235,525
308,132
2,405,828
5.5% $ 1,987,725 $ 1,865,356
184,526
2,049,882
247,800
2,235,525
24.3%
7.6%
527,341
90,564
617,905
514,237
72,459
586,696
1,570,355
217,568
1,787,923
1,473,488
175,341
1,648,829
2.5%
25.0%
5.3%
6.6%
24.1%
8.4%
514,237
72,459
586,696
507,200
59,698
566,898
1,473,488
175,341
1,648,829
1,358,156
124,828
1,482,984
6.6%
34.3%
9.1%
1.4%
21.4%
3.5%
8.5%
40.5%
11.2%
Depreciation and amortization expense:
Same Store Facilities
Non Same Store Facilities
Total depreciation and
amortization expense
Net income:
Same Store Facilities
Non Same Store Facilities
Total net income
Number of facilities at period end:
Same Store Facilities
Non Same Store Facilities
(328,736)
(104,578)
(333,695)
(92,313)
(1.5)%
13.3%
(333,695)
(92,313)
(339,372)
(97,742)
(1.7)%
(5.6)%
(433,314)
(426,008)
1.7%
(426,008)
(437,114)
(2.5)%
1,241,619
112,990
1,139,793
83,028
$ 1,354,609 $ 1,222,821
1,018,784
1,139,793
8.9%
36.1%
27,086
83,028
10.8% $ 1,222,821 $ 1,045,870
11.9%
206.5%
16.9%
2,000
337
2,000
266
-
26.7%
2,000
266
2,000
238
-
11.8%
Net rentable square footage at period end (in thousands):
Same Store Facilities
Non Same Store Facilities
127,222
26,536
127,222
20,140
-
31.8%
127,222
20,140
127,222
17,652
-
14.1%
(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 real estate 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 property 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. See Note 10 to our December 31, 2016
financial statements for a reconciliation of NOI to our total net income for all periods presented.
Net operating income from our self-storage operations has increased 8.4% in 2016 as compared to 2015
and 11.2% in 2015 as compared to the 2014. These increases are due to higher revenues in our Same Store
Facilities, as well as the acquisition and development of new facilities and the fill-up of unstabilized facilities.
29
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, 2014. 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 2014, 2015, and 2016. We believe the Same Store information is used by investors and
analysts in a similar manner. The following table summarizes the historical operating results of these 2,000 facilities
(127.2 million net rentable square feet) that represent approximately 83% of the aggregate net rentable square feet of
our U.S. consolidated self-storage portfolio at December 31, 2016.
Selected Operating Data for the
Same Store Facilities (2,000
facilities)
Revenues:
Rental income
Late charges and
administrative fees
Total revenues (a)
Cost of operations:
Property taxes
On-site property manager
payroll
Supervisory payroll
Repairs and maintenance
Utilities
Advertising and selling expense
Other direct property costs
Allocated overhead
Total cost of operations (a)
Net operating income
Depreciation and
amortization expense
Net income
Year Ended December 31,
Year Ended December 31,
2016
2015
Percentage
Change
2015
2014
Percentage
Change
(Dollar amounts in thousands, except weighted average amounts)
$ 2,001,608 $ 1,895,352
5.6% $ 1,895,352 $ 1,775,614
6.7%
96,088
2,097,696
92,373
1,987,725
4.0%
5.5%
92,373
1,987,725
89,742
1,865,356
2.9%
6.6%
187,351
178,706
4.8%
178,706
171,856
4.0%
104,120
36,217
42,980
37,918
25,320
54,322
39,113
527,341
1,570,355
100,661
35,092
45,671
39,287
25,119
52,372
37,329
514,237
1,473,488
3.4%
3.2%
(5.9)%
(3.5)%
0.8%
3.7%
4.8%
2.5%
6.6%
100,661
35,092
45,671
39,287
25,119
52,372
37,329
514,237
1,473,488
100,070
34,390
44,071
40,319
27,106
51,241
38,147
507,200
1,358,156
(328,736)
(333,695)
$ 1,241,619 $ 1,139,793
(1.5)%
8.9% $ 1,139,793 $ 1,018,784
(333,695)
(339,372)
0.6%
2.0%
3.6%
(2.6)%
(7.3)%
2.2%
(2.1)%
1.4%
8.5%
(1.7)%
11.9%
Gross margin (before depreciation
and amortization expense)
74.9%
74.1%
1.1%
74.1%
72.8%
1.8%
Weighted average for the period:
Square foot occupancy
94.5%
94.5%
0.0%
94.5%
93.9%
0.6%
Realized annual rental income per (b):
Occupied square foot
Available square foot
$
$
16.65 $
15.73 $
15.77
14.90
5.6% $
5.6% $
15.77 $
14.90 $
14.88
13.96
6.0%
6.7%
At December 31:
Square foot occupancy
Annual contract rent per
92.3%
92.8%
(0.5)%
92.8%
92.5%
0.3%
occupied square foot (c)
$
17.55 $
16.76
4.7% $
16.76 $
15.83
5.9%
30
(a) Revenues and cost of operations do not include tenant reinsurance and merchandise sale revenues and expenses generated at
the facilities.
(b) Realized annual rent per occupied square foot is computed by dividing 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 rental income, before late charges and administrative fees, by the total available net
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.
(c) 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.
Analysis of Same Store Revenue
Revenues generated by our Same Store Facilities increased by 5.5% in 2016 as compared to 2015 and by
6.6% in 2015 as compared to 2014. These increases were primarily due to higher rental rates charged to our
tenants, as realized annual rental income per occupied square foot increased 5.6% and 6.0% in 2016 and 2015,
respectively, as compared to the year prior. From a volume standpoint, average square foot occupancy for 2016
remained relatively flat compared to 2015 at approximately 94.5% and increased 0.6% during 2015 from 93.9% in
2014.
r
We believe that high occupancies help maximize our rental income. We seek to maintain a weighted
average square foot occupancy level of at least 90%, by regularly adjusting the rental rates and promotions offered
to attract new tenants as well as adjusting our marketing efforts on both television and the Internet in order to
generate sufficient move-in volume to replace tenants that vacate.
As we began 2015, the aggregate monthly contract rent for those tenants occupying a unit in our Same
Store Facilities totaled $155.2 million as compared to $146.7 million at the beginning of 2014, representing an
increase of 5.8%. This “embedded growth” gave us a great starting point to achieve the 6.6% revenue growth we
experienced in fiscal 2015. Also contributing to revenue growth during 2015 were monthly rental rate adjustments,
generally annual rate increases to tenants who have been with us longer than one year, which increased 10.6% in
2015 as compared to 2014. The net negative impact of replacing vacating tenants with new tenants with lower
contract rates continued from 2014 into 2015. This “rent roll down”, however, was relatively constant at
$4.8 million in 2015 compared to $4.7 million in 2014 and therefore had little impact on revenue growth in 2015.
We started off 2016 in a better position than 2015. The aggregate monthly contract rent for those tenants
occupying a unit in our Same Store Facilities totaled $165.0 million as compared to $155.2 million at the beginning
of 2015, representing a starting embedded growth of 6.3%. During 2016, monthly rental rate adjustments were also
strong; increasing 14.4% compared to 2015. However, the net negative impact of replacing vacating tenants with
15. The rent roll down was
ff
new tenants at lower contract rates was much more significant in 2016 compared to 20
$9.9 million in 2016 as compared to $4.8 million in 2015, negatively impacting revenue growth in 2016. The
following table summarizes the aforementioned activity for 2016, 2015 and 2014:
31
Year Ended December 31,
Year Ended December 31,
2016
2015
Percentage
Change
2015
2014
Percentage
Change
(Amounts in thousands, except for square foot amounts)
Aggregate Monthly Contract Rent:
Beginning in place contracts
For new tenants
For vacating tenants
Rental rate adjustments
Ending in place contracts
Ending occupied square feet
Annual contract rent per
occupied square foot
$ 164,966 $ 155,170
128,744
(133,535)
14,587
129,549
(139,459)
16,692
6.3% $ 155,170 $ 146,696
121,626
0.6%
(126,336)
4.4%
13,184
14.4%
128,744
(133,535)
14,587
$ 171,748 $ 164,966
118,124
117,473
4.1% $ 164,966 $ 155,170
117,625
(0.6)%
118,124
5.8%
5.9%
5.7%
10.6%
6.3%
0.4%
$
17.55 $
16.76
4.7% $
16.76 $
15.83
5.9%
Move-in volumes in both 2015 and 2014 exceeded the number of vacates and, as a result, average
occupancy levels improved on a year-over-year basis. The average monthly rent per move-in was approximately
5.7% higher in 2015 compared to 2014; accordingly, the 2015 move-in volume was strong, not only exceeding
2014 volume, but at higher rates, reflecting our pricing power. During 2016, we experienced softness in demand.
Move-in volume during 2016 was not only lower than 2015, but also lower than the number of vacates during
2016. Further, pricing power diminished as the growth in average monthly rent per move-in decelerated to
approximately 1.3% in 2016 compared to 5.7% experienced in 2015. See table below.
Demand is higher in the summer months than in the winter months and, as a result, rental rates charged to
new tenants are typically higher in the summer months than in the winter months. Demand fluctuates due to
various local and regional factors, including the overall economy. Demand into our system is also impacted by
new supply of self-storage space as well as alternatives to self-storage.
Vacate activity during 2016, 2015 and 2014 was as expected. We generally experience monthly vacate
activity ranging from approximately 6% to 8% per month. Vacate activity is somewhat seasonal as we experience
higher monthly vacate levels during late summer and lower levels during late spring and early summer. It is not
unusual for the average monthly rental rates for vacating tenants to exceed the average monthly rental rates for new
move-ins (see table below). This is primarily due to vacating tenants, many of which have been with us for several
years, paying higher rates after experiencing several rental rate increases during their tenure, and others who moved
out before receiving a rate increase, but moved in during our seasonal busy periods when move-in rates tend to be
higher.
nn
32
Move-in activity:
Number of move-ins
Square feet rented ( in 000's)
Total monthly contract rent
( in 000's)
Average monthly rent
per unit rented
Average annual contract rent
per square foot rented
Vacate activity:
Number of vacates
Square feet rented ( in 000's)
Total monthly contract rent
( in 000's)
Average monthly rent
per unit vacated
Average annual contract rent
per square foot vacated
Year Ended December 31,
Year Ended December 31,
2016
2015
Percentage
Change
2015
2014
Percentage
Change
993,632
105,885
1,000,496
106,492
(0.7)% 1,000,496
106,492
(0.6)%
999,119
106,175
0.1%
0.3%
$ 129,549 $
128,744
0.6% $
128,744 $ 121,626
5.9%
$
$
130.38 $
128.68
1.3% $
128.68 $
121.73
5.7%
14.68 $
14.51
1.2% $
14.51 $
13.75
5.5%
999,126
106,536
993,861
105,944
0.5%
0.6%
993,861
105,944
986,548
105,191
0.7%
0.7%
$ 139,459 $
133,535
4.4% $
133,535 $ 126,336
5.7%
$
$
139.58 $
134.36
3.9% $
134.36 $
128.06
4.9%
15.71 $
15.12
3.9% $
15.12 $
14.41
4.9%
In order to stimulate move-in volume, we often give promotional discounts, generally in the form of a
“$1.00 rent for the first month” offer. Promotional discounts, based upon the move-in contractual rates for the
related promotional period, totaled $83.6 million, $83.0 million, and $80.4 million for 2016, 2015, and 2014,
respectively, and are recorded as a reduction to revenue. The year-over-year increase for 2015 over 2014 reflects
increased move-in contractual rates offset partially by a reduced proportion of new tenants receiving promotional
discounts.
We believe rental growth in 2017 will need to come primarily from continued annual rent increases to
existing tenants. Our future rental growth will also be dependent upon many factors for each market that we
operate in, including demand for self-storage space, the level of new supply of self-storage space and the average
length of stay of our tenants.
f
We believe that the current trends in move-in, move-out, in place contractual rents and occupancy levels
are consistent with our expectation of continued revenue growth in 2017. However, such trends, when viewed in
the short-run, are volatile and not necessarily predictive of our revenues going forward because they are subject to
many short-term factors. Such factors include initial move-in rates, seasonal factors, the unit size and geographical
mix of the specific tenants moving in or moving out, the length of stay of the tenants moving in or moving out,
changes in our pricing strategies, and the degree and timing of rate increases previously passed to existing tenants.
We expect year-over-year growth in our Same Store revenues will continue to moderate in 2017. As
mentioned above, we are experiencing softness in demand in several of our major markets, most notably Houston,
Chicago, Washington D.C., Denver, and New York, which has led to a lack of pricing power with respect to new
tenants. As indicated above, we attribute some of this softness to local economic conditions and, in some markets,
increased supply of newly constructed self-storage facilities, including facilities that we have constructed.
We are taking a number of actions to improve demand into our system, including (i) increasing marketing
spend on the Internet and television, and (ii) reducing rental rates and increasing promotional discounts to new
tenants. Even if these actions are successful in improving demand into our system, in at least the near term, we
believe these actions will have a negative impact on our revenue trends due to decelerating rental rate increases and
increased promotional discounts.
33
Analysis of Same Store Cost of Operations
Cost of operations (excluding depreciation and amortization) increased 2.5% in 2016 as compared to 2015,
due primarily to increased property tax expense, on-site property manager payroll and repairs and maintenance
expense (excluding snow removal cost), and offset partially by reduced snow removal cost. Cost of operations
increased by 1.4% in 2015 as compared to 2014, due primarily to increased property tax expense and snow removal
cost), and offset partially by lower advertising and selling expenses.
rr
Property tax expense increased 4.8% in 2016 as compared to 2015 and by 4.0% in 2015 as compared to
2014, due primarily to higher assessed values. We expect property tax expense growth of approximately 4.5% in
2017 due primarily to higher assessed values and changes in tax rates.
On-site property manager payroll expense increased 3.4% in 2016 as compared to 2015 and by 0.6% in
2015 as compared to 2014, due primarily to reductions in prior estimates of workers compensation costs recorded
in 2015, higher employee health care expenses experienced in 2016 and higher wage rates. We expect on-site
property manager payroll expense to increase on an inflationary basis in 2017.
Supervisory payroll expense, which represents compensation paid to the management personnel who
directly and indirectly supervise the on-site property managers, increased 3.2% in 2016 as compared to 2015 and
by 2.0% in 2015 as compared to 2014, due primarily to higher wage rates. We expect greater than inflationary
increases in wage rates and increased headcount in 2017.
Repairs and maintenance expense decreased 5.9% in 2016 as compared to 2015 and increased by 3.6% in
2015 as compared to 2014. Repair and maintenance costs include snow removal expense totaling $4.1 million,
$9.7 million and $7.9 million in 2016, 2015 and 2014, respectively. Excluding snow removal costs, repairs and
maintenance increased 7.9% in 2016 as compared to 2015 and 0.4% in 2015 as compared to 2014.
Repairs and maintenance expense levels are dependent upon many factors such as weather conditions,
which can impact repair and maintenance needs including snow removal, inflation in material and labor costs, and
random events. We expect inflationary increases in repairs and maintenance expense in 2017, excluding snow
removal expense, which is primarily weather dependent and not predictable.
Our utility expenses are comprised primarily of electricity costs, which are dependent upon energy prices
and usage levels. Changes in usage levels are driven primarily by weather and temperature. Utility expense
decreased 3.5% in 2016 as compared to 2015 and by 2.6% in 2015 as compared to 2014. The decrease in 2016
over 2015 is due primarily to lower usage as a result of milder weather. It is difficult to estimate future utility
costs, because weather, temperature, and energy prices are volatile and not predictable. However, based upon
current trends and expectations regarding commercial electricity rates, we expect inflationary increases in rates.
Advertising and selling expense is comprised principally of Internet advertising, television advertising and
the operating costs of our telephone reservation center. Advertising and selling expense varies based upon demand,
occupancy levels, and other factors. Television and Internet advertising, in particular, can increase or decrease
significantly in the short term. Advertising and selling expenses increased 0.8% in 2016 as compared to 2015 and
decreased 7.3% in 2015 as compared to 2014. As mentioned above, we have increased our Internet marketing
expenditures and beginning in late August 2016, we increased our television advertising expenditures due to
softness in demand in several of our larger markets. As a result, we expect advertising and selling expense to
increase in 2017.
Other direct property costs include administrative expenses incurred at the self-storage facilities, such as
property insurance, business license costs, bank charges related to processing the facilities’ cash receipts, credit
card fees, and the cost of operating each property’s rental office including supplies and telephone data
communication lines. These costs increased 3.7% in 2016 as compared to 2015 and 2.2% in 2015 as compared to
2014. The increases were due primarily to higher credit card fees, offset partially by lower property insurance
34
costs. Credit card fees increased due to a higher proportion of collections being received from credit cards and
higher revenues. We expect moderate increases in other direct property costs in 2017.
Allocated overhead represents administrative expenses for shared general corporate functions, which are
allocated to self-storage property operations to the extent their efforts are devoted to self-storage operations. Such
functions include data processing, human resources, operational accounting and finance, marketing, and costs of
senior executives (other than the Chief Executive Officer and Chief Financial Officer, which are included in
general and administrative expense). Allocated overhead increased 4.8% in 2016 as compared to 2015 and
decreased 2.1% in 2015 as compared to 2014. The increase in 2016 over 2015 is due primarily to additional costs
of our annual field staff sales meetings and increased compensation costs. We expect moderate growth in allocated
overhead in 2017 as compared to 2016 due to inflationary wage increases and increased headcount.
ff
Analysis of Same Store Depreciation and Amortization
e
Depreciation and amortization for Same Store Facilities decreased 1.5% in 2016 as compared to 2015 and
1.7% in 2015 as compared to 2014. We expect depreciation to be flat in 2017 as compared to 2016.
35
The following table summarizes selected quarterly financial data with respect to the Same Store Facilities:
For the Quarter Ended
June 30
September 30
(Amounts in thousands, except for per square foot amounts)
December 31
March 31
Total revenues:
2016
2015
2014
$
$
$
504,952
474,337
447,077
Total cost of operations:
2016
2015
2014
Property taxes:
2016
2015
2014
$
$
$
$
$
$
Repairs and maintenance:
2016
2015
2014
$
$
$
139,511
143,301
141,801
52,720
50,508
48,456
11,111
16,167
14,957
Advertising and selling expense:
2016
2015
2014
REVPAF:
2016
2015
2014
$
$
$
$
$
$
5,080
6,192
6,605
15.13
14.22
13.35
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
520,099
490,806
459,543
135,843
130,370
129,084
52,929
50,407
48,055
10,308
9,025
9,649
5,552
5,541
6,140
15.63
14.73
13.76
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Weighted average realized annual rent per occupied square foot:
2016
2015
2014
$
$
$
16.17
15.23
14.43
$
$
$
16.39
15.45
14.55
$
$
$
Weighted average occupancy levels for the period:
2016
2015
2014
93.6%
93.4%
92.6%
95.4%
95.3%
95.4%
94.7%
95.3%
94.7%
36
542,272
515,713
483,447
141,980
133,486
130,885
52,629
49,946
47,064
10,760
10,179
10,025
7,573
6,954
7,893
16.25
15.44
14.47
17.06
16.21
15.29
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Entire Year
2,097,696
1,987,725
1,865,356
527,341
514,237
507,200
187,351
178,706
171,856
42,980
45,671
44,071
25,320
25,119
27,106
15.73
14.90
13.96
16.65
15.77
14.88
94.5%
94.5%
93.9%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
530,373
506,869
475,289
110,007
107,080
105,430
29,073
27,845
28,281
10,801
10,300
9,440
7,115
6,432
6,468
15.92
15.19
14.24
16.99
16.19
15.25
93.7%
93.9%
93.5%
Analysis of Market Trends
The following table sets forth selected market trends in our Same Store Facilities:
$
$
$
Same Store Facilities Operating
Trends by Market
Revenues:
Los Angeles (204 facilities)
San Francisco (126 facilities)
New York (86 facilities)
Chicago (129 facilities)
Washington DC (78 facilities)
Seattle-Tacoma (81 facilities)
Miami (65 facilities)
Dallas-Ft. Worth (98 facilities)
Houston (74 facilities)
Atlanta (91 facilities)
Philadelphia (55 facilities)
Denver (44 facilities)
Minneapolis-St Paul
(41 facilities)
Portland (40 facilities)
Orlando-Daytona (49 facilities)
All other markets
(739 facilities)
Total revenues
Net operating income:
Los Angeles
San Francisco
New York
Chicago
Washington DC
Seattle-Tacoma
Miami
Dallas-Ft. Worth
Houston
Atlanta
Philadelphia
Denver
Minneapolis-St. Paul
Portland
Orlando-Daytona
All other markets
Total net operating income
$
Year Ended December 31,
Year Ended December 31,
2016
2015
Change
2015
2014
Change
(Amounts in thousands, except for weighted average data)
322,731
176,106
142,321
120,344
97,409
95,714
91,855
84,158
69,884
73,623
51,141
45,658
38,589
37,410
38,421
612,332
2,097,696
267,164
144,226
102,704
71,264
74,427
76,242
71,205
60,628
47,604
54,846
36,367
34,991
26,990
29,351
28,019
444,327
1,570,355
$
$
$
$
300,645
165,246
137,423
117,848
94,960
88,069
87,106
78,722
69,084
68,444
48,574
44,427
7.3% $
6.6%
3.6%
2.1%
2.6%
8.7%
5.5%
6.9%
1.2%
7.6%
5.3%
2.8%
37,031
34,559
36,047
4.2%
8.2%
6.6%
300,645
165,246
137,423
117,848
94,960
88,069
87,106
78,722
69,084
68,444
48,574
44,427
37,031
34,559
36,047
$
8.1%
278,136
8.4%
152,506
5.3%
130,538
3.5%
113,870
2.6%
92,563
7.5%
81,911
6.0%
82,212
8.0%
72,869
7.9%
64,016
7.0%
63,980
46,481
4.5%
40,376 10.0%
35,947
3.0%
31,171 10.9%
8.5%
33,231
579,540
1,987,725
5.7%
579,540
5.5% $ 1,987,725
545,549
$ 1,865,356
6.2%
6.6%
246,463
8.4% $
134,690
7.1%
99,358
3.4%
68,433
4.1%
72,605
2.5%
69,418
9.8%
66,491
7.1%
55,668
8.9%
48,193
(1.2)%
49,958
9.8%
33,438
8.8%
33,411
4.7%
25,681
5.1%
26,890
9.2%
25,920
8.1%
6.6%
416,871
6.6% $ 1,473,488
246,463
134,690
99,358
68,433
72,605
69,418
66,491
55,668
48,193
49,958
33,438
33,411
25,681
26,890
25,920
416,871
1,473,488
37
$
10.3%
223,457
10.6%
121,737
6.4%
93,362
4.4%
65,520
2.3%
70,966
9.3%
63,484
7.0%
62,163
50,964
9.2%
42,939 12.2%
9.1%
45,780
6.0%
31,539
29,674 12.6%
23,933
7.3%
23,315 15.3%
23,297 11.3%
8.0%
8.5%
386,026
$ 1,358,156
Same Store Facilities Operating
Trends by Market (Continued)
Weighted average square foot
occupancy:
Los Angeles
San Francisco
New York
Chicago
Washington DC
Seattle-Tacoma
Miami
Dallas-Ft. Worth
Houston
Atlanta
Philadelphia
Denver
Minneapolis-St. Paul
Portland
Orlando-Daytona
All other markets
Total weighted average
square foot occupancy
Realized annual rent per
occupied square foot:
Los Angeles
San Francisco
New York
Chicago
Washington DC
Seattle-Tacoma
Miami
Dallas-Ft. Worth
Houston
Atlanta
Philadelphia
Denver
Minneapolis-St. Paul
Portland
Orlando-Daytona
All other markets
Total realized rent per
occupied square foot
Year Ended December 31,
Year Ended December 31,
2016
2015
Change
2015
2014
Change
95.9%
96.0%
94.6%
92.3%
93.2%
95.8%
95.0%
94.7%
92.2%
94.8%
94.5%
94.6%
93.2%
96.6%
95.1%
94.3%
94.5%
95.6%
0.3%
96.1% (0.1)%
94.8% (0.2)%
92.7% (0.4)%
0.2%
93.0%
0.6%
95.2%
94.9%
0.1%
94.9% (0.2)%
94.3% (2.2)%
0.2%
94.6%
93.8%
0.7%
95.5% (0.9)%
0.6%
92.6%
96.5%
0.1%
95.3% (0.2)%
0.2%
94.1%
95.6%
96.1%
94.8%
92.7%
93.0%
95.2%
94.9%
94.9%
94.3%
94.6%
93.8%
95.5%
92.6%
96.5%
95.3%
94.1%
94.2% 1.5%
95.1% 1.1%
93.9% 1.0%
93.4% (0.7)%
92.4% 0.6%
94.1% 1.2%
94.6% 0.3%
94.2% 0.7%
94.4% (0.1)%
93.5% 1.2%
93.5% 0.3%
95.2% 0.3%
93.2% (0.6)%
95.3% 1.3%
93.7% 1.7%
93.6% 0.5%
94.5%
0.0%
94.5%
93.9% 0.6%
$
23.23 $
24.37
24.36
15.33
21.36
18.37
19.79
13.53
14.15
12.26
15.09
16.35
14.02
17.76
12.81
13.36
21.69
22.81
23.46
14.96
20.89
16.99
18.78
12.63
13.68
11.43
14.44
15.72
13.54
16.41
11.99
12.66
7.1% $
6.8%
3.8%
2.5%
2.2%
8.1%
5.4%
7.1%
3.4%
7.3%
4.5%
4.0%
3.5%
8.2%
6.8%
5.5%
21.69 $
22.81
23.46
14.96
20.89
16.99
18.78
12.63
13.68
11.43
14.44
15.72
13.54
16.41
11.99
12.66
20.33
6.7%
21.25
7.3%
22.45
4.5%
14.34
4.3%
20.61
1.4%
15.95
6.5%
17.74
5.9%
11.74
7.6%
12.67
8.0%
10.78
6.0%
4.3%
13.84
14.29 10.0%
3.8%
13.05
9.8%
14.95
7.1%
11.20
5.8%
11.97
$
16.65 $
15.77
5.6% $
15.77 $
14.88
6.0%
38
Same Store Facilities Operating
Trends by Market (Continued)
$
REVPAF:
Los Angeles
San Francisco
New York
Chicago
Washington DC
Seattle-Tacoma
Miami
Dallas-Ft. Worth
Houston
Atlanta
Philadelphia
Denver
Minneapolis-St. Paul
Portland
Orlando-Daytona
All other markets
Total REVPAF
$
Year Ended December 31,
Year Ended December 31,
2016
2015
Change
2015
2014
Change
22.29 $
23.39
23.05
14.16
19.90
17.60
18.80
12.81
13.04
11.63
14.27
15.47
13.06
17.15
12.19
12.60
15.73 $
20.74
21.91
22.23
13.88
19.42
16.17
17.82
11.98
12.91
10.81
13.55
15.01
12.54
15.83
11.42
11.92
14.90
7.5% $
6.8%
3.7%
2.0%
2.5%
8.8%
5.5%
6.9%
1.0%
7.6%
5.3%
3.1%
4.1%
8.3%
6.7%
5.7%
5.6% $
20.74 $
21.91
22.23
13.88
19.42
16.17
17.82
11.98
12.91
10.81
13.55
15.01
12.54
15.83
11.42
11.92
14.90 $
8.2%
19.16
8.5%
20.20
5.5%
21.07
3.6%
13.40
2.0%
19.04
7.7%
15.01
6.2%
16.78
8.3%
11.06
7.9%
11.96
7.2%
10.08
12.94
4.7%
13.60 10.4%
12.16
3.1%
14.24 11.2%
8.9%
10.49
6.4%
11.20
6.7%
13.96
We believe that our geographic diversification and scale provide some insulation from localized economic
effects and add to the stability of our cash flows. It is difficult to predict localized trends in short-term self-storage
demand and operating results. Over the long run, we believe that markets that experience population growth, high
employment, and otherwise exhibit economic strength and consistency will outperform markets that do not exhibit
these characteristics.
Non Same Store Facilities
The Non Same Store Facilities at December 31, 2016 represent 337 facilities that were not stabilized with
respect to occupancies or rental rates since January 1, 2014, or that we did not own as of January 1, 2014. As a
result of the stabilization process and timing of when the facilities were acquired, year-over-year changes can be
significant.
The following table summarizes operating data with respect to the Non Same Store Facilities:
h
39
NON SAME STORE
FACILITIES
Revenues:
2016 acquisitions
2015 acquisitions
2014 acquisitions
2013 acquisitions
Developed facilities
Other facilities
Total revenues
Cost of operations:
2016 acquisitions
2015 acquisitions
2014 acquisitions
2013 acquisitions
Developed facilities
Other facilities
Total cost of operations
Net operating income:
2016 acquisitions
2015 acquisitions
2014 acquisitions
2013 acquisitions
Developed facilities
Other facilities
Net operating income
Depreciation and
amortization expense
Net income
At December 31:
Square foot occupancy:
2016 acquisitions
2015 acquisitions
2014 acquisitions
2013 acquisitions
Developed facilities
Other facilities
Annual contract rent per
occupied square foot:
2016 acquisitions
2015 acquisitions
2014 acquisitions
2013 acquisitions
Developed facilities
Other facilities
Year Ended December 31,
2015
2016
Change
Year Ended December 31,
2014
2015
Change
(Dollar amounts in thousands, except square foot amounts)
$
18,174 $
15,574
46,428
99,390
23,405
105,161
308,132
6,455
5,010
12,845
28,508
10,932
26,814
90,564
- $
6,255
41,972
91,481
9,460
98,632
247,800
-
2,067
12,304
28,017
3,934
26,137
72,459
11,719
10,564
33,583
70,882
12,473
78,347
217,568
-
4,188
29,668
63,464
5,526
72,495
175,341
18,174 $
9,319
4,456
7,909
13,945
6,529
60,332
6,455
2,943
541
491
6,998
677
18,105
11,719
6,376
3,915
7,418
6,947
5,852
42,227
- $
6,255
41,972
91,481
9,460
98,632
247,800
-
2,067
12,304
28,017
3,934
26,137
72,459
-
4,188
29,668
63,464
5,526
72,495
175,341
- $
-
15,347
79,457
1,973
87,749
184,526
-
6,255
26,625
12,024
7,487
10,883
63,274
-
-
4,566
28,120
1,458
25,554
59,698
-
-
10,781
51,337
515
62,195
124,828
-
2,067
7,738
(103)
2,476
583
12,761
-
4,188
18,887
12,127
5,011
10,300
50,513
(104,578)
112,990 $
$
(92,313)
83,028 $
(12,265)
29,962 $
(92,313)
83,028 $
(97,742)
27,086 $
5,429
55,942
-
6.4%
1.0%
0.2%
(16.3)%
0.0%
(4.1)%
-
85.3%
91.1%
92.2%
70.0%
88.2%
88.2%
- $
7.0%
7.1%
5.6%
4.1%
7.3%
(0.5)% $
- $
12.87
13.51
14.68
12.45
16.82
14.88 $
-
-
89.9%
89.9%
53.1%
87.4%
87.6%
-
-
12.15
13.51
12.64
15.70
14.01
-
-
1.3%
2.6%
31.8%
0.9%
0.7%
-
-
11.2%
8.7%
(1.5)%
7.1%
6.2%
82.9%
90.8%
92.0%
92.4%
58.6%
88.2%
84.6%
$
$
9.99 $
13.77
14.47
15.50
12.96
18.04
14.80 $
-
85.3%
91.1%
92.2%
70.0%
88.2%
88.2%
-
12.87
13.51
14.68
12.45
16.82
14.88
40
NON SAME STORE
FACILITIES (Continued)
Number of facilities:
2016 acquisitions
2015 acquisitions
2014 acquisitions
2013 acquisitions
Developed facilities
Other facilities
Net rentable square feet (in thousands):
2016 acquisitions
2015 acquisitions
2014 acquisitions
2013 acquisitions
Developed facilities
Other facilities
4,121
1,285
3,457
6,906
4,019
6,748
26,536
Year Ended December 31,
2015
2016
Change
Year Ended December 31,
2014
2015
Change
55
17
44
105
36
80
337
-
17
44
105
20
80
266
-
1,285
3,457
6,906
1,878
6,614
20,140
55
-
-
-
16
-
71
4,121
-
-
-
2,141
134
6,396
-
17
44
105
20
80
266
-
-
44
105
7
82
238
-
1,285
3,457
6,906
1,878
6,614
20,140
-
-
3,442
6,906
636
6,668
17,652
-
17
-
-
13
(2)
28
-
1,285
15
-
1,242
(54)
2,488
The facilities included above under “2016 acquisitions,” “2015 acquisitions,” “2014 acquisitions” and
“2013 acquisitions,” were acquired at a cost of $429.1 million, $168.8 million, $430.7 million, and $938.3 million,
respectively.
For the year ended December 31, 2016, the weighted average annualized yield on cost, based upon net
operating income, for the facilities acquired in each of 2015, 2014 and 2013 was 6.3%, 7.8% and 7.6%, respectively.
The yields for the facilities acquired in the year ended December 31, 2016 were not meaningful due to our limited
ownership period.
We believe that our management and operating infrastructure allows us to generate higher net operating
income from newly acquired facilities than was achieved by the previous owners. However, it can take 24 or more
months for us to fully achieve the higher net operating income, and the ultimate levels of net operating income to be
achieved can be affected by changes in general economic conditions. As a result, there can be no assurance that we
will achieve our expectations with respect to these newly acquired facilities.
rr
Since the beginning of 2013, we have opened newly developed facilities with a total cost of $445.8 million
and redeveloped existing facilities, expanding their square footage, for a total cost of $130.0 million. The newly
developed facilities are included in “Developed facilities” and the redeveloped facilities are included in “Other
facilities” in the table above. We believe that our real estate development activities are beneficial to our business
operations over the long run. However, in the short run, development activities dilute our earnings due to the three
to four year period to reach a stabilized level of cash flows and the cost of capital to fund development, combined
with general and administrative expenses associated with development. We believe this dilution will increase in
2017 and beyond, because of an increased level of unstabilized newly developed and redeveloped facilities in our
portfolio.
r
We expect the Non Same Store Facilities to continue to provide increased net operating income in 2017 as
these facilities approach stabilized occupancy levels and the earnings of the 2016 acquisitions are reflected in our
operations for a longer period in 2017 as compared to 2016.
41
We also expect to increase the number and net rentable square feet of Non Same Store Facilities over at
least the next 24 months through development of new self-storage facilities, redevelopment of existing facilities and
acquisitions of facilities.
As of December 31, 2016, we had development and redevelopment projects which will add approximately
5.3 million net rentable square feet of storage space at a total cost of approximately $660.2 million. Some of these
projects are subject to significant contingencies such as entitlement approval. We expect to continue to seek
additional development projects; however, the level of future development may be limited due to various constraints
such as difficulty in finding projects that meet our risk-adjusted yield expectations and challenges in obtaining
building permits for self-storage activities in certain municipalities.
Subsequent to December 31, 2016, we acquired or were under contract to acquire five self-storage facilities
for $26.4 million. We will continue to seek to acquire properties; however, there is significant competition to
acquire existing facilities and therefor the dollar value of acquisitions is unpredictable.
Depreciation and amortization with respect to the Non Same Store Facilities totaled $104.6 million,
$92.3 million, and $97.7 million in 2016, 2015, and 2014, respectively. These amounts include i) depreciation of
the buildings acquired or developed, which is recorded generally on a straight line basis, and ii) amortization of cost
allocated to the tenants in place upon acquisition of a facility, which is recorded based upon the benefit of such
existing tenants to each period and thus is highest when the facility is first acquired and declines as such tenants
vacate. With respect to Non Same Store Facilities owned at December 31, 2016, depreciation of buildings and
amortization of tenant intangibles is expected to total $92.9 million and $10.2 million, respectively, in 2017. The
level of future depreciation and amortization will also depend upon the level of acquisitions of facilities and the
level of newly developed storage space.
t
Ancillary Operations
Ancillary revenues and expenses include amounts associated with the reinsurance of policies against losses
to goods stored by tenants in our self-storage facilities in the U.S. and the sale of merchandise at our self-storage
facilities. The following table sets forth our ancillary operations:
Year Ended December 31,
2015
Change
2016
Year Ended December 31,
2014
2015
Change
Revenues:
Tenant reinsurance premiums $
Merchandise
Total revenues
118,911 $
35,810
154,721
109,836 $
36,335
146,171
9,075 $
(525)
8,550
109,836 $
36,335
146,171
95,056 $ 14,780
32,358
3,977
18,757
127,414
(Amounts in thousands)
Cost of Operations:
Tenant reinsurance
Merchandise
Total cost of operations
Net income
Tenant reinsurance
Merchandise
29,145
22,033
51,178
25,997
22,809
48,806
3,148
(776)
2,372
25,997
22,809
48,806
25,600
20,826
46,426
397
1,983
2,380
89,766
13,777
83,839
13,526
5,927
251
83,839
13,526
69,456
11,532
14,383
1,994
Total net income
$
103,543 $
97,365 $
6,178 $
97,365 $
80,988 $ 16,377
Tenant reinsurance operations: Our tenants have the option of purchasing insurance from a non-affiliated
insurance company to cover certain losses to their goods stored at our facilities. A wholly-owned, consolidated
subsidiary of Public Storage fully reinsures such policies, and thereby assumes all risk of losses under these policies
42
from the insurance company. The subsidiary receives reinsurance premiums, substantially equal to the premiums
collected from our tenants, from the non-affiliated insurance company. Such reinsurance premiums are shown as
“Tenant reinsurance premiums” in the above table.
The subsidiary pays a fee to Public Storage to assist with the administration of the program and to allow the
insurance to be marketed to our tenants. This fee represents a substantial amount of the reinsurance premiums
received by our subsidiary. The fee is eliminated in consolidation and is therefore not shown in the above table.
Tenant reinsurance revenue increased from $95.1 million in 2014, to $109.8 million in 2015, and to
$118.9 million in 2016, due to (i) increased average premiums per insured tenant resulting from higher average
policy limits, (ii) a higher proportion of tenants having insurance, and (iii) a larger number of potential insurance
customers due to newly acquired and developed facilities in 2015 and 2016.
We expect growth in tenant insurance revenues in 2017 to be lower than the growth experienced in 2016, as
we approach practical limits to the proportion of tenants having insurance and the premiums per insured tenant.
Future growth will come primarily from tenants of newly acquired and developed facilities, as well as additional
tenants at our existing unstabilized self-storage facilities.
Cost of operations primarily includes claims paid that are not covered by our outside third-party insurers, as
well as claims adjustment expenses. Tenant reinsurance cost of operations increased from $25.6 million in 2014, to
$26.0 million in 2015, and to $29.1 million in 2016. These increases are due primarily to an increase in exposure
associated with more insured tenants and increased claims experience.
Merchandise sales: We sell locks, boxes, and packing supplies at our self-storage facilities, and the level of
sales of these items is primarily impacted by the level of move-ins and other customer traffic at our self-storage
facilities. We do not expect any significant changes in revenues or profitability from our merchandise sales in 2017.
uu
Equity in earnings of unconsolidated real estate entities
At December 31, 2016, we have equity investments in PSB, Shurgard Europe and various limited
partnerships. We account for such investments using the equity method and record our pro-rata share of the net
income of these entities for each period. The following table, and the discussion below, sets forth the significant
components of our equity in earnings of unconsolidated real estate entities:
Year Ended December 31,
2015
2016
Year Ended December 31,
2014
Change
Change
(Amounts in thousands)
2015
Equity in earnings:
PSB
Shurgard Europe
Other Investments
Total equity in earnings
$
31,707 $
22,324
2,725
34,155 $
14,272
2,510
$
56,756 $
50,937 $
(2,448) $
8,052
215
5,819 $
34,155
14,272
2,510
50,937
$
$
56,280
29,900
2,087
88,267
$
$
(22,125)
(15,628)
423
(37,330)
At December 31, 2016 and 2015, we had approximately a 42% common equity
interest in PSB, comprised of our ownership of 7,158,354 shares of PSB’s common stock and 7,305,355 limited
partnership units in an operating partnership controlled by PSB. The limited partnership units are convertible at our
option, subject to certain conditions, on a one-for-one basis into PSB common stock.
At December 31, 2016, PSB owned and operated 28.1 million rentable square feet of commercial space
located in six states. PSB also manages commercial space that we own pursuant to property management
agreements.
Equity in earnings from PSB decreased $2.4 million in 2016 as compared to 2015, due primarily to our
$11.3 million equity share of gains on dispositions recorded by PSB in 2015, offset partially by our equity share of
d
43
improved property operations. Equity in earnings from PSB decreased $22.1 million in 2015 as compared to 2014,
due primarily to a $25.2 million reduction in our equity share of PSB’s gains on dispositions. See Note 4 to our
December 31, 2016 financial statements for selected financial information on PSB, as well as PSB’s filings and
the SEC, and on PSB’s website,
financial
selected
www.psbusinessparks.com.
that can be accessed
information
through
Investment in Shurgard Europe: We have a 49% equity share in Shurgard Europe’s net income. At
December 31, 2016, Shurgard Europe’s operations are comprised of 218 wholly-owned facilities with 12 million net
rentable square feet. See Note 4 to our December 31, 2016 financial statements for selected financial data on
Shurgard Europe for the years ended December 31, 2016, 2015 and 2014. As described in more detail in Note 4, we
receive trademark license fees from Shurgard Europe.
In 2016, Shurgard Europe opened a newly developed facility in the United Kingdom with a total cost of
$12.9 million and in 2015, Shurgard Europe opened three newly developed facilities in the United Kingdom with a
total cost of $39.4 million.
In June 2015, Shurgard Europe acquired 21 facilities in the Netherlands (0.9 million net rentable square
feet), for approximately $146 million (€132 million). In December 2014, Shurgard Europe acquired five facilities in
Germany (0.3 million net rentable square feet) for $90 million (€72 million) which was paid in March 2015.
In each of July 2014 and June 2015, Shurgard Europe issued €300 million of unsecured senior notes in
various tranches due between July 2021 and June 2030, with an average interest rate of approximately 2.9%.
Our equity in earnings from Shurgard Europe increased $8.1 million in 2016 as compared to 2015, due
primarily to (i) improved same-store operating results and increased earnings from newly acquired properties,
(ii) lower general and administrative expenses associated with property acquisitions and (iii) a reduction in
depreciation expense, offset, by (iv) increased interest expense due to increased outstanding borrowings.
Our equity in earnings from Shurgard Europe decreased $15.6 million in 2015 as compared to 2014, due
primarily to Shurgard’s July 2014 repayment of a €311 million shareholder loan, which eliminated $10.7 million in
interest paid to us in 2014 with respect to our 49% ownership of the loan. The interest paid was classified as equity
in earnings (see Note 4 to our December 31, 2016 financial statements for further information). The decrease also
included a reduction of 16.5% in the average exchange rate between the U.S. Dollar and the Euro in 2015 as
compared to 2014.
For purposes of recording our equity in earnings from Shurgard Europe, the Euro was translated into
U.S. Dollars based upon average exchange rates of 1.107 for 2016, 1.110 for 2015 and 1.329 for 2014.
Our future earnings from Shurgard Europe will be affected primarily by the operating results of its existing
facilities, the exchange rate between the U.S. Dollar and currencies in the countries in which Shurgard Europe
conducts its business (principally the Euro), the impact of income taxes, and the degree to which Shurgard Europe
reinvests the cash it generates from operations into real estate investments or distributes the amounts to its
shareholders.
Unlike our operations in the United States, Shurgard Europe operates through taxable corporations in each
of the countries in which it does business and incurs tax expense. Our equity share of such income tax expense was
x
approximately $5.2 million, $5.3 million, and $2.6 million in 2016, 2015, and 2014, respectively. We expect
continued increases in tax expense incurred by Shurgard Europe in 2017 and beyond, as its operations improve and
its taxable income increases.
uu
44
Analysis of items not allocated to segments
General and administrative expense: The following table sets forth our general and administrative
expense:
Year Ended December 31,
2015
2016
Change
Year Ended December 31,
2014
Change
2015
(Amounts in thousands)
Share-based compensation expense
Costs of senior executives
Development and acquisition costs
Tax compliance costs and taxes paid
Legal costs
Public company costs
Other costs
Total
$ 37,483 $ 32,570 $
6,052
9,721
3,859
7,305
3,768
15,468
5,552
10,006
5,372
18,366
3,632
12,679
$ 83,656 $ 88,177 $
4,913 $ 32,570 $ 29,541
5,558
5,552
500
10,614
10,006
(285)
4,858
5,372
(1,513)
5,080
18,366
(11,061)
3,465
3,632
136
12,343
12,679
2,789
(4,521) $ 88,177 $ 71,459
$
3,029
(6)
(608)
514
13,286
167
336
$ 16,718
Share-based compensation expense includes the amortization of restricted share units and stock options
granted to employees and trustees, as well as related employer taxes. Share-based compensation expense varies
based upon the level of grants and forfeitures as well as the Company’s stock price on the date of grant. The
increases in share-based compensation costs in 2016 as compared to 2015 and in 2015 as compared to 2014 are due
primarily to a higher average grant-date fair value per share. Based upon grants of restricted share units and stock
options made during the first two months of 2017, we expect share-based compensation expense to increase
approximately $10 million in 2017 as compared to 2016. See Note 9 to our December 31, 2016 financial statements
for further information on our share-based compensation.
n
Costs of senior executives represent the cash compensation paid to our chief executive officer and chief
financial officer.
Development and acquisition costs primarily represent internal and external expenses related to our
development activities and the acquisition of real estate facilities and varies primarily based upon the level of
development activities undertaken. The amounts in the above table are net of $8.5 million, $8.1 million and
$5.0 million in development costs that were capitalized in 2016, 2015 and 2014, respectively, to newly developed
and redeveloped self-storage facilities. Amounts include $0.9 million, $1.3 million, and $3.4 million in 2016, 2015,
and 2014, respectively, of external costs including legal expenses and transfer taxes, associated with the acquisition
of real estate facilities. Due to new accounting standards, effective October 1, 2016, external costs associated with
the acquisition of real estate facilities are capitalized and no longer reflected in general and administrative expenses.
Development and acquisition costs are expected to increase modestly in 2017.
Tax compliance costs and taxes paid include taxes paid to various state and local authorities, the internal
and external costs of filing tax returns, costs associated with complying with federal and state tax laws, and
maintaining our compliance with Internal Revenue Service REIT rules. Such costs vary primarily based upon the
tax rates of the various states in which we do business.
Legal costs include internal personnel as well as fees paid to legal firms and other third parties with respect
to general corporate legal matters and risk management, and varies based upon the level of litigation activity. The
decrease of $11.1 million in 2016 as compared to 2015, and the increase of $13.3 million in legal costs in 2015 as
compared to 2014, is due primarily to legal fees and expenses associated with certain litigated matters in 2015,
including $3.5 million accrued in 2015 in connection with the settlement of a legal matter. The future level of legal
costs is not determinable.
Public company costs represent the incremental costs of operating as a publicly-traded company, such as
internal and external investor relations expenses, stock listing and transfer agent fees, board of trustees’ costs, and
f
45
costs associated with maintaining compliance with applicable laws and regulations, including the Dodd-Frank Act
and Sarbanes-Oxley Act.
Other costs represent professional and consulting fees, payroll and overhead that are not directly
attributable to our property operations. Such costs vary depending upon the level of corporate activities and
initiatives and, as such, are not predictable.
Our future general and administrative expenses are difficult to estimate, due to their dependence upon
many factors, including those noted above.
Interest and other income: Interest and other income is comprised primarily of the net income from our
commercial operations and property management operations and to a lesser extent interest earned on cash balances,
trademark license fees received from Shurgard Europe, as well as sundry other income items that are received from
time to time in varying amounts. Amounts attributable to our commercial operations and property management
operations totaled $10.6 million, $12.0 million and $12.7 million in 2016, 2015 and 2014, respectively. Interest
income on cash balances has been minimal, because rates have been at historic lows, and we expect this trend to
continue in the foreseeable future. We do not expect any significant changes in interest and other income in 2017.
t
Interest expense: For 2016, 2015 and 2014, we incurred $9.4 million, $3.3 million, and $8.4 million of
interest on our outstanding debt. During 2016, 2015 and 2014, we capitalized interest of $5.2 million, $2.7 million
and $1.6 million, respectively, associated with our development activities. The increase in interest expense incurred
in 2016 as compared to 2015 is due to increased outstanding debt. At December 31, 2016 and 2015, we had
€342.0 million ($359.8 million) and €242.0 million ($263.9 million), respectively, of Euro-denominated senior
unsecured notes payable to institutional investors (collectively, the “Senior Unsecured Notes”). See Note 5 to our
December 31, 2016 financial statements for a schedule of our debt balances, principal repayment requirements and
average interest rates at December 31, 2016. The increases in capitalized interest are due to increased development
activities. Future interest expense will be dependent upon the level of outstanding debt and the amount of in-process
development costs.
uu
Foreign Exchange Gain (Loss): We recorded foreign currency translation gains of $17.6 million and
$306,000 for 2016 and 2015, respectively, representing the change in the U.S. Dollar equivalent of our Senior
Unsecured Notes due to fluctuations in exchange rates. The Euro was translated at exchange rates of approximately
1.052 U.S. Dollars per Euro at December 31, 2016 and 1.091 at December 31, 2015. We had a foreign currency
translation loss of $7.0 million for 2014 representing primarily the change in the U.S. Dollar equivalent of our Euro-
based loan receivable from Shurgard Europe due to fluctuations in exchange rates. This loan receivable was repaid
in 2014. Future gains and losses on foreign currency translation will be dependent upon changes in the relative
value of the Euro to the U.S. Dollar, and the level of Euro-denominated debt outstanding.
Gain on Real Estate Sales: In 2016, we sold our interest in a property recording a gain of $689,000. In
2015 and 2014, we sold various parcels of real estate primarily in connection with eminent domain proceedings
recording gains on real estate sales totaling $18.5 million and $2.5 million, respectively.
Net Income Allocable to Preferred Shareholders: Net income allocable to preferred shareholders based
upon distributions decreased in 2016 as compared to 2015 due primarily to lower average rates. We also allocated
$26.9 million of income from our common shareholders to the holders of our Preferred Shares in 2016, as compared
to $8.9 million in 2015, in connection with the redemption of our Preferred Shares (there were no redemptions of
our Preferred Shares in 2014). Based upon our preferred shares outstanding at December 31, 2016, our quarterly
distribution to our preferred shareholders is expected to be approximately $60.1 million.
Liquidity and Capital Resources
Financial Strategy: As a REIT, we generally distribute 100% of our taxable income to our shareholders,
which relative to a taxable C corporation, limits the amount of cash flow from operations that we can retain for
investments. As a result, in order to grow our asset base, access to capital is important. Historically we have
mm
46
primarily financed our cash investment activities with retained operating cash flow combined with the proceeds
from the issuance of preferred securities. Over the past twelve months, we began to diversify our capital sources by
issuing medium term debt.
Our financial profile is characterized by strong credit metrics, including low leverage relative to our total
capitalization and operating cash flows. We are one of the highest rated REITs, as rated by major rating agencies
Moody’s and Standard & Poor’s. Our senior debt has an “A” credit rating by Standard & Poor’s and “A2” by
Moody’s. Our credit ratings on each of our series of preferred shares are “A3” by Moody’s and “BBB+” by
Standard & Poor’s. Our credit profile and ratings enables us to effectively access both the public and private capital
markets to raise capital.
We have a $500.0 million revolving line of credit which we occasionally use as temporary “bridge”
financing until we are able to raise longer term capital. As of December 31, 2016, there we no borrowings
outstanding on the revolving line of credit, however, we do have approximately $15.2 million of outstanding letters
of credit which limits our borrowing capacity to $484.8 million. Over the long-term, we expect to fund our capital
requirements with retained operating cash flow, the issuance of medium or long term debt, and proceeds from the
ces of capital based upon availability,
uu
issuance of common and preferred securities. We will select among these sour
relative cost, the desire for leverage, and considering potential constraints caused by certain features of capital
sources, such as debt covenants.
r
Liquidity and Capital Resource Analysis: We believe that our net cash provided by our operating
activities will continue to be sufficient to enable us to meet our ongoing requirements for principal payments on
debt, maintenance capital expenditures, and distributions to our shareholders for the foreseeable future.
As of December 31, 2016, our capital resources over the next year are expected to be approximately
$918.5 million which exceeds our current planned capital needs over the next year of approximately $458.0 million.
Our capital resources include: (i) $183.7 million of cash as of December 31, 2016, (ii) $484.8 million of available
borrowing capacity on our revolving line of credit, and (iii) approximately $250.0 million of expected retained
operating cash flow for the next twelve months. Retained operating cash flow represents our expected cash flow
provided by operating activities, less shareholder distributions and capital expenditures to maintain our facilities.
Our planned capital needs over the next year consist of (i) $429.9 million of remaining spend on our current
development pipeline, (ii) $26.4 million in property acquisitions currently unde
r contract, and (iii) $1.7 million in
n
principal repayments on existing debt. Our capital needs may increase significantly over the next year as we expect
to increase our development pipeline, and acquire additional properties. We may also redeem outstanding preferred
securities or repurchase shares of our common stock in the future.
t
To the extent our retained operating cash flow and line of credit are insufficient to fund our activities, we
believe we have a variety of possibilities to raise additional capital to fund such future commitments including
issuing common or preferred securities, issuing debt, or entering into joint venture arrangements to acquire or
develop facilities.
Required Debt Repayments: As of December 31, 2016, our outstanding debt totaled approximately
$390.7 million, consisting of $30.9 million of secured debt and $359.8 million of unsecured debt. Approximate
principal maturities are as follows (amounts in thousands):
47
2017
2018
2019
2020
2021
Thereafter
$
1,665
11,241
1,505
1,585
1,503
373,250
$ 390,749
The remaining maturities on our debt over at least the next five years are nominal compared to our
expected annual retained operating cash flow.
Capital Expenditure Requirements: Capital expenditures include general maintenance, major repairs or
replacements to elements of our facilities to keep our facilities in good operating condition and maintain their visual
appeal. Capital expenditures do not include costs relating to the development of new facilities or redevelopment of
existing facilities to increase their available rentable square footage.
Capital expenditures totaled $86.0 million in 2016 and are expected to be approximately $110 million in
2017. For the last four years, capital expenditures have ranged between approximately $0.45 and $0.55 per net
rentable square foot per year.
Requirement to Pay Distributions: For all periods presented herein, we have elected to be treated as a
REIT, as defined in the Code. As a REIT, we do not incur federal income tax on our REIT taxable income
(generally, net rents and gains from real property, dividends, and interest) that is fully distributed each year (for this
purpose, certain distributions paid in a subsequent year may be considered), and if we meet certain organizational
and operational rules. We believe we have met these requirements in all periods presented herein, and we expect to
continue to elect and qualify as a REIT.
Distributions paid during 2016 totaled $1.5 billion, consisting of $238.2 million to preferred shareholders
and $1.3 billion to common shareholders and restricted share unitholders. All of these distributions were REIT
qualifying distributions.
We estimate the annual distribution requirements with respect to our Preferred Shares outstanding at
December 31, 2016, to be approximately $240.5 million per year.
On February 22, 2017, our Board declared a regular common quarterly dividend of $2.00 per common
share. Our consistent, long-term dividend policy has been to distribute only our taxable income. Future quarterly
distributions with respect to the common shares will continue to be determined based upon our REIT distribution
requirements after taking into consideration distributions to the preferred shareholders and will be funded with cash
provided by operating activities.
We estimate we will pay approximately $8.0 million per year in distributions to noncontrolling interests
outstanding at December 31, 2016.
Real Estate Investment Activities: Subsequent to December 31, 2016, we acquired or were under contract
to acquire five self-storage facilities (two in Ohio and one each in Minnesota, New York and North Carolina), with
275,000 net rentable square feet, for $26.4 million. We will continue to seek to acquire properties; however, there is
significant competition to acquire existing facilities and there can be no assurance as to the level of facilities we may
acquire.
As of December 31, 2016 we had development and redevelopment projects which will add approximately
5.3 million net rentable square feet of storage space at a total cost of approximately $660.2 million. A total of
$230.3 million of these costs were incurred through December 31, 2016, with the remaining cost to complete of
48
$429.9 million expected to be incurred primarily in the next 18 months. Some of these projects are subject to
significant contingencies such as entitlement approval. We expect to continue to seek additional projects; however,
the level of future development and redevelopment may be limited due to various constraints such as difficulty in
finding projects that meet our risk-adjusted yield expectations and challenges in obtaining building permits for self-
storage activities in certain municipalities.
Redemption of Preferred Securities: Historically, we have taken advantage of refinancing higher coupon
preferred securities with lower coupon preferred securities. During 2016, we redeemed two series of preferred
securities totaling $862.5 million which had a weighted average coupon of 6.42%. During the same period, we
issued $1,175.0 million of preferred securities which have a weighted average coupon of 5.079%. In the future, we
may elect to finance the redemption of preferred securities with proceeds from the issuance of debt. We have four
series of preferred securities that become redeemable during 2017, at our option, with coupons ranging from 5.90%
to 5.375%, with an aggregate $1.7 billion outstanding (see Note 7 to our December 31, 2016 financial statements).
As of February 28, 2017, we have two series of preferred securities that are eligible for redemption, at our option
and with 30 days’ notice; our 5.90% Series S Preferred Shares, with $460.0 million outstanding and our 5.75%
Series T Preferred Shares, with $462.5 million outstanding. Redemption of such preferred shares will depend upon
many factors including whether we can issue capital at a lower cost of capital than the shares that would be
redeemed. Currently, we believe that the cost to issue preferred securities would be approximately 5.875%. None
of our preferred securities are redeemable at the option of the holders.
Repurchases of Common Shares: Our Board has authorized management to repurchase up to 35,000,000
of our common shares on the open market or in privately negotiated transactions. During 2016, we did not
repurchase any of our common shares. From the inception of the repurchase program through February 28, 2017,
we have repurchased a total of 23,721,916 common shares at an aggregate cost of approximately $679.1 million.
Future levels of common share repurchases will be dependent upon our available capital, investment alternatives and
the trading price of our common shares.
Contractual Obligations
Our significant contractual obligations at December 31, 2016 and their impact on our cash flows and
liquidity are summarized below for the years ending December 31 (amounts in thousands):
Total
2017
2018
2019
2020
2021
Thereafter
Mortgage notes (1)
$
36,508 $
2,957 $ 12,601 $
2,316 $
2,316 $
2,147 $
14,171
Senior unsecured notes (2)
419,995
7,156
7,156
7,156
7,156
7,156
384,215
Operating leases (3)
88,746
4,452
4,224
4,145
4,138
4,134
67,653
Construction commitments (4)
137,536
110,029
27,507
-
-
-
-
Total
$
682,785 $
124,594 $ 51,488 $ 13,617 $ 13,610 $ 13,437 $
466,039
(1) Amounts include principal and interest payments (all of which are fixed-rate) on our secured notes (the
“Mortgage Notes”) based on their contractual terms. See Note 5 to our December 31, 2016 financial
statements for additional information on our notes payable.
(2) Reflects interest and principal on €342.0 million of Euro-denominated senior unsecured notes. See Note 5
to our December 31, 2016 financial statements for further information on our senior unsecured notes.
(3) Represents future contractual payments on land, equipment and office space under various operating leases.
(4) Represents future expected development spending that was under contract at December 31, 2016.
We estimate the annual distribution requirements with respect to our Preferred Shares outstanding at
December 31, 2016, to be approximately $240.5 million per year. Dividends are paid when and if declared by our
Board and accumulate if not paid.
49
Off-Balance Sheet Arrangements: At December 31, 2016, we had no material off-balance sheet
arrangements as defined under Regulation S-K 303(a)(4) and the instructions thereto.
50
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
To limit our exposure to market risk, we are capitalized primarily with preferred and common equity. Our
preferred shares are redeemable at our option generally five years after issuance, but the holder has no redemption
option. Our debt is our only market-risk sensitive portion of our capital structure, which totals $390.7 million and
represents 4.2% of the book value of our equity at December 31, 2016.
We have foreign currency exposure at December 31, 2016 related to i) our investment in Shurgard Europe,
with a book value of $280.0 million and ii) €342.0 million ($359.8 million) of Euro-denominated senior unsecured
notes payable.
The fair value of our fixed rate debt at December 31, 2016 is approximately $412.7 million. The table
below summarizes the annual maturities of our fixed rate debt, which had a weighted average fixed rate of 2.2% at
December 31, 2016. See Note 5 to our December 31, 2016 financial statements for further information regarding
our fixed rate debt (amounts in thousands).
2017
2018
2019
2020
2021
Thereafter
Total
Fixed rate debt
$
1,665 $ 11,241 $
1,505 $
1,585 $
1,503 $ 373,250 $ 390,749
51
ITEM 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
uu
u
We maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in reports we file and submit under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) is recorded, processed, summarized and reported within the time periods specified in accordance with SEC
guidelines and that such information is communicated to our management, including our Chief Executive Officer
and Chief Financial Officer, to allow timely decisions regarding required disclosure based on the definition of
"disclosure controls and procedures" in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. In designing and
evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship
of possible controls and procedures in reaching that level of reasonable assurance. We also have investments in
certain unconsolidated real estate entities and because we do not control these entities, our disclosure controls and
procedures with respect to such entities are substantially more limited than those we maintain with respect to our
consolidated subsidiaries.
As of December 31, 2016, we carried out an evaluation, under the supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of
the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of December 31, 2016, at a reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and
with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework
in Internal Control-Integrated Framework issued by the Committee on Sponsoring Organizations of the Treadway
Commission (2013 Framework). Based on our evaluation under the framework in Internal Control-Integrated
Framework, our management concluded that our internal control over financial reporting was effective as of
December 31, 2016.
k
The effectiveness of internal control over financial reporting as of December 31, 2016, has been audited by
Ernst & Young LLP, an independent registered public accounting firm. Ernst & Young LLP’s report on our internal
control over financial reporting appears below.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2016 to which this report relates
that have materially affected, or are reasonable likely to materially affect, our internal control over financial
reporting.
52
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
Public Storage
We have audited Public Storage’s internal control over financial reporting as of December 31, 2016, based on
criteria established in Internal Control—ll
issued by the Committee of Sponsoring
—
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Public Storage’s management
is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
k
Integrated Framework
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
a
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and trustees of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
f
f
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Public Storage maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Public Storage as of December 31, 2016 and 2015, and the related
consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the
period ended December 31, 2016 and our report dated February 28, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Los Angeles, California
February 28, 2017
53
ITEM 9B. Other Information
None.
54
PART III
ITEM 10.
Trustees, Executive Officers and Corporate Governance
The following is a biographical summary of the current executive officers of the Company:
Ronald L. Havner, Jr., age 59, has been Chairman and Chief Executive Officer of Public Storage since
August 2011 and November 2002, respectively. Mr. Havner joined Public Storage in 1986 and has held a variety of
senior management positions. Mr. Havner has been Chairman of the Board of Public Storage’s affiliate, PS
Business Parks, Inc. (“PSB”) since March 1998.
John Reyes, age 56, has served as Senior Vice President and Chief Financial Officer of Public Storage
since 1996, having joined the Company in 1990.
Joseph D. Russell, Jr., age 57, has been President of Public Storage since July 2016. Prior to joining
Public Storage, Mr. Russell was Chief Executive Officer of PS Business Parks, Inc. from August 2003 to July 2016.
Mr. Russell was President of PS Business Parks, Inc. from September 2003 until August 2015. Mr. Russell has also
served as a director of PS Business Parks, Inc. since August 2003. He currently serves on the Board of Directors of
the Self Storage Association (“SSA”).
David F. Doll, age 58, has served as Senior Vice President and President, Real Estate Group, since
February 2005, with responsibility for the real estate activities of Public Storage, including property acquisitions,
developments, re-developments, and capital improvements.
Lily Y. Hughes, age 53, became Senior Vice President, Chief Legal Officer and Corporate Secretary in
January 2015. Prior to joining Public Storage, Ms. Hughes was Vice President and Associate General Counsel-
Corporate, M&A and Finance at Ingram Micro Inc., a Fortune 100 NYSE company with operations in 39 countries,
which she joined in 1997.
Candace N. Krol, age 55, has served as Senior Vice President and Chief Human Resources Officer of
Public Storage since February 2015 and has served as Senior Vice President of Human Resources since September
2005.
Other information required by this item is hereby incorporated by reference to the material appearing in the
Notice and Proxy Statement for the 2016 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A
under the Exchange Act.
ITEM 11.
Executive Compensation
The information required by this item is hereby incorporated by reference to the material appearing in the
Notice and Proxy Statement for the 2017 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A
under the Exchange Act.
55
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
The following table sets forth information as of December 31, 2016 on the Company’s equity
compensation plans:
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
Weighted
average
exercise price
of outstanding
options,
warrants and
rights
Number of
securities
remaining available
for future issuance
under equity
compensation plans
2,692,081 (b)
$150.83 (d)
2,700,390
-
-
-
Equity compensation plans approved
by security holders (a) ..................
Equity compensation plans not
approved by security holders (c)...
The Company’s stock option and stock incentive plans are described more fully in Note 9 to the
December 31, 2016 financial statements. All plans were approved by the Company’s shareholders.
Includes 696,641 restricted share units that, if and when vested, will be settled
Company on a one for one basis.
n
in common shares of the
There are no securities available for future issuance or currently outstanding under plans not approved
by the Company’s shareholders as of December 31, 2016.
Represents the average exercise price of 1,995,440 stock options outstanding at December 31, 2016.
We also have 696,641 restricted share units outstanding at December 31, 2016 that vest for no
consideration.
a)
b)
c)
d)
Other information required by this item is hereby incorporated by reference to the material appearing in the
Notice and Proxy Statement for the 2017 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A
under the Exchange Act.
ITEM 13. Certain Relationships and Related Transactions and Trustee Independence
The information required by this item is hereby incorporated by reference to the material appearing in the
Notice and Proxy Statement for the 2017 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A
under the Exchange Act.
ITEM 14.
Principal Accountant Fees and Services
The information required by this item is hereby incorporated by reference to the material appearing in the
Notice and Proxy Statement for the 2017 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A
under the Exchange Act of 1934.
56
ITEM 15.
Exhibits and Financial Statement Schedules
a. 1. Financial Statements
PART IV
The financial statements listed in the accompanying Index to Financial Statements and Schedules hereof
are filed as part of this report.
2. Financial Statement Schedules
The financial statements schedules listed in the accompanying Index to Financial Statements and
Schedules are filed as part of this report.
3. Exhibits
See Index to Exhibits contained herein.
b. Exhibits:
See Index to Exhibits contained herein.
c. Financial Statement Schedules
Not applicable.
57
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
3.14
3.15
PUBLIC STORAGE
INDEX TO EXHIBITS (1)
(Items 15(a)(3) and 15(c))
Articles of Amendment and Restatement of Declaration of Trust of Public Storage, a Maryland real estate
investment trust. Filed with the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2009 and incorporated by reference herein.
f
Bylaws of Public Storage, a Maryland real estate investment trust. Filed with the Registrant’s Current
Report on Form 8-K dated May 11, 2010 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.900% Cumulative Preferred Shares, Series S. Filed with the
Registrant’s Current Report on Form 8-K dated January 9, 2012 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.750% Cumulative Preferred Shares, Series T. Filed with the
Registrant’s Current Report on Form 8-K dated March 7, 2012 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.625% Cumulative Preferred Shares, Series U. Filed with the
Registrant’s Current Report on Form 8-K dated June 6, 2012 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.375% Cumulative Preferred Shares, Series V. Filed with the
Registrant’s Current Report on Form 8-K dated September 11, 2012 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.20% Cumulative Preferred Shares, Series W. Filed with the
Registrant’s Current Report on Form 8-K dated January 8, 2013 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.20% Cumulative Preferred Shares, Series X. Filed with the
Registrant’s Current Report on Form 8-K dated March 5, 2013 and incorporated by reference herein.
Articles Supplementary for Public Storage 6.375% Cumulative Preferred Shares, Series Y. Filed with the
Registrant’s Current Report on Form 8-K dated March 11, 2014 and incorporated by reference herein.
Articles Supplementary for Public Storage 6.375% Cumulative Preferred Shares, Series Y. Filed with the
Registrant’s Current Report on Form 8-K dated April 9, 2014 and incorporated by reference herein.
Articles Supplementary for Public Storage 6.00% Cumulative Preferred Shares, Series Z. Filed with the
Registrant’s Current Report on Form 8-K dated May 29, 2014 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.875% Cumulative Preferred Shares, Series A. Filed with the
Registrant’s Current Report on Form 8-K/A dated November 24, 2014 and incorporated by reference
herein.
Articles Supplementary for Public Storage 5.400% Cumulative Preferred Shares, Series B. Filed with the
Registrant’s Current Report on Form 8-K dated January 13, 2016 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.125% Cumulative Preferred Shares, Series C. Filed with the
Registrant’s Current Report on Form 8-K dated May 10, 2016 and incorporated by reference herein.
Articles Supplementary for Public Storage 4.950% Cumulative Preferred Shares, Series D. Filed with the
Registrant’s Current Report on Form 8-K dated July 13, 2016 and incorporated by reference herein.
58
3.16
4.1
10.1
10.2
10.3
10.4
10.5
10.5.1
10.5.2
10.5.3
10.5.4
10.6*
10.7*
Articles Supplementary for Public Storage 4.900% Cumulative Preferred Shares, Series E. Filed with the
Registrant’s Current Report on Form 8-K dated October 6, 2016 and incorporated by reference herein.
Master Deposit Agreement, dated as of May 31, 2007. Filed with the Registrant’s Current Report on
Form 8-K dated June 6, 2007 and incorporated by reference herein.
Amended Management Agreement between Registrant and Public Storage Commercial Properties Group,
Inc. dated as of February 21, 1995. Filed with Public Storage Inc.’s (“PSI”) Annual Report on Form 10-K
for the year ended December 31, 1994 (SEC File No. 001-0839) and incorporated herein by reference.
Second Amended and Restated Management Agreement by and among Registrant and the entities listed
therein dated as of November 16, 1995. Filed with PS Partners, Ltd.’s Annual Report on Form 10-K for
the year ended December 31, 1996 (SEC File No. 001-11186) and incorporated herein by reference.
Agreement of Limited Partnership of PS Business Parks, L.P. Filed with PS Business Parks, Inc.’s
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 (SEC File No. 001-10709)
and incorporated herein by reference.
Amended and Restated Agreement of Limited Partnership of Storage Trust Properties, L.P. (March 12,
1999). Filed with PSI’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999
(SEC File No. 001-0839) and incorporated herein by reference.
Amended and Restated Credit Agreement by and among Registrant, Wells Fargo Securities, LLC and
Merrill Lynch, Pierce, Fenner & Smith Incorporated as joint lead arrangers, Wells Fargo Bank, National
Association, as administrative agent, and the other financial institutions party thereto, dated as of
March 21, 2012. Filed with PSI’s Current Report on Form 8-K on March 27, 2012 (SEC File No. 001-
0839) and incorporated herein by reference.
Second Amendment to Amended and Restated Credit Agreement, dated as of July 17, 2013, by and
among Public Storage, the Lenders party thereto and Wells Fargo Bank, National Association. Filed with
the Registrant’s Current Report on Form 8-K on July 18, 2013 and incorporated herein by reference.
Third Amendment to the Amended and Restated Credit Agreement, dated as of March 31, 2015, among
Public Storage, the lenders party thereto and Wells Fargo Bank, National Association, as agent. Filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K on April 2, 2015 (“April 2015 8-K”) and
incorporated herein by reference.
Copy of the Amended and Restated Credit Agreement dated as of March 21, 2012, consolidating all
amendments made by the Letter Agreement, dated as of April 12, 2012, the Second Amendment to
Amended and Restated Credit Agreement, dated as of July 17, 2013, and the Third Amendment to
Amended and Restated Credit Agreement, dated as of March 31, 2015. This conformed copy was filed as
Exhibit 10.2 to the April 2015 8-K for ease of reference and was qualified in its entirety by reference to
the Third Amendment and incorporated herein by reference.
Fourth Amendment to the Amended and Restated Credit Agreement, dated as of December 22, 2015,
among Public Storage, the lenders party thereto and Wells Fargo Bank, National Association, as agent.
Filed as Exhibit 10.5.4 to the Company’s Annual Report on Form 10-K for the year ended December 31,
2015 and incorporated herein by reference.
Shurgard Storage Centers, Inc. 2004 Long Term Incentive Compensation Plan. Filed as Appendix A of
Definitive Proxy Statement dated June 7, 2004 filed by Shurgard (SEC File No. 001-11455) and
incorporated herein by reference.
Public Storage, Inc. 2001 Stock Option and Incentive Plan (the “2001 Plan”). Filed with PSI’s
Registration Statement on Form S-8 (SEC File No. 333-59218) and incorporated herein by reference.
59
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
Form of 2001 Plan Non-qualified Stock Option Agreement. Filed with PSI’s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2004 (SEC File No. 001-
0839) and incorporated
herein by reference.
m
Form of 2001 Plan Restricted Share Unit Agreement. Filed with PSI’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2004 (SEC File No. 001-0839) and incorporated herein by
reference.
Form of 2001 Plan Non-Qualified Outside Director Stock Option Agreement. Filed with PSI’s Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2004 (SEC File No. 001-0839) and
incorporated herein by reference.
Form of 2007 Plan Restricted Stock Unit Agreement. Filed as Exhibit 10.11 to the Company’s Annual
r
Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.
Form of 2007 Plan Restricted Stock Unit Agreement – deferral of receipt of shares. Filed as
Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and
incorporated herein by reference.
–
Form of 2007 Plan Stock Option Agreement. Filed as Exhibit 10.13 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.
Form of 2007 Plan Trustee Stock Option Agreement. Filed as Exhibit 10.14 to the Company’s Annual
r
Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.
10.15*
Form of 2016 Plan Restricted Stock Unit Agreement. Filed herewith.
10.16*
Form of 2016 Plan Restricted Stock Unit Agreement – deferral of receipt of shares. Filed herewith.
–
10.17*
Form of 2016 Plan Non-Qualified Stock Option Agreement. Filed herewith.
10.18*
Form of 2016 Plan Trustee Non-Qualified Stock Option Agreement. Filed herewith.
10.19*
Form of Trustee and Officer Indemnification Agreement. Filed herewith.
10.20
10.21*
10.22*
10.23
Term Loan Agreement, by and among Public Storage, Wells Fargo Securities, LLC as Lead Arranger and
Wells Fargo National Bank N.A. as Administrative Agent, dated as of December 2, 2013. Filed with
Registrant’s Current Report on Form 8-K dated December 2, 2013 and incorporated herein by reference.
Public Storage 2007 Equity and Performance-Based Incentive Compensation Plan, as Amended. Filed
with Registrant’s Current Report on Form 8-K dated May 1, 2014 and incorporated herein by reference.
Public Storage 2016 Equity and Performance-Based Incentive Compensation Plan. Filed as Appendix A
to the Company’s 2016 Proxy Statement dated March 16, 2016 and incorporated herein by reference.
Note Purchase Agreement, dated as of November 3, 2015, by and among Public Storage and the
signatories thereto. Filed with Registrant’s Current Report on Form 8-K dated November 3, 2015 and
incorporated herein by reference.
60
10.24
12
23
31.1
31.2
32
Note Purchase Agreement, dated as of April 12, 2016, by and among Public Storage and the signatories
thereto. Filed with Registrant’s Current Report on Form 8-K dated April 12, 2016 and incorporated
herein by reference.
Statement Re: Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. Filed
herewith.
Consent of Ernst & Young LLP. Filed herewith.
Rule 13a – 14(a) Certification. Filed herewith.
–
Rule 13a – 14(a) Certification. Filed herewith.
–
Section 1350 Certifications. Filed herewith.
101 .INS
XBRL Instance Document. Filed herewith.
101 .SCH
XBRL Taxonomy Extension Schema. Filed herewith.
101 .CAL
XBRL Taxonomy Extension Calculation Linkbase. Filed herewith.
101 .DEF
XBRL Taxonomy Extension Definition Linkbase. Filed herewith.
101 .LAB
XBRL Taxonomy Extension Label Linkbase. Filed herewith.
101 .PRE
XBRL Taxonomy Extension Presentation Link. Filed herewith.
_ (1) SEC File No. 001-33519 unless otherwise indicated.
*
Denotes management compensatory plan agreement or arrangement.
61
PUBLIC STORAGE
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULES
(Item 15 (a))
Report of Independent Registered Public Accounting Firm ...............................................................
Balance sheets as of December 31, 2016 and 2015 ............................................................................
For the years ended December 31, 2016, 2015 and 2014:
Statements of income .........................................................................................................................
Statements of comprehensive income ................................................................................................
Page
References
F-1
F-2
F-3
F-4
Statements of equity ..........................................................................................................................
–
F-5 – F-6
Statements of cash flows ....................................................................................................................
–
F-7 – F-8
Notes to financial statements ..............................................................................................................
–
F-9 – F-31
Schedule:
III – Real estate and accumulated depreciation ..................................................................................
–
–
F-32 – F-34
All other schedules have been omitted since the required information is not present or not present in amounts
sufficient to require submission of the schedule, or because the information required is included in the financial
statements or notes thereto.
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders of Public Storage
We have audited the accompanying consolidated balance sheets of Public Storage as of December 31, 2016 and
2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of
the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule
listed in the Index at Item 15(a). These financial statements and financial statement schedule are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Public Storage at December 31, 2016 and 2015, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with
n
U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Public Storage’s internal control over financial reporting as of December 31, 201
6, based on criteria
r
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework) and our report dated February 28, 2017 expressed an unqualified opinion
thereon.
k
Los Angeles, California
February 28, 2017
/s/ ERNST & YOUNG LLP
F-1
PUBLIC STORAGE
BALANCE SHEETS
(Amounts in thousands, except share data)
ASSETS
December 31,
December 31,
2016
2015
$
183,688
$
104,285
Cash and cash equivalents
Real estate facilities, at cost:
Land
Buildings
Accumulated depreciation
Construction in process
Investments in unconsolidated real estate entities
Goodwill and other intangible assets, net
Other assets
Total assets
LIABILITIES AND EQUITY
Senior unsecured notes
Mortgage notes
Accrued and other liabilities
Total liabilities
Commitments and contingencies (Note 12)
Equity:
Public Storage shareholders’ equity:
Preferred Shares, $0.01 par value, 100,000,000 shares authorized,
174,700 shares issued (in series) and outstanding, (162,200 at
December 31, 2015), at liquidation preference
Common Shares, $0.10 par value, 650,000,000 shares authorized,
173,288,787 shares issued and outstanding (172,921,241 shares at
December 31, 2015)
Paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Public Storage shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying notes.
F-2
3,781,479
10,181,750
13,963,229
(5,270,963)
8,692,266
230,310
8,922,576
689,207
212,719
122,148
10,130,338
359,810
30,939
297,935
688,684
$
$
3,564,810
9,640,451
13,205,261
(4,866,738)
8,338,523
219,190
8,557,713
809,308
211,458
95,468
9,778,232
263,940
55,076
261,578
580,594
4,367,500
4,055,000
17,329
5,609,768
(487,581)
(95,106)
9,411,910
29,744
9,441,654
10,130,338
$
17,293
5,601,506
(434,610)
(68,548)
9,170,641
26,997
9,197,638
9,778,232
$
$
$
PUBLIC STORAGE
STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
Revenues:
Self-storage facilities
Ancillary operations
Expenses:
Self-storage cost of operations
Ancillary cost of operations
Depreciation and amortization
General and administrative
Operating income
Interest and other income
Interest expense
Equity in earnings of unconsolidated real estate entities
Foreign currency exchange gain (loss)
Gain on real estate investment sales
Net income
Allocation to noncontrolling interests
Net income allocable to Public Storage shareholders
Allocation of net income to:
Preferred shareholders
Preferred shareholders - redemptions (Note 7)
Restricted share units
Net income allocable to common shareholders
Net income per common share:
Basic
Diluted
Diluted weighted average common shares outstanding
For the Years Ended December 31,
2016
2015
2014
$
2,405,828 $
154,721
2,560,549
2,235,525 $
146,171
2,381,696
2,049,882
127,414
2,177,296
617,905
51,178
433,314
83,656
1,186,053
1,374,496
15,138
(4,210)
56,756
17,570
689
1,460,439
(6,863)
1,453,576
(238,214)
(26,873)
(4,610)
586,696
48,806
426,008
88,177
1,149,687
1,232,009
16,544
(610)
50,937
306
18,503
1,317,689
(6,445)
1,311,244
(245,097)
(8,897)
(4,200)
566,898
46,426
437,114
71,459
1,121,897
1,055,399
17,638
(6,781)
88,267
(7,047)
2,479
1,149,955
(5,751)
1,144,204
(232,636)
-
(3,392)
$
$
$
1,183,879 $
1,053,050 $
908,176
6.84 $
6.81 $
173,091
173,878
6.10 $
6.07 $
172,699
173,510
5.27
5.25
172,251
173,138
See accompanying notes.
F-3
PUBLIC STORAGE
STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net income
Other comprehensive loss:
Aggregate foreign currency exchange loss
Adjust for aggregate foreign currency exchange
gain in equity in earnings of unconsolidated
real estate entities
Adjust for aggregate foreign currency exchange
(gain) loss included in net income
Other comprehensive loss
Total comprehensive income
Allocation to noncontrolling interests
Comprehensive income allocable to
Public Storage shareholders
For the Years Ended December 31,
2015
2014
2016
$
1,460,439
$
1,317,689
$
1,149,955
(8,047)
(20,086)
(54,703)
(941)
-
-
(17,570)
(26,558)
1,433,881
(6,863)
(306)
(20,392)
1,297,297
(6,445)
7,047
(47,656)
1,102,299
(5,751)
$
1,427,018
$
1,290,852
$
1,096,548
See accompanying notes.
F-4
PUBLIC STORAGE
STATEMENTS OF EQUITY
(Amounts in thousands, except share and per share amounts)
Cumulative
Preferred
Shares
Common
Shares
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Public Storage
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
$
3,562,500
762,500
$ 17,178
-
$ 5,531,034
(23,546)
$ (318,482)
-
$
(500)
-
$
8,791,730
738,954
$
27,125
-
$
8,818,855
738,954
-
-
-
-
-
-
-
67
37,805
-
-
-
-
-
-
-
16,926
(689)
-
-
-
-
1,149,955
(5,751)
-
-
(232,636)
-
-
-
-
-
-
-
-
-
-
4,325,000
(270,000)
-
-
$ 17,245
-
-
-
$ 5,561,530
-
(967,909)
-
$ (374,823)
-
$
-
(47,656)
(48,156)
-
$
$
-
-
-
-
-
-
-
-
-
-
4,055,000
48
29,615
-
-
-
-
-
-
-
-
-
-
15,793
(5,432)
-
-
-
-
-
-
-
-
-
-
1,317,689
(6,445)
(245,097)
-
(1,125,934)
-
17,293
5,601,506
See accompanying notes.
F-5
(434,610)
37,872
-
37,872
16,926
(689)
1,149,955
(5,751)
(232,636)
-
(967,909)
(47,656)
9,480,796
(270,000)
$
-
(32)
-
5,751
-
(6,469)
-
-
26,375
-
16,926
(721)
1,149,955
-
(232,636)
(6,469)
(967,909)
(47,656)
9,507,171
(270,000)
$
29,663
-
29,663
15,793
(5,432)
-
1,317,689
(6,445)
(245,097)
-
-
(60)
1,562
-
6,445
-
(7,325)
15,793
(5,492)
1,562
1,317,689
-
(245,097)
(7,325)
-
-
-
-
-
-
-
-
-
(20,392)
(68,548)
(1,125,934)
(20,392)
9,170,641
-
-
(1,125,934)
(20,392)
26,997
9,197,638
Balances at December 31, 2013
Issuance of 30,500 preferred shares (Note 7)
Issuance of common shares in connection with
share-based compensation (669,263 shares) (Note 9)
Share-based compensation expense, net of cash
paid in lieu of common shares (Note 9)
Acquisition of noncontrolling interests
Net income
Net income allocated to noncontrolling interests
Distributions to equity holders:
Preferred shares (Note 7)
Noncontrolling interests
Common shares and restricted share units
($5.60 per share)
Other comprehensive loss (Note 2)
Balances at December 31, 2014
Redemption of 10,800 preferred shares (Note 7)
Issuance of common shares in connection with
share-based compensation (475,687 shares) (Note 9)
Share-based compensation expense, net of cash
paid in lieu of common shares (Note 9)
Acquisition of noncontrolling interests
Contributions by noncontrolling interests
Net income
Net income allocated to noncontrolling interests
Distributions to equity holders:
Preferred shares (Note 7)
Noncontrolling interests
Common shares and restricted share units
($6.50 per share)
Other comprehensive loss (Note 2)
Balances at December 31, 2015
Cumulative effect of a change in accounting
principle (Note 9)
Balances at December 31, 2015, as adjusted
Issuance of 47,000 preferred shares (Note 7)
Redemption of 34,500 preferred shares (Note 7)
Issuance of common shares in connection with
share-based compensation (367,546 shares) (Note 9)
Share-based compensation expense, net of cash
paid in lieu of common shares (Note 9)
Contributions by noncontrolling interests
Net income
Net income allocated to noncontrolling interests
Distributions to equity holders:
Preferred shares (Note 7)
Noncontrolling interests
Common shares and restricted share units
($7.30 per share)
Other comprehensive loss (Note 2)
Balances at December 31, 2016
PUBLIC STORAGE
STATEMENTS OF EQUITY
(Amounts in thousands, except share and per share amounts)
Cumulative
Preferred
Shares
Common
Shares
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Public Storage
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
$
-
4,055,000
1,175,000
(862,500)
-
$ 17,293
-
-
789
$ 5,602,295
(38,797)
-
(789)
$ (435,399)
-
-
$
-
(68,548)
-
-
$
-
9,170,641
1,136,203
(862,500)
$
-
26,997
-
-
$
-
9,197,638
1,136,203
(862,500)
-
-
-
-
-
-
-
-
-
36
25,505
-
-
-
1,460,439
(6,863)
(238,214)
-
-
-
-
-
-
-
-
-
20,765
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,541
-
25,541
20,765
-
1,460,439
(6,863)
(238,214)
-
-
3,470
-
6,863
-
(7,586)
20,765
3,470
1,460,439
-
(238,214)
(7,586)
(1,267,544)
-
-
(26,558)
(1,267,544)
(26,558)
-
-
(1,267,544)
(26,558)
$
4,367,500
$ 17,329
$ 5,609,768
$ (487,581)
$
(95,106)
$
9,411,910
$
29,744
$
9,441,654
See accompanying notes.
F-6
PUBLIC STORAGE
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on real estate investment sales
Depreciation and amortization
Equity in earnings of unconsolidated real estate entities
Distributions from retained earnings of unconsolidated
real estate entities
Foreign currency exchange (gain) loss
Shared-based compensation expense
Other
Total adjustments
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures to maintain real estate facilities
Construction in process
Acquisition of real estate facilities and intangible assets
Distributions in excess of retained earnings from
unconsolidated real estate entities
Proceeds from sale of real estate investments
Disposition of portion of loan receivable from
Shurgard Europe
Repayments of loan receivable from Shurgard Europe
Other
Net cash used in investing activities
Cash flows from financing activities:
Repayments on bank credit facility
Repayments on term loan
Repayments on notes payable
Issuance of senior unsecured notes
Issuance of preferred shares
Issuance of common shares
Redemption of preferred shares
Cash paid upon vesting of restricted share units
Acquisition of noncontrolling interests
Contributions by noncontrolling interests
Distributions paid to Public Storage shareholders
Distributions paid to noncontrolling interests
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Net effect of foreign exchange translation on cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
$
See accompanying notes.
F-7
For the Years Ended December 31,
2015
2016
2014
$
1,460,439
$
1,317,689
$
1,149,955
(689)
433,314
(56,756)
84,397
(17,570)
37,483
4,718
484,897
1,945,336
(81,435)
(269,916)
(416,178)
67,420
998
-
-
(17,615)
(716,726)
-
-
(36,459)
113,620
1,136,203
25,541
(862,500)
(15,357)
-
3,470
(1,505,758)
(7,586)
(1,148,826)
79,784
(381)
104,285
183,688
$
(18,503)
426,008
(50,937)
35,695
(306)
32,570
6,063
430,590
1,748,279
(65,594)
(228,478)
(177,076)
-
15,013
-
-
16,030
(440,105)
-
-
(17,237)
264,255
-
29,663
(270,000)
(15,678)
(5,492)
1,562
(1,371,031)
(7,325)
(1,391,283)
(83,109)
(318)
187,712
104,285
$
(2,479)
437,114
(88,267)
83,458
7,047
29,541
(12,827)
453,587
1,603,542
(80,962)
(141,569)
(410,210)
-
17,246
216,217
204,947
(4,000)
(198,331)
(50,100)
(700,000)
(44,406)
-
738,954
37,872
-
(11,449)
(721)
-
(1,200,545)
(6,469)
(1,236,864)
168,347
196
19,169
187,712
PUBLIC STORAGE
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
For the Years Ended December 31,
2015
2016
2014
Supplemental schedule of non-cash investing and
financing activities:
Foreign currency translation adjustment:
Real estate facilities, net of accumulated depreciation
Investments in unconsolidated real estate entities
Senior unsecured notes
Loan receivable from Shurgard Europe
Accumulated other comprehensive loss
$
1,317 $
24,099
(17,750)
-
(8,047)
Real estate acquired in exchange for assumption of mortgage notes
Mortgage notes assumed in connection with acquisition of real estate
(12,945)
12,945
Accrued construction costs and capital expenditures:
Capital expenditures to maintain real estate facilities
Construction in process
Accrued and other liabilities
(4,612)
(18,238)
22,850
$
500
19,583
(315)
-
(20,086)
(8,311)
8,311
2,525
(9,623)
7,098
673
47,251
-
6,975
(54,703)
(20,460)
20,460
1,178
(8,830)
7,652
See accompanying notes.
F-8
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
1. Description of the Business
Public Storage (referred to herein as “the Company”, “we”, “us”, or “our”), a Maryland real estate
investment trust (“REIT”), was organized in 1980. Our principal business activities include the ownership and
operation of self-storage facilities which offer storage spaces for lease, generally on a month-to-month basis, for
personal and business use, ancillary activities such as merchandise sales and tenant reinsurance to the tenants at
our self-storage facilities, as well as the acquisition and development of additional self-storage space.
At December 31, 2016, we have direct and indirect equity interests in 2,348 self-storage facilities (with
approximately 154 million net rentable square feet) located in 38 states in the United States (“U.S.”) operating
under the “Public Storage” name. We also own one self-storage facility in London, England and we have a
49% interest in Shurgard Europe, which owns 218 self-storage facilities (with approximately 12 million net
rentable square feet) located in seven Western European countries, all operating under the “Shurgard” name.
We also have direct and indirect equity interests in approximately 29 million net rentable square feet of
commercial space located in eight states in the U.S. primarily owned and operated by PS Business Parks, Inc.
(“PSB”) under the “PS Business Parks” name. At December 31, 2016, we have an approximate 42% common
equity interest in PSB.
Disclosures of the number and square footage of facilities, as well as the number and coverage of
tenant reinsurance policies (Note 12) are unaudited and outside the scope of our independent registered public
accounting firm’s review of our financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (U.S.).
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements are presented on an accrual basis in accordance with U.S. generally accepted
accounting principles (“GAAP”) as defined in the Financial Accounting Standards Board Accounting Standards
Codification (the “Codification”).
On our statement of cash flows for the years ended December 31, 2015 and 2014, we reclassified the
$15.7 million and $11.4 million, respectively, we paid for the restricted share units that we withheld upon their
vesting for employee tax requirements from a reduction in cash flows from operating activities to a reduction in
cash flows from financing activities. This reclassification was in connection with a recently issued accounting
pronouncement related to employee share-based payment accounting we early adopted effective January 1,
2016 (see “Recent Accounting Pronouncements and Guidance” below).
Consolidation and Equity Method of Accounting
We consider entities to be Variable Interest Entities (“VIEs”) when they have insufficient equity to
finance their activities without additional subordinated financial support provided by other parties, or the equity
holders as a group do not have a controlling financial interest. We consolidate VIEs when we have (i) the
power to direct the activities most significantly impacting economic performance, and (ii) either the obligation
to absorb losses or the right to receive benefits from the VIE. We have no involvement with any material VIEs.
We consolidate all other entities when we control them through voting shares or contractual rights. The entities
we consolidate, for the period in which the reference applies, are referred to collectively as the “Subsidiaries”,
and we eliminate intercompany transactions and balances.
We account for our investments in entities that we do not consolidate but have significant influence
over using the equity method of accounting. These entities, for the periods in which the reference applies, are
F-9
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
referred to collectively as the “Unconsolidated Real Estate Entities”, eliminating intra-entity profits and losses
and amortizing any differences between the cost of our investment and the underlying equity in net assets
against equity in earnings as if the Unconsolidated Real Estate Entity were a consolidated subsidiary.
When we begin consolidating an entity, we record a gain or loss representing the differential between
the book value and fair value of any preexisting equity interest. All changes in consolidation status are reflected
prospectively.
Collectively, at December 31, 2016, the Company and the Subsidiaries own 2,336 self-storage
facilities in the U.S., one self-storage facility in London, England and three commercial facilities in the U.S. At
December 31, 2016, the Unconsolidated Real Estate Entities are comprised of PSB, Shurgard Europe, as well as
limited partnerships that own an aggregate of 12 self-storage facilities in the U.S.
f
Use of Estimates
The financial statements and accompanying notes reflect our estimates and assumptions. Actual
results could differ from those estimates and assumptions.
Income Taxes
We have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended
(the “Code”). As a REIT, we do not incur federal income tax if we distribute 100% of our REIT taxable income
each year, and if we meet certain organizational and operational rules. We believe we have met these REIT
requirements for all periods presented herein. Accordingly, we have recorded no federal income tax expense
related to our REIT taxable income.
Our merchandise and tenant reinsurance operations are subject to corporate income tax and such taxes
are included in ancillary cost of operations. We also incur income and other taxes in certain states, which are
included in general and administrative expense.
We recognize tax benefits of uncertain income tax positions that are subject to audit only if we believe
it is more likely than not that the position would ultimately be sustained assuming the relevant taxing authorities
had full knowledge of the relevant facts and circumstances of our positions. As of December 31, 2016, we had
no tax benefits that were not recognized.
Real Estate Facilities
Real estate facilities are recorded at cost. We capitalize all costs incurred to acquire, develop,
construct, renovate and improve facilities, including interest and property taxes incu
rred during the construction
period and, effective October 1, 2016, the external transaction costs associated with acquisitions of real estate.
Prior to October 1, 2016, transaction costs for acquisitions were included in general and administrative expense
on our income statements in 2016, 2015, and 2014. This change was made due to a change in GAAP, which
results in real estate facility acquisitions generally being considered acquisitions of assets rather than business
combinations. We allocate the net acquisition cost of acquired real estate facilities to the underlying land,
buildings, and identified intangible assets based upon their respective individual estimated fair values.
nn
Costs associated with dispositions of real estate, as well as repairs and maintenance costs, are expensed
as incurred. We depreciate buildings and improvements on a straight-line basis over estimated useful lives
ranging generally between 5 to 25 years.
F-10
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
Other Assets
Other assets primarily consist of rents receivable from our tenants, prepaid expenses and restricted
cash.
Accrued and Other Liabilities
Accrued and other liabilities consist primarily of rents prepaid by our tenants, trade payables, property
tax accruals, accrued payroll, accrued tenant reinsurance losses, and contingent loss accruals when probable and
estimable. We believe the fair value of our accrued and other liabilities approximates book value, due to the
short period until repayment. We disclose the nature of significant unaccrued losses that are reasonably
possible of occurring and, if estimable, a range of exposure.
Cash Equivalents, Marketable Securities and Other Financial Instruments
Cash equivalents represent highly liquid financial instruments such as money market funds with daily
liquidity or short-term commercial paper or treasury securities maturing within three months of acquisition.
Cash and cash equivalents which are restricted from general corporate use are included in other assets. We
believe that the book value of all such financial instruments for all periods presented approximates fair value,
due to the short period to maturity.
Transfers of financial assets are recorded as sales when the asset is put presumptively beyond our and
our creditors’ reach, there is no impediment to the transferee’s right to pledge or exchange the asset, we have
ff
surrendered effective control of the asset, we have no actual or effective right or requirement to repurchase the
asset and, in the case of a transfer of a participating interest, there is no impediment to our right to pledge or
exchange the participating interest we retain.
Fair Value
As used herein, the term “fair value” is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. Our estimates of fair value involve
considerable judgment and are not necessarily indicative of the amounts that could be realized in current market
exchanges.
We estimate the fair value of our cash and cash equivalents, marketable securities, other assets, debt,
and other liabilities by applying a discount rate to the future cash flows of the financial instrument. The
discount rate is based upon quoted interest rates for securities that have similar char
acteristics such as credit
quality and time to maturity; such quoted interest rates are referred to generall
y as “Level 2” inputs.
uu
d
Currency and Credit Risk
Financial instruments that are exposed to credit risk consist primarily of cash and cash equivalents,
certain portions of other assets including rents receivable from our tenants and restricted cash. Cash equivalents
we invest in are either money market funds with a rating of at least AAA by Standard & Poor’s, commercial
paper that is rated A1 by Standard & Poor’s or deposits with highly rated commercial banks.
At December 31, 2016, due primarily to our investment in Shurgard Europe (Note 4) and our senior
unsecured notes denominated in Euros (Note 5), our operating results and financial position are affected by
fluctuations in currency exchange rates between the Euro, and to a lesser extent,
other European currencies,
uu
against the U.S. Dollar.
F-11
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
Goodwill and Other Intangible Assets
Intangible assets are comprised of goodwill, the “Shurgard” trade name, acquir
u
ed customers in place,
and leasehold interests in land.
Goodwill totaled $174.6 million at December 31, 2016 and 2015. The “Shurgard” trade name, which
is used by Shurgard Europe pursuant to a fee-based licensing agreement, has a book value of $18.8 million at
December 31, 2016 and 2015. Goodwill and the “Shurgard” trade name have indefinite lives and are not
amortized.
Acquired customers in place and leasehold interests in land are finite-lived and are amortized relative
to the benefit of the customers in place or the benefit to land lease expense to each period. At December 31,
2016, these intangibles had a net book value of $19.3 million ($18.0 million at December 31, 2015).
Accumulated amortization totaled $54.0 million at December 31, 2016 ($66.4 million at December 31, 2015),
and amortization expense of $21.7 million, $26.1 million and $48.4 million was recorded in 2016, 2015 and
2014, respectively. The estimated future amortization expense for our finite-lived intangible assets at
December 31, 2016 is approximately $11.2 million in 2017, $2.3 million in 2018 and $5.8 million thereafter.
During 2016, 2015 and 2014, intangibles were increased $23.0 million, $8.9 million and $30.2 million,
respectively, in connection with the acquisition of self-storage facilities (Note 3).
Evaluation of Asset Impairment
We evaluate our real estate and finite-lived intangible assets for impairment each quarter. If there are
indicators of impairment and we determine that the asset is not recoverable from future undiscounted cash flows
to be received through the asset’s remaining life (or, if earlier, the expected disposal date), we record an
impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value or net proceeds
from expected disposal.
We evaluate our investments in unconsolidated real estate entities for impairment on a quarterly basis.
We record an impairment charge to the extent the carrying amount exceeds estimated fair value, when we
believe any such shortfall is other than temporary.
We evaluate goodwill for impairment annually and whenever relevant events, circumstances and other
related factors indicate that fair value of the related reporting unit may be less than the carrying amount. If we
determine that the fair value of the reporting unit exceeds the aggregate carrying amount, no impairment charge
is recorded. Otherwise, we record an impairment charge to the extent the carrying amount of the goodwill
exceeds the amount that would be allocated to goodwill if the reporting unit were acquired for estimated fair
value.
f
We evaluate other indefinite-lived intangible assets, such as the “Shurgard” trade name for impairment
at least annually and whenever relevant events, circumstances and other related factors indicate that the fair
value is less than the carrying amount. When we conclude that it is likely that the asset is not impaired, we do
not record an impairment charge and no further analysis is performed. Otherwise, we record an impairment
charge to the extent the carrying amount exceeds the asset’s estimated fair value.
No impairments were recorded in any of our evaluations for any period presented herein.
F-12
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
Revenue and Expense Recognition
Revenues from self-storage facilities, which are primarily composed of rental income earned pursuant
to month-to-month leases, as well as associated late charges and administrative fees, are recognized as earned.
Promotional discounts reduce rental income over the promotional period, which is generally one month.
Ancillary revenues and interest and other income are recognized when earned. Equity in earnings of
unconsolidated real estate entities represents our pro-rata share of the earnings of the Unconsolidated Real
Estate Entities.
We accrue for property tax expense based upon actual amounts billed and, in some circumstances,
estimates when bills or assessments have not been received from the taxing authorities. If these estimates are
incorrect, the timing and amount of expense recognition could be incorrect. Cost of operations, general and
administrative expense, interest expense, as well as advertising expenditures are expensed as incurred.
Foreign Currency Exchange Translation
The local currency (primarily the Euro) is the functional currency for our interests in foreign
operations. The related balance sheet amounts are translated into U.S. Dollars at the exchange rates at the
respective financial statement date, while amounts on our statements of income are translated at the average
exchange rates during the respective period. When financial instruments denominated in a currency other than
the U.S. Dollar are expected to be settled in cash in the foreseeable future, the impact of changes in the
U.S. Dollar equivalent are reflected in current earnings. The Euro was translated at exchange rates of
approximately 1.052 U.S. Dollars per Euro at December 31, 2016 (1.091 at December 31, 2015), and average
exchange rates of 1.107, 1.110 and 1.329 for the years ended December 31, 2016, 2015 and 2014, respectively.
Cumulative translation adjustments, to the extent not included in cumulative net income, are included in equity
as a component of accumulated other comprehensive income (loss).
uu
Comprehensive Income
Total comprehensive income represents net income, adjusted for changes in other comprehensive
income (loss) for the applicable period. The aggregate foreign currency exchange gains and losses reflected on
our statements of comprehensive income are comprised primarily of foreign currency exchange gains and losses
on our investment in Shurgard Europe and our senior unsecured notes denominated in Euros.
Net Income per Common Share
Net income is allocated to (i) noncontrolling interests based upon their share of the net income of the
Subsidiaries, (ii) preferred shareholders, to the extent redemption cost exceeds the related original net issuance
proceeds (an “EITF D-42 allocation”), and (iii) the remaining net income allocated to each of our equity
securities based upon the dividends declared or accumulated during the period, combined with participation
rights in undistributed earnings.
Basic and diluted net income per common share are each calculated based upon net income allocable
to common shareholders presented on the face of our income statement, divided by (i) in the case of basic net
income per common share, weighted average common shares, and (ii) in the case of diluted income per share,
weighted average common shares adjusted for the impact, if dilutive, of stock options outstanding (Note 9).
The following table reconciles from basic to diluted common shares outstanding:
F-13
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
Weighted average common shares and equivalents
outstanding:
Basic weighted average common
shares outstanding
Net effect of dilutive stock options -
based on treasury stock method
Diluted weighted average common
shares outstanding
For the Years Ended December 31,
2016
2015
2014
(Amounts in thousands)
173,091
172,699
172,251
787
811
887
173,878
173,510
173,138
3. Real Estate Facilities
Activity in real estate facilities during 2016, 2015 and 2014 is as follows:
For the Years Ended December 31,
2016
2015
2014
(Amounts in thousands)
Operating facilities, at cost:
$
Beginning balance
Capital expenditures to maintain real estate facilities
Acquisitions
Dispositions
Newly developed facilities opened for operation
Impact of foreign exchange rate changes
Ending balance
13,205,261
86,047
406,154
-
268,905
$ 12,863,235
63,069
176,444
(19,970)
123,484
(3,138)
(1,001)
$ 12,286,256
79,784
400,514
(112)
98,162
(1,369)
13,963,229
13,205,261
12,863,235
Accumulated depreciation:
Beginning balance
Depreciation expense
Dispositions
Impact of foreign exchange rate changes
Ending balance
Construction in process:
Beginning balance
Current development
Newly developed facilities opened for operation
Transfer to other assets
Ending balance
Total real estate facilities at December 31,
$
(4,866,738)
(406,046)
-
1,821
(5,270,963)
(4,482,520)
(393,605)
8,886
501
(4,866,738)
(4,098,814)
(384,412)
10
696
(4,482,520)
219,190
288,154
(268,905)
(8,129)
230,310
8,922,576
$
104,573
238,101
(123,484)
-
219,190
8,557,713
52,336
150,399
(98,162)
-
104,573
8,485,288
$
During 2016, we acquired 55 self-storage facilities (4,121,000 net rentable square feet), for a total cost
of $429.1 million, consisting of $416.2 million in cash and the assumption of $12.9 million in mortgage notes.
Approximately $23.0 million of the total cost was allocated to intangible assets. We completed development
F-14
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
and redevelopment activities during 2016, adding 2,275,000 net rentable square feet of self-storage space, at an
aggregate cost of $268.9 million. Construction in process at December 31, 2016 consists of projects to develop
new self-storage facilities and redevelop existing self-storage facilities, which would add a total of 5.3 million
net rentable square feet of storage space, for an aggregate estimated cost of approximately $660.2 million.
During 2016, we also transferred $8.1 million of accumulated construction costs to other assets, with respect to
a development project that was suspended.
During 2015, we acquired 17 self-storage facilities (1,285,000 net rentable square feet) and the
leasehold interest in the land of one of our existing self-storage facilities, for a total cost of $185.4 million,
consisting of $177.1 million in cash and the assumption of $8.3 million in mortgage notes. Approximately
$8.9 million of the total cost was allocated to intangible assets. We completed expansion and development
activities during 2015, adding 1,312,000 net rentable square feet of self-storage space, at an aggregate cost of
$123.5 million. During 2015, we sold one commercial facility and two self-storage facilities in connection with
eminent domain proceedings for a total of $29.7 million in cash proceeds, of which $14.7 million was collected
in 2014, and recorded related gains on real estate sales totaling $18.5 million.
During 2014, we acquired 44 self-storage facilities (3,442,000 net rentable square feet), for a total cost
of $430.7 million, consisting of $410.2 million in cash and the assumption of $20.5 million in mortgage notes.
Approximately $30.2 million of the total cost was allocated to intangible assets. We completed expansion and
development activities during 2014, adding 1,145,000 net rentable square feet of self-storage space, at an
aggregate cost of $98.2 million. We received approximately $2.6 million in proceeds for real estate disposed of
in 2014.
At December 31, 2016, the adjusted basis of real estate facilities for federal tax purposes was
approximately $9.4 billion (unaudited).
4.
Investments in Unconsolidated Real Estate Entities
The following table sets forth our investments in, and equity in earnings of, the Unconsolidated Real
Estate Entities (amounts in thousands):
Investments in Unconsolidated Real
Estate Entities at December 31,
2016
2015
Equity in Earnings of Unconsolidated Real Estate
Entities for the Year Ended December 31,
2014
2015
2016
PSB
Shurgard Europe
Other Investments
Total
$
$
402,765
280,019
6,423
689,207
$
$
414,450
388,367
6,491
809,308
$
$
31,707
22,324
2,725
56,756
$
$
34,155
14,272
2,510
50,937
$
$
56,280
29,900
2,087
88,267
During 2016, 2015 and 2014, we received cash distributions from our investments in the
Unconsolidated Real Estate Entities totaling $151.8 million, $35.7 million and $83.5 million, respectively. For
2016, $67.4 million of the distributions received exceeded the retained earnings of the Unconsolidated Real
Estate Entities and are presented as an investing activity on our statement of cash flows. At December 31,
2016, the cost of our investment in the Unconsolidated Real Estate Entities exceeds our pro rata share of the
underlying equity by approximately $54.0 million ($62.0 million at December 31, 2015). This differential is
being amortized as a reduction in equity in earnings of the Unconsolidated Real Estate Entities based upon
allocations to the underlying net assets. Such amortization was approximately $1.8 million, $2.4 million and
$4.4 million during 2016, 2015 and 2014, respectively.
F-15
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
Investment in PSB
PSB is a REIT traded on the New York Stock Exchange. We have an approximate 42% common
equity interest in PSB as of December 31, 2016 and 2015, comprised of our ownership of 7,158,354 shares of
PSB’s common stock and 7,305,355 limited partnership units (“LP Units”) in an operating partnership
controlled by PSB. The LP Units are convertible at our option, subject to certain conditions, on a one-for-one
basis into PSB common stock. Based upon the closing price at December 31, 2016 ($116.52 per share of PSB
common stock), the shares and units we owned had a market value of approximately $1.7 billion. At
December 31, 2016, the adjusted tax basis of our investment in PSB was less than its book value.
Included in equity in earnings of unconsolidated real estate entities is our $11.3 million and
$36.5 million share of gains on sale of facilities recorded by PSB for 2015 and 2014, respectively. PSB did not
dispose of any facilities during 2016.
The following table sets forth selected financial information of PSB. The amounts represent all of
PSB’s balances and not our pro-rata share.
For the year ended December 31,
Total revenue
Costs of operations
Depreciation and amortization
General and administrative
Other items
Gain on sale of facilities
Net income
Allocations to preferred shareholders and
restricted share unitholders
Net income allocated to common shareholders
and LP Unitholders
As of December 31,
Total assets (primarily real estate)
Debt
Preferred stock called for redemption
Other liabilities
Equity:
Preferred stock
Common equity and LP units
2016
2015
(Amounts in thousands)
2014
$
387,389
(123,108)
(99,486)
(14,862)
(4,949)
-
144,984
$
373,675
(121,224)
(105,394)
(13,582)
(12,740)
28,235
148,970
376,915
(127,371)
(110,357)
(13,639)
(13,221)
92,373
204,700
(65,157)
(62,184)
(60,817)
79,827
$
86,786
$
143,883
$
2,119,371
-
230,000
78,657
2,186,658
250,000
-
76,059
$
879,750
930,964
920,000
940,599
2,227,114
250,000
-
68,905
995,000
913,209
$
$
$
F-16
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
Investment in Shurgard Europe
For all periods presented, we had a 49% equity investment in Shurgard Europe and our joint venture
partner owns the remaining 51% interest. Our equity in earnings of Shurgard Europe is comprised of our 49%
share of Shurgard Europe’s net income and 49% of the trademark license fees that Shurgard Europe pays to us
for the use of the “Shurgard” trademark, as well as certain interest income received in 2014 on a shareholder
loan described below. The remaining 51% of the license fees are classified as interest and other income on our
income statement.
m
At December 31, 2013, Shurgard Europe owed us €
311.0 million ($428.1 million). This loan bore
interest at a 9.0% annual rate, which we believed represented the market rate of interest for loans with similar
characteristics. In January 2014, our joint venture partner in Shurgard Europe acquired a 51% interest in the
loan at face value for €158.6 million ($216.2 million) in cash. In July 2014, Shurgard Europe fully repaid the
loan, and we received our 49% share of the loan totaling €152.4 million ($204.9 million) in cash. We collected
$12.2 million in interest on this loan during 2014, of which $10.7 million was reflected as equity in earnings of
Shurgard Europe, and $1.5 million was reflected as interest and other income. During 2014, we also recorded a
$7.0 million foreign currency exchange loss on the loan due to changes in foreign currency exchange rates.
t
Changes in foreign currency exchange rates caused our investment in Shurgard Europe to decrease by
approximately $24.1 million, $19.6 million and $47.3 million in 2016, 2015 and 2014, respectively. Included in
our equity in earnings of Shurgard Europe for 2016 is a $941,000 increase for the recognition of accumulated
comprehensive income, representing a decrease to equity rather than an increase to investments in
unconsolidated real estate entities.
The following table sets forth selected consolidated financial information of Shurgard Europe based
upon all of Shurgard Europe’s balances for all periods, rather than our pro rata share. Such amounts are based
upon our historical acquired book basis.
2016
2015
(Amounts in thousands)
2014
For the year ended December 31,
Self-storage and ancillary revenues
Self-storage and ancillary cost of operations
Depreciation and amortization
General and administrative
Interest expense on third party debt
Trademark license fee payable to Public Storage
Income tax expense
Interest expense on shareholder loan
Costs of acquiring facilities and other, net (a)
$
$
252,321
(97,099)
(62,829)
(13,199)
(20,617)
(2,531)
(10,669)
-
(2,348)
$
236,990
(93,575)
(66,665)
(12,619)
(16,695)
(2,376)
(10,799)
-
(7,509)
Net income
Average exchange rates of Euro to the U.S. Dollar
$
43,029
1.107
$
26,752
1.110
$
254,136
(100,177)
(61,796)
(9,565)
(9,607)
(2,544)
(5,399)
(21,761)
(6,573)
36,714
1.329
(a) Amounts during 2016 include a $1.9 million foreign exchange gain on a repaid intercompany note
between entities consolidated by Shurgard Europe, and amounts during 2016, 2015 and 2014
include $410,000, $10.5 million and $4.3 million, respectively, associated with the acquisition of
real estate facilities.
F-17
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
As of December 31,
Total assets (primarily self-storage facilities)
Total debt to third parties
Other liabilities
Equity
2016
2015
(Amounts in thousands)
2014
$
1,261,912
666,926
106,916
488,070
$
1,476,632
662,336
110,522
703,774
$
1,404,246
500,767
180,546
722,933
Exchange rate of Euro to U.S. Dollar
1.052
1.091
1.216
5. Borrowings
Credit Facility
We have a revolving credit agreement (the “Credit Facility”) with a $500 million borrowing limit,
which expires on March 31, 2020. Amounts drawn on the Credit Facility bear annual interest at rates ranging
from LIBOR plus 0.850% to LIBOR plus 1.450% depending upon the ratio of our Total Indebtedness to Gross
Asset Value (as defined in the Credit Facility) (LIBOR plus 0.850% at December 31, 2016). We are also
R
required to pay a quarterly facility fee ranging from 0.080% per annum to 0.250% per annum depending upon
the ratio of our Total Indebtedness to our Gross Asset Value (0.080% per annum at December 31, 2016). At
December 31, 2016 and February 28, 2017, we had no outstanding borrowings under this Credit Facility. We
had undrawn standby letters of credit, which reduce our borrowing capacity, totaling $15.2 million at
December 31, 2016 ($14.9 million at December 31, 2015). The Credit Facility has various customary
restrictive covenants, all of which we were in compliance with at December 31, 2016.
Senior Unsecured Notes and Term Loan
At December 31, 2016 and 2015, we had €342.0 million ($359.8 million) and €242.0 million
($263.9 million), respectively, of Euro-denominated senior unsecured notes payable to institutional investors
(collectively, the “Senior Unsecured Notes”). The Senior Unsecured Notes consists of two tranches,
(i) €242.0 million (2.175% fixed rate of interest) which was issued on November 3, 2015 for $264.3 million in
net proceeds upon converting the Euros to U.S. Dollars, which matures in November 2025 and (ii)
€100.0 million (1.54% fixed rate of interest), which was issued on April 12, 2016 for $113.6 million in net
proceeds upon converting the Euros to U.S. Dollars, which matures in April 2024. The fair value of our Senior
Unsecured Notes was approximately $381.8 million at December 31, 2016 ($263.9 million at December 31,
2015).
We reflect changes in the U.S. Dollar equivalent of the amount payable, as a result of changes in
foreign exchange rates as “foreign currency exchange gain (loss)” on our income statement (gains of
$17.6 million and $306,000 for 2016 and 2015, respectively). The Senior Unsecured Notes have various
customary financial covenants, all of which we were in compliance with at December 31, 2016.
On December 2, 2013, we borrowed $700 million from Wells Fargo under an unsecured term loan.
The term loan was repaid in 2014. We incurred origination costs of $1.9 million, which were amortized using
the effective interest method through the date of extinguishment ($1.8 million for 2014).
F-18
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
Mortgage Notes
During 2016, 2015 and 2014, we assumed mortgage notes with aggregate contractual values of
$12.9 million, $8.3 million and $19.8 million, respectively, and interest rates of 4.2%, 6.2% and 5.2%,
respectively, which approximated market rates, in connection with the acquisition of real estate facilities.
The carrying amounts of our mortgage notes (the “Mortgage Notes”) at December 31, 2016 and 2015,
totaled $30.9 million and $55.1 million, respectively, which approximates contractual note values and estimated
fair values. These notes were assumed in connection with acquisitions of real estate facilities and recorded at
fair value with any premium or discount to the stated note balance amortized using the effective interest
method. At December 31, 2016, the notes are secured by 30 real estate facilities with a net book value of
approximately $121.6 million, have contractual interest rates between 2.9% and 7.1%, and mature between
November 2018 and September 2028.
At December 31, 2016, approximate principal maturities of our Senior Unsecured Notes and Mortgage
Notes are (amounts in thousands):
2017
2018
2019
2020
2021
Thereafter
Weighted average effective rate
Senior
Unsecured Notes
Mortgage
Notes
Total
$
$
-
-
-
-
-
359,810
359,810
2.0%
$
$
1,665
11,241
1,505
1,585
1,503
13,440
30,939
4.0%
$
$
1,665
11,241
1,505
1,585
1,503
373,250
390,749
2.2%
Cash paid for interest totaled $9.4 million, $3.4 million and $9.0 million for 2016, 2015 and 2014,
respectively. Interest capitalized as real estate totaled $5.1 million, $2.7 million and $1.6 million in 2016, 2015
and 2014, respectively.
6. Noncontrolling Interests
ff
At December 31, 2016, the noncontrolling interests represent (i) third-party equity interests in
ff
subsidiaries owning 14 operating self-storage facilities and seven self
-storage facilities that are under
construction and (ii) 231,978 partnership units held by third-parties in a subsidiary that are convertible on a one-
for-one basis (subject to certain limitations) into common shares of the Company at the option of the unitholder
(collectively, the “Noncontrolling Interests”). At December 31, 2016, the Noncontrolling Interests cannot
require us to redeem their interests, other than pursuant to a liquidation of the subsidiary. During 2016, 2015
and 2014, we allocated a total of $6.9 million, $6.4 million and $5.8 million, respectively, of income to these
interests; and we paid $7.6 million, $7.3 million and $6.5 million, respectively, in distributions to these
interests.
During 2015 and 2014, we acquired Noncontrolling Interests for $5.5 million and $721,000,
respectively, in cash, substantially all of which was allocated to Paid-in-capital. During 2016 and 2015,
Noncontrolling Interests contributed $3.5 million and $1.6 million, respectively.
F-19
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
7. Shareholders’ Equity
Preferred Shares
At December 31, 2016 and 2015, we had the following series of Cumulative Preferred Shares
(“Preferred Shares”) outstanding:
Series
Earliest
Redemption
Dividend
Rate
At December 31, 2016
Shares
Outstanding
At December 31, 2015
Shares
Liquidation
Preference
Outstanding
(Dollar amounts in thousands)
Liquidation
Preference
Series Q
Series R
Series S
Series T
Series U
Series V
Series W
Series X
Series Y
Series Z
Series A
Series B
Series C
Series D
Series E
4/14/2016
7/26/2016
1/12/2017
3/13/2017
6/15/2017
9/20/2017
1/16/2018
3/13/2018
3/17/2019
6/4/2019
12/2/2019
1/20/2021
5/17/2021
7/20/2021
10/14/2021
6.500%
6.350%
5.900%
5.750%
5.625%
5.375%
5.200%
5.200%
6.375%
6.000%
5.875%
5.400%
5.125%
4.950%
4.900%
$
-
-
18,400
18,500
11,500
19,800
20,000
9,000
11,400
11,500
7,600
12,000
8,000
13,000
14,000
-
-
460,000
462,500
287,500
495,000
500,000
225,000
285,000
287,500
190,000
300,000
200,000
325,000
350,000
15,000 $
375,000
19,500
18,400
18,500
11,500
19,800
20,000
9,000
11,400
11,500
7,600
-
-
-
-
487,500
460,000
462,500
287,500
495,000
500,000
225,000
285,000
287,500
190,000
-
-
-
-
Total Preferred Shares
174,700
$
4,367,500
162,200
$
4,055,000
preference rights with respect to liquidation,
quarterly distributions and any accumulated unpaid distributions. Except under certain conditions and as noted
below, holders of the Preferred Shares will not be entitled to vote on most matters. In the event of a cumulative
arrearage equal to six quarterly dividends, holders of all outstanding series of preferred shares (voting as a
single class without regard to series) will have the right to elect two additional members to serve on our board
of trustees (the “Board”) until the arrearage has been cured. At December 31, 2016, there were no dividends in
arrears.
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Except under certain conditions relating to the Company’s qualification as a REIT, the Preferred
Shares are not redeemable prior to the dates indicated on the table above. On or after the respective dates, each
of the series of Preferred Shares is redeemable at our option, in whole or in part, at $25.00 per depositary share,
plus accrued and unpaid dividends. Holders of the Preferred Shares cannot require us to redeem such shares.
y
Upon issuance of our Preferred Shares, we classify the liquidation value as preferred equity on our
balance sheet with any issuance costs recorded as a reduction to Paid-in capital.
F-20
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
In 2016, we redeemed our Series Q and Series R Preferred Shares at par, for a total of $862.5 million
in cash, before payment of accrued dividends.
In 2016, we issued an aggregate 47.0 million depositary shares, each representing 1/1,000 of a share of
our Series B, Series C, Series D and Series E Preferred Shares, at an issuance price of $25.00 per depositary
r
share, for a total of $1,175.0 million in gross proceeds, and we incurred $38.8 million in issuance costs.
ff
In 2015, we redeemed our Series O and Series P Preferred Shares at par, for a total of $270.0 million in
cash, before payment of accrued dividends.
In 2014, we issued an aggregate 30.5 million depositary shares, each representing 1/1,000 of a share of
our Series Y, Series Z, and Series A Preferred Shares, at an issuance price of $25.00 per depositary share, for a
total of $762.5 million in gross proceeds, and we incurred $23.5 million in issuance costs.
In 2016 and 2015, we recorded $26.9 million $8.9 million, respectively, in EITF D-42 allocations of
income from our common shareholders to the holders of our Preferred Shares in connection with redemptions of
Preferred Shares.
Common Shares
During 2016, 2015 and 2014, activity with respect to the issuance or repurchase of our common shares
was as follows (dollar amounts in thousands):
Employee stock-based compensation and
exercise of stock options (Note 9)
367,546 $
25,541
475,687 $
29,663
669,263 $
37,872
2016
2015
2014
Shares
Amount
Shares
Amount
Shares
Amount
Our Board previously authorized the repurchase from time to time of up to 35.0 million of our
common shares on the open market or in privately negotiated transactions. Through December 31, 2016, we
repurchased approximately 23.7 million shares pursuant to this authorization; none of which were repurchased
during the three years ended December 31, 2016.
At December 31, 2016 and 2015, we had 2,692,081 and 2,677,667, respectively, of common shares
reserved in connection with our share-based incentive plans (see Note 9), and 231,978 shares reserved for the
conversion of partnership units owned by Noncontrolling Interests.
The unaudited characterization of dividends for Federal income tax purposes is made based upon
earnings and profits of the Company, as defined by the Internal Revenue Code. Common share dividends
including amounts paid to our common shareholders and our restricted share unitholders totaled $1.268 billion
($7.30 per share), $1.126 billion ($6.50 per share) and $967.9 million ($5.60 per share), for the years ended
December 31, 2016, 2015 and 2014, respectively. Preferred share dividends totaled $238.2 million,
$245.1 million and $232.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.
For the tax year ended December 31, 2016, 100% of the distributions for the common shares and all
the various series of preferred shares were classified as ordinary income. Such dividends do not constitute
“qualified dividend income”.
F-21
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
8. Related Party Transactions
B. Wayne Hughes, our former Chairman and his family, including his daughter Tamara Hughes
Gustavson and his son B. Wayne Hughes, Jr., who are both members of our Board, collectively own
approximately 14.3% of our common shares outstanding at December 31, 2016.
At December 31, 2016, B. Wayne Hughes and Tamara Hughes Gustavson together owned and
controlled 57 self-storage facilities in Canada. These facilities operate under the “Public Storage” tradename,
which we license to the owners of these facilities for use in Canada on a royalty-free, non-exclusive basis. Our
subsidiaries reinsure risks relating to loss of goods stored by customers in these facilities, and have received
approximately $848,000, $562,000 and $480,000 for the years ended December 31, 2016, 2015 and 2014,
respectively. Our right to continue receiving these premiums may be qualified. We have no ownership interest
we chose to acquire or develop our
r
in these facilities and we do not own or operate any facilities in Canada. If
own facilities in Canada, we would have to share the use of the “Public Storage” name in Canada with the
facilities’ owners. We have a right of first refusal, subject to limitations, to acquire the stock or assets of the
corporation engaged in the operation of these facilities (“PS Canada”) if their owners agree to sell them.
9. Share-Based Compensation
Under various share-based compensation plans and under terms established by our Board or a
committee thereof, we grant non-qualified options to purchase the Company’s common shares, as well as
restricted share units (“RSUs”), to trustees, officers, and key employees.
Stock options and RSUs are considered “granted” and “outstanding” as the terms are used herein,
when (i) the Company and the recipient reach a mutual understanding of the key terms of the award, (ii) the
award has been authorized, (iii) the recipient is affected by changes in the market price of our stock, and (iv) it
is probable that any performance and service conditions will be met.
As noted under “Recent Accounting Pronouncements and Guidance” in Note 11, we have elected to
account for forfeitures of share-based payments as they occur, rather than estimating them in advance.
Accordingly, we recorded a cumulative-effect adjustment of $789,000 to increase accumulated deficit and
increase paid-in capital as of January 1, 2016, representing the impact of estimated forfeitures on our
cumulative share-based compensation expense recorded through December 31, 2015.
We amortize the grant-date fair value of awards as compensation expense over the service period,
which begins on the grant date and ends on the vesting date. For awards that are earned solely upon the passage
of time and continued service, the entire cost of the award is amortized on a straight-line basis over the service
period. For awards with performance conditions, the individual cost of each vesting is amortized separately
t
over each individual service period (the “accelerated attribution” method).
See also “net income per common share” in Note 2 for further discussion regarding the impact of
RSUs and stock options on our net income per common share and income allocated to common shareholders.
Stock Options
Stock options vest over a three to five-year period, expire ten years after the grant date, and the
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exercise price is equal to the closing trading price of our common shares on the grant date. Employees cannot
require the Company to settle their award in cash. We use the Black-Scholes option valuation model to
estimate the fair value of our stock options.
F-22
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
Outstanding stock option grants are included on a one-for-one basis in our diluted weighted average
shares, to the extent dilutive, after applying the treasury stock method (based upon the average common share
price during the period) to assumed exercise proceeds and measured but unrecognized compensation.
The stock options outstanding at December 31, 2016 have an aggregate intrinsic value (the excess, if
any, of each option’s market value over the exercise price) of approximately $150.0 million and remaining
average contractual lives of approximately six years. The aggregate intrinsic value of exercisable stock options
at December 31, 2016 amounted to approximately $126.8 million. Approximately 360,000 of the stock options
outstanding at December 31, 2016, have an exercise price of more than $200. We have 429,556 stock options
exercisable at December 31, 2016, that expire through June 30, 2018, with an average exercise price per share
of $82.39.
Additional information with respect to stock options during 2016, 2015 and 2014 is as follows:
2016
2015
2014
Weighted
Average
Exercise
Price
per Share
Number
of
Options
Weighted
Average
Exercise
Price
per Share
Number
of
Options
Weighted
Average
Exercise
Price
per Share
Number
of
Options
1,940,279 $
310,000
(254,839)
-
130.08
239.11
100.23
-
2,085,544 $
335,000
(365,265)
(115,000)
111.96
200.70
80.99
163.15
2,174,211 $
485,000
(570,417)
(3,250)
85.49
176.74
66.39
63.76
Options outstanding January 1,
Granted
Exercised
Cancelled
Options outstanding December 31,
1,995,440 $
150.83
1,940,279 $
130.08
2,085,544 $
111.96
1,105,433 $
108.84
1,150,272 $
94.18
1,321,537 $
82.46
2016
2015
2014
Stock option expense for the year (in 000's)
$
5,180 $
3,871 $
3,216
Aggregate exercise date intrinsic value of options exercised during the year (in 000's) $
33,228 $
46,719 $
59,322
Average assumptions used in valuing options with the Black-Scholes method:
Expected life of options in years, based upon historical experience
Risk-free interest rate
Expected volatility, based upon historical volatility
Expected dividend yield
5
1.2%
17.9%
2.9%
5
1.6%
15.1%
2.9%
5
1.6%
16.8%
3.2%
Average estimated value of options granted during the year
$
26.18 $
18.39 $
17.66
Restricted Share Units
RSUs generally vest ratably over a five to eight-year period from the grant date. The grantee receives
dividends for each outstanding RSU equal to the per-share dividends received by our common shareholders.
We expense any dividends previously paid upon forfeiture of the related RSU. Upon vesting, the grantee
F-23
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
receives common shares equal to the number of vested RSUs, less common shares withheld in exchange for tax
deposits made by the Company to satisfy the grantee’s statutory tax liabilities arising from the vesting.
The fair value of our RSUs is determined based upon the applicable closing trading price of our
common shares.
The fair value of our RSUs outstanding at December 31, 2016 was approximately $136.9 million.
uu
Remaining compensation expense related to RSUs outstanding at December 31, 2016 totals approximately
$98.7 million and is expected to be recognized as compensation expense over the next 2.5 years on average.
The following tables set forth relevant information with respect to restricted shares (dollar amounts in
thousands):
2016
2015
2014
Number of
Restricted
Share Units
Grant Date
Aggregate
Fair Value
Number of
Restricted
Share Units
Grant Date
Aggregate
Fair Value
Number of
Restricted
Share Units
Grant Date
Aggregate
Fair Value
737,388 $
171,144
(180,050)
(31,841)
129,284
40,263
(26,689)
(5,953)
751,048 $
252,376
(187,342)
(78,694)
110,874
55,307
(24,752)
(12,145)
636,329 $
339,607
(166,905)
(57,983)
77,284
59,009
(18,456)
(6,963)
696,641 $
136,905
737,388 $
129,284
751,048 $
110,874
Restricted share units outstanding
January 1,
Granted
Vested
Forfeited
Restricted share units outstanding
December 31,
Amounts for the year (in 000's, except number of shares):
Fair value of vested shares on vesting date
Cash paid upon vesting in lieu of issuing common shares
Common shares issued upon vesting
Restricted share unit expense (a)
2016
2015
2014
$
$
$
41,400 $
15,357 $
112,707
32,303 $
38,182 $
15,678 $
110,422
28,699 $
27,591
11,449
98,846
26,325
(a) Amounts for 2016, 2015 and 2014 include approximately $1.4 million, $1.1 million and
$1.2 million, respectively, in employer taxes incurred upon vesting.
10. Segment Information
Our reportable segments reflect the significant components of our operations where discrete financial
information is evaluated separately by our chief operating decision maker (“CODM”). We organize our
segments based primarily upon the nature of the underlying products and services, as well as the drivers of
profitability growth. The net income for each reportable segment included in the tables below are in conformity
with GAAP and our significant accounting policies as denoted in Note 2. The amounts not attributable to
reportable segments are aggregated under “other items not allocated to segments.”
Following is a description of and basis for presentation for each of our reportable segments.
Self-Storage Operations
The Self-Storage Operations segment reflects the rental operations from all self-storage facilities
owned by the Company and the Subsidiaries. Our CODM reviews the net operating income (“NOI”) of this
F-24
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
segment, which represents the related revenues less cost of operations (prior to depreciation expense), in
assessing performance and making resource allocation decisions. The presentation in the tables below sets forth
the NOI of this segment, as well as the depreciation expense for this segment, which while reviewed by our
CODM and included in net income, is not considered by the CODM in assessing performance and decision
making. For all periods presented, substantially all of our real estate facilities, goodwill and other intangible
assets, other assets, and accrued and other liabilities are associated with the Self-Storage Operations segment.
Ancillary Operations
The Ancillary Operations segment reflects the sale of merchandise and reinsurance of policies against
losses to goods stored by our self-storage tenants, activities which are incidental to our primary self-storage
rental activities. Our CODM reviews the NOI of these operations in assessing performance and making
resource allocation decisions.
f
Investment in PSB
This segment represents our 42% equity interest in PSB, a publicly-traded REIT that owns, operates,
acquires and develops commercial properties, primarily multi-tenant flex, office, and industrial space. PSB has
a separate management team that makes its financing, capital allocation, and other significant decisions. In
making resource allocation decisions with respect to our investment in PSB, the CODM reviews PSB’s net
income, which is detailed in PSB’s periodic filings with the United States Securities and Exchange Commission
(“SEC”), and as included in Note 4. The segment presentation in the tables below includes our equity earnings
from PSB.
ff
Investment in Shurgard Europe
This segment represents our 49% equity interest in Shurgard Europe, which owns and operates self-
storage facilities located in seven countries in Western Europe. Shurgard Europe has a separate management
team reporting to our CODM and our joint venture partner. In making resource allocation decisions with
respect to our investment in Shurgard Europe, the CODM reviews Shurgard Europe’s net income, which is
detailed in Note 4. The segment presentation below includes our equity earnings from Shurgard Europe.
Presentation of Segment Information
The following tables reconcile NOI (as applicable) and net income of each segment to our consolidated
net income (amounts in thousands):
F-25
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
For the year ended December 31, 2016
Self-ff Storage
Operations
Ancillary
Operations
Investment
in
Investment
Shurgard
in PSB
Europe
(Amounts in thousands)
Other Items
Not
Allocated to
Segments
Total
Revenues:
Self-storage operations
$ 2,405,828
$
- $
- $
- $
- $ 2,405,828
Ancillary operations
Cost of operations:
Self-storage operations
Ancillary operations
Net operating income:
Self-storage operations
Ancillary operations
-
154,721
2,405,828
154,721
617,905
-
617,905
-
51,178
51,178
1,787,923
-
-
103,543
1,787,923
103,543
Other components of net income (loss):
Depreciation and amortization
(433,314)
General and administrative
Interest and other income
Interest expense
Equity in earnings of
unconsolidated real estate entities
Foreign currency exchange gain
Gain on real estate investment sales
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
154,721
2,560,549
617,905
51,178
669,083
1,787,923
103,543
1,891,466
(433,314)
(83,656)
(83,656)
15,138
(4,210)
15,138
(4,210)
31,707
22,324
-
-
-
-
2,725
17,570
689
56,756
17,570
689
Net income (loss)
$ 1,354,609
$ 103,543 $
31,707 $
22,324 $
(51,744) $ 1,460,439
F-26
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
For the year ended December 31, 2015
Self-ff Storage
Operations
Ancillary
Operations
Investment
in
Investment
Shurgard
in PSB
Europe
(Amounts in thousands)
Other Items
Not
Allocated to
Segments
Total
Revenues:
Self-storage operations
$ 2,235,525
$
- $
- $
- $
- $ 2,235,525
Ancillary operations
-
2,235,525
146,171
146,171
Cost of operations:
Self-storage operations
Ancillary operations
Net operating income:
Self-storage operations
Ancillary operations
586,696
-
586,696
-
48,806
48,806
1,648,829
-
1,648,829
-
97,365
97,365
Other components of net income (loss):
Depreciation and amortization
(426,008)
General and administrative
Interest and other income
Interest expense
Equity in earnings of
unconsolidated real estate entities
Foreign currency exchange gain
Gain on real estate investment sales
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
146,171
2,381,696
586,696
48,806
635,502
1,648,829
97,365
1,746,194
(426,008)
(88,177)
(88,177)
16,544
16,544
(610)
(610)
34,155
14,272
-
-
-
-
2,510
306
50,937
306
18,503
18,503
Net income (loss)
$ 1,222,821
$
97,365 $
34,155 $
14,272 $
(50,924) $ 1,317,689
F-27
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
Year ended December 31, 2014
Self-ff Storage
Operations
Ancillary
Operations
Investment
in
Investment
Shurgard
in PSB
Europe
(Amounts in thousands)
Other Items
Not
Allocated to
Segments
Total
Revenues:
Self-storage operations
$ 2,049,882
$
- $
- $
- $
- $ 2,049,882
Ancillary operations
Cost of operations:
Self-storage operations
Ancillary operations
Net operating income:
Self-storage operations
Ancillary operations
-
127,414
2,049,882
127,414
566,898
-
566,898
-
46,426
46,426
1,482,984
-
1,482,984
-
80,988
80,988
Other components of net income (loss):
Depreciation and amortization
(437,114)
General and administrative
Interest and other income
Interest expense
Equity in earnings of
unconsolidated real estate entities
Foreign currency exchange loss
Gain on real estate investment sales
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
127,414
2,177,296
566,898
46,426
613,324
1,482,984
80,988
1,563,972
(437,114)
(71,459)
(71,459)
17,638
(6,781)
17,638
(6,781)
56,280
29,900
-
-
-
-
2,087
(7,047)
2,479
88,267
(7,047)
2,479
Net income (loss)
$ 1,045,870
$
80,988 $
56,280 $
29,900 $
(63,083) $ 1,149,955
11. Recent Accounting Pronouncements and Guidance
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from
Contracts with Customers, which requires revenue to be based upon the consideration expected from customers
for promised goods or services. The new standard, effective on January 1, 2018, permits either the retrospective
or cumulative effects transition method and allows for early adoption on January 1, 2017. We do not believe
this standard will have a material impact on our results of operations or financial condition, primarily because
most of our revenue is from rental revenue, which this standard does not cover and because we do not provide
any material associated services to our tenants.
n
F-28
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
In August, 2014, the FASB issued new accounting guidance, which defines management’s
responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a
going concern. This guidance is effective for annual periods ending after December 15, 2016 and interim
periods within annual periods beginning after December 15, 2016. The Company adopted the new guidance
during the fourth quarter of 2016 and the adoption did not require any disclosures about the Company’s ability
to continue as a going concern.
In February 2015, the FASB issued ASU 2015-02, Consolidation – Amendments to the Consolidation
Analysis, which modifies the criteria surrounding the consolidation of VIEs and partnerships. We adopted this
standard effective January 1, 2016, which did not change the consolidation status of any entities in which we
have an interest or significant involvement in; however, certain entities began to be considered VIE’s as a result
of the change.
–
In February 2016, the FASB issued ASU 2016-02, Leases, which amends the existing accounting
standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and
making targeted changes to lessor accounting. The new standard, effective on January 1, 2019, requires a
modified retrospective transition approach for all leases existing at, or entered into after, the date of initial
application, with an option to use certain transition relief and allows for early adoption on January 1, 2016. We
do not believe this standard will have a material impact on our results of operations or financial condition,
because substantially all of our lease revenues are derived from month-to-month self-storage leases, and we do
not have material amounts of lease expense.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment
Accounting. We early adopted this standard effective January 1, 2016. Under this standard, a share-based
compensation-related tax liability paid on behalf of employees in lieu of shares received is classified as a
financing activity on the statement of cash flows, rather than as an operating activity as we had previously
presented such amounts. We applied this provision retrospectively. The standard also allows a company to
choose, with respect to recording share-based expense, between (i) recognizing forfeitures only as they occur or
(ii) estimating future forfeitures in advance. We chose to recognize forfeitures only as they occur, rather than
estimating in advance, accordingly, effective January 1, 2016, under the modified retrospective transition
method as required by the standard, we recorded a cumulative-effect adjustment of $789,000 to increase
accumulated deficit and increase paid-in capital for the impact of estimated future forfeitures after
December 31, 2015 (Note 9).
12. Commitments and Contingencies
Contingent Losses
We are a party to various legal proceedings and subject to various claims and complaints; however, we
believe that the likelihood of these contingencies resulting in a material loss to the Company, either individually
or in the aggregate, is remote.
Insurance and Loss Exposure
We have historically carried property, earthquake, general liability, employee medical insurance and
workers compensation coverage through internationally recognized insurance carriers, subject to deductibles.
Deductibles for property and general liability are $25.0 million and $2.0 million, respectively, per occurrence.
The aggregate limits on these policies of $75.0 million for property losses and $102.0 million for general
liability losses are higher than estimates of maximum probable losses that could occur from individual
F-29
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
catastrophic events determined in recent engineering and actuarial studies; however, in case of multiple
catastrophic events, these limits could be exceeded.
We reinsure a program that provides insurance to our customers from an independent third-party
insurer. This program covers tenant claims for losses to goods stored at our facilities as a result of specific
named perils (earthquakes are not covered by this program), up to a maximum limit of $5,000 per storage unit.
We reinsure all risks in this program. We are subject to licensing requirements and regulations in several states.
At December 31, 2016, there were approximately 894,000 certificates held by our self-storage customers,
representing aggregate coverage of approximately $2.7 billion.
13. Supplementary Quarterly Financial Data (unaudited)
Self-storage and ancillary revenues
Self-storage and ancillary cost of operations
Depreciation and amortization
Net Income
Per Common Share
Net income - Basic
Net income - Diluted
Self-storage and ancillary revenues
Self-storage and ancillary cost of operations
Depreciation and amortization
Net Income
Per Common Share
Net income - Basic
Net income - Diluted
Three Months Ended
March 31,
2016
June 30,
2016
September 30, December 31,
2016
2016
(Amounts in thousands, except per share data)
611,786
173,286
105,128
317,349
1.40
1.39
$
$
$
$
$
$
634,188
172,004
107,013
358,359
1.62
1.61
$
$
$
$
$
$
663,148
178,627
109,432
369,050
1.78
1.78
$
$
$
$
$
$
651,427
145,166
111,741
415,681
2.04
2.03
Three Months Ended
March 31,
2015
June 30,
2015
September 30, December 31,
2015
2015
(Amounts in thousands, except per share data)
564,879
172,010
107,146
283,254
1.23
1.23
$
$
$
$
$
$
588,615
161,097
106,473
328,040
1.53
1.52
$
$
$
$
$
$
618,872
164,686
106,082
341,136
1.58
1.58
$
$
$
$
$
$
609,330
137,709
106,307
365,259
1.75
1.74
$
$
$
$
$
$
$
$
$
$
$
$
F-30
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
14. Subsequent Events
Subsequent to December 31, 2016, we acquired or were under contract to acquire five self-storage
facilities (two in Ohio and one each in Minnesota, New York and North Carolina), with 275,000 net rentable
square feet, for $26.4 million.
F-31
PUBLIC STORAGE
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
Description
No. of
Facilities
2016
Encum-
brances
Initial Cost
Land
Buildings &
Improvements
Costs
Subsequent
to Acquisition
Gross Carrying Amount
At December 31, 2016
Buildings
Total
Land
Accumulated
Depreciation
Self-storage facilities by market:
Los Angeles
San Francisco
New York
Washington DC
Miami
Seattle/Tacoma
Chicago
Houston
Atlanta
Dallas/Ft. Worth
Orlando/Daytona
West Palm Beach
Charlotte
Minneapolis/St. Paul
Denver
Tampa
Philadelphia
Boston
Phoenix
Detroit
Portland
Austin
San Diego
Honolulu
Raleigh
Norfolk
San Antonio
Baltimore
Sacramento
St. Louis
Indianapolis
216
137
90
90
88
90
130
112
101
110
72
44
53
45
55
51
57
25
39
41
43
31
20
11
25
28
28
23
34
26
22
611
-
-
-
-
-
-
-
-
-
12,714
-
-
5,438
10,354
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
463,462
227,468
216,305
226,934
210,096
177,451
137,165
152,174
122,880
133,401
140,411
151,323
75,968
81,895
82,240
80,486
51,682
61,583
59,267
62,990
51,182
51,150
47,884
54,184
41,377
33,316
27,566
25,176
25,141
20,037
21,064
259,362
157,104
144,862
103,971
80,465
87,630
103,618
104,841
58,946
87,129
50,872
23,264
48,875
19,740
43,445
40,545
50,486
19,294
16,411
20,347
23,813
35,129
26,871
9,736
16,598
15,461
23,876
15,689
25,667
19,785
11,495
472,090
240,218
222,615
232,128
211,980
178,106
140,047
151,949
123,242
134,272
145,892
150,327
84,195
82,060
82,803
83,258
50,703
62,217
59,259
63,840
51,840
53,173
49,395
55,101
42,502
32,755
27,524
25,300
25,646
20,680
22,064
1,120,783
644,761
627,219
501,265
514,513
530,470
453,331
446,479
386,559
417,894
298,766
231,648
227,247
197,108
197,504
203,412
203,871
177,530
178,924
178,958
149,619
148,747
134,271
115,118
97,294
97,289
99,946
95,299
94,571
75,379
68,150
1,592,873
884,979
849,834
733,393
726,493
708,576
593,378
598,428
509,801
552,166
444,658
381,975
311,442
279,168
280,307
286,670
254,574
239,747
238,183
242,798
201,459
201,920
183,666
170,219
139,796
130,044
127,470
120,599
120,217
96,059
90,214
585,457
365,824
329,626
245,447
234,906
257,515
300,655
221,091
208,790
220,409
118,792
89,845
87,541
85,704
112,437
95,802
138,918
70,011
77,396
86,716
82,757
66,173
68,794
51,054
44,190
49,461
55,516
58,842
64,386
55,021
37,899
870,049
500,407
488,667
402,488
435,932
443,495
352,595
341,413
327,975
331,636
253,375
207,388
186,599
177,533
154,622
165,639
152,406
158,870
162,505
159,461
126,464
115,641
108,911
106,299
81,821
81,267
76,028
79,734
69,409
56,237
57,655
F-32
Description
Kansas City
Las Vegas
Columbia
Savannah
Greensboro
Fort Myers/Naples
Milwaukee
Charleston
Jacksonville
Hartford/New Haven
Columbus
New Orleans
Richmond
Tucson
Colorado Springs
Nashville/Bowling Green
Memphis
Greensville/Spartanburg/Asheville
Monterey/Salinas
Birmingham
Cincinnati
Reno
Palm Springs
Buffalo/Rochester
Mobile
London, UK
Salt Lake City
Oklahoma City
Santa Barbara
Cleveland/Akron
Chattanooga
Wichita
PUBLIC STORAGE
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
No. of
Facilities
2016
Encum-
brances
Initial Cost
Land
Buildings &
Improvements
Costs
Subsequent
to Acquisition
Gross Carrying Amount
At December 31, 2016
Buildings
Total
Land
Accumulated
Depreciation
24
18
20
12
13
9
15
10
14
11
22
9
10
7
12
14
9
11
7
14
14
7
3
8
8
1
8
21
2
6
10
7
-
-
-
-
-
-
1,822
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,225
17,879
16,167
33,094
12,737
15,373
13,189
10,849
11,252
6,778
25,341
9,205
13,248
9,403
8,229
10,405
7,962
9,036
8,465
5,229
13,178
5,487
8,309
6,159
4,148
5,730
7,846
32,708
5,733
3,778
6,569
2,017
43,732
44,357
44,429
42,465
29,811
35,353
32,071
31,144
27,714
19,959
64,746
30,832
23,253
25,491
19,659
24,175
21,981
20,767
24,151
17,835
25,988
18,704
18,065
14,850
14,152
14,278
15,947
65,664
9,106
13,928
26,045
6,691
F-33
23,593
8,926
10,243
2,521
12,384
4,062
8,904
6,490
9,451
20,244
21,209
4,823
3,717
5,178
11,634
8,952
8,183
8,390
3,567
12,645
15,201
3,486
877
2,594
3,760
(3,579)
3,554
9,246
292
4,009
6,016
6,186
14,425
17,128
16,915
32,738
14,826
15,608
13,158
11,825
11,301
8,443
25,447
9,373
13,053
9,884
8,225
10,402
9,315
9,965
8,455
5,117
13,096
5,487
8,309
6,157
3,975
3,172
7,495
32,708
5,733
4,171
6,371
2,130
67,125
54,034
53,924
45,342
40,106
39,180
41,006
36,658
37,116
38,538
85,849
35,487
27,165
30,188
31,297
33,130
28,811
28,228
27,728
30,592
41,271
22,190
18,942
17,446
18,085
13,257
19,852
74,910
9,398
17,544
32,259
12,764
81,550
71,162
70,839
78,080
54,932
54,788
54,164
48,483
48,417
46,981
111,296
44,860
40,218
40,072
39,522
43,532
38,126
38,193
36,183
35,709
54,367
27,677
27,251
23,603
22,060
16,429
27,347
107,618
15,131
21,715
38,630
14,894
52,021
41,216
25,408
9,720
21,399
11,757
26,342
15,725
27,288
26,879
35,674
21,009
14,260
15,679
24,953
22,890
16,253
16,379
17,306
25,718
24,507
9,674
7,861
11,147
10,381
10,348
11,524
13,736
4,338
8,983
10,720
10,500
Description
Providence
Louisville
Augusta
Dayton
Huntsville/Decatur
Fort Wayne
Springfield/Holyoke
Shreveport
Rochester
Lansing
Flint
Evansville
Topeka
Roanoke
Syracuse
Omaha
Joplin
Modesto/Fresno/Stockton
Commercial and non-operating real estate
PUBLIC STORAGE
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
No. of
Facilities
2016
Encum-
brances
Initial Cost
Land
Buildings &
Improvements
Costs
Subsequent
to Acquisition
Gross Carrying Amount
At December 31, 2016
Buildings
Total
Land
Accumulated
Depreciation
3
10
4
3
3
3
2
2
2
2
1
2
2
1
1
1
1
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
995
15,578
1,793
394
1,024
349
1,428
817
1,047
556
543
899
225
819
545
109
264
44
11,206
28,069
5,990
3,014
3,321
3,594
3,380
3,030
2,246
2,882
3,068
2,096
1,419
1,776
1,279
806
904
206
2,399
3,442
2,116
4,241
2,914
2,999
1,251
2,054
1,456
615
169
798
1,669
560
690
1,386
841
746
995
15,577
1,793
393
971
349
1,427
741
980
556
542
871
225
819
545
109
264
193
13,605
31,512
8,106
7,256
6,288
6,593
4,632
5,160
3,769
3,497
3,238
2,922
3,088
2,336
1,969
2,192
1,745
803
14,600
47,089
9,899
7,649
7,259
6,942
6,059
5,901
4,749
4,053
3,780
3,793
3,313
3,155
2,514
2,301
2,009
996
4,730
7,247
4,928
5,825
5,659
5,644
3,925
4,035
3,408
1,702
1,440
2,372
2,686
1,960
1,724
1,730
1,432
583
11,517
26,939
23,777
12,541
49,692
62,233
41,363
$30,939
$3,711,932
$8,205,089
$2,046,208
$3,781,479
$10,181,750
$13,963,229
$5,270,963
Note: Buildings and improvements are depreciated on a straight-line basis over estimated useful lives ranging generally
between 5 to 25 years.
F-34
PUBLIC STORAGE
2016 EQUITY AND PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN
STOCK UNIT AGREEMENT
Exhibit 10.15
__
THIS STOCK UNIT AGREEMENT (the “Agreement”) is made as of the ____ day of _________,
201__, (the “Grant Date”), by and between Public Storag
e (the “Trust”), and __________________ (the “Grantee”).
Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Trust’s 2016 Equity
and Performance-Based Incentive Compensation Plan (as amended from time to time, the “Plan”).
WHEREAS, the Board of Trustees of the Trust has duly adopted, and the shareholders of the Trust have
duly approved, the Plan, which provides for the grant to Service Providers of Stock Units relating to common shares
of beneficial ownership of the Trust, par value $.10 per share (the “Stock”), which may be granted from time to time
as the Committee so determines; and
WHEREAS, the Trust has determined that it is desirable and in its best interests to grant to the Grantee,
pursuant to the Plan, Stock Units relating to a certain number of shares of Stock as compensation for services
rendered to the Trust, and/or in order to provide the Grantee with an incentive to advance the interests of the Trust,
all according to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual benefits hereinafter provided, and each intending to
be legally bound, the Trust and the Grantee hereby agree as follows:
1. GRANT OF STOCK UNITS.
Subject to the terms of the Plan (the terms of which are incorporated by reference herein), the Trust hereby
grants to the Grantee ________ Stock Units, on the terms a
________
nd subject to the conditions hereinafter set forth.
2. VESTING OF STOCK UNITS.
2.1. Service Requirement.
Rights in respect of [ ]% of the number of Stock Units specified in Section 1 above shall vest on each of
the first [ ] anniversary[ies] of the Grant Date [or insert vesting schedule], provided that the Grantee is in Service
on the applicable vesting date. The period during which the Stock Units have not vested and therefore are subject to
a substantial risk of forfeiture is referred to below as the “Restricted Period.”
2.2. Restrictions on Transfer.
The Grantee may not sell, transfer, assign, pledge or otherwise encumber or dispose of the Stock Units.
2.3. Delivery of Shares.
When a portion of the Stock Units shall vest pursuant to Section 2.1, the Trust shall deliver to the Grantee a
certificate or electronic confirmation of ownership, as applicable, for the number of shares of Stock represented by
f
the Stock Units which have vested. Upon the issuance of the shares, Grantee’s payment of the aggregate par value
of the shares delivered to Grantee will be deemed paid by Grantee’s past services to the Trust or its Affiliates.
3. TERMINATION OF SERVICE.
Upon the termination of the Grantee’s Service other than by reason of death or Disability, any Stock Units
held by the Grantee that have not vested shall terminate immediately, and the Grantee shall forfeit any rights with
respect to such Stock Units. If the Grantee’s Service is terminated because of his or her death or Disability, all
1
Stock Units granted to the Grantee pursuant to this Agreement that have not previously vested shall immediately be
vested.
4. DIVIDEND AND VOTING RIGHTS.
The Grantee shall have none of the rights of a shareholder with respect to the Stock Units. Notwithstanding
the foregoing, the Grantee shall be entitled to receive, upon the Trust’s payment of a cash dividend on its
outstanding shares of Stock, a cash payment for each Stock Unit held as of the record date for such dividend equal to
the per-share dividend paid on the shares of Stock, which cash payment shall be made at the same time as the
Trust’s payment of a cash dividend on its outstanding shares of Stock.
5. WITHHOLDING OF TAXES.
The Trust and any Affiliates shall have the right to deduct from payments of any kind otherwise due to the
Grantee any federal, state, or local taxes of any kind required by law to be withheld with respect to the termination
of the Restricted Period with respect to the Stock Units. At the termination of the Restricted Period, the Grantee
shall pay to the Trust any amount that the Trust may reasonably determine to be necessary to satisfy such
withholding obligation. Subject to the prior approval of the Trust, which may be withheld by the Trust in its sole
discretion, the Grantee may elect to satisfy such obligations, in whole or in part, (i) by causing the Trust to withhold
shares of Stock otherwise deliverable or (ii) by delivering to the Trust shares of Stock already owned by the Grantee.
The shares of Stock so delivered or withheld shall have a Fair Market Value equal to such withholding obligations.
The Fair Market Value of the shares of Stock used to satisfy such withholding obligation shall be determined by the
Trust as of the date that the amount of tax to be withheld is to be determined. A Grantee who has made an election
pursuant to this Section 5 may satisfy his or her withholding obligation only with shares of Stock that are not subject
to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
d
6. DISCLAIMER OF RIGHTS.
No provision of this Agreement shall be construed to confer upon the Grantee the right to continue in
Service, or to interfere in any way with the right and authority of the Trust or any Affiliate either to increase or
decrease the compensation of the Grantee at any time, or to terminate the Grantee’s Service.
7. DATA PRIVACY.
To administer the Plan, the Trust may process personal data about the Grantee. Such data includes, but is
not limited to, the information provided in this Agreement and any changes thereto, other appropriate personal and
financial data about the Grantee such as home address and business addresses and other contact information, and
any other information that might be deemed appropriate by the Trust to facilitate the administration of the Plan. By
accepting this grant, the Grantee hereby gives express consent to the Trust to process any such personal data.
Grantee also gives express consent to the Trust to transfer any such personal data outside the country in which
Grantee works, including, with respect to non-U.S. resident Grantees, to the United States, to transferees who will
include the Trust and other persons who are designated by the Trust to administer the Plan.
8. CONSENT TO ELECTRONIC DELIVERY OF MATERIALS.
The Trust may choose to deliver certain statutory materials relating to the Plan in electronic form. By
accepting this grant, Grantee agrees that the Trust may deliver the Plan prospectus and any annual reports to Grantee
in an electronic format. If at any time Grantee would prefer to receive paper copies of these documents, as Grantee
is entitled to, the Trust would be pleased to provide copies. Grantee will contact the Trust’s Legal Department to
request paper copies of these documents.
r
9.
INTERPRETATION OF THE AGREEMENT.
All decisions and interpretations made by the Committee with regard to any question arising under the Plan
or this Agreement shall be binding and conclusive on the Trust and the Grantee and any other person. In the event
2
that there is any inconsistency between the provisions of this Agreement and of the Plan, the provisions of the Plan
shall govern.
The grant of Stock Units under this Agreement is intended to comply with Section 409A of the Code to the
extent subject thereto, and, accordingly, to the maximum extent permitted, this Agreement will be interpreted and
administered to be in compliance with Section 409A of the Code. The Trust, however, will have no liability to the
Grantee if Section 409A is determined to apply and adversely affects Grantee.
10. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Maryland (but not including the choice of law
rules thereof).
11. BINDING EFFECT.
Subject to all restrictions provided for in this Agreement and by applicable law, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators,
successors, transferees and assigns.
12. CLAWBACK.
The Stock Units shall be subject to mandatory repayment by the Grantee to the Trust to the extent the
Grantee is, or in the future becomes, subject to (i) any Trust “clawback” or recoupment policy that is adopted to
comply with the requirements of any applicable laws, or (ii) any applicable laws which impose mandatory
recoupment, under circumstances set forth in such applicable laws.
13. ENTIRE AGREEMENT.
This Agreement and the Plan constitute the entire agreement and supersede all prior understandings and
agreements, written or oral, of the parties hereto with respect to the subject matter hereof. Neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated except by a written instrument signed by the
Trust and the Grantee; provided, however, that the Trust unilaterally may waive any provision hereof in writing to
the extent that such waiver does not adversely affect the interests of the Grantee hereunder, but no such waiver shall
operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision
f
hereof.
3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the
date first above written.
GRANTEE:
PUBLIC STORAGE
_____________________________________________
Name:
__________________________________________
Name:
Title:
Signature Page to the Stock Unit Agreement
PUBLIC STORAGE
2016 EQUITY AND PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN
STOCK UNIT AGREEMENT
Exhibit 10.16
THIS STOCK UNIT AGREEMENT (the “Agreement”) is made as of the ____ day of _________,
201__, (the “Grant Date”), by and between Public Storage (the “Trust”), and __________________ (the “Grantee”).
Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Trust’s 2016 Equity
and Performance-Based Incentive Compensation Plan (as amended from time to time, the “Plan”).
WHEREAS, the Board of Trustees of the Trust has duly adopted, and the shareholders of the Trust have
duly approved, the Plan, which provides for the grant to Service Providers of Stock Units relating to common shares
of beneficial ownership of the Trust, par value $.10 per share (the “Stock”), which may be granted from time to time
as the Committee so determines; and
WHEREAS, the Trust has determined that it is desirable and in its best interests to grant to the Grantee,
pursuant to the Plan, Stock Units relating to a certain number of shares of Stock as compensation for services
rendered to the Trust, and/or in order to provide the Grantee with an incentive to advance the interests of the Trust,
all according to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual benefits hereinafter provided, and each intending to
be legally bound, the Trust and the Grantee hereby agree as follows:
1. GRANT OF STOCK UNITS.
1.1 Units Granted.
Subject to the terms of the Plan (the terms of which are incorporated by reference herein), the Trust hereby
grants to the Grantee ________ Stock Units, on the terms a
________
nd subject to the conditions hereinafter set forth.
1.2 Separate Grants.
For purposes of vesting and the right to defer provided for in this Agreement, the portion of the Stock Units
that vest on each separate vesting date pursuant to Section 2 shall be treated as a separate grant (a “Separate Grant”),
and the Grantee may make a separate deferral election with respect to each Separate Grant.
2. VESTING OF STOCK UNITS.
2.1. Service Requirement.
Rights in respect of [ ]% of the number of Stock Units specified in Section 1 above shall vest on each of the
first [ ] anniversary[ies] of the Grant Date [or insert vesting schedule], provided that the Grantee is in Service on
the applicable vesting date. The period during which the Stock Units have not vested and therefore are subject to a
substantial risk of forfeiture is referred to below as the “Restricted Period.”
2.2. Restrictions on Transfer.
The Grantee may not sell, transfer, assign, pledge or otherwise encumber or dispose of the Stock Units.
2.3. Delivery of Shares.
When any shares are paid to Grantee (either upon vesting pursuant to Section 2.1 or later delivery if
Grantee defers payment pursuant to Section 3), the Trust shall deliver to the Grantee a certificate or electronic
1
confirmation of ownership, as applicable, for the number of shares of Stock represented by the Stock Units which
have been delivered to Grantee. Upon the issuance of the shares, Grantee’s payment of the aggregate par value of
the shares delivered to Grantee will be deemed paid by Grantee’s past services to the Trust or its Affiliates.
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3. RIGHT TO DEFER PAYMENT.
The Grantee may elect to defer the payment of the shares of Stock that would otherwise be paid upon the
vesting of Stock Units granted hereunder on the following terms and conditions:
3.1 Election Form.
An election to defer shall be made on a form provided to the Grantee by the Trust.
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3.2 Election Requirements.
The Grantee may elect to defer the payment of the shares of Stock with respect to each Separate Grant of
Stock Units that has not vested on the following conditions:
(a) The election to defer is made not less than 12 months prior to the vesting date of the Separate
Grant to which it relates;
(b) The deferral is for a period of not less than five (5) years from the original vesting date of such
Separate Grant; and
(c) Such election does not go into effect for at least 12 months from the date of the election.
To the extent the foregoing conditions are satisfied, the issuance of the shares of Stock relating to vested
Stock Units for a Separate Grant shall be made in accordance with Section 2.3 at the time and in accordance with the
Grantee’s deferral election.
3.3 Specified Employee and Separation from Service.
If the Grantee is a “specified employee” (as defined in Section 409A of the Code and the related Treasury
Regulations (“Section 409A”)) and the Grantee’s deferral election calls for the payment to be made on a “separation
from service” (as defined in Section 409A), payment to the specified employee may not be made before the date that
is six months after the date of the Grantee’s separation from service from the Trust or its Affiliates (or, if earlier, the
m
date of the Grantee’s death).
3.4 Acceleration.
The issuance of the shares of Stock for deferred Separate Grants shall be accelerated upon the Grantee’s
death and upon the Grantee’s “disability” or a “change in control” of the Trust (as such terms are defined in Section
409A) and may be accelerated by the Grantee in the event of an “unforeseeable emergency” (as defined in Section
409A) experienced by the Grantee to the extent payment of the shares of Stock is needed to satisfy the emergency.
ff
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4. TERMINATION OF SERVICE.
Upon the termination of the Grantee’s Service other than by reason of death or Disability, any Stock Units
held by the Grantee that have not vested shall terminate immediately, and the Grantee shall forfeit any rights with
respect to such Stock Units. (Stock Units that have vested and for which a deferral election has been made will
continue to be outstanding in accordance with the terms of this Agreement.) If the Grantee’s Service is terminated
because of his or her death or Disability, all Stock Units granted to Grantee pursuant to this Agreement that have not
previously vested shall immediately be vested.
5. DIVIDEND AND VOTING RIGHTS.
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The Grantee shall have none of the rights of a shareholder with respect to the Stock Units. Notwithstanding
the foregoing, the Grantee shall be entitled to receive, upon the Trust’s payment of a cash dividend on its
outstanding shares of Stock, a cash payment for each Stock Unit held as of the record date for such dividend equal to
the per-share dividend paid on the shares of Stock, which cash payment shall be made at the same time as the
Trust’s payment of a cash dividend on its outstanding shares of Stock.
6. WITHHOLDING OF TAXES.
The Trust and any Affiliates shall have the right to deduct from payments of any kind otherwise due to the
Grantee any federal, state, or local taxes of any kind required by law to be withheld with respect to the termination
of the Restricted Period or the issuance of shares with respect to the Stock Units. At the termination of the
Restricted Period and/or the issuance of shares, the Grantee shall pay to the Trust any amount that the Trust may
reasonably determine to be necessary to satisfy such withholding obligation. Grantee acknowledges that at the
termination of the Restricted Period with respect to Stock Units for which a deferral election has been made
pursuant to Section 3, Grantee will be obligated to pay at that time applicable FICA and Medicare taxes, even
though federal and state income taxes may be postponed until the deferral period ends. Subject to the prior approval
of the Trust, which may be withheld by the Trust in its sole discretion, the Grantee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Trust to withhold shares of Stock otherwise deliverable or (ii) by
delivering to the Trust shares of Stock already owned by the Grantee. The shares of Stock so delivered or withheld
shall have a Fair Market Value equal to such withholding obligations. The Fair Market Value of the shares of Stock
used to satisfy such withholding obligation shall be determined by the Trust as of the date that the amount of tax to
be withheld is to be determined. A Grantee who has made an election pursuant to this Section 6 may satisfy his or
her withholding obligation only with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled
vesting, or other similar requirements.
7. DISCLAIMER OF RIGHTS.
No provision of this Agreement shall be construed to confer upon the Grantee the right to continue in
Service, or to interfere in any way with the right and authority of the Trust or any Affiliate either to increase or
decrease the compensation of the Grantee at any time, or to terminate the Grantee’s Service.
8. DATA PRIVACY.
To administer the Plan, the Trust may process personal data about the Grantee. Such data includes, but is
not limited to, the information provided in this Agreement and any changes thereto, other appropriate personal and
financial data about the Grantee such as home address and business addresses and other contact information, and
any other information that might be deemed appropriate by the Trust to facilitate the administration of the Plan. By
accepting this grant, the Grantee hereby gives express consent to the Trust to process any such personal data.
Grantee also gives express consent to the Trust to transfer any such personal data outside the country in which
Grantee works, including, with respect to non-U.S. resident Grantees, to the United States, to transferees who will
include the Trust and other persons who are designated by the Trust to administer the Plan.
9. CONSENT TO ELECTRONIC DELIVERY OF MATERIALS.
The Trust may choose to deliver certain statutory materials relating to the Plan in electronic form. By
accepting this grant, Grantee agrees that the Trust may deliver the Plan prospectus and any annual reports to Grantee
in an electronic format. If at any time Grantee would prefer to receive paper copies of these documents, as Grantee
is entitled to, the Trust would be pleased to provide copies. Grantee will contact the Trust’s Legal Department to
request paper copies of these documents.
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10. INTERPRETATION OF THE AGREEMENT.
All decisions and interpretations made by the Committee with regard to any question arising under the Plan
or this Agreement shall be binding and conclusive on the Trust and the Grantee and any other person. In the event
that there is any inconsistency between the provisions of this Agreement and of the Plan, the provisions of the Plan
shall govern.
3
The grant of Stock Units under this Agreement is intended to comply with Section 409A to the extent
subject thereto, and, accordingly, to the maximum extent permitted, this Agreement will be interpreted and
administered to be in compliance with Section 409A. The Trust, however, will have no liability to the Grantee if
Section 409A is determined to apply and adversely affects Grantee.
11. GOVERNING LAW.
Except to the extent governed by provisions of the Code, this Agreement shall be governed by the laws of
the State of Maryland (but not including the choice of law rules thereof).
12. BINDING EFFECT.
Subject to all restrictions provided for in this Agreement and by applicable law, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators,
successors, transferees and assigns.
13. CLAWBACK.
The Stock Units shall be subject to mandatory repayment by the Grantee to the Trust to the extent the
Grantee is, or in the future becomes, subject to (i) any Trust “clawback” or recoupment policy that is adopted to
comply with the requirements of any applicable laws, or (ii) any applicable laws which impose mandatory
recoupment, under circumstances set forth in such applicable laws.
14. ENTIRE AGREEMENT.
This Agreement, the deferral elections made under Section 3 (if any), and the Plan constitute the entire
agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with respect
to the subject matter hereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated except by a written instrument signed by the Trust and the Grantee; provided, however, that the Trust
unilaterally may waive any provision hereof in writing to the extent that such waiver does not adversely affect the
interests of the Grantee hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of
the same provision or a waiver of any other provision hereof.
4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the
date first above written.
GRANTEE:
PUBLIC STORAGE
___________________________________________
Name:
___________________________________________
Name:
Title:
Signature Page to the Stock Unit Agreement
PUBLIC STORAGE
2016 EQUITY AND PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
Exhibit 10.17
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the “Option Agreement”) is made as of
the ____ day of _________, 201__, (the “Grant Date”), by and between Public Storage (the “Trust”) and
__________________, (the “Optionee”). Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Trust’s 2016 Equity and Performance-Based Incentive Compensation Plan (as amended from
time to time, the “Plan”).
WHEREAS, the Board of Trustees of the Trust has duly adopted, and the shareholders of the Trust have
duly approved, the Plan, which provides for the grant to Service Providers of options for the purchase of shares of
the Trust’s common shares of beneficial interest, par value $.10 per share (the “Stock”), which may be granted from
time to time as the Committee so determines; and
WHEREAS, the Trust has determined that it is desirable and in its best interests to grant to the Optionee,
pursuant to the Plan, options to purchase a certain number of shares of Stock as compensation for services rendered
to the Trust, and/or in order to provide the Optionee with an incentive to advance the interests of the Trust, all
according to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties
hereto do hereby agree as follows:
1. GRANT OF OPTION.
Subject to the terms of the Plan (the terms of which are incorporated by reference herein), the Trust hereby
grants to the Optionee the right and option (the “Option”) to purchase from the Trust, on the terms and subject to the
conditions hereinafter set forth, ________ shares of Stock. This Option shall not constitute an incentive stock option
within the meaning of Section 422 of the Code.
2. PRICE.
The purchase price (the “Option Price”) of the shares of Stock subject to the Option evidenced by this
Option Agreement is $_________ per share (the Fair Market Value on the Grant Date).
3. VESTING AND EXERCISE OF OPTION.
Except as otherwise provided herein, the Option granted pursuant to this Option Agreement shall be subject
to exercise as follows:
3.1 Vesting and Time of Exercise of Option.
Except as otherwise provided in this Option Agreement, the Option vests and becomes exercisable only
during the Optionee’s period of Service. Subject to the foregoing Service requirement, the Option vests and the
Optionee may exercise the Option (subject to the limitations on exercise set forth in the Plan or in this Option
Agreement), in installments as determined by the Committee as follows: [ ]. The foregoing installments, to the
extent not exercised, shall accumulate and be exercisable, in whole or in part, at any time and from time to time,
after becoming exercisable and prior to the termination of the Option; provided, that no single exercise of the Option
shall be for less than 100 shares, unless the number of shares purchased is the total number at the time available for
purchase under this Option.
1
3.2 Exercise by Optionee and Compliance with Trading Blackout Periods and Company Securities
Trading Policy.
During the lifetime of the Optionee, only the Optionee (or, in the event of the Optionee’s legal incapacity
or incompetency, the Optionee’s guardian or legal representative) or a person or entity to whom the Optionee has
transferred the Option in accordance with Section 5 hereof may exercise the Option. The Optionee agrees to comply
with any trading blackout periods and securities trading policies implemented by the Trust.
3.3 Term of Option.
The Option shall have a term of ten years, subject to earlier termination in accordance with this Option
Agreement or the terms of the Plan as determined by the Committee.
3.4 Limitations on Exercise of Option.
In no event may the Option be exercised, in whole or in part, after ten years following the Grant Date, or
after the occurrence of an event which results in termination of the Option. In no event may the Option be exercised
for a fractional share of Stock.
3.5 Termination of Service.
Subject to Sections 3.6 and 3.7 hereof, upon the termination of the Optionee’s Service other than on
account of death or Disability, the Optionee shall have the right at any time within 30 days after such termination
(but before the Option terminates pursuant to Sections 3.3 and 3.4 above), to exercise, in whole or in part, any vested
Option held by such Optionee at the date of such termination, to the extent such Option was exercisable immediately
prior to such termination. Any Option not vested on the date of such termination of Service shall immediately
terminate.
3.6 Rights in the Event of Death.
If the Optionee dies while in Service, then the executors or administrators or legatees or distributees of the
Optionee’s estate shall have the right, at any time within one year after the date of the Optionee’s death (but before
the Option terminates pursuant to Sections 3.3 and 3.4 above), to exercise the Option in full, regardless of whether
the Option was exercisable immediately prior to the Optionee’s death.
3.7 Rights in the Event of Disability.
If the Optionee terminates his or her Service by reason of the Optionee’s Disability (as defined under the
Plan), then the Optionee shall have the right, at any time within one year after the date of the Optionee’s Disability
(but before the Option terminates pursuant to Sections 3.3 and 3.4 above), to exercise the Option in full, regardless
of whether the Option was exercisable immediately prior to the Optionee’s Disability.
3.8 Reduction in Number of Shares Subject to Option.
The number of shares of Stock which may be purchased upon exercise of the Option pursuant to this
Section 3 shall be reduced by the number of shares previously purchased upon exercise of the Option pursuant to
this Section 3.
4. METHOD OF EXERCISE OF OPTION.
The Option may be exercised to the extent that it has become exercisable hereunder by delivery to the Trust
on any business day, at its principal office addressed to the attention of the Committee, of written notice of exercise,
which notice shall specify the number of shares for which the Option is being exercised and shall be accompanied
by payment in full of the Option Price of the shares for which the Option is being exercised. Payment of the Option
Price for the shares of Stock purchased pursuant to the exercise of the Option shall be made (a) in cash or by check
2
payable to the order of the Trust; (b) through the tender to the Trust of shares of Stock, which shares shall be valued,
for purposes of determining the extent to which the Option Price has been paid thereby, at their Fair Market Value
on the date of exercise; (c) by a combination of the methods described in (a) and (b); or (d) with the consent of the
Trust, by withholding the number of shares of Stock that would otherwise vest or be issuable in an amount equal in
value to the Option Price. Payment in full of the Option Price need not accompany the written notice of exercise
provided the notice directs that the Stock certificate or certificates for the shares for which the Option is exercised be
ff
delivered to a specified licensed broker applicable to the Trust as the agent for the Optionee and, at the time such
shares of Stock certificate or certificates are delivered, the broker tenders to the Trust cash (or cash equivalents
acceptable to the Trust) equal to the Option Price plus the amount, if any, of federal and/or other taxes which the
Trust may, in its judgment, be required to withhold with respect to the exercise of the Option. An attempt to
exercise the Option granted other than as set forth above shall be invalid and of no force or effect. Promptly after
the exercise of the Option and the payment in full of the Option Price of the shares of Stock covered thereby, the
Optionee shall be entitled to the issuance of a Stock certificate or certificates evidencing the Optionee’s ownership
of such shares.
f
5. LIMITATIONS ON TRANSFER.
n
The Option is not transferable by the Optionee, other than by will or the laws of descent and distribution in
the event of death of the Optionee, and except that the Optionee may transfer, not for value, the Option in whole or
in part to Family Members of the Optionee, provided that the transferee, in connection with the transfer, agrees in
writing to be bound by all of the terms of this Option Agreement and the Plan and further agrees not to transfer the
Option other than by will or the laws of descent and distribution in the event of the death of the transferee.
Following any transfer permitted by this Section 5, the transferee shall have all of the rights of the Optionee
hereunder, and the Option shall be exercisable by the transferee only to the extent that the Option would have been
exercisable by the Optionee had the Option not been transferred. The Option shall not be pledged or hypothecated
(by operation of law or otherwise) or subject to execution, attachment or similar processes.
6. RIGHTS AS SHAREHOLDER.
Neither the Optionee, nor any executor, administrator, distributee or legatee of the Optionee’s estate, nor
r
any transferee hereof shall be, or have any of the rights or privileges of, a shareholder of the Trust in respect of any
shares of Stock issuable hereunder unless and until such shares have been fully paid and certificates representing
such shares have been endorsed, transferred and delivered, and the name of the Optionee (or of such personal
representative, administrator, distributee or legatee of the Optionee’s estate, or of such transferee) has been entered
as the shareholder of record on the books of the Trust.
7. DISCLAIMER OF RIGHTS.
No provision in this Option Agreement shall be construed to confer upon the Optionee the right to continue
in Service, or to interfere in any way with the right and authority of the Trust or any Affiliate either to increase or
decrease the compensation of the Optionee at any time or to terminate the Optionee’s Service.
8. DATA PRIVACY.
To administer the Plan, the Trust may process personal data about the Optionee. Such data includes, but is
not limited to, the information provided in this Agreement and any changes thereto, other appropriate personal and
financial data about the Optionee such as home address and business addresses and other contact information, and
any other information that might be deemed appropriate by the Trust to facilitate the administration of the Plan. By
accepting this grant, the Optionee hereby gives express consent to the Trust to process any such personal data.
Optionee also gives express consent to the Trust to transfer any such personal data outside the country in which
ff
Optionee works, including, with respect to non-U.S. resident Optionees, to the United States, to transferees who will
include the Trust and other persons who are designated by the Trust to administer the Plan.
3
9. CONSENT TO ELECTRONIC DELIVERY OF MATERIALS.
The Trust may choose to deliver certain statutory materials relating to the Plan in electronic form. By
accepting this grant, Optionee agrees that the Trust may deliver the Plan prospectus and any annual reports to
Optionee in an electronic format. If at any time Optionee would prefer to receive paper copies of these documents,
as Optionee is entitled to, the Trust would be pleased to provide copies. Optionee will contact the Trust’s Legal
Department to request paper copies of these documents.
10. WITHHOLDING TAXES.
Upon the request of the Trust, the Optionee shall promptly pay to the Trust, or make arrangements
satisfactory to the Trust regarding payment of, any federal, state or local taxes of any kind required by law to be
withheld as a result of the Optionee’s exercise of the Option. The Trust and its Affiliates shall have the right to
deduct from payments of any kind otherwise due to the Optionee any such taxes. The Optionee shall make any such
payments in cash or cash equivalents or, subject to the prior approval of the Committee, which may be withheld in
the Committee’s sole discretion, the Optionee may elect to satisfy the withholding obligation, in whole or in part, (i)
by causing the Trust to withhold shares of Stock otherwise issuable to the Optionee pursuant to the Option or (ii) by
delivering to the Trust shares of Stock already owned by the Optionee. The shares of Stock so delivered or withheld
shall have an aggregate Fair Market Value equal to the applicable withholding obligations. The Optionee may
deliver or have withheld only shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or
other similar requirements.
f
11. INTERPRETATION OF THIS OPTION AGREEMENT.
All decisions and interpretations made by the Committee with regard to any question arising under the Plan
or this Option Agreement shall be binding and conclusive on the Trust and the Optionee and any other person
entitled to exercise the Option as provided for herein. In the event that there is any inconsistency between the
provisions of this Option Agreement and of the Plan, the provisions of the Plan shall govern.
12. GOVERNING LAW.
This Option Agreement is executed pursuant to and shall be governed by the laws of the State of Maryland
uu
(but not including the choice of law rules thereof).
13. BINDING EFFECT.
Subject to all restrictions provided for in this Option Agreement and by applicable law relating to
assignment and transfer of this Option Agreement and the Option provided for herein, this Option Agreement shall
be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators,
successors, transferees and assigns.
14. NOTICE.
Any notice hereunder by the Optionee to the Trust shall be in writing and shall be deemed duly given if
mailed or delivered to the Trust at its principal office, addressed to the attention of the Corporate Secretary, or if so
mailed or delivered to such other address as the Trust may hereafter designate by notice to the Optionee. Any notice
hereunder by the Trust to the Optionee shall be in writing and shall be deemed duly given if mailed or delivered to
the Optionee at the address specified below by the Optionee for such purpose, or if so mailed or delivered to such
other address as the Optionee may hereafter designate by written notice given to the Trust.
15. CLAWBACK.
The Option shall be subject to mandatory repayment by the Optionee to the Trust to the extent the Optionee
is, or in the future becomes, subject to (i) any Trust “clawback” or recoupment policy that is adopted to comply with
the requirements of any applicable laws, or (ii) any applicable laws which impose mandatory recoupment, under
circumstances set forth in such applicable laws.
4
16. ENTIRE AGREEMENT.
This Option Agreement and the Plan constitute the entire agreement and supersede all prior understandings
and agreements, written or oral, of the parties hereto with respect to the subjec
t matter hereof. Neither this Option
Agreement nor any term hereof may be amended, waived, discharged or terminated except by a written instrument
signed by the Trust and the Optionee; provided, however, that the Trust unilaterally may waive any provision hereof
in writing to the extent that such waiver does not adversely affect the interests of the Optionee hereunder, but no
such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any
other provision hereof.
aa
5
IN WITNESS WHEREOF, the parties hereto have duly executed this Option Agreement, or caused this
Option Agreement to be duly executed on their behalf, as of the day and year first above written.
OPTIONEE:
PUBLIC STORAGE
___________________________________________
Name:
___________________________________________
Name:
Title:
ADDRESS FOR NOTICE TO OPTIONEE:
_______________________________________
Number Street
_______________________________________
City State Zip Code
Signature Page to the Non-qualified Stock Option Agreement
PUBLIC STORAGE
2016 EQUITY AND PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
Exhibit 10.18
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the “Option Agreement”) is made as of
the ____ day of _________, 201__, (the “Grant Date”), by and between Public Storage (the “Trust”) and
__________________, a Trustee of the Trust or one of its Affiliates (the “Optionee”). Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Trust’s 2016 Equity and Performance-
Based Incentive Compensation Plan (as amended from time to time, the “Plan”).
WHEREAS, the Board of Trustees of the Trust has duly adopted, and the shareholders of the Trust have
duly approved, the Plan, which provides for the grant to Trustees of options for the purchase of shares of the Trust’s
common shares of beneficial interest, par value $.10 per share (the “Stock”), which may be granted from time to
time as the Committee so determines; and
WHEREAS, the Trust has determined that it is desirable and in its best interests to grant to the Optionee,
pursuant to the Plan, options to purchase a certain number of shares of Stock in order to provide the Optionee with
further incentive to advance the interests of the Trust, all according to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties
hereto do hereby agree as follows:
1. GRANT OF OPTION.
Subject to the terms of the Plan (the terms of which are incorporated by reference herein), the Trust hereby
grants to the Optionee the right and option (the “Option”) to purchase from the Trust, on the terms and subject to the
conditions hereinafter set forth, ________ shares of Stock.
This Option shall not constitute an incentive stock option
within the meaning of Section 422 of the Code.
________
ff
2. PRICE.
The purchase price (the “Option Price”) of the shares of Stock subject to the Option evidenced by this
Option Agreement is $ _________ per share (the Fair Market Value on the Grant Date).
_________
3. VESTING AND EXERCISE OF OPTION.
Except as otherwise provided herein, the Option granted pursuant to this Option Agreement shall be subject
to exercise as follows:
3.1 Vesting and Time of Exercise of Option.
Except as otherwise provided in this Option Agreement, the Option vests and becomes exercisable only
during the Optionee’s period of Service. Subject to the foregoing Service requirement, the Option vests and
Optionee may exercise the Option (subject to the limitations on exercise set forth in the Plan or in this Option
Agreement), in installments as determined by the Committee as follows: [ ]. The foregoing installments, to the
extent not exercised, shall accumulate and be exercisable, in whole or in part, at any time and from time to time,
after becoming exercisable and prior to the termination of the Option; provided, that no single exercise of the Option
shall be for less than 100 shares, unless the number of shares purchased is the total number at the time available for
purchase under this Option.
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3.2 Exercise by Optionee and Compliance with Trading Blackout Periods and Company Securities
Trading Policy.
During the lifetime of the Optionee, only the Optionee (or, in the event of the Optionee’s legal incapacity
or incompetency, the Optionee’s guardian or legal representative) or a person or entity to whom the Optionee has
transferred the Option in accordance with Section 5 hereof may exercise the Option. The Optionee agrees to comply
with any trading blackout periods and securities trading policies implemented by the Trust.
3.3 Term of Option.
The Option shall have a term of ten years, subject to earlier termination in accordance with this Option
Agreement or the terms of the Plan as determined by the Committee.
3.4 Limitations on Exercise of Option.
In no event may the Option be exercised, in whole or in part, after ten years following the Grant Date, or
after the occurrence of an event which results in termination of the Option. In no event may the Option be exercised
for a fractional share of Stock.
3.5 Termination of Service.
Subject to Sections 3.6 and 3.7 hereof, upon the termination of the Optionee’s Service other than on
account of death or Disability, the Optionee shall have the right at any time within 30 days after such termination
(but before the Option terminates pursuant to Sections 3.3 and 3.4 above), to exercise, in whole or in part, any
Option held by such Optionee at the date of such termination, to the extent such Option was exercisable immediately
prior to such termination. Any Option not vested on the date of such termination of Service shall immediately
terminate.
ff
3.6 Rights in the Event of Death.
If the Optionee dies while in Service, then the executors or administrators or legatees or distributees of the
Optionee’s estate shall have the right, at any time within one year after the date of the Optionee’s death (but before
the Option terminates pursuant to Sections 3.3 and 3.4 above), to exercise the Option in full, regardless of whether
the Option was exercisable immediately prior to the Optionee’s death.
3.7 Rights in the Event of Disability.
If the Optionee terminates his or her Service by reason of the Optionee’s Disability (as defined under the
Plan), then the Optionee shall have the right, at any time within one year after the date of the Optionee’s Disability
(but before the Option terminates pursuant to Sections 3.3 and 3.4 above), to exercise the Option in full, regardless
of whether the Option was exercisable immediately prior to the Optionee’s Disability.
3.8 Reduction in Number of Shares Subject to Option.
The number of shares of Stock which may be purchased upon exercise of the Option pursuant to this
Section 3 shall be reduced by the number of shares previously purchased upon exercise of the Option pursuant to
this Section 3.
4. METHOD OF EXERCISE OF OPTION.
The Option may be exercised to the extent that it has become exercisable hereunder by delivery to the Trust
on any business day, at its principal office addressed to the attention of the Committee, of written notice of exercise,
which notice shall specify the number of shares for which the Option is being exercised and shall be accompanied
by payment in full of the Option Price of the shares for which the Option is being exercised. Payment of the Option
Price for the shares of Stock purchased pursuant to the exercise of the Option shall be made (a) in cash or by check
2
payable to the order of the Trust; (b) through the tender to the Trust of shares of Stock, which shares shall be valued,
for purposes of determining the extent to which the Option Price has been paid thereby, at their Fair Market Value
on the date of exercise; (c) by a combination of the methods described in (a) and (b); or (d) with the consent of the
Trust, by withholding the number of shares of Stock that would otherwise vest or be issuable in an amount equal in
value to the Option Price. Payment in full of the Option Price need not accompany the written notice of exercise
provided the notice directs that the shares of Stock for which the Option is exercised be delivered to a specified
licensed broker applicable to the Trust as the agent for the Optionee and, at the time such shares of Stock are
delivered, the broker tenders to the Trust cash (or cash equivalents acceptable to the Trust) equal to the Option Price
plus the amount, if any, of federal and/or other taxes which the Trust may, in its judgment, be required to withhold
with respect to the exercise of the Option. An attempt to exercise the Option granted other than as set forth above
shall be invalid and of no force or effect. Promptly after the exercise of the Option and the payment in full of the
Option Price of the shares of Stock covered thereby, the Optionee shall be entitled to the issuance of a Stock
certificate or certificates evidencing the Optionee’s ownership of such shares.
ff
5. LIMITATIONS ON TRANSFER.
n
The Option is not transferable by the Optionee, other than by will or the laws of descent and distribution in
the event of death of the Optionee, and except that the Optionee may transfer, not for value, the Option in whole or
in part to Family Members of the Optionee, provided that the transferee, in connection with the transfer, agrees in
writing to be bound by all of the terms of this Option Agreement and the Plan and further agrees not to transfer the
Option other than by will or the laws of descent and distribution in the event of the death of the transferee.
Following any transfer permitted by this Section 5, the transferee shall have all of the rights of the Optionee
hereunder, and the Option shall be exercisable by the transferee only to the extent that the Option would have been
exercisable by the Optionee had the Option not been transferred. The Option shall not be pledged or hypothecated
(by operation of law or otherwise) or subject to execution, attachment or similar processes.
6. RIGHTS AS SHAREHOLDER.
Neither the Optionee, nor any executor, administrator, distributee or legatee of the Optionee’s estate, nor
r
any transferee hereof shall be, or have any of the rights or privileges of, a shareholder of the Trust in respect of any
shares of Stock issuable hereunder unless and until such shares have been fully paid and certificates representing
such shares have been endorsed, transferred and delivered, and the name of the Optionee (or of such personal
representative, administrator, distributee or legatee of the Optionee’s estate, or of such transferee) has been entered
as the shareholder of record on the books of the Trust.
7. DISCLAIMER OF RIGHTS.
No provision in this Option Agreement shall be construed to confer upon the Optionee the right to continue
in Service, or to interfere in any way with the right and authority of the Trust or any Affiliate either to increase or
decrease the compensation of the Optionee at any time, or to terminate the Optionee’s Service.
8. DATA PRIVACY.
To administer the Plan, the Trust may process personal data about the Optionee. Such data includes, but is
not limited to, the information provided in this Agreement and any changes thereto, other appropriate personal and
financial data about the Optionee such as home address and business addresses and other contact information, and
any other information that might be deemed appropriate by the Trust to facilitate the administration of the Plan. By
accepting this grant, the Optionee hereby gives express consent to the Trust to process any such personal data.
Optionee also gives express consent to the Trust to transfer any such personal data outside the country in which
ff
Optionee works, including, with respect to non-U.S. resident Optionees, to the United States, to transferees who will
include the Trust and other persons who are designated by the Trust to administer the Plan.
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9. CONSENT TO ELECTRONIC DELIVERY OF MATERIALS.
The Trust may choose to deliver certain statutory materials relating to the Plan in electronic form. By
accepting this grant, Optionee agrees that the Trust may deliver the Plan prospectus and any annual reports to
Optionee in an electronic format. If at any time Optionee would prefer to receive paper copies of these documents,
as Optionee is entitled to, the Trust would be pleased to provide copies. Optionee will contact the Trust’s Legal
Department to request paper copies of these documents.
10. WITHHOLDING TAXES.
Upon the request of the Trust, the Optionee shall promptly pay to the Trust, or make arrangements
satisfactory to the Trust regarding payment of, any federal, state or local taxes of any kind required by law to be
withheld as a result of the Optionee’s exercise of the Option. The Trust and its Affiliates shall have the right to
deduct from payments of any kind otherwise due to the Optionee any such taxes. The Optionee shall make any such
payments in cash or cash equivalents or, subject to the prior approval of the Committee, which may be withheld in
the Committee’s sole discretion, the Optionee may elect to satisfy the withholding obligation, in whole or in part, (i)
by causing the Trust to withhold shares of Stock otherwise issuable to the Optionee pursuant to the Option or (ii) by
delivering to the Trust shares of Stock already owned by the Optionee. The shares of Stock so delivered or withheld
shall have an aggregate Fair Market Value equal to the applicable withholding obligations. The Optionee may
deliver or have withheld only shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or
other similar requirements.
f
11. INTERPRETATION OF THIS OPTION AGREEMENT.
All decisions and interpretations made by the Committee with regard to any question arising under the Plan
or this Option Agreement shall be binding and conclusive on the Trust and the Optionee and any other person
entitled to exercise the Option as provided for herein. In the event that there is any inconsistency between the
provisions of this Option Agreement and of the Plan, the provisions of the Plan shall govern.
12. GOVERNING LAW.
This Option Agreement is executed pursuant to and shall be governed by the laws of the State of Maryland
uu
(but not including the choice of law rules thereof).
13. BINDING EFFECT.
Subject to all restrictions provided for in this Option Agreement and by applicable law relating to
assignment and transfer of this Option Agreement and the Option provided for herein, this Option Agreement shall
be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators,
successors, transferees and assigns.
14. NOTICE.
Any notice hereunder by the Optionee to the Trust shall be in writing and shall be deemed duly given if
mailed or delivered to the Trust at its principal office, addressed to the attention of the Corporate Secretary, or if so
mailed or delivered to such other address as the Trust may hereafter designate by notice to the Optionee. Any notice
hereunder by the Trust to the Optionee shall be in writing and shall be deemed duly given if mailed or delivered to
the Optionee at the address specified below by the Optionee for such purpose, or if so mailed or delivered to such
other address as the Optionee may hereafter designate by written notice given to the Trust.
15. CLAWBACK.
The Option shall be subject to mandatory repayment by the Optionee to the Trust to the extent the Optionee
is, or in the future becomes, subject to (i) any Trust “clawback” or recoupment policy that is adopted to comply with
the requirements of any applicable laws, or (ii) any applicable laws which impose mandatory recoupment, under
circumstances set forth in such applicable laws.
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16. ENTIRE AGREEMENT.
This Option Agreement and the Plan constitute the entire agreement and supersede all prior understandings
and agreements, written or oral, of the parties hereto with respect to the subjec
t matter hereof. Neither this Option
Agreement nor any term hereof may be amended, waived, discharged or terminated except by a written instrument
signed by the Trust and the Optionee; provided, however, that the Trust unilaterally may waive any provision hereof
in writing to the extent that such waiver does not adversely affect the interests of the Optionee hereunder, but no
such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any
other provision hereof.
aa
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IN WITNESS WHEREOF, the parties hereto have duly executed this Option Agreement, or caused this
Option Agreement to be duly executed on their behalf, as of the day and year first above written.
OPTIONEE:
PUBLIC STORAGE
___________________________________________
Name:
___________________________________________
Name:
Title:
ADDRESS AND NOTICE TO OPTIONEE:
_____________________________________
Number Street
_____________________________________
City State Zip Code
Signature Page to the Non-qualified Stock Option Agreement
INDEMNIFICATION AGREEMENT
Exhibit 10.19
THIS INDEMNIFICATION AGREEMENT (this “Agreement”) is entered into as of December _____, 2016,
by and between Public Storage, a Maryland real estate investment trust (the “Company” or “Indemnitor”), and
___________________________ (the “Indemnitee”).
RECITALS
A. Indemnitee is an officer and/or a member of the Board of Trustees and/or a director of the Company or its
subsidiaries and in such capacity is performing a valuable service for the Company;
B. Maryland law permits the Company to enter into contracts with officers or members of the Board of
Trustees or directors of the Company or its subsidiaries with respect to indemnification of, and advancement of
expenses to, such persons;
C. The Declaration of Trust of the Company (the “Declaration of Trust”) authorizes the Company to
indemnify and advance expenses to its officers and trustees to the maximum extent permitted by Maryland law in
effect from time to time;
D. The Bylaws of the Company (the “Bylaws”) provide that each officer and trustee of the Company shall be
indemnified by the Company and shall be entitled to advancement of expenses to the maximum extent permitted by
Maryland law in effect from time to time; and
E. To induce the Indemnitee to provide services to the Company and its Subsidiaries, Affiliates, or any other
Person, as an officer, director, member of the Board of Trustees, employee and/or agent, and to provide the
Indemnitee with specific contractual assurance that indemnification will be available to the Indemnitee regardless of,
among other things, any amendment to or revocation of the Declaration of Trust or the Bylaws, or any acquisition
transaction relating to the Company, the Company desires to provide the Indemnitee with protection against
personal liability as set forth in this Agreement, and to the extent insurance is maintained, for the coverage of
Indemnitee under the Company’s trustees’ and officers’ liability insurance policies.
AGREEMENT
In consideration of the foregoing recitals and of Indemnitee’s service as a member of the Board of Trustees
or officer of the Company and intending to be legally bound hereby, the Company and the Indemnitee agree as
follows:
1.
Certain Definitions.
For purposes of this Agreement:
“
(a) “Affiliate
” shall mean, with respect to any Person, a Person either: (1) in which the Company or a
Subsidiary directly or indirectly owns more than 5% of (i) any class of equity securities or (ii) any equity or
partnership interest or (iii) of any similar ownership interest; or (2) that directly or indirectly, through one
r
or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned
Person;
(b)
“Change in Control” shall mean:
i.
ii.
the dissolution or liquidation of the Company;
the merger, consolidation, or reorganization of the Company with one or more other entities
in which the Company is not the surviving entity or immediately following which the
iii.
iv.
v.
persons or entities who were beneficial owners (as determined pursuant to Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of voting
securities of the Company immediately prior thereto cease to beneficially own more than
fifty percent (50%) of the voting securities of the surviving entity immediately thereafter;
a sale of all or substantially all of the assets of the Company to another person or entity
other than an Affiliate of the Company;
any transaction (including without limitation a merger or reorganization in which the
Company is the surviving entity) that results in any person or entity or “group” (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (other than persons who are
shareholders or affiliates immediately prior to the transaction) owning thirty percent (30%)
or more of the combined voting power of all classes of shares of the Company; or
individuals who, as of the date hereof, constitute the Board of Trustees (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board of Trustees;
provided, however, that any individual becoming a trustee subsequent to the date hereof
whose election, or nomination for election by the Company’s shareholders, was approved
by a vote of at least a majority of the trustees then comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for trustee, without written objection to such
nomination) shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election contest with
respect to the election or removal of trustees or other actual or threatened solicitation of
proxies or contests by or on behalf of a person other than the Board of Trustees.
(c) “Corporate Status” describes the status of a person who is or was a trustee, officer or director of the
Company (or of any domestic or foreign predecessor entity of the Company in a merger, consolidation or
other transaction in which the predecessor’s interest ceased upon consummation of the transaction), or any
of its Affiliates or Subsidiaries, or is or was serving at the request of the Company (or any such predecessor
entity) as a director, officer, partner (limited or general), member, trustee, employee or agent of any other
foreign or domestic corporation, partnership, joint venture, limited liability company, trust, other enterprise
(whether conducted for profit or not for profit) or employee benefit plan. The Company (and any domestic
or foreign predecessor entity of the Company in a merger, consolidation or other transaction in which the
predecessor’s existence ceased upon consummation of the transaction) shall be deemed to have requested
the Indemnitee to serve an employee benefit plan where the performance of the Indemnitee’s duties to the
Company (or any such predecessor entity) also imposes or imposed duties on, or otherwise involves or
involved services by, the Indemnitee to the plan or participants or beneficiaries of the plan.
(d)
“
“Expenses
” shall have the meaning attached thereto in paragraph 2 below.
(e) “Person” means an individual, corporation, partnership, limited liability company, association, trust,
unincorporated organization, entity or group or other enterprise, including any entities, organizations,
groups or associations established in accordance with the laws of any jurisdiction outside the United States.
h
“
“Proceeding
(f)
” includes any threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, hearing, inquiry, investigation, administrative hearing, or any other proceeding,
including appeals therefrom, whether civil, criminal, administrative, investigative or other.
(g)
“Special Legal Counsel” means counsel duly selected by the Board of Trustees or a committee
thereof, in accordance with applicable law that is independent and experienced in matters of corporation
law and is not presently retained to represent any party to the Proceeding giving rise to a claim for
indemnification hereunder.
2
(h)
“Subsidiary” means, with respect to any Person, any corporation, limited liability company,
partnership, association, or other business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly,
by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a
limited liability company, partnership, association, or other business entity (other than a corporation), a
majority of the partnership or other similar ownership interests thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof
and for this purpose, a Person or Persons own a majority ownership interest in such a business entity (other
than a corporation) if such Person or Persons shall be allocated a majority of such business entity’s gains or
losses or shall be or control any managing director or general partner of such business entity (other than a
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corporation). The term “Subsidiary” shall include all Subsidiaries of such Subsidiary.
2.
Indemnification of Expenses. The Company shall indemnify Indemnitee to the fullest extent permitted by
law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a
party to or witness or other participant in, any Proceeding or any action that Indemnitee in good faith believes might
lead to the institution of any Proceeding (hereinafter a “Claim”), by reason of (or arising in part out of) any event or
occurrence related to the fact that Indemnitee is or was a member of the Board of Trustees, director, officer,
employee, agent or fiduciary of Indemnitor, or of any Affiliate or Subsidiary of Indemnitor, or is or was serving at
the request of Indemnitor as a member of the Board of Trustees, director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the
part of Indemnitee while serving in such capacity (hereinafter an “Indemnifiable Event”) against any and all
reasonable expenses (including attorneys’ fees, paralegals’ fees, retainers, court costs, transcript costs, expert fees,
witness fees, travel expenses, duplicating and printing costs, telecommunications charges, delivery and service fees,
and all other costs, expenses and obligations) incurred in connection with investigating, defending, being a witness
in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any such action,
suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation, judgments, fines,
penalties and amounts paid in settlement (if such settlement is approved in advance by Indemnitor, which approval
shall not be unreasonable withheld) of such Claim and any federal, state, local or foreign taxes imposed on
Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement (collectively,
hereinafter “Expenses”), including all interest, assessments and other charges paid or payable in connection with or
in respect of such Expenses. Such payment of Expenses shall be made by Indemnitor as soon as practicable but in
any event no later than thirty days after written demand by Indemnitee (setting forth in reasonable detail the Expense
y
incurred) therefor is presented to Indemnitor. The parties hereto intend that this Agreement shall provide for
indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification
provided by the Company’s Declaration of Trust, its By-Laws, or corporate action.
t
Mandatory Indemnification. Notwithstanding any other provision of this Agreement and without regard
3.
to the provisions of paragraph 5 hereof, unless limited by the Company’s charter documents, to the extent that the
Indemnitee is, by reason of such Indemnitee’s Corporate Status, a party to and is successful, on the merits or
otherwise, in any Proceeding, or in defense of any claim, issue or matter in the Proceeding, such Indemnitee shall be
indemnified against all reasonable Expenses actually incurred by such Indemnitee in connection therewith. For
purposes of this paragraph and without limitation, the termination of any claim, issue or matter in such Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
4.
Advancement of Expenses. The Company shall advance all reasonable Expenses incurred by the
Indemnitee in connection with any Proceeding within 20 days after the receipt by the Company of a statement from
the Indemnitee requesting such advance from time to time, whether prior to or after final disposition of such
Proceeding. Such statement shall include or be preceded or accompanied by (i) a written affirmation by the
Indemnitee of the Indemnitee’s good faith belief that the standard of conduct (if any) necessary for indemnification
by the Company as authorized by this Agreement and applicable law has been met and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amounts advanced if it should ultimately be determined that such
standard of conduct (if any) has not been met. The undertaking required by clause (ii) of the immediately preceding
sentence shall be an unlimited general obligation of the Indemnitee but need not be secured and may be accepted
without reference to financial ability to make the repayment. To the extent permissible under third party policies,
3
the Company agrees that invoices for Expenses to be advanced may be billed in the name of and be payable directly
by the Company.
5.
pursuant to the terms of this Agreement:
Exceptions. Any other provision herein to the contrary notwithstanding, Indemnitor shall not be obligated
(a)
(b)
(c)
(d)
(e)
Excluded Action or Omission. To indemnify Indemnitee for Indemnitee’s acts, omissions or
transactions from which Indemnitee may not be relieved of liability under applicable law;
Liability to Company. To indemnify Indemnitee for Expenses in a Proceeding brought by or in the
right of the Company in which Indemnitee is finally adjudicated to be liable to the Company;
Claims Initiated by Indemnitee. To indemnify Indemnitee or to advance Indemnitee’s Expenses in
connection with a Proceeding brought by Indemnitee against the Company except (i) for
proceedings brought to enforce an Indemnitee’s right to indemnification under this Agreement or
applicable law; or (ii) if the Company’s charter documents or corporate action expressly approve
otherwise;
Improper Personal Benefit. To indemnify Indemnitee in respect of any Proceeding in which
Indemnitee is finally adjudicated to have received an improper personal benefit, whether or not the
Proceeding involves action by the Indemnitee in its Corporate Status; and
Standard of Conduct. To indemnify Indemnitee in respect of any proceeding where (i) the act or
omission of the Indemnitee was material to the matter giving rise to the Proceeding and (x) was
committed in bad faith or (y) was the result of active and deliberate dishonesty; (ii) the Indemnitee
actually received an improper personal benefit in money, property or services; or (iii) in the case
of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or
omission was unlawful.
6.
Determination of Entitlement to and Authorization of Indemnification.
(a)
(b)
Request for Indemnification. To obtain indemnification under this Agreement, the Indemnitee
shall submit to the Company a request for indemnification, which shall be written if requested by
the Company, including therewith such documentation and information reasonably necessary to
determine whether and to what extent the Indemnitee is entitled to indemnification.
Determination of Entitlement. The Company shall indemnify the Indemnitee in accordance with
the provisions of paragraphs 2 or 3 hereof, unless, as applicable it is established that, for
indemnification other than under paragraph 3, one or more of the exceptions under paragraph 5 are
applicable. Indemnification under this Agreement may not be made unless authorized for a
specific Proceeding after a determination has been made that indemnification of the Indemnitee is
permissible in the circumstances because the Indemnitee has met the applicable standard of
conduct (if any). Upon receipt by the Company of the Indemnitee’s request for indemnification
pursuant to subparagraph 6(a), a determination as to whether the applicable standard of conduct
has been met shall be made within the period specified in paragraph 6(e): (i) if a Change in
Control shall have occurred, by Special Legal Counsel in a written opinion to the Board of
Trustees, a copy of which shall be delivered to the Indemnitee; or (ii) if a Change in Control shall
not have occurred, by one of the following methods: (A) by the Board of Trustees by a majority
vote of a quorum consisting of trustees not, at the time, parties to the Proceeding, or, if such
quorum cannot be obtained, then by a majority vote of a committee of the Board of Trustees
consisting solely of one or more trustees not, at the time, parties to such Proceeding and who were
duly designated to act in the matter by a majority vote of the full Board of Trustees in which the
designated trustees who are parties may participate, (B) by Special Legal Counsel in a written
opinion to the Board of Trustees, a copy of which shall be delivered to the Indemnitee, or (C) by
the shareholders of the Company. If it is so determined that the Indemnitee is entitled to
4
(c)
(d)
(e)
indemnification, payment to the Indemnitee shall be made within 10 days after such
determination.
Expenses of Determination. The Indemnitee shall cooperate with the person or entity making such
determination with respect to the Indemnitee’s entitlement to indemnification, including providing
upon reasonable advance request any documentation or information which is not privileged or
otherwise protected from disclosure and which is reasonably available to the Indemnitee and
reasonably necessary to such determination. Any reasonable costs or expenses (including
reasonable attorneys’ fees and disbursements) incurred by the Indemnitee in so cooperating shall
be borne by the Company (irrespective of the determination as to the Indemnitee’s entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold the Indemnitee’s
harmless therefrom.
Objection to Special Legal Counsel; Expenses; Discharge of Special Legal Counsel. In the event
the determination of entitlement to indemnification is to be made by Special Legal Counsel
pursuant to paragraph 6(b) hereof, the Indemnitee may, within seven days after such written notice
of selection shall have been given, deliver to the Company a written objection to such selection.
Such objection may be asserted only on the grounds that the Special Legal Counsel so selected
does not meet the requirements of “Special Legal Counsel” as defined in paragraph 1 of this
Agreement. If such written objection is made, the Special Legal Counsel so selected may not
serve as Special Legal Counsel until a court has determined that such objection is without merit.
If, within 20 days after submission by the Indemnitee of a request for indemnification pursuant to
paragraph 6(a) hereof, no Special Legal Counsel shall have been selected or, if selected, shall have
been objected to, either the Company or the Indemnitee may petition a court for resolution of any
objection which shall have been made to the selection of Special Legal Counsel and/or for the
appointment as Special Legal Counsel of a person selected by the court or by such other person as
the court shall designate, and the person with respect to whom an objection is so resolved or the
person so appointed shall act as Special Legal Counsel under paragraph 6(b) hereof. The
Company shall pay all reasonable fees and expenses of Special Legal Counsel incurred in
connection with acting pursuant to paragraph 6(b) hereof, and all reasonable fees and expenses
incident to the selection of such Special Legal Counsel pursuant to this paragraph 6(d). In the
event that a determination of entitlement to indemnification is to be made by Special Legal
Counsel and such determination shall not have been made and delivered in a written opinion
within ninety (90) days after the receipt by the Company of the Indemnitee’s request in
accordance with paragraph 6(a), upon the due commencement of any judicial proceeding in
accordance with paragraph 8(a) of this Agreement, Special Legal Counsel shall be discharged and
relieved of any further responsibility in such capacity.
Timing of Determination. If the person or entity making the determination whether the Indemnitee
is entitled to indemnification shall not have made a determination within 60 days after receipt by
the Company of the request therefor, the requisite determination of entitlement to indemnification
shall be deemed to have been made and the Indemnitee shall be entitled to such indemnification,
absent: (i) a misstatement by the Indemnitee of a material fact, or an omission of a material fact
necessary to make the Indemnitee’s statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
Such 60-day period may be extended for a reasonable time, not to exceed an additional 30 days, if
the person or entity making said determination in good faith requires additional time for the
obtaining or evaluating of documentation and/or information relating thereto. The foregoing
provisions of this paragraph 6(e) shall not apply: (i) if the determination of entitlement to
indemnification is to be made by the shareholders and if within 15 days after receipt by the
Company of the request for such determination the Board of Trustees resolves to submit such
determination to the shareholders for consideration at an annual or special meeting thereof to be
held within 75 days after such receipt and such determination is made at such meeting, or (ii) if the
determination of entitlement to indemnification is to be made by Special Legal Counsel pursuant
to paragraph 6(b) of this Agreement.
5
7.
Presumptions.
(a)
Indemnification.
In making a determination with respect to entitlement or authorization of
indemnification hereunder, the person or entity making such determination shall presume that the
Indemnitee is entitled to indemnification under this Agreement and the Company shall have the
burden of proof to overcome such presumption.
(b)
Certain terminations of Proceedings. The termination of any Proceeding by conviction, or upon a plea
of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a
rebuttable presumption that the Indemnitee did not meet the requisite standard of conduct for
permissive indemnification under Section 2-418(b) of the Maryland Corporations Code.
8.
Remedies.
(a)
(b)
(c)
(d)
(e)
Indemnitee’s right to adjudication. In the event that: (i) a determination is made in accordance
with the provisions of paragraph 6 that the Indemnitee is not entitled to indemnification under this
Agreement, or (ii) advancement of reasonable Expenses is not timely made pursuant to this
Agreement, or (iii) payment of indemnification due the Indemnitee under this Agreement is not
timely made, the Indemnitee shall be entitled to an adjudication in an appropriate court of
competent jurisdiction of such Indemnitee’s entitlement to such indemnification or advancement
of Expenses.
x
De novo trial. In the event that a determination shall have been made pursuant to paragraph 6 of
this Agreement that the Indemnitee is not entitled to indemnification, any judicial proceeding
commenced pursuant to this paragraph 8 shall be conducted in all respects as a de novo trial on the
merits. The fact that a determination had been made earlier pursuant to paragraph 6 of this
Agreement that the Indemnitee was not entitled to indemnification shall not be taken into account
in any judicial proceeding commenced pursuant to this paragraph 8 and the Indemnitee shall not
be prejudiced in any way by reason of that adverse determination. In any judicial proceeding
commenced pursuant to this paragraph 8, the Company shall have the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.
Company right to adjudication. If a determination shall have been made or deemed to have been
made pursuant to this Agreement that the Indemnitee is entitled to indemnification, the Company
shall be bound by such determination in any judicial proceeding commenced pursuant to this
paragraph 8, absent: (i) a misstatement by the Indemnitee of a material fact, or an omission of a
material fact necessary to make the Indemnitee’s statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
Terms of Agreement. The Company shall be precluded from asserting in any judicial proceeding
commenced pursuant to this paragraph 8 that the procedures and presumptions of this Agreement
are not valid, binding and enforceable and shall stipulate in any such court that the Company is
bound by all the provisions of this Agreement.
Expenses. In the event that the Indemnitee, pursuant to this paragraph 8, seeks to enforce such
Indemnitee’s rights for indemnification, advance payment or reimbursement of expenses under, or
to recover damages for breach of, or for claims brought under: (1) the Company’s charter
documents; (2) Directors’ and officers’ liability insurance policies maintained by the Company;
(3) this Agreement and/or (4) applicable law, the Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company against, any and all reasonable Expenses
actually incurred by such Indemnitee in connection with each such enforcement action, subject at
all times to the exceptions set forth in paragraph 5. In addition, the Company shall, if requested by
Indemnitee, advance Expenses related to such enforcement actions by Indemnitee (subject to the
exceptions of paragraph 5). To the extent permissible under third party policies, the Company
6
agrees that invoices for Expenses to be advanced may be billed in the name of and be payable
d
directly by the Company.
9.
Notification and Defense of Claims. The Indemnitee agrees promptly to notify the Company upon being
served with any summons, citation, subpoena, complaint, indictment, information, or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder, but
the failure so to notify the Company will not relieve the Company from any liability that the Company may have to
Indemnitee under this Agreement unless the Company is materially prejudiced thereby. With respect to any such
Proceeding as to which Indemnitee notifies the Company of the commencement thereof:
(a)
(b)
Company participation. The Company will be entitled to participate therein at its own expense.
Defense. Except as otherwise provided below, the Company will be entitled to assume the defense
thereof, with counsel reasonably satisfactory to Indemnitee. After notice from the Company to
Indemnitee of the Company’s election so to assume the defense thereof, the Company will not be
liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred
by Indemnitee in connection with the defense thereof other than reasonable costs of investigation
or as otherwise provided below. Indemnitee shall have the right to employ Indemnitee’s own
counsel in such Proceeding, but the fees and disbursements of such counsel incurred after notice
from the Company of the Company’s assumption of the defense thereof shall be at the expense of
Indemnitee unless (i) the employment by counsel by Indemnitee has been authorized by the
Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of the defense of such action,
(iii) such Proceeding seeks penalties or other relief against the Indemnitee with respect to which
the Company could not provide monetary indemnification to the Indemnitee (such as injunctive
relief or incarceration) or (iv) the Company shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and disbursements of counsel shall be at the
expense of the Company. The Company shall not be entitled to assume the defense of any
Proceeding brought by or on behalf of the Company, or as to which Indemnitee shall have reached
the conclusion specified in clause (ii) above, or which involves penalties or other relief against
Indemnitee of the type referred to in clause (iii) above.
(c)
Settlement of Claims. The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim effected without the
Company’s prior written consent. The Company shall not settle any action or claim in any manner
that would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent.
Neither the Company nor Indemnitee will unreasonably withhold or delay co
nsent to any proposed
settlement.
y
10.
Non-Exclusivity; Survival of Rights; Insurance Subrogation.
(a)
Non-exclusive remedy. The rights of indemnification and to receive advancement of reasonable
Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to
which the Indemnitee may at any time be entitled under applicable law, the Declaration of Trust,
the Bylaws, any other agreement, a vote of shareholders, a resolution of the Board of Trustees or
otherwise, except that any payments otherwise required to be made by the Company hereunder
shall be offset by any and all amounts received by the Indemnitee from any other indemnitor or
under one or more liability insurance policies maintained by an indemnitor or otherwise and shall
not be duplicative of any other payments received by an Indemnitee from the Company in respect
of the matter giving rise to the indemnity hereunder. No amendment, alteration or repeal of this
Agreement or any provision hereof shall be effective as to the Indemnitee with respect to any
action taken or omitted by the Indemnitee as a member of the Board of Trustees prior to such
amendment, alteration or repeal.
(b)
Insurance coverage. To the extent that the Company maintains an insurance policy or policies
providing liability insurance for trustees, directors, officers, employees or agents of the Company
7
or its subsidiaries, the Indemnitee shall be covered by such policy or policies in accordance with
its or their terms to the maximum extent of the coverage available and upon any “Change in
Control” the Company shall use commercially reasonable efforts to obtain or arrange for
continuation and/or “tail” coverage for the Indemnitee to the maximum extent obtainable at such
time.
Subrogation. In the event of any payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who
shall execute all papers required and take all actions necessary to secure such rights, including
execution of such documents as are necessary to enable the Company to bring suit to enforce such
rights.
Other Reimbursements. The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that the Indemnitee
has otherwise actually received such payment under any insurance policy, contract, agreement, or
otherwise.
r
(c)
(d)
11.
Continuation of Indemnity.
(a)
(b)
Indemnity Period. All agreements and obligations of the Company contained herein shall
continue during the period the Indemnitee is an officer, director or a member of the Board of
Trustees of the Company or its subsidiaries and shall continue thereafter so long as the Indemnitee
shall be subject to any threatened, pending or completed Proceeding by reason of such
Indemnitee’s Corporate Status and during the period of statute of limitations for any act or
omission occurring during the Indemnitee’s term of Corporate Status. This Agreement shall be
binding upon the Company and its successors and assigns and shall inure to the benefit of the
Indemnitee and such Indemnitee’s heirs, executors and administrators.
Successor Obligation. The Company shall require and cause any successor (whether direct or
indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial
part, of the business and/or assets of the Company, by written agreement in form and substance
reasonably satisfactory to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place.
12.
Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal, or
unenforceable for any reason whatsoever, (i) the validity, legality, and enforceability of the remaining provisions of
this Agreement (including, without limitation, each portion of any paragraph of this Agreement containing any such
provision held to be invalid, illegal, or unenforceable, that is not itself invalid, illegal, or unenforceable) shall not in
any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any paragraph of this Agreement containing any such provision held
to be invalid, illegal, or unenforceable, that is not itself invalid, illegal, or unenforceable) shall be construed so as to
give effect to the intent manifested by the provisions held invalid, illegal, or unenforceable.
13.
Exception to Right of Indemnification or Advancement of Expenses. Notwithstanding any other
provisions of this Agreement, the Indemnitee shall not be entitled to indemnification or advancement of reasonable
Expenses under this Agreement with respect to any Proceeding either as described in paragraph 5 or if the charter or
bylaws of the Trust, a resolution of the Board of Trustees, or an agreement approved by the Board of Trustees
expressly provide otherwise.
14.
Notice to Company Shareholders. Any indemnification of, or advancement of reasonable Expenses, to an
Indemnitee in accordance with this Agreement, if arising out of a Proceeding by or in the right of the Company,
shall be reported in writing to the shareholders of the Company.
Headings. The headings of the paragraph of this Agreement are inserted for convenience only and shall not
15.
be deemed to constitute part of this Agreement or to affect the construction thereof.
8
16. Modification and Waiver. No supplement, modification, or amendment of this Agreement shall be binding
unless executed in writing by each of the parties hereto. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
17.
Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall
be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or
other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on
the third business day after the date on which it is so mailed, if so delivered or mailed, as the case may be, to the
following addresses:
If to the Indemnitee, to the address set forth in the records of the Company.
If to the Company, to:
Public Storage
701 Western Avenue
Glendale, CA 91201
Attention: Chief Legal Officer
Fax No.: (818) 548-9288
or to such other address as may have been furnished to the Indemnitee by the Company or to the Company by the
Indemnitee, as the case may be.
18.
in accordance with, the laws of the State of Maryland, without application of the conflict of laws principles thereof.
Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced
f
19.
No Assignments. The Indemnitee may not assign its rights or delegate obligations under this Agreement
without the prior written consent of the Company. Any assignment or delegation in violation of this Section 19 shall
be null and void.
No Third Party Rights. Nothing expressed or referred to in this Agreement will be construed to give any
20.
person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to
r
this Agreement or any provision of this Agreement. This Agreement and all of its provisions are for the sole and
exclusive benefit of the parties to this Agreement and their successors and permitted assigns.
21.
deemed an original, but all of which together constitute an agreement binding on all of the parties hereto.
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be
r
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first
f
above written.
PUBLIC STORAGE
By:
Name:
Title:
Lily Yan Hughes
Senior Vice President, Chief Legal Officer and
Corporate Secretary
INDEMNITEE:
10
PUBLIC STORAGE
EXHIBIT 12 – STATEMENT RE: COMPUTATION OF RAT
–
IO OF EARNINGS TO FIXED CHARGES
2016
2015
2014
2013
2012
Year Ended December 31,
Income from continuing operations
$
1,460,439
$
1,317,689
$
1,149,955
$
1,057,531
$
930,161
Less: Income allocated to noncontrolling interests
which do not have fixed charges
Equity in earnings of unconsolidated real
estate entities
Add back: Distributions from retained earnings of
unconsolidated real estate entities
Interest expense
(6,475)
(6,088)
(5,432)
(4,883)
(3,505)
(56,756)
(50,937)
(88,267)
(57,579)
(45,586)
84,397
4,210
35,695
610
83,458
6,781
45,870
6,444
44,682
19,813
Total earnings available to cover fixed charges
$
1,485,815
$
1,296,969
$
1,146,495
$
1,047,383
$
945,565
Total fixed charges - interest expense (including
capitalized interest)
Cumulative preferred share cash dividends
Allocations pursuant to EITF Topic D-42
Total preferred distributions
Total combined fixed charges and preferred share
income allocations
Ratio of earnings to fixed charges
Ratio of earnings to fixed charges and preferred share
$
$
$
$
9,359 $
3,299 $
8,340 $
9,339 $
20,210
238,214
$
245,097
$
232,636
$
204,312
$
205,241
26,873
8,897
265,087
$
253,994
$
-
232,636
-
61,696
$
204,312
$
266,937
274,446
$
257,293
$
240,976
$
213,651
$
287,147
158.76 x
393.14 x
137.47 x
112.15 x
46.79 x
income allocations
5.41 x
5.04 x
4.76 x
4.90 x
3.29 x
Exhibit 12
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1)
(2)
(3)
(4)
(5)
(6)
Registration Statement on Form S-3ASR (No. 333-211758) and related prospectus,
Registration Statement on Form S-3ASR (No. 333-189100) and related prospectus,
Registration Statement on Form S-8 (No. 333-210937) and related prospectus of Public Storage
for the registration of common shares of beneficial interest pertaining to the Public Storage 2016
Equity and Performance-Based Incentive Compensation Plan,
Registration Statement on Form S-8 (No. 333-195646) and related prospectus of Public Storage
for the registration of common shares of beneficial interest pertaining to the Public Storage 2007
Equity and Performance-Based Incentive Compensation Plan as Amended,
Registration Statement on Form S-8 (No.333-144907) and related prospectus of Public Storage for
the registration of common shares of beneficial interest pertaining to the Public Storage 2007
Equity and Performance-Based Incentive Compensation Plan, and
Post-effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement (No. 333-
141448) for the registration of common shares of beneficial interest pertaining to the Public
Storage, Inc. 2001 Stock Option and Incentive Plan, Public Storage, Inc. 2001 Non-
Executive/Non-Director Stock Option and Incentive Plan, Public Storage, Inc. 2000 Non-
Executive/Non-Director Stock Option and Incentive Plan, Public Storage, Inc. 1996 Stock Option
and Incentive Plan, PS 401(k) Profit Sharing Plan, Shurgard Storage Centers, Inc. 2004 Long
Term Incentive Plan, Shurgard Storage Centers, Inc. 2000 Long Term Incentive Plan, Shurgard
Storage Centers, Inc. 1995 Long Term Incentive Compensation Plan;
f
of our reports dated February 28, 2017, with respect to the consolidated financial statements and schedule of Public
Storage and the effectiveness of internal control over financial reporting of Public Storage included in this Annual
Report (Form 10-K) of Public Storage for the year ended December 31, 2016.
/s/ ERNST & YOUNG LLP
February 28, 2017
Los Angeles, California
RULE 13A – 14(a) CERTIFICATION
–
I, Ronald L. Havner, Jr., certify that:
1.
I have reviewed this Annual Report on Form 10-K of Public Storage;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
/s/ Ronald L. Havner, Jr.
Name: Ronald L. Havner, Jr.
Title: Chairman and Chief Executive Officer
Date:
February 28, 2017
Exhibit 31.1
RULE 13A – 14(a) CERTIFICATION
–
I, John Reyes, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Public Storage;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
/s/ John Reyes
Name: John Reyes
Title: Chief Financial Officer
Date:
February 28, 2017
Exhibit 31.2
SECTION 1350 CERTIFICATION
In connection with the Annual Report on Form 10-K of Public Storage (the “Company”) for the year ended
December 31, 2016, as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the
“Report”), Ronald L. Havner, Jr., as Chairman and Chief Executive Officer of the Company and John Reyes, as
Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to
§906 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), that:
(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Ronald L. Havner, Jr.
Name: Ronald L. Havner, Jr.
Title: Chairman and Chief Executive Officer
Date:
February 28, 2017
/s/ John Reyes
Name: John Reyes
Title: Chief Financial Officer
Date:
February 28, 2017
This certification accompanies the Report pursuant to §906 of Sarbanes-Oxley and shall not, except to the extent
required by Sarbanes-Oxley, be deemed filed by the Company for purposes of §18 of the Exchange Act.
A signed original of this written statement required by §906 of Sarbanes-Oxley has been provided to the Company,
and will be retained and furnished to the SEC or its staff upon request.
Exhibit 32
C O R P O R AT E D ATA (as of February 28, 2017)
Trustees
Executive Officers
Ronald L. Havner, Jr. (2002)
Chairman of the Board and Chief Executive
Officer
Ronald L. Havner, Jr.
Chairman of the Board and Chief Executive
Officer
Tamara Hughes Gustavson (2008)
Real Estate Investor, Philanthropist
Joseph D. Russell, Jr.
President
Uri P. Harkham (1993)
Chief Executive Officer, Harkham Family
Enterprises
John Reyes
Senior Vice President and Chief Financial Officer
Corporate Headquarters
701 Western Avenue
Glendale, CA 91201-2349
Investor Relations
Additional information contact
Clemente Teng
Vice President of Investor Services
(818) 244-8080
Leslie S. Heisz (2017)
Retired Managing Director of
ere
Lazard Freres & Co.
B. Wayne Hughes, Jr. (1998)
Founder, American Commercial
Equities, LLC
Avedick B. Poladian (2010)
Retired Executive Vice President and
Chief Operating Officer, Lowe Enterprises, Inc.
Gary E. Pruitt (2006)
Retired Chairman and Chief Executive
Officer, Univar N.V.
Ronald P. Spogli (2010)
Co-Founder, Freeman Spogli & Co.
Daniel C. Staton (1999)
Chairman and Managing Director,
Staton Capital
( ) = Year trustee was elected to the Board
Founder and Chairman Emeritus
B. Wayne Hughes
Certifications
The most recent certifications by our Chief
Executive Officer and Chief Financial
Officer pursuant to Sections 302 and 906 of
the Sarbanes-Oxley Act of 2002 are filed as
exhibits to our Form 10-K. Our Chief
Executive Officer’s most recent annual certi-
fication to the New York Stock Exchange
was submitted on May 16, 2016.
David F. Doll
Senior Vice President and President,
Real Estate Group
Lily Yan Hughes
Senior Vice President, Chief Legal Officer and
Corporate Secretary
Candace N. Krol
Senior Vice President and Chief Human Resources s
Officer
PS Insurance
Capri L. Haga
President
Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 30170
College Station, TX 77842-3170
(781) 575-3120
Shareholder website:
http://www.computershare.com/investor
Shareholder online inquiries:
https://www-us.computershare.com/investor/contact
Independent Registered Public
Accounting Firm
Ernst & Young LLP
Los Angeles, CA
Shurgard Self Storage S.C.A. (Europe)
Marc Oursin
Chief Executive Officer
PS Business Parks, Inc.
Maria R. Hawthorne
President and Chief Executive Officer
Annual Meeting of Shareholders
The Annual Meeting of Shareholders of
Public Storage will be held on April 26, 2017
at 2:00 p.m. at the Hilton Los Angeles
North/Glendale, 100 West Glenoaks
Boulevard, Glendale, CA.
Stock Exchange Listing
The Company’s Common Shares trade under
ticker symbol PSA on the New York Stock
Exchange.
Additional Information Sources
The Company’s website, www.publicstorage.com,
contains financial information of interest to
shareholders, brokers and others.
Public Storage is a member and active
supporter of the National Association of Real
Estate Investment Trusts.
Public Storage
701 Western Avenue, Glendale, California 91201-2349
(cid:8)(cid:24)(cid:17)(cid:24)(cid:9)(cid:0)(cid:18)(cid:20)(cid:20)(cid:13)(cid:24)(cid:16)(cid:24)(cid:16)(cid:0)(cid:0)(cid:115)(cid:0)(cid:0)(cid:87)(cid:87)(cid:87)(cid:14)(cid:80)(cid:85)(cid:66)(cid:76)(cid:73)(cid:67)(cid:83)(cid:84)(cid:79)(cid:82)(cid:65)(cid:71)(cid:69)(cid:14)(cid:67)(cid:79)(cid:77)
(SKU 002CSN7A02)