UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2014

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	95-3551121
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
701 Western Avenue, Glendale, California	91201-2349
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:  (818) 244-8080.

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 at least the past 90 days.

[X]  Yes  [   ]  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).

[X]  Yes  [   ]  No

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  [X]  No

Indicate the number of the registrant’s outstanding common shares of beneficial interest, as of November 2, 2014:

Common Shares of beneficial interest, $.10 par value per share – 172,725,666 shares

PUBLIC STORAGE
INDEX
PART I	FINANCIAL INFORMATION	Pages
Item 1.	Financial Statements (Unaudited)
	Balance Sheets at September 30, 2014 and December 31, 2013	1
	Statements of Income for the Three and NineMonths Ended September 30, 2014 and 2013	2
	Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013	3
	Statement of Equity for the Nine Months Ended September 30, 2014	4
	Statements of Cash Flows for the NineMonths Ended September 30, 2014 and 2013	5-6
	Condensed Notes to Financial Statements	7-28
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29-56
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4.	Controls and Procedures	57
PART II	OTHER INFORMATION (Items 3, 4 and 5 are not applicable)
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 6.	Exhibits	58

PUBLIC STORAGE

BALANCE SHEETS

(Amounts in thousands, except share data)

(Unaudited)

	September 30,		December 31,
	2014		2013
ASSETS
Cash and cash equivalents	$	98,252	$	19,169
Real estate facilities, at cost:
Land		3,421,473		3,321,236
Buildings		9,243,560		8,965,020
		12,665,033		12,286,256
Accumulated depreciation		(4,384,959)		(4,098,814)
		8,280,074		8,187,442
Construction in process		72,521		52,336
		8,352,595		8,239,778
Investments in unconsolidated real estate entities		837,624		856,182
Goodwill and other intangible assets, net		229,984		246,854
Loan receivable from Shurgard Europe		-		428,139
Other assets		106,013		86,144
Total assets	$	9,624,468	$	9,876,266
LIABILITIES AND EQUITY
Borrowings on bank credit facility	$	-	$	50,100
Term loan		-		700,000
Notes payable		71,632		88,953
Accrued and other liabilities		260,461		218,358
Total liabilities		332,093		1,057,411
Commitments and contingencies (Note 12)
Equity:
Public Storage shareholders’ equity:
Preferred Shares, $0.01 par value, 100,000,000 shares authorized,
165,400 shares issued (in series) and outstanding,  (142,500 at
December 31, 2013), at liquidation preference		4,135,000		3,562,500
Common Shares, $0.10 par value, 650,000,000 shares authorized,
172,418,434 shares issued and outstanding(171,776,291 shares at
December 31, 2013)		17,242		17,178
Paid-in capital		5,559,746		5,531,034
Accumulated deficit		(417,663)		(318,482)
Accumulated other comprehensive loss		(27,895)		(500)
Total Public Storage shareholders’ equity		9,266,430		8,791,730
Noncontrolling interests		25,945		27,125
Total equity		9,292,375		8,818,855
Total liabilities and equity	$	9,624,468	$	9,876,266

See accompanying notes.

1

PUBLIC STORAGE

STATEMENTS OF INCOME

(Amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Revenues:
Self-storage facilities	$	534,271	$	477,978	$	1,520,661	$	1,369,219
Ancillary operations		37,325		33,979		108,596		99,016
		571,596		511,957		1,629,257		1,468,235
Expenses:
Self-storage cost of operations		146,979		136,751		445,474		409,881
Ancillary cost of operations		13,014		11,052		39,592		30,882
Depreciation and amortization		111,077		96,537		326,541		278,475
General and administrative		17,874		17,650		52,240		49,988
		288,944		261,990		863,847		769,226
Operating income		282,652		249,967		765,410		699,009
Interest and other income		749		5,608		4,151		16,705
Interest expense		(1,238)		(478)		(6,781)		(4,622)
Equity in earnings of unconsolidated real
estate entities		14,566		14,269		43,305		39,013
Foreign currency exchange (loss) gain		(3,012)		16,094		(7,035)		9,281
Gain on real estate sales		1,260		168		2,479		168
Net income		294,977		285,628		801,529		759,554
Allocation to noncontrolling interests		(1,518)		(1,430)		(4,040)		(3,670)
Net income allocable to Public Storage shareholders		293,459		284,198		797,489		755,884
Allocation of net income to:
Preferred shareholders		(60,763)		(51,907)		(170,942)		(152,404)
Restricted share units		(881)		(930)		(2,328)		(2,498)
Net income allocable to common shareholders	$	231,815	$	231,361	$	624,219	$	600,982
Net income allocable to common shareholders
per common share:
Basic	$	1.34	$	1.35	$	3.63	$	3.50
Diluted	$	1.34	$	1.34	$	3.61	$	3.48
Basic weighted average common shares outstanding		172,378		171,721		172,190		171,597
Diluted weighted average common shares
outstanding		173,304		172,793		173,098		172,651
Cash dividends declared per common share	$	1.40	$	1.25	$	4.20	$	3.75

See accompanying notes.

2

PUBLIC STORAGE

STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Net income	$	294,977	$	285,628	$	801,529	$	759,554
Other comprehensive income (loss):
Aggregate foreign currency exchange (loss) gain		(26,339)		34,135		(34,430)		5,805
Adjust for foreign currency exchange loss (gain)
included in net income		3,012		(16,094)		7,035		(9,281)
Other comprehensive (loss) income		(23,327)		18,041		(27,395)		(3,476)
Total comprehensive income		271,650		303,669		774,134		756,078
Allocation to noncontrolling interests		(1,518)		(1,430)		(4,040)		(3,670)
Comprehensive income allocable to Public Storage shareholders	$	270,132	$	302,239	$	770,094	$	752,408

See accompanying notes.

3

PUBLIC STORAGE

STATEMENT OF EQUITY

(Amounts in thousands, except share and per share amounts)

(Unaudited)

				Accumulated	Total
Cumulative				Other	Public Storage
Preferred	Common	Paid-in	Accumulated	Comprehensive	Shareholders’	Noncontrolling	Total
Shares	Shares	Capital	Deficit	Loss	Equity	Interests	Equity

Balances at December 31, 2013	$	3,562,500	$	17,178	$	5,531,034	$	(318,482)	$	(500)	$	8,791,730	$	27,125	$	8,818,855
Issuance of 22,900 preferred shares (Note 8)		572,500		-		(17,394)		-		-		555,106		-		555,106
Issuance of common shares in connection with
share-based compensation (642,143 shares)
(Note 10)		-		64		35,846		-		-		35,910		-		35,910
Share-based compensation expense, net of cash
paid in lieu of common shares (Note 10)		-		-		10,260		-		-		10,260		-		10,260
Net income		-		-		-		801,529		-		801,529		-		801,529
Net income allocated to noncontrolling interests		-		-		-		(4,040)		-		(4,040)		4,040		-
Distributions to equity holders:
Preferred shares (Note 8)		-		-		-		(170,942)		-		(170,942)		-		(170,942)
Noncontrolling interests		-		-		-		-		-		-		(5,220)		(5,220)
Common shares and restricted share units
($4.20 per share)		-		-		-		(725,728)		-		(725,728)		-		(725,728)
Other comprehensive loss (Note 2)		-		-		-		-		(27,395)		(27,395)		-		(27,395)
Balances at September 30, 2014	$	4,135,000	$	17,242	$	5,559,746	$	(417,663)	$	(27,895)	$	9,266,430	$	25,945	$	9,292,375

See accompanying notes.

4

PUBLIC STORAGE

STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2014		2013
Cash flows from operating activities:
Net income	$	801,529	$	759,554
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on real estate sales		(2,479)		(168)
Depreciation and amortization		326,541		278,475
Distributions received from unconsolidated real estate entities less
than equity in earnings		(7,852)		(5,182)
Foreign currency exchange loss (gain)		7,035		(9,281)
Other		28,375		16,265
Total adjustments		351,620		280,109
Net cash provided by operating activities		1,153,149		1,039,663
Cash flows from investing activities:
Capital expenditures to maintain real estate facilities		(63,599)		(55,883)
Construction in process		(80,027)		(78,578)
Acquisition of real estate facilities and intangibles (Note 3)		(271,228)		(392,380)
Investment in unconsolidated real estate entities		-		(29,752)
Proceeds from sale of real estate investments		2,581		257
Disposition of portion of loan receivable from Shurgard Europe		216,217		-
Repayments of loan receivable from Shurgard Europe		204,947		-
Other		891		9,674
Net cash provided by (used in) investing activities		9,782		(546,662)
Cash flows from financing activities:
Repayments on bank credit facility		(50,100)		(133,000)
Repayments on term loan		(700,000)		-
Repayments on notes payable		(21,994)		(234,936)
Issuance of common shares		35,910		20,482
Issuance of preferred shares		555,106		701,687
Acquisition of noncontrolling interests		-		(4,482)
Distributions paid to Public Storage shareholders		(896,670)		(798,300)
Distributions paid to noncontrolling interests		(5,220)		(4,844)
Net cash used in financing activities		(1,082,968)		(453,393)
Net increase in cash and cash equivalents		79,963		39,608
Net effect of foreign exchange translation on cash and cash equivalents		(880)		118
Cash and cash equivalents at the beginning of the period		19,169		17,239
Cash and cash equivalents at the end of the period	$	98,252	$	56,965

See accompanying notes.

5

PUBLIC STORAGE

STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2014		2013
Supplemental schedule of non-cash investing and financing activities:
Foreign currency translation adjustment:
Real estate facilities, net of accumulated depreciation	$	165	$	(9)
Investments in unconsolidated real estate entities		26,410		3,768
Loan receivable from Shurgard Europe		6,975		(9,446)
Accumulated other comprehensive (loss) income		(34,430)		5,805
Real estate acquired in exchange for assumption of note payable		(5,097)		-
Note payable assumed in connection with acquisition of real estate		5,097		-

See accompanying notes.

6

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

1.Description of the Business

Public Storage (referred to herein as “the Company”, “we”, “us”, or “our”), a Maryland real estate investment trust, was organized in 1980.  Our principal business activities include the acquisition, development, 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. 

At September 30, 2014, we have direct and indirect equity interests in 2,234self-storage facilities (with approximately 144 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 187 self-storage facilities (with approximately 10 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 31 million net rentable square feet of commercial space located in 11 states in the U.S. primarily owned and operated by PS Business Parks, Inc. (“PSB”) under the “PS Business Parks” name.  At September 30, 2014, we have an approximate 42% common equity interest in PSB.

Disclosures of the number and square footage of properties, as well as the number and coverage of tenant reinsurance policies 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 accompanying unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as defined in the Financial Accounting Standards Board Accounting Standards Codification (the “Codification”), including guidance with respect to interim financial information and in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X.  While they do not include all of the disclosures required by GAAP for complete financial statements, we believe that we have included all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation.  Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 due to seasonality and other factors.  These interim financial statements should be read together with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

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 where the equity holders as a group do not have a controlling financial interest.  We have no investments or other involvement in any VIEs. 

We consolidate all entities that we control (these entities, 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 have significant influence over, but do not control, using the

7

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

equity method of accounting (these entities, for the periods in which the reference applies, are referred to collectively as the “Unconsolidated Real Estate Entities”), eliminating intra-entity profits and losses and amortizing any differences between the cost and the underlying equity in net assets against equity in earnings as if the Unconsolidated Real Estate Entity were a consolidated subsidiary.  When we obtain control of an Unconsolidated Real Estate Entity, we commence consolidating the entity and record a gain representing the differential between the book value and fair value of our preexisting equity interest.  All changes in consolidation status are reflected prospectively.

When we are general partner, we control the partnership unless the third-party limited partners can dissolve the partnership or otherwise remove us as general partner without cause, or if the limited partners have the right to participate in substantive decisions of the partnership. 

Collectively, at September 30, 2014, the Company and the Subsidiaries own 2,221 self-storage facilities in the U.S., one self-storage facility in London, England and five commercial facilities in the U.S.  At September 30, 2014, the Unconsolidated Real Estate Entities are comprised of PSB, Shurgard Europe, as well as limited partnerships that own an aggregate of 13 self-storage facilities in the U.S. (these limited partnerships, for the periods in which the reference applies, are referred to as the “Other Investments”).

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 real estate investment trust (“REIT”), as defined in the Internal Revenue 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, and if we meet certain organizational and operational rules.  We believe we will meet these REIT requirements in 2014, and that we have met them for all other 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 September 30, 2014, 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 develop, construct, renovate and improve properties, including interest and property taxes incurred during the construction period.  We expense internal and external transaction costs associated with acquisitions or dispositions of real estate, as well as repairs and maintenance costs, as incurred.  We depreciate buildings and improvements on a straight-line basis over estimated useful lives ranging generally between 5 to 25 years.

8

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

We allocate the net acquisition cost of acquired operating self-storage facilities to the underlying land, buildings, identified intangible assets, and remaining noncontrolling interests based upon their respective individual estimated fair values.  Any difference between the net acquisition cost and the estimated fair value of the net tangible and intangible assets acquired is recorded as goodwill.

Other Assets

Other assets primarily consist of prepaid expenses, accounts receivable, land held for sale and restricted cash. 

Accrued and Other Liabilities

Accrued and other liabilities consist primarily of trade payables, property tax accruals, tenant prepayments of rents, accrued interest payable, accrued payroll, accrued tenant reinsurance losses, casualty losses, and contingent loss accruals which are accrued when probable and estimable.  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.  Commercial paper not maturing within three months of acquisition, which we intend and have the capacity to hold until maturity, are included in marketable securities and accounted for using the effective interest method.  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 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 Accounting

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.  We prioritize the inputs used in measuring fair value based upon a three-tier hierarchy described in Codification Section 820-10-35. 

We believe that, during all periods presented, the carrying values approximate the fair values of our cash and cash equivalents, marketable securities, other assets, and accrued and other liabilities, based upon our evaluation of the underlying characteristics, market data, and short maturity of these financial instruments, which involved considerable judgment.  The estimated fair values are not necessarily indicative of the amounts that could be realized in current market exchanges.  The characteristics of these financial instruments, market data, and other comparative metrics utilized in determining these fair values are “Level 2” inputs as the term is defined in Codification Section 820-10-35-47.

We use significant judgment to estimate fair values in recording our business combinations, to evaluate real estate, investments in unconsolidated real estate entities, goodwill, and other intangible assets for impairment, and to determine the fair values of notes payable and receivable.  In estimating fair values, we consider significant unobservable inputs such as market prices of land, market capitalization rates and earnings

9

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

multiples for real estate facilities, projected levels of earnings, costs of construction, functional depreciation, and market interest rates for debt securities with a similar time to maturity and credit quality, which are “Level 3” inputs as the term is defined in Codification Section 820-10-35-52. 

Currency and Credit Risk

Financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts receivable, loans receivable, and restricted cash.  Cash equivalents and marketable securities we invest in are either money market funds with a rating of at least AAA by Standard and Poor’s, commercial paper that is  rated A1 by Standard and Poor’s or deposits with highly rated commercial banks.

At September 30, 2014, due primarily to our investment in Shurgard Europe, 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, against the U.S. Dollar.  In July 2014, Shurgard Europe fully repaid its €311.0 million shareholder loan with financing proceeds it received from third parties.  We received a total of $204.9 million for our 49% share of the loan, based upon the foreign exchange rates at the date of repayment.  As the loan is repaid, no further foreign exchange gains or losses on the loan are expected. 

Goodwill and Other Intangible Assets

Intangible assets are comprised of goodwill, the “Shurgard” trade name, acquired customers in place, and leasehold interests in land.

Goodwill totaled $174.6 million at September 30, 2014 and December 31, 2013.  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 September 30, 2014 and December 31, 2013.  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 for each period.  At September 30, 2014, these intangibles have a net book value of $36.6million ($53.4 million at December 31, 2013).  Accumulated amortization totaled $59.8 million at September 30, 2014 ($35.1 million at December 31, 2013), and amortization expense of $37.4million and $9.8million was recorded in the nine months ended September 30, 2014 and 2013, respectively.  The estimated future amortization expense for our finite-lived intangible assets at September 30, 2014 is $9.1million in the remainder of 2014, $16.9million in 2015 and $10.6million thereafter.  During the nine months ended September 30, 2014 and 2013, intangibles were increased $20.5million and $17.5million, respectively, in connection with the acquisition of self-storage facilities and leasehold interests. 

Evaluation of Asset Impairment

We evaluate our real estate, finite-lived intangible assets, investments in unconsolidated real estate entities, and loan receivable from Shurgard Europe for impairment on a quarterly basis.  We evaluate indefinite-lived assets (including goodwill) for impairment on an annual basis, or more often if there are indicators of impairment.

In evaluating our real estate assets and finite-lived intangible assets for impairment, if there are indicators of impairment, and we determine that the asset is not recoverable from future undiscounted cash

10

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

flows, an impairment charge is recorded for any excess of the carrying amount over the asset’s estimated fair value.  For long-lived assets that we expect to dispose of prior to the end of their estimated useful lives, we record an impairment charge for any excess of the carrying value of the asset over the expected net proceeds from disposal.

If we determine, based upon the relevant events and circumstances and other such qualitative factors, that it is more likely than not that the “Shurgard” trade name is unimpaired, we do not record an impairment charge and no further analysis is performed.  Otherwise, we record an impairment charge for any excess of carrying amount over quantitatively assessed fair value. 

In evaluating goodwill for impairment, we first evaluate, based upon the relevant events and circumstances and other such qualitative factors, whether the fair value of the reporting unit that the goodwill pertains to is greater than its aggregate carrying amount.  If based upon this evaluation it is more likely than not that the fair value of the reporting unit is in excess of its aggregate carrying amount, no impairment charge is recorded and no further analysis is performed.  Otherwise, we estimate the goodwill’s implied fair value based upon what would be allocated to goodwill if the reporting unit were acquired at estimated fair value in a transaction accounted for as a business combination, and record an impairment charge for any excess of book value over the goodwill’s implied fair value. 

For our investments in unconsolidated real estate entities, if we determine that a decline in the estimated fair value of the investments below carrying amount is other than temporary, we record an impairment charge for any excess of carrying amount over the estimated fair value. 

For our loan receivable from Shurgard Europe, if we determine that it is probable we will be unable to collect all amounts due based on the terms of the loan agreement, we record an impairment charge for any excess of book value over the present value of expected future cash flows.  In July 2014, Shurgard Europe fully repaid our loan receivable from them. 

No impairments were recorded in any of our evaluations for any period presented herein.

Revenue and Expense Recognition

Rental income, which is generally earned pursuant to month-to-month leases for storage space, as well as late charges and administrative fees, are recognized as earned.  Promotional discounts reduce rental income over the promotional period.  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 and historical trends when bills or assessments have not been received from the taxing authorities or such bills and assessments are in dispute.  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 television and other 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

11

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

respective financial statement date, while amounts on our statements of income are translated at the average exchange rates during the respective period.  The Euro was translated at exchange rates of approximately 1.269U.S. Dollars per Euro at September 30, 2014 (1.377 at December 31, 2013), and average exchange rates of 1.326and 1.324for the three months ended September 30, 2014 and 2013, respectively, and average exchange rates of 1.356and 1.317for the nine months ended September 30, 2014 and 2013, 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).

Comprehensive Income (Loss)

Total comprehensive income (loss) 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, and loan receivable from, Shurgard Europe.

Discontinued Operations

In April 2014, the Financial Accounting Standards Board (“FASB”) revised standards to limit the presentation as discontinued operations only to those facility disposals that represent a strategic shift and have a major impact upon operations, rather than to all facility disposals under previous standards.  This change applies to disposals occurring after our early adoption date (as encouraged by the standard) of January 1, 2014.  This change has no material impact on our financial statements.

Recent Accounting Pronouncements and Guidance

In May 2014, the FASB issued an accounting standard (ASU No. 2014-09), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.  ASU No. 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method.  The new standard is effective for us on January 1, 2017.  Early adoption is not permitted.  We have not yet selected a transition method.  We do not believe the adoption of ASU No. 2014-09 will have a material impact on our results of operations or financial condition.

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 is 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 net income per share is computed using the weighted average common shares outstanding.  Diluted net income per share is computed using the weighted average common shares outstanding, adjusted for the impact, if dilutive, of stock options outstanding (Note 10). 

The following table reflects our net income allocable to common shareholders and the weighted average common shares and equivalents outstanding, as used in our calculations of basic and diluted net income per share:

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(Amounts in thousands)
Net income allocable to common shareholders	$	231,815	$	231,361	$	624,219	$	600,982
Weighted average common shares and equivalents outstanding:
Basic weighted average common shares outstanding		172,378		171,721		172,190		171,597
Net effect of dilutive stock options -
based on treasury stock method		926		1,072		908		1,054
Diluted weighted average common shares outstanding		173,304		172,793		173,098		172,651

3.Real Estate Facilities

Activity in real estate facilities is as follows:  

	Nine Months Ended
	September 30, 2014
	(Amounts in thousands)
Operating facilities, at cost:
Beginning balance	$	12,286,256
Capital expenditures to maintain real estate facilities		63,599
Acquisitions		255,805
Dispositions		(112)
Newly developed facilities opened for operation		59,842
Impact of foreign exchange rate changes		(357)
Ending balance		12,665,033
Accumulated depreciation:
Beginning balance		(4,098,814)
Depreciation expense		(286,347)
Dispositions		10
Impact of foreign exchange rate changes		192
Ending balance		(4,384,959)
Construction in process:
Beginning balance		52,336
Current development		80,027
Newly developed facilities opened for operation		(59,842)
Ending balance		72,521
Total real estate facilities at September 30, 2014	$	8,352,595

During the nine months ended September 30, 2014, we acquired 31self-storage facilities from third parties  (2,238,000net rentable square feet), for a total cost of $276.3million, consistingof $271.2million in

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

cash and loan assumption of $5.1 million.  Approximately $20.5million of the aggregate cost was allocated to intangible assets.  We completed expansion and development activities during the nine months ended September 30, 2014, adding 686,000net rentable square feet of self-storage space, at an aggregate cost of $59.8 million.  Construction in process at September 30, 2014 consists of projects to develop new self-storage facilities and expand existing self-storage facilities, which would add a total of 3.0million net rentable square feet of storage space, for an aggregate estimated cost of approximately $342.2million.  We received approximately $2.6million in disposition proceeds during the nine months ended September 30, 2014.

4.Investments in Unconsolidated Real Estate Entities

The following table sets forth our investments in, and equity earnings of, the Unconsolidated Real Estate Entities (amounts in thousands):

	Investments in Unconsolidated Real Estate Entities at
	September 30, 2014		December 31, 2013
PSB	$	418,007	$	424,538
Shurgard Europe		412,710		424,095
Other Investments		6,907		7,549
Total	$	837,624	$	856,182

	Equity in Earnings of Unconsolidated Real Estate Entities for the
	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013		2014		2013
PSB	$	5,513	$	4,861	$	15,165	$	14,147
Shurgard Europe		8,363		8,953		26,626		23,644
Other Investments		690		455		1,514		1,222
Total	$	14,566	$	14,269	$	43,305	$	39,013

During the nine months ended September 30, 2014 and 2013, we received cash distributions from our investments in the Unconsolidated Real Estate Entities totaling $35.5 million and $33.8million, respectively.At September 30, 2014, our investment in the Unconsolidated Real Estate Entities exceeds our pro rata share of the underlying equity by approximately $78 million.  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 $1.4 million during the nine months ended September 30, 2014.

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 September 30, 2014 and December 31, 2013, comprised of our ownership of 7,158,354 shares of PSB’s common stock, which includes 406,748 shares that we purchased in open-market transactions at an average cost of $73.15 per share during the three months ended September 30, 2013, 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 September 30, 2014($76.14per share of PSB common stock), the shares and units we owned had a market value of approximately $1.1billion.

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

The following table sets forth selected financial information of PSB.  The amounts represent all of PSB’s balances and not our pro-rata share.

	2014		2013
	(Amounts in thousands)
For the nine months ended September 30,
Total revenue	$	285,429	$	266,299
Costs of operations		(98,081)		(88,005)
Depreciation and amortization		(83,547)		(80,187)
General and administrative		(8,928)		(7,404)
Other items		(9,944)		(12,391)
Net income		84,929		78,312
Allocations to preferred shareholders and
restricted share unitholders		(45,465)		(44,185)
Net income allocated to common shareholders and
LP Unitholders	$	39,464	$	34,127
	September 30,		December 31,
	2014		2013
	(Amounts in thousands)
Total assets (primarily real estate)	$	2,242,010	$	2,238,559
Debt		250,000		250,000
Other liabilities		80,454		73,919
Equity:
Preferred stock		995,000		995,000
Common equity and units		916,556		919,640

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.   In addition, Shurgard Europe pays a license fee to Public Storage for the use of the “Shurgard” trademark, and in the three months ended September 30, 2014, repaid a shareholder loan (see Note 5).

Changes in foreign currency exchange rates caused our investment in Shurgard Europe to decrease by approximately $26.4 million and $3.8 million during the nine months ended September 30, 2014 and 2013, respectively. 

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.

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

		September 30,		December 31,
		2014		2013
		(Amounts in thousands)
Total assets (primarily self-storage facilities)	$	1,391,628	$	1,468,155
Total debt to third parties		533,703		154,119
Total shareholder loan		-		428,139
Other liabilities		108,557		107,550
Equity		749,368		778,347
Exchange rate of Euro to U.S. Dollar		1.269		1.377

	2014		2013
	(Amounts in thousands)
For the nine months ended September 30,
Self-storage and ancillary revenues	$	193,079	$	182,688
Self-storage and ancillary cost of operations		(76,583)		(74,040)
Depreciation and amortization		(47,367)		(44,980)
General and administrative		(10,389)		(8,783)
Interest expense on third party debt		(5,702)		(3,920)
Trademark license fee payable to Public Storage		(1,933)		(1,828)
Interest expense on shareholder loan		(21,761)		(28,009)
Lease termination benefit (charge) and other (a)		1,301		(2,712)
Net income	$	30,645	$	18,416
Average exchange rates Euro to the U.S. Dollar		1.356		1.317
(a)  Amounts for the nine months ended September 30, 2014 and 2013 include a $1.3 million lease termination
benefit and a $2.8 million lease termination charge, respectively, associated with a closed facility.

As reflected in the table above, Shurgard Europe’s net income has been reduced by expenses it pays to its shareholders, including a trademark license fee and interest expense on the shareholder loan.  The following table set forth the calculation of our equity in earnings in Shurgard Europe:

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

	2014		2013
	(Amounts in thousands)
For the nine months ended September 30,
Calculation of equity in earnings of Shurgard Europe:
Our 49% share of Shurgard Europe’s net income	$	15,016	$	9,024
Adjustments:
49% of trademark license fees		947		896
49% of interest on shareholder loan		10,663		13,724
Total equity in earnings of Shurgard Europe	$	26,626	$	23,644

As indicated in the table above, 49% of the trademark license fees and interest paid by Shurgard Europe to its shareholders is included in our equity in earnings of Shurgard Europe and any remaining amount paid to us is included in “interest and other income” on our income statements.  See Note 5 for further information. 

Other Investments

At September 30, 2014, the “Other Investments” include an average common equity ownership of approximately 26% in various limited partnerships that collectively own 13self-storage facilities  (14 at December 31, 2013).  

The following table sets forth certain condensed combined financial information (representing 100% of these entities’ balances, rather than our pro-rata share) with respect to theOther Investments:

	2014		2013
	(Amounts in thousands)
For the nine months ended September 30,
Total revenue	$	10,832	$	10,535
Cost of operations and other expenses		(3,709)		(3,655)
Depreciation and amortization		(1,330)		(1,493)
Gain on sale of real estate investment		713		-
Net income	$	6,506	$	5,387
	September 30,		December 31,
	2014		2013
	(Amounts in thousands)
Total assets (primarily self-storage facilities)	$	26,342	$	26,531
Total accrued and other liabilities		2,694		1,412
Total Partners’ equity		23,648		25,119

5.Loan Receivable from Shurgard Europe

At December 31, 2013, we owned 100% of the shareholder loan due from Shurgard Europe, which had a balance of €311.0 million ($428.1million) and bore interest at 9.0% per annum. On January 28, 2014, our

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

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 its €311.0 million shareholder loan.  We received a total of $204.9million for our 49% share of the loan, based upon the foreign exchange rates at the date of repayment. 

For the three and nine months ended September 30, 2014, we recorded interest income with respect to this loan of nil and approximately $1.5million, respectively, as compared to $4.8million and $14.3million for the three and nine months ended September30, 2013, respectively.  The reduction in amounts classified as interest and other income during the three and nine months ended September 30, 2014, as compared to the same periods in 2013, is due to the sale, on January 28, 2014 of 51% of the shareholder loan to our joint venture partner, who collected 51% of the loan interest following the sale.

Based upon our continued expectation of repayment of the loan in the foreseeable future, we reflected changes in the U.S. Dollar equivalent of the amount due us, as a result of changes in foreign exchange rates as “foreign currency exchange gain (loss)” on our income statement until repayment of the loan in full in July 2014. During July 2014, we recorded a foreign exchange loss of $3.0 million, based upon the U.S. Dollars received in the repayment, as compared to the loan value at June 30, 2014. 

We believed that the interest rate on the loan approximated the market rate for loans with similar terms, conditions, subordination features, and tenor, and that the fair value of the loan approximated book value.  In our evaluation of market rates and fair value, we considered that Shurgard Europe had sufficient operating cash flow, liquidity and collateral, and we have sufficient creditor rights such that credit risk was mitigated. 

6.Credit Facility, Term Loan and Notes Payable

We have a $300 million revolving line of credit (the “Credit Facility”) that expires on March 21, 2017.  Amounts drawn on the Credit Facility bear annual interest at rates ranging from LIBOR plus 0.900% to LIBOR plus 1.500% depending upon the ratio of our Total Indebtedness to Gross Asset Value (as defined in the Credit Facility) (LIBOR plus 0.900% at September 30, 2014).  In addition, we are required to pay a quarterly facility fee ranging from 0.125% per annum to 0.300% per annum depending upon the ratio of our Total Indebtedness to our Gross Asset Value (0.125% per annum at September 30, 2014).  At September 30, 2014 and November 4, 2014, we had no outstanding borrowings under this Credit Facility ($50.1 million at December 31, 2013).  We had undrawn standby letters of credit, which reduce our borrowing capacity, totaling $14.1million at September 30, 2014 and $15.1 million at December 31, 2013.  The Credit Facility has various customary restrictive covenants, all of which we were in compliance with at September 30, 2014.

On December 2, 2013, we entered into a one year $700 million unsecured term loan (the “Term Loan”) with Wells Fargo Bank.  Our outstanding borrowings under this Term Loan totaled $700.0 million at December 31, 2013.The interest rate and covenants on the Term Loan were the same as for the Credit Facility.  On September 30, 2014, we repaid the outstanding balance of the Term Loan and the Term Loan was extinguished.In connection with the Term Loan, we incurred origination costs of $1.9 million which were amortized over the one year period of the Term Loan using the effective interest method.As of September 30, 2014, we had no remainingunamortized loan costs($1.8million as of December 31, 2013). 

The carrying amounts of our notes payable at September 30, 2014 and December 31, 2013, totaled $71.6 million and $89.0 million, respectively, with unamortized premium totaling $0.4million and $0.5 million, respectively.  These notes were assumed in connection with acquisitions of real estate facilities and recorded at fair value with any premium or discount over the stated note balance amortized using the effective interest method.  At September 30, 2014, the notes are secured by 39 real estate facilities with a net book value of

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

approximately $192million, have contractual interest rates between 2.9% and 7.1%, and mature between December 2014 and September 2028.

During the nine months ended September 30, 2014, we assumed mortgage debt with an estimated fair value of $5.1 million and market rate of 3.6% (contractual balance of $4.8million and contractual interest rate of 6.1%) in connection with the acquisition of a real estate facility. 

At September 30, 2014, approximate principal maturities of our notes payable are as follows (amounts in thousands):

2014 (remainder)	$	3,986
2015		30,955
2016		16,100
2017		5,970
2018		11,077
Thereafter		3,544
	$	71,632
Weighted average effective rate		4.5%

Cash paid for interest totaled $8.0million and $7.8million for thenine monthsended September 30, 2014 and 2013, respectively.  Interest capitalized as real estate totaled $0.8million and $2.4million for the nine months ended September 30, 2014 and 2013, respectively.

7.Noncontrolling Interests

At September 30, 2014, third parties own i) interests in Subsidiaries that own an aggregate of 14 self-storage facilities, and ii) 231,978 partnership units 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.  These interests are referred to collectively as the “Noncontrolling Interests.”  At September 30, 2014, the Noncontrolling Interests cannot require us to redeem their interests, other than pursuant to a liquidation of the Subsidiary.

During the year ended December 31, 2013, we acquired Noncontrolling Interests for $6.2million in cash, substantially all of which was allocated to paid-in-capital.

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

8.Shareholders’ Equity

Preferred Shares

At September 30, 2014 and December  31, 2013, we had the following series of Cumulative Preferred Shares (“Preferred Shares”) outstanding:

			At September 30, 2014			At December 31, 2013
Series	Earliest Redemption Date	Dividend Rate	Shares Outstanding	Liquidation Preference		Shares Outstanding	Liquidation Preference
			(Dollar amounts in thousands)
Series O	4/15/2015	6.875%	5,800	$	145,000	5,800	$	145,000
Series P	10/7/2015	6.500%	5,000		125,000	5,000		125,000
Series Q	4/14/2016	6.500%	15,000		375,000	15,000		375,000
Series R	7/26/2016	6.350%	19,500		487,500	19,500		487,500
Series S	1/12/2017	5.900%	18,400		460,000	18,400		460,000
Series T	3/13/2017	5.750%	18,500		462,500	18,500		462,500
Series U	6/15/2017	5.625%	11,500		287,500	11,500		287,500
Series V	9/20/2017	5.375%	19,800		495,000	19,800		495,000
Series W	1/16/2018	5.200%	20,000		500,000	20,000		500,000
Series X	3/13/2018	5.200%	9,000		225,000	9,000		225,000
Series Y	3/17/2019	6.375%	11,400		285,000	-		-
Series Z	6/4/2019	6.000%	11,500		287,500	-		-
Total Preferred Shares			165,400	$	4,135,000	142,500	$	3,562,500

The holders of our Preferred Shares have general 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 until the arrearage has been cured.  At September 30, 2014, there were no dividends in arrears.

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 (each representing 1/1,000 of a preferred share), plus accrued and unpaid dividends.  Holders of the Preferred Shares cannot require us to redeem such shares.

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.

During the nine months ended September 30, 2014, we issued an aggregate 22.9 million depositary shares, representing 1/1,000 of a share of our Series Y and Series Z Preferred Shares, at an issuance price of

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

$25.00 per depositary share, for a total of $572.5million in gross proceeds, and we incurred $17.4 million in issuance costs. 

During the nine months ended September 30, 2013, we issued an aggregate 29.0 million depositary shares, each representing 1/1,000 of a share of our Series W and Series X Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $725.0 million in gross proceeds, and we incurred $23.3 million in issuance costs. 

Dividends

Common share dividends including amounts paid to our restricted share unitholders totaled $242.0million ($1.40 per share) and $215.4 million ($1.25 per share), for the three months ended September 30, 2014 and 2013, respectively, and $725.7million ($4.20per share) and $645.9million ($3.75per share), for the nine months ended September 30, 2014 and 2013, respectively. Preferred share dividends totaled $60.8 million and $51.9 million for the three months ended September 30, 2014 and 2013, respectively, and $170.9 million and $152.4 million, for the nine months ended September 30, 2014 and 2013, respectively.

9.Related Party Transactions

The Hughes Family owns approximately 15.8% of our common shares outstanding at September 30, 2014.

The Hughes Family has ownership interests in, and operates, approximately 54 self-storage facilities in Canada (“PS Canada”) using the “Public Storage” brand name pursuant to a non-exclusive, royalty-free trademark license agreement with the Company.  We currently do not own any interests in these facilities.  We have a right of first refusal to acquire the stock or assets of the corporation that manages the 54 self-storage facilities in Canada, if the Hughes Family or the corporation agrees to sell them.  We reinsure risks relating to loss of goods stored by customers in these facilities.  During each of the nine month periods ended September 30, 2014 and 2013, we received$0.4 million in reinsurance premiums attributed to these facilities.  There is no assurance that these premiums will continue, as our rights to reinsure these risks may be qualified.

10.Share-Based Compensation

Under various share-based compensation plans and under terms established by a committee of our Board of Trustees, the Company grants non-qualified options to purchase the Company’s common shares, as well as restricted share units (“RSUs”), to trustees, officers, service providers 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.  

We amortize the grant-date fair value of awards (net of anticipated forfeitures) as compensation expense over the service period.  The service period 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 over each individual service period (the “accelerated attribution” method).

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

Stock Options

Stock options vest over a three to five-year period, expire ten years after the grant date, and have an exercise price 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. 

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.

For the three and nine months ended September 30, 2014, we recorded $0.8million and $2.1 million, respectively, in compensation expense related to stock options, as compared to $0.9million and $2.3 million, for the same periods in 2013.

During the nine months ended September 30, 2014, 235,000 stock options were granted, 545,482 options were exercised and 3,250 options were forfeited.  A total of 1,860,479 stock options were outstanding at September 30, 2014 (2,174,211 at December 31, 2013).  

Restricted Share Units

RSUs generally vest ratably over a three 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 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.

During the nine months ended September 30,  2014, 208,247RSUs were granted, 46,357RSUs were forfeited and 163,230 RSUs vested.  This vesting resulted in the issuance of 96,661common shares.  In addition, tax deposits totaling$10.8 million were made on behalf of employees in exchange for 66,569common shares withheld upon vesting. 

RSUs outstanding at September 30, 2014 and December 31, 2013 were 634,989and 636,329, respectively.  A total of $8.0million and $20.0million in RSU expense was recorded for the three and nine months ended September 30, 2014, respectively, which include approximately $0.1million and $1.1million, respectively, in employer taxes incurred upon vesting, as compared to $7.7million and $19.2million for the same periods in 2013, respectively, which include approximately $0.1million and $0.9million, respectively, in employer taxes incurred upon vesting.

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 and income allocated to common shareholders.

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NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

11.Segment Information

Our reportable segments reflect the significant components of our operations that are evaluated separately by our chief operating decision maker (“CODM”) and have discrete financial information available.  We organize our segments based primarily upon the nature of the underlying products and services, and whether the operation is located in the U.S. or outside the U.S.  In making resource allocation decisions, our CODM considers the net income from continuing operations of each reportable segment included in the tables below, excluding the impact of depreciation and amortization, gains or losses on disposition of real estate facilities, and asset impairment charges.  The amounts for each reportable segment included in the tables below are in conformity with GAAP and our significant accounting policies as denoted in Note 2.  Ancillary revenues and expenses, interest and other income (other than from Shurgard Europe), interest expense, general and administrative expense and gains and losses on the early repayment of debt are not allocable to any of our reportable segments.  Our CODM does not consider the book value of assets in making resource allocation decisions.  

Following is the description of and basis for presentation for each of our segments.

Domestic Self-Storage Segment

The Domestic Self-Storage Segment includes the operations of the 2,222self-storage facilities owned by the Company and the Subsidiaries, as well as our equity share of the Other Investments.  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 Domestic Self-Storage Segment.

European Self-Storage Segment

The European Self-Storage segment comprises our interest in Shurgard Europe, which has a separate management team reporting directly to our CODM and our joint venture partner.  The European Self-Storage segment includes our equity share of Shurgard Europe’s operations, the interest and other income received from Shurgard Europe, and foreign currency exchange gains and losses that are attributable to Shurgard Europe.  Our balance sheet includes an investment in Shurgard Europe (Note 4) and a loan receivable from Shurgard Europe (Note 5). 

Commercial Segment

The Commercial segment comprises our investment in PSB, a publicly-traded REIT with a separate management team that makes its financing, capital allocation and other significant decisions.  The Commercial segment also includes our direct interest in certain commercial facilities, substantially all of which are managed by PSB.  The Commercial segment presentation includes our equity earnings from PSB, as well as the revenues and expenses of our commercial facilities.  At September 30, 2014, the assets of the Commercial segment are comprised principally of our investment in PSB (Note 4).

Presentation of Segment Information

The following tables reconcile the performance of each segment, in terms of segment income, to our net income (amounts in thousands):

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

Three months ended September 30, 2014
	Domestic Self-Storage		European Self-Storage		Commercial		Other Items Not Allocated to Segments		Total
	(Amounts in thousands)
Revenues:
Self-storage facilities	$	534,271	$	-	$	-	$	-	$	534,271
Ancillary operations		-		-		3,887		33,438		37,325
		534,271		-		3,887		33,438		571,596
Expenses:
Self-storage cost of operations		146,979		-		-		-		146,979
Ancillary cost of operations		-		-		1,392		11,622		13,014
Depreciation and amortization		110,346		-		731		-		111,077
General and administrative		-		-		-		17,874		17,874
		257,325		-		2,123		29,496		288,944
Operating income		276,946		-		1,764		3,942		282,652
Interest and other income		-		329		-		420		749
Interest expense		-		-		-		(1,238)		(1,238)
Equity in earnings of
unconsolidated real estate entities		690		8,363		5,513		-		14,566
Foreign currency exchange loss		-		(3,012)		-		-		(3,012)
Gain on real estate sales		1,260		-		-		-		1,260
Net income	$	278,896	$	5,680	$	7,277	$	3,124	$	294,977

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

Three months ended September 30, 2013
	Domestic Self-Storage		European Self-Storage		Commercial		Other Items Not Allocated to Segments		Total
	(Amounts in thousands)
Revenues:
Self-storage facilities	$	477,978	$	-	$	-	$	-	$	477,978
Ancillary operations		-		-		3,593		30,386		33,979
		477,978		-		3,593		30,386		511,957
Expenses:
Self-storage cost of operations		136,751		-		-		-		136,751
Ancillary cost of operations		-		-		1,329		9,723		11,052
Depreciation and amortization		95,841		-		696		-		96,537
General and administrative		-		-		-		17,650		17,650
		232,592		-		2,025		27,373		261,990
Operating income		245,386		-		1,568		3,013		249,967
Interest and other income		-		5,149		-		459		5,608
Interest expense		-		-		-		(478)		(478)
Equity in earnings of
unconsolidated real estate entities		455		8,953		4,861		-		14,269
Foreign currency exchange gain		-		16,094		-		-		16,094
Gain on real estate sales		168		-		-		-		168
Net income	$	246,009	$	30,196	$	6,429	$	2,994	$	285,628

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

Nine months ended September 30, 2014
	Domestic Self-Storage		European Self-Storage		Commercial		Other Items Not Allocated to Segments		Total
	(Amounts in thousands)
Revenues:
Self-storage facilities	$	1,520,661	$	-	$	-	$	-	$	1,520,661
Ancillary operations		-		-		11,858		96,738		108,596
		1,520,661		-		11,858		96,738		1,629,257
Expenses:
Self-storage cost of operations		445,474		-		-		-		445,474
Ancillary cost of operations		-		-		4,000		35,592		39,592
Depreciation and amortization		324,389		-		2,152		-		326,541
General and administrative		-		-		-		52,240		52,240
		769,863		-		6,152		87,832		863,847
Operating income		750,798		-		5,706		8,906		765,410
Interest and other income		-		2,523		-		1,628		4,151
Interest expense		-		-		-		(6,781)		(6,781)
Equity in earnings of
unconsolidated real estate entities		1,514		26,626		15,165		-		43,305
Foreign currency exchange loss		-		(7,035)		-		-		(7,035)
Gain on real estate sales		2,479		-		-		-		2,479
Net income	$	754,791	$	22,114	$	20,871	$	3,753	$	801,529

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

Nine months ended September 30, 2013
	Domestic Self-Storage		European Self-Storage		Commercial		Other Items Not Allocated to Segments		Total
	(Amounts in thousands)
Revenues:
Self-storage facilities	$	1,369,219	$	-	$	-	$	-	$	1,369,219
Ancillary operations		-		-		10,617		88,399		99,016
		1,369,219		-		10,617		88,399		1,468,235
Expenses:
Self-storage cost of operations		409,881		-		-		-		409,881
Ancillary cost of operations		-		-		3,958		26,924		30,882
Depreciation and amortization		276,392		-		2,083		-		278,475
General and administrative		-		-		-		49,988		49,988
		686,273		-		6,041		76,912		769,226
Operating income		682,946		-		4,576		11,487		699,009
Interest and other income		-		15,217		-		1,488		16,705
Interest expense		-		-		-		(4,622)		(4,622)
Equity in earnings of
unconsolidated real estate entities		1,222		23,644		14,147		-		39,013
Foreign currency exchange gain		-		9,281		-		-		9,281
Gain on real estate sales		168		-		-		-		168
Net income	$	684,336	$	48,142	$	18,723	$	8,353	$	759,554

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PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

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 customary property, earthquake, general liability, employee medical insurance and workers compensation coverage through internationally recognized insurance carriers, subject to customary levels of deductibles.  The aggregate limits on these policies of approximately $75 million for property losses and $102 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 exhausted.  

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, but purchase insurance from an independent third party insurance company for aggregate claims between $5.0 million and $15.0 million per occurrence.  We are subject to licensing requirements and regulations in several states.  At September 30, 2014, there were approximately 816,000certificates held by our self-storage customers, representing aggregate coverage of approximately $2.1billion.

13.Subsequent Events

Subsequent to September 30, 2014, we acquired ten self-storage facilities (three in Minnesota, two in Virginia, and one each in Arizona,  North Carolina,  South Carolina,  Texas and Florida, with an aggregate of 929,000 net rentable square feet, for approximately $98 million in cash.  As of November 4, 2014, we have four additional self-storage facilities with 333,000 net rentable square feet (one each in California,  Minnesota,  Texas and Washington), under contract, for an aggregate purchase price of approximately $63 million, with estimated closing dates in the fourth quarter of 2014.

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Item 2.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.

Forward Looking Statements

This Quarterly Report on Form 10-Q 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 forward-looking statements which may be identified by the use of the words "expects,"   "believes,"   "anticipates,"  "plans," "would," "should," "may," "estimates" and similar expressions. 

These forward-looking statements are based on current expectations and assumptions that are subject to 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 our future results and performance include, but are not limited to, those described in Part I, Item 1A, "Risk Factors" in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2014 and in our other filings with the SEC and the following:

· general risks associated with the ownership and operation of real estate, including changes in demand, risks 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, refinancing risk, 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 and tenant insurance matters and real estate investment trusts (“REITs”), and risks related to the impact of new laws and regulations;

· risk of increased tax expense associated either with a possible failure by us to qualify as a REIT, or with challenges to intercompany transactions with our taxable REIT subsidiaries;

· changes in federal or state tax laws related to the taxation of REIT’s, which could impact our status as a REIT;

· disruptions or shutdowns of our automated processes, systems and the Internet or breaches of our data security;

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· risks associated with the self-insurance of certain business risks, including property and casualty insurance, employee health insurance and workers compensation liabilities;

· difficulties in raising capital at a reasonable cost; and

· economic uncertainty due to the impact of terrorism or war. 

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 as 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 guarantees of future performance. 

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”).  Our financial statements are affected by our judgments, assumptions and estimates.  The notes to our September 30, 2014 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 real estate investment trust (“REIT”), as defined in the Internal Revenue 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 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, our taxable REIT subsidiaries are taxable as regular corporations.  To the extent that amounts paid to us by our taxable REIT subsidiaries are determined by the taxing authorities to be in excess of amounts that would be paid under 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

30

third parties.  Such liabilities we are aware of are estimated 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 be aware of all such liabilities, in which case our accrued liabilities and net income could be misstated. 

Recording the fair value of acquired real estate facilities:In accounting for facilities acquired from third parties, we estimate the fair values of the land, buildings and intangible assets acquired.  Such estimates are based upon many assumptions and judgments, including i) expected rates of return and capitalization rates on real estate assets, ii) estimated costs to replace acquired buildings and equipment in their current state, iii) comparisons of the acquired underlying land parcels to recent land 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.

MD&A Overview

Our domestic self-storage facilities generated 93% of our revenues for the nine months ended September 30, 2014, and also generated most of our net income and cash flow from operations.  A significant portion of management time is devoted to maximizing cash flows from our existing self-storage facilities, as well as seeking additional investments in self-storage facilities. 

Most of our facilities compete with other well-managed and well-located competitors and we are subject to 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.   

During 2013, we took advantage of a significant increase in properties being marketed for sale and acquired 121 self-storage facilities for approximately $1.2 billion, substantially more than we had acquired in total in 2010, 2011 and 2012 (an aggregate of 77 facilities for $546 million).  We believe that the increase in properties marketed for sale was primarily driven by easier access to capital in the current low interest rate environment and improved property valuations.  During the nine months ended September 30, 2014, we have acquired 31 self-storage facilities for approximately $276.3 million.  Subsequent to September 30, 2014, we acquired ten self-storage facilities (three in Minnesota, two in Virginia, and one each in Arizona, North Carolina, South Carolina, Texas and Florida, with an aggregate of 929,000 net rentable square feet, for approximately $98 million in cash.  As of November 4, 2014, we have four additional self-storage facilities with 333,000 net rentable square feet (one each in California, Minnesota, Texas and Washington), under contract, for an aggregate purchase price of approximately $63 million, with estimated closing dates in the fourth quarter of 2014.  We expect to continue to seek to acquire additional self-storage facilities from third parties.  There is significant competition to acquire existing facilities and there can be no assurance that we will be able to acquire additional facilities at prices we will find attractive. 

As of September 30, 2014, we had development and expansion projects which will add approximately 3.0 million net rentable square feet of storage space and will cost approximately $342 million.  A total of $73 million in costs were incurred through September 30, 2014 with respect to these projects, with approximately $77 million of the remaining costs expected to be incurred in the last three months of 2014, and the remainder primarily in 2015.  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.    

We also have equity investments in Shurgard Europe and PS Business Parks, Inc. (“PSB”).  During the year ended December 31, 2013, we increased our investment in PSB by acquiring 1,356,748 shares of PSB common stock in open-market transactions and directly from PSB, for an aggregate cost of $105.0 million.  We may invest further in these entities in the future. 

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As of September 30, 2014, our capital resources totaled approximately $519 million, consisting of cash and cash equivalents totaling $98 million, $135 million of retained operating cash flow for the remainder of 2014, and approximately $286 million of available borrowing capacity on our line of credit.  Retained operating cash flow represents our expected cash flow provided by operating activities, after deducting estimated distributions to our common and preferred shareholders and estimated capital expenditure requirementsfor the three months ending December 31, 2014.

At September 30, 2014, we had estimated remaining 2014 capital commitments totaling approximately $241 million, consisting of $4 million in maturities on notes payable, $160 million in property acquisitions, as well as approximately $77 million of remaining spend on our development pipeline.  In addition, we expect that our capital commitments will continue to grow during the remainder of 2014 as we continue to seek additional development and acquisition opportunities.

See Liquidity and Capital Resources for further information regarding our remaining 2014 capital requirements and anticipated sources of capital to fund such requirements.  

Results of Operations

Operating Results for the Three Months Ended September 30, 2014 and 2013

For the three months ended September 30, 2014, net income allocable to our common shareholders was $231.8 million or $1.34 per diluted common share, compared to $231.4 million or $1.34 per diluted common share for the same period in 2013.  Self-storage net operating income increased $46.1 million, which was offset partially by (i) a $19.1 million decrease in earnings associated with foreign currency exchange gains and losses, (ii) a $14.5 million increase in depreciation and amortization associated with facilities acquired since January 2013, and (iii) an $8.9 million increase in earnings allocated to preferred shareholders due to the issuance of additional preferred shares. 

The increase in our self-storage net operating income was the result of a $23.6 million increase for our Same Store Facilities (defined below) combined with a $22.5 million increase for our non-Same Store Facilities.  Revenues for the Same Store Facilities increased 5.5% or $24.7 million in the quarter ended September 30, 2014 as compared to the same period in 2013, due to higher realized annual rent per occupied square foot and higher average occupancy.  Cost of operations for the Same Store Facilities increased by 0.8% or $1.1 million in the quarter ended September 30, 2014 as compared to the same period in 2013, due primarily to increases in property taxes offset partially by lower on-site property manager payroll and advertising and selling expense.  The increase in net operating income for the non-Same Store Facilities is due primarily to the impact of the acquisition of 152 self-storage facilities since January 2013.

Operating Results for the Nine Months Ended September 30, 2014 and 2013

For the nine months ended September 30, 2014, net income allocable to our common shareholders was $624.2 million or $3.61 per diluted common share, compared to $601.0 million or $3.48 per diluted common share for the same period in 2013, representing an increase of $23.2 million or $0.13 per diluted common share.  This increase is due primarily to (i) a $115.9 million increase in self-storage net operating income, offset partially by (ii) a $48.1 million increase in depreciation and amortization associated with facilities acquired since January 2013, (iii) a $16.3 million reduction associated with foreign currency exchange gains and losses with respect to our note receivable from Shurgard Europe, (iv) an $18.5 million increase in earnings allocated to preferred shareholders due primarily to the issuance of additional preferred shares, and (v) a $12.6 million decrease in interest income due primarily to the repayment of our loan receivable from Shurgard Europe. 

The increase in our self-storage net operating income was the result of a $60.8 million increase for our Same Store Facilities combined with a $55.1 million increase for our non-Same Store Facilities.  Revenues for the Same Store Facilities increased 5.3% or $68.6 million in the nine months ended September 30, 2014 as compared to the same period in 2013, due to higher realized annual rent per occupied square foot and higher average occupancy.  Cost of operations for the Same Store Facilities increased by 2.0% or $7.8 million in the nine months ended

32

September 30, 2014 as compared to the same period in 2013, due primarily to increases in property taxes, snow removal, and utilities expense, offset partially by lower advertising and selling costs.  The increase in net operating income for the non-Same Store Facilities is due primarily to the impact of the acquisition of 152 self-storage facilities since January 2013.

Funds from Operations and Core Funds from Operations

Funds from Operations (“FFO”) and FFO per share are non-GAAP (generally accepted accounting principles) 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 ratable 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 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 three months ended September 30, 2014, FFO was $2.08 per diluted common share, as compared to $2.00for the same period in 2013, representing an increase of 4.0%, or $0.08 per diluted common share.

For the nine months ended September 30, 2014, FFO was $5.81 per diluted common share, as compared to $5.40 for the same period in 2013, representing an increase of 7.6%, or $0.41 per diluted common share.

The following tables reconcile diluted earnings per share to FFO per share, and sets for the computation of FFO per share:

33

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(Amounts in thousands, except per share data)
Reconciliation of Diluted Earnings per Share to FFO per Share:
Diluted Earnings per Share	$	1.34	$	1.34	$	3.61	$	3.48
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		0.75		0.66		2.22		1.92
Gains on sale of real estate investments,
including our equity share from
investments, and other		(0.01)		-		(0.02)		-
FFO per share	$	2.08	$	2.00	$	5.81	$	5.40
Computation of FFO per Share:
Net income allocable to common shareholders	$	231,815	$	231,361	$	624,219	$	600,982
Eliminate items excluded from FFO:
Depreciation and amortization		111,077		96,537		326,541		278,475
Depreciation from unconsolidated
real estate investments		19,688		18,708		60,421		55,769
Depreciation allocated to noncontrolling
interests and restricted share unitholders		(891)		(980)		(2,830)		(2,974)
Gains on sale of real estate investments,
including our equity share from
investments, and other		(1,440)		(167)		(2,732)		(167)
FFO allocable to common shares	$	360,249	$	345,459	$	1,005,619	$	932,085
Diluted weighted Average common shares		173,304		172,793		173,098		172,651
FFO per share	$	2.08	$	2.00	$	5.81	$	5.40

We also present “Core FFO per share,” a non-GAAP measure that represents FFO per share excluding the impact of (i) foreign currency exchange losses of $3.0 million and $7.0 million for the three and nine months ended September 30, 2014, respectively, (gains of $16.1 million and $9.3 million for the same periods in 2013), and (ii) other items, comprised primarily of a $7.8 million accrual related to a legal settlement included in ancillary cost of operations for the nine months ended September 30, 2014, a $4.1 million reduction in ancillary cost of operations associated with recognition of a deferred tax asset in the nine months ended September 30, 2014, our $1.4 million equity share of charges incurred by Shurgard Europe in closing a facility during the nine months ended September 30, 2013 as well as general and administrative expense associated with the acquisition of real estate facilities.  We believe Core FFO per share is a helpful measure used by investors and REIT analysts to understand our performance.  However, Core FFO per share is not a substitute for net income per share.  Because other REITs may not compute Core FFO per share in the same manner as we do, may not use the same terminology, or may not present such a measure, Core FFO per share may not be comparable among REITs.

The following table reconciles FFO per share to Core FFO per share:

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	Three Months Ended September 30,					Nine Months Ended September 30,
					Percentage					Percentage
	2014		2013		Change	2014		2013		Change
FFO per share	$	2.08	$	2.00	4.0%	$	5.81	$	5.40	7.6%
Eliminate the per share impact of
items excluded from Core FFO:
Foreign currency exchange loss (gain)		0.02		(0.09)			0.04		(0.05)
Other items		0.01		0.01			0.03		0.01
Core FFO per share	$	2.11	$	1.92	9.9%	$	5.88	$	5.36	9.7%

Real Estate Operations

Self-Storage Operations: Our self-storage operations are analyzed in two groups: (i) the Same Store Facilities, representing the facilities that we have owned and operated on a stabilized basis since January 1, 2012, and (ii) all other facilities, which are newly acquired, newly developed, or recently expanded facilities (the “Non Same Store Facilities”).

Self-Storage Operations
Summary	Three Months Ended September 30,					Nine Months Ended September 30,
					Percentage					Percentage
	2014		2013		Change	2014		2013		Change
	(Dollar amounts in thousands)
Revenues:
Same Store Facilities	$	475,973	$	451,300	5.5%	$	1,368,948	$	1,300,352	5.3%
Non Same Store Facilities		58,298		26,678	118.5%		151,713		68,867	120.3%
Total rental income		534,271		477,978	11.8%		1,520,661		1,369,219	11.1%
Cost of operations:
Same Store Facilities		128,745		127,691	0.8%		394,927		387,114	2.0%
Non Same Store Facilities		18,234		9,060	101.3%		50,547		22,767	122.0%
Total cost of operations		146,979		136,751	7.5%		445,474		409,881	8.7%
Net operating income (a):
Same Store Facilities		347,228		323,609	7.3%		974,021		913,238	6.7%
Non Same Store Facilities		40,064		17,618	127.4%		101,166		46,100	119.4%
Total net operating income		387,292		341,227	13.5%		1,075,187		959,338	12.1%
Total depreciation and amortization expense:
Same Store Facilities		(77,977)		(78,733)	(1.0)%		(235,029)		(237,773)	(1.2)%
Non Same Store Facilities		(32,369)		(17,108)	89.2%		(89,360)		(38,619)	131.4%
Total depreciation and
amortization expense		(110,346)		(95,841)	15.1%		(324,389)		(276,392)	17.4%
Total net income	$	276,946	$	245,386	12.9%	$	750,798	$	682,946	9.9%
Number of facilities at period end:
Same Store Facilities							1,982		1,982	-
Non Same Store Facilities							240		115	108.7%
Net rentable square footage at period end (in thousands):
Same Store Facilities							125,435		125,435	-
Non Same Store Facilities							17,776		9,196	93.3%

(a) See “Net Operating Income” below for further information regarding this non-GAAP measure.

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Same Store Facilities

The Same Store Facilities represent those facilities that have been owned and operated on a stabilized basis since January 1, 2012 and therefore provide meaningful comparisons for 2013 and 2014.  The following table summarizes the historical operating results of these 1,982 facilities (125.4million net rentable square feet) that represent approximately 88% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at September 30, 2014.  The number of Same Store facilities decreased from 1,983 at June 30, 2014 to 1,982 at September 30, 2014 due to development activities at a facility; as a result, comparisons should not be made between the current Same Store Facilities and previous presentations.

Selected Operating Data for the Same Store Facilities (1,982 facilities)
	Three Months Ended September 30,					Nine Months Ended September 30,
					Percentage					Percentage
	2014		2013		Change	2014		2013		Change
	(Dollar amounts in thousands, except weighted average amounts)
Revenues:
Rental income	$	452,965	$	428,790	5.6%	$	1,302,397	$	1,236,017	5.4%
Late charges and administrative fees		23,008		22,510	2.2%		66,551		64,335	3.4%
Total revenues (a)		475,973		451,300	5.5%		1,368,948		1,300,352	5.3%
Cost of operations:
Property taxes		46,069		44,572	3.4%		140,619		135,138	4.1%
On-site property manager payroll		24,706		25,186	(1.9)%		76,589		77,662	(1.4)%
Supervisory payroll		8,608		8,491	1.4%		26,187		26,650	(1.7)%
Repairs and maintenance		9,900		9,862	0.4%		34,066		30,162	12.9%
Utilities		10,215		10,349	(1.3)%		29,795		28,607	4.2%
Advertising and selling expense		7,772		8,596	(9.6)%		20,296		22,828	(11.1)%
Other direct property costs		13,121		12,527	4.7%		38,933		38,095	2.2%
Allocated overhead		8,354		8,108	3.0%		28,442		27,972	1.7%
Total cost of operations (a)		128,745		127,691	0.8%		394,927		387,114	2.0%
Net operating income (b)		347,228		323,609	7.3%		974,021		913,238	6.7%
Depreciation and amortization
expense		(77,977)		(78,733)	(1.0)%		(235,029)		(237,773)	(1.2)%
Net income	$	269,251	$	244,876	10.0%	$	738,992	$	675,465	9.4%
Gross margin (before depreciation
and amortization)		73.0%		71.7%	1.8%		71.2%		70.2%	1.4%
Weighted average for the period:
Square foot occupancy		94.7%		94.4%	0.3%		94.0%		93.4%	0.6%
Realized annual rental income per (c):
Occupied square foot	$	15.25	$	14.48	5.3%	$	14.73	$	14.07	4.7%
Available square foot
(“REVPAF”)	$	14.44	$	13.67	5.6%	$	13.84	$	13.14	5.3%
At September 30:
Square foot occupancy							93.8%		93.6%	0.2%
Annual contract rent per occupied
square foot (d)						$	15.93	$	15.23	4.6%

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(a)Revenues and cost of operations do not include ancillary revenues and expenses generated at the facilities with respect to tenant reinsurance and retail sales.

(b)See “Net Operating Income” below for a reconciliation of this non-GAAP measure to our operating income in our income statements.

(c)Realized annual rent per occupied square foot is computed by dividing annualized rental income, before late charges and administrative fees, by the weighted average occupied square feet for the period.  Realized annual rent per available square foot (“REVPAF”) is computed by dividing annualized rental income, before late charges and administrative fees, by the total available 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.

(d)Contract rent represents the applicable contractual monthly rent charged to our customers, excluding the impact of promotional discounts, late charges and administrative fees.

Analysis of Same Store Revenue

Revenues generated by our Same Store Facilities increased by 5.5% in the three months ended September 30, 2014 as compared to the same period in 2013 due to a 5.3% increase in realized rent per occupied square foot anda 0.3% increase in average occupancy.  Revenues generated by our Same Store Facilities increased by 5.3% in the nine months ended September 30, 2014 as compared to the same period in 2013 due to a 4.7% increase in realized rent per occupied square foot and a 0.6% increase in average occupancy. The increase in realized rent per occupied square foot was due primarily to annual rent increases given to customers that have been renting with us longer than one year, and to a lesser extent, increased move-in rates. 

Same Store average occupancy increased from 94.4% in the three months ended September 30, 2013 to 94.7% in the three months ended September 30, 2014, representing an increase of 0.3%.  Same Store average occupancy increased from 93.4% in the nine months ended September 30, 2013 to 94.0% in the nine months ended September 30, 2014, representing an increase of 0.6%.  At September 30, 2014, the year-over-year occupancy gap declined to 0.2%.  As noted below, we expect to spend more on advertising in the quarter ending December 31, 2014 in an effort to increase the year-over-year gap in occupancy, notwithstanding the increasing difficulty in year-over-year comparisons. 

Our future rental growth will be dependent upon many factors for each market that we operate in, including demand for self-storage space, the level of competitor supply of self-storage space, our ability to increase rental rates to new and existing customers, the level of promotional activities required, and the average length of stay of our customers. 

Increasing rental rates to existing customers, generally on an annual basis, is a key component of our revenue growth.  We determine the level of rental increases based upon our expectations regarding the impact of existing tenant rate increases on incremental move-outs.  We expect to continue to pass similar rent increases to long-term customers in the remainder of 2014, as we did in the same periods of 2013. 

We believe that high occupancies help maximize our rental revenue.  We seek to maintain an average occupancy level of at least 90%, by regularly adjusting the rental rates and promotions offered to attract new customers as well as adjusting our marketing efforts on both television and the Internet in order to generate sufficient move-in volume to replace customers that vacate.  Demand fluctuates due to various local and regional factors, including the overall economy.  Demand is higher in the summer months than in the winter months and, as a result, rental rates charged to new customers are typically higher in the summer months than in the winter months. 

During the three months ended September 30, 2014 and 2013, the average annualized contractual rates per occupied square foot for customers that moved in were $14.53 and $13.94, respectively, and for customers that vacated were $14.87 and $14.27, respectively.  During the nine months ended September 30, 2014 and 2013, the average annualized contractual rates per occupied square foot for customers that moved in were $13.72 and $13.13,

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respectively, and for customers that vacated were $14.28 and $13.76, respectively.  There were no material changes in the amounts of promotional discounts in the three and nine months ended September 30, 2014 as compared to the same periods in 2013.

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 the remainder of 2014.  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 customers moving in or moving out, the length of stay of the customers moving in or moving out, changes in our pricing strategies, and the degree and timing of rate increases previously passed to existing customers.

Analysis of Same Store Cost of Operations

Cost of operations (excluding depreciation and amortization) increased 0.8%  and 2.0% in the three and nine months ended September 30, 2014 as compared to the same periods in 2013.  The increase in the three months ended September 30, 2014 was due primarily to increased property taxes, offset partially by reduced advertising and selling costs. The increase in the nine months ended September 30, 2014 was due primarily to increases in property taxes, snow removal, and utilities expense, offset partially by lower advertising and selling costs and reduced on-site property manager payroll.

Property tax expense increased 3.4% and 4.1% in the three and nine months ended September 30, 2014 as compared to the same periods in 2013, due primarily to higher assessed values and tax rates.  We expect property tax growth of approximately 4.0% in the remainder of 2014.

On-site property manager payroll expense decreased 1.9% and 1.4% in the three and nine months ended September 30, 2014 as compared to the same periods in in 2013.  This decrease was due primarily to efficiencies which resulted in fewer hours worked, combined with reduced workers’ compensation-related expenses.  We expect flat levels of on-site property manager payroll expense in the remainder of 2014.

Supervisory payroll expense, which represents compensation paid to the management personnel who directly and indirectly supervise the on-site property managers, increased 1.4% and decreased 1.7% in the three and nine months ended September 30, 2014, respectively, as compared to the same periods in in 2013 due primarily to inflationary increases in supervisory payroll expense in the three months ended September 30, 2014, which was partially offset by reduced headcount.  We expect inflationary increases in supervisory payroll expense for the remainder of 2014 as compared to the same period in 2013.

Repairs and maintenance expense increased 0.4% and 12.9% in the three and nine months ended September 30, 2014 as compared to the same periods in 2013.  Repair and maintenance costs include snow removal expense totaling $7.3 million and $3.7 million in the nine months ended September 30, 2014 and 2013, respectively.  Excluding snow removal costs, repairs and maintenance increased 1.4% in the nine months ended September 30, 2014 as compared to the same period in in 2013.

Repairs and maintenance expense levels are dependent upon many factors such as weather conditions, which can impact repair and maintenance needs, inflation in material and labor costs, and random events.  We expect inflationary increases in repairs and maintenance expense in the remainder of 2014 as compared to the same period in 2013, excluding snow removal expense.

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 1.3% and increased 4.2% in the three and nine months ended September 30, 2014 as compared to the same periods in 2013.  The decrease in the three month period is due primarily to decreased usage.  The increase in the nine month period was in large part due to the severe winter weather in many of the markets in which we operate.  It is difficult to estimate future utility cost levels, because weather, temperature, and energy prices are volatile and not predictable. 

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Advertising and selling expense is comprised principally of Internet advertising, media advertising and the operating costs of our telephone reservation center.  Advertising and selling expense varies based primarily upon demand and occupancy levels.  These costs declined 9.6% and 11.1% in the three and nine months ended September 30, 2014 as compared to the same periods in 2013 due primarily to decreases in media advertising andtelephone reservation center costs as a result of high occupancies.  Based upon current trends in move-ins, move-outs, and occupancies, we expect advertising and selling expense to increase by approximately $2 million in our fourth quarter compared to the same period in 2013.

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 properties’ 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 4.7% and 2.2% in the three and nine months ended September 30, 2014 as compared to the same periods in 2013, due primarily to higher credit card fees, offset partially by lower property insurance costs.  We expect inflationary increases in other direct property costs in the remainder of 2014as compared to the same period in 2013.

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 3.0% and 1.7% in the three and nine months ended September 30, 2014, respectively, as compared to the same periods in 2013.  We expect allocated overhead to increase by approximately $1.1 million in the fourth quarter of 2014 compared to the same period 2013, due to an acceleration in the timing of our annual field staff meetings which normally would have occurred during the first quarter of 2015. 

The following table summarizes selected quarterly financial data with respect to the Same Store Facilities:

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	For the Quarter Ended
	March 31		June 30		September 30		December 31		Entire Year
	(Amounts in thousands, except for per square foot amount)
Total revenues:
2014	$	440,404	$	452,571	$	475,973
2013	$	419,094	$	429,958	$	451,300	$	442,830	$	1,743,182
Total cost of operations:
2014	$	139,460	$	126,722	$	128,745
2013	$	134,144	$	125,279	$	127,691	$	102,063	$	489,177
Property taxes:
2014	$	47,583	$	46,967	$	46,069
2013	$	45,613	$	44,953	$	44,572	$	27,765	$	162,903
Repairs and maintenance:
2014	$	14,734	$	9,432	$	9,900
2013	$	11,022	$	9,278	$	9,862	$	9,978	$	40,140
Advertising and selling expense:
2014	$	6,481	$	6,043	$	7,772
2013	$	7,655	$	6,577	$	8,596	$	4,955	$	27,783
REVPAF:
2014	$	13.34	$	13.75	$	14.44
2013	$	12.69	$	13.05	$	13.67	$	13.44	$	13.21
Weighted average realized annual rent per occupied square foot:
2014	$	14.40	$	14.52	$	15.25
2013	$	13.81	$	13.88	$	14.48	$	14.45	$	14.16
Weighted average occupancy levels for the period:
2014		92.6%		94.7%		94.7%
2013		91.9%		94.0%		94.4%		93.0%		93.3%

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Analysis of Market Trends

The following table sets forth selected market trends in our Same Store Facilities:

Same Store Facilities Operating Trends by Market
	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013		Change	2014		2013		Change
		(Amounts in thousands, except for weighted average data)
Revenues:
Los Angeles  (197 facilities)	$	69,744	$	66,118	5.5%	$	201,297	$	191,795	5.0%
San Francisco  (128 facilities)		40,412		37,705	7.2%		116,016		108,725	6.7%
New York  (79 facilities)		30,349		29,436	3.1%		87,875		85,299	3.0%
Chicago  (129 facilities)		29,713		28,415	4.6%		84,986		81,232	4.6%
Washington DC  (74 facilities)		22,386		21,992	1.8%		65,045		63,621	2.2%
Seattle-Tacoma  (85 facilities)		22,892		21,374	7.1%		65,231		61,190	6.6%
Miami  (61 facilities)		19,992		18,784	6.4%		57,680		54,164	6.5%
Dallas-Ft. Worth  (98 facilities)		18,719		17,607	6.3%		53,833		50,487	6.6%
Houston  (80 facilities)		17,413		16,155	7.8%		49,946		46,291	7.9%
Atlanta  (89 facilities)		16,343		15,364	6.4%		47,061		44,321	6.2%
Philadelphia (55 facilities)		12,133		11,670	4.0%		35,095		33,498	4.8%
Denver  (47 facilities)		11,429		10,494	8.9%		32,023		29,668	7.9%
Minneapolis-St Paul
(41 facilities)		9,503		8,969	6.0%		26,980		25,310	6.6%
Portland  (43 facilities)		8,782		8,098	8.4%		24,964		23,338	7.0%
Orlando-Daytona  (45 facilities)		7,843		7,540	4.0%		22,704		21,833	4.0%
All other markets
(731 facilities)		138,320		131,579	5.1%		398,212		379,580	4.9%
Total revenues	$	475,973	$	451,300	5.5%	$	1,368,948	$	1,300,352	5.3%
Net operating income:
Los Angeles	$	56,127	$	52,176	7.6%	$	160,339	$	150,263	6.7%
San Francisco		31,999		29,263	9.3%		90,795		83,640	8.6%
New York		21,506		20,333	5.8%		60,222		57,941	3.9%
Chicago		18,042		16,883	6.9%		46,542		44,869	3.7%
Washington DC		17,217		16,757	2.7%		48,938		47,811	2.4%
Seattle-Tacoma		18,004		16,405	9.7%		50,162		46,142	8.7%
Miami		13,966		12,963	7.7%		39,588		36,908	7.3%
Dallas-Ft. Worth		12,635		11,918	6.0%		35,919		33,122	8.4%
Houston		12,051		10,895	10.6%		34,358		30,926	11.1%
Atlanta		11,780		10,921	7.9%		33,266		30,672	8.5%
Philadelphia		8,639		8,051	7.3%		23,866		22,470	6.2%
Denver		8,511		7,685	10.7%		23,222		21,119	10.0%
Minneapolis-St. Paul		6,621		6,117	8.2%		17,758		16,261	9.2%
Portland		6,684		6,090	9.8%		18,575		17,150	8.3%
Orlando-Daytona		5,269		5,112	3.1%		15,123		14,239	6.2%
All other markets		98,177		92,040	6.7%		275,348		259,705	6.0%
Total net operating income	$	347,228	$	323,609	7.3%	$	974,021	$	913,238	6.7%

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Same Store Facilities Operating Trends by Market (Continued)
	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013		Change	2014		2013		Change
Weighted average square foot occupancy:
Los Angeles		94.9%		93.9%	1.1%		94.3%		93.6%	0.7%
San Francisco		95.8%		95.1%	0.7%		95.2%		94.5%	0.7%
New York		94.7%		95.3%	(0.6)%		94.0%		94.8%	(0.8)%
Chicago		94.9%		94.8%	0.1%		93.7%		93.8%	(0.1)%
Washington DC		93.5%		94.2%	(0.7)%		92.9%		93.4%	(0.5)%
Seattle-Tacoma		95.1%		94.2%	1.0%		94.1%		93.1%	1.1%
Miami		94.8%		94.5%	0.3%		94.7%		93.7%	1.1%
Dallas-Ft. Worth		94.7%		94.6%	0.1%		94.4%		93.4%	1.1%
Houston		95.0%		95.1%	(0.1)%		94.3%		93.7%	0.6%
Atlanta		94.7%		93.6%	1.2%		93.6%		91.9%	1.8%
Philadelphia		94.2%		94.4%	(0.2)%		94.1%		93.1%	1.1%
Denver		96.2%		96.2%	0.0%		95.2%		95.3%	(0.1)%
Minneapolis-St. Paul		94.6%		95.2%	(0.6)%		93.9%		93.7%	0.2%
Portland		96.0%		95.0%	1.1%		95.5%		94.2%	1.4%
Orlando-Daytona		94.6%		93.9%	0.7%		93.7%		93.2%	0.5%
All other markets		94.4%		94.0%	0.4%		93.7%		93.0%	0.8%
Total weighted average occupancy		94.7%		94.4%	0.3%		94.0%		93.4%	0.6%
Realized annual rent per occupied square foot:
Los Angeles	$	20.89	$	19.97	4.6%	$	20.23	$	19.37	4.4%
San Francisco		22.06		20.67	6.7%		21.23		20.00	6.2%
New York		23.20		22.27	4.2%		22.55		21.66	4.1%
Chicago		14.72		14.07	4.6%		14.22		13.55	4.9%
Washington DC		21.17		20.75	2.0%		20.64		20.19	2.2%
Seattle-Tacoma		16.48		15.50	6.3%		15.83		14.99	5.6%
Miami		18.53		17.44	6.3%		17.82		16.89	5.5%
Dallas-Ft. Worth		12.03		11.28	6.6%		11.55		10.92	5.8%
Houston		12.57		11.61	8.3%		12.09		11.26	7.4%
Atlanta		11.04		10.47	5.4%		10.73		10.27	4.5%
Philadelphia		14.37		13.74	4.6%		13.86		13.33	4.0%
Denver		15.07		13.73	9.8%		14.18		13.08	8.4%
Minneapolis-St. Paul		13.60		12.68	7.3%		12.95		12.14	6.7%
Portland		15.64		14.55	7.5%		14.90		14.10	5.7%
Orlando-Daytona		11.61		11.21	3.6%		11.31		10.90	3.8%
All other markets		12.24		11.69	4.7%		11.83		11.37	4.0%
Total realized rent per square foot	$	15.25	$	14.48	5.3%	$	14.73	$	14.07	4.7%

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Same Store Facilities Operating Trends by Market (Continued)
	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013		Change	2014		2013		Change
REVPAF:
Los Angeles	$	19.84	$	18.76	5.8%	$	19.07	$	18.13	5.2%
San Francisco		21.20		19.66	7.8%		20.22		18.90	7.0%
New York		21.97		21.23	3.5%		21.20		20.52	3.3%
Chicago		13.99		13.34	4.9%		13.34		12.72	4.9%
Washington DC		19.81		19.55	1.3%		19.17		18.85	1.7%
Seattle-Tacoma		15.74		14.61	7.7%		14.92		13.96	6.9%
Miami		17.60		16.48	6.8%		16.88		15.83	6.6%
Dallas-Ft. Worth		11.47		10.67	7.5%		10.92		10.21	7.0%
Houston		11.94		11.04	8.2%		11.40		10.55	8.1%
Atlanta		10.59		9.81	8.0%		10.08		9.44	6.8%
Philadelphia		13.53		12.97	4.3%		13.04		12.41	5.1%
Denver		14.68		13.21	11.1%		13.55		12.46	8.7%
Minneapolis-St. Paul		12.87		12.06	6.7%		12.16		11.38	6.9%
Portland		15.03		13.82	8.8%		14.24		13.28	7.2%
Orlando-Daytona		11.01		10.53	4.6%		10.60		10.15	4.4%
All other markets		11.56		10.99	5.2%		11.09		10.57	4.9%
Total REVPAF	$	14.44	$	13.67	5.6%	$	13.84	$	13.14	5.3%

Net operating income for the New York, Washington DC, Chicago and Philadelphia markets for the nine months ended September 30, 2014 were negatively impacted by increased snow removal and utility costs due to severe winter weather.

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 September 30, 2014 represent 240 facilities that were not stabilized with respect to occupancies or rental rates since January 1, 2012, or that we did not own as of January 1, 2012.  As a result of the stabilization process and timing of when the facilities were acquired, year-over-year changes can be significant.  In the following table, “Other facilities” includes all facilities that we have owned, but were not yet stabilized as of January 1, 2012, three facilities that we obtained control of and began consolidating in 2012, four newly developed facilities opened since January 1, 2013 and a self-storage facility that we gained possession of in the three months ended September 30, 2014 due to termination by a tenant who had ground leased the facility from us.

The following table summarizes operating data with respect to the Non Same Store Facilities:

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NON SAME STORE FACILITIES	Three Months Ended September 30,						Nine Months Ended September 30,
	2014		2013		Change		2014		2013		Change
	(Dollar amounts in thousands, except square foot amounts)
Rental income:
2014 third party acquisitions	$	6,336	$	-	$	6,336	$	6,815	$	-	$	6,815
2013 third party acquisitions		25,376		3,926		21,450		71,147		4,303		66,844
2012 third party acquisitions		7,457		5,932		1,525		20,670		16,174		4,496
Other facilities		19,129		16,820		2,309		53,081		48,390		4,691
Total rental income		58,298		26,678		31,620		151,713		68,867		82,846
Cost of operations before depreciation
and amortization expense:
2014 third party acquisitions		1,926		-		1,926		2,118		-		2,118
2013 third party acquisitions		8,166		1,704		6,462		24,538		1,864		22,674
2012 third party acquisitions		2,393		2,291		102		7,088		6,189		899
Other facilities		5,749		5,065		684		16,803		14,714		2,089
Total cost of operations		18,234		9,060		9,174		50,547		22,767		27,780
Net operating income:
2014 third party acquisitions		4,410		-		4,410		4,697		-		4,697
2013 third party acquisitions		17,210		2,222		14,988		46,609		2,439		44,170
2012 third party acquisitions		5,064		3,641		1,423		13,582		9,985		3,597
Other facilities		13,380		11,755		1,625		36,278		33,676		2,602
Total net operating income (a)		40,064		17,618		22,446		101,166		46,100		55,066
Depreciation and amortization
expense		(32,369)		(17,108)		(15,261)		(89,360)		(38,619)		(50,741)
Net income	$	7,695	$	510	$	7,185	$	11,806	$	7,481	$	4,325
At September 30:
Square foot occupancy:
2014 third party acquisitions								91.6%		-		-
2013 third party acquisitions								90.7%		76.1%		19.2%
2012 third party acquisitions								93.3%		86.7%		7.6%
Other facilities								87.0%		87.4%		(0.5)%
								90.0%		84.1%		7.0%
Annual contract rent per occupied
square foot:
2014 third party acquisitions							$	12.01	$	-		-
2013 third party acquisitions								14.16		14.57		(2.8)%
2012 third party acquisitions								15.21		13.36		13.8%
Other facilities								16.68		16.35		2.0%
							$	14.73	$	15.19		(3.0)%
Number of facilities:
2014 third party acquisitions								31		-		31
2013 third party acquisitions								121		32		89
2012 third party acquisitions								24		24		-
Other facilities								64		59		5
								240		115		125
Net rentable square feet (in thousands):
2014 third party acquisitions								2,238		-		2,238
2013 third party acquisitions								8,036		2,492		5,544
2012 third party acquisitions								2,117		2,117		-
Other facilities								5,385		4,587		798
								17,776		9,196		8,580

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(a)See “Net Operating Income” below for a reconciliation of this non-GAAP measure to our net income in our statements of income for the three and nine months ended September 30, 2014 and 2013.

For the nine months ended September 30, 2014, the weighted average annualized yield for the facilities acquired in 2013 and 2012, respectively, was 5.4% and 7.4%.  The yields for the facilities acquired in 2014 were not meaningful due to our limited ownership in the period. 

During the nine months ended September 30, 2014, we completed expansions to the “Other facilities,” adding 370,000 net rentable square feet of self-storage space, for an aggregate cost of $27 million and we opened three newly developed facilities for an aggregate cost of $33 million with 316,000 net rentable square feet of self-storage space.

Subsequent to September 30, 2014, we acquired ten self-storage facilities (three in Minnesota, two in Virginia, and one each in Arizona, North Carolina, South Carolina, Texas and Florida), with an aggregate of 929,000 net rentable square feet, for approximately $98 million in cash.  As of November 4, 2014, we have four additional self-storage facilities with 333,000 net rentable square feet (one each in California, Minnesota, Texas and Washington) under contract, for an aggregate purchase price of approximately $63 million, with estimated closing dates in the fourth quarter of 2014.

We expect to increase the number of Non Same Store Facilities over at least the next 18 months through development of additional self-storage space and acquisitions of existing facilities from third parties.  As of September 30, 2014, we had development and expansion projects which will add approximately 3.0 million net rentable square feet of storage space at a total cost of approximately $342 million.  A total of $73 million in costs were incurred through September 30, 2014 with respect to these projects, with approximately $77 million of the remaining costs expected to be incurred in the last three months of 2014, and the remainder primarily in 2015.  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.  There is significant competition to acquire existing facilities and there can be no assurance that we will be able to acquire additional facilities at prices we will find attractive.      

We believe that our management and operating infrastructure will result in newly acquired facilities stabilizing at a higher level of net operating income than was achieved by the previous owners.  However, it can take 24 or more months for these newly acquired facilities to reach stabilization, 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 our expectations with respect to these facilities will be achieved.  However, we expect the Non Same Store Facilities to continue to provide earnings growth during 2014 as these facilities approach stabilized occupancy levels and the earnings of the 2013 acquisitions are reflected in our operations for a longer period in 2014 as compared to 2013.

Equity in earnings of unconsolidated real estate entities

At September 30, 2014, we have equity investments in PSB, Shurgard Europe and various limited partnerships.  We account for such investments using the equity method.

Equity in earnings of unconsolidated real estate entities for the three and nine months ended September 30, 2014 and 2013 consists of our pro-rata share of the net income of these unconsolidated real estate entities for each period.  The following table sets forth the significant components of equity in earnings of unconsolidated real estate entities.

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Historical summary:	Three Months Ended September 30,						Nine Months Ended September 30,
	2014		2013		Change		2014		2013		Change
		(Amounts in thousands)
Equity in earnings:
PSB	$	5,513	$	4,861	$	652	$	15,165	$	14,147	$	1,018
Shurgard Europe		8,363		8,953		(590)		26,626		23,644		2,982
Other Investments		690		455		235		1,514		1,222		292
Total equity in earnings	$	14,566	$	14,269	$	297	$	43,305	$	39,013	$	4,292

Investment in PSB:  At September 30 2014 and December 31, 2013, we had an approximate 42% common equity interest in PSB, comprised of our ownership of 7,158,354 shares of PSB’s common stockand 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.

During the last six months of 2013, we purchased 406,748 shares of PSB common stock in open-market transactions at an average cost of $73.15 per share, and 950,000 shares of PSB common stock from PSB at $79.25 per share. 

At September 30, 2014, PSB owned and operated 30.0 million rentable square feet of commercial space located in eight states.  PSB also manages commercial space that we own pursuant to property management agreements.

Equity in earnings from PSB increased to $5.5 million for the three months ended September 30, 2014 as compared to  $4.9 million for the same period in 2013, and increased to $15.2 million for thenine months September 30, 2014 from $14.1 million for the same period in 2013. Equity earnings from PSB for the three and nine months ended September 30, 2014 as compared to the same periods in 2013 were impacted by a) the incremental earnings generated by the properties PSB acquired in 2013, b) additional depreciation expense recorded by PSB associated with the properties it acquired in 2013, c) additional amortization expense we recorded with respect to differences between underlying book value and the cost of PSB common shares we acquired in the last six months of 2013.  See Note 4 to our September 30, 2014 financial statements for selected financial information on PSB, as well as PSB’s filings and selected financial information that can be accessed through the SEC, and on PSB’s website, www.psbusinessparks.com.

Investment in Shurgard Europe:Equity in earnings of Shurgard Europe represents our 49% equity share of Shurgard Europe’s net income.  At September 30, 2014, Shurgard Europe’s operations are comprised of 187 wholly-owned facilities with 10 million net rentable square feet.  Selected financial data for Shurgard Europe for the nine months ended September 30, 2014 and 2013 is included in Note 4 to our September 30, 2014 financial statements.  As described in more detail in Note 4, we receive interest income and trademark license fees from Shurgard Europe. 

Equity in earnings from Shurgard Europe decreased to $8.4 million for the three months ended September 30, 2014 as compared to  $9.0 million for the same period in 2013, and increased to $26.6 million for thenine months September 30, 2014 from $23.6 million for the same period in 2013.  The decrease for the three month periods is due primarily to our equity share of increased interest expense incurred in connection with Shurgard Europe’s refinancing activities completed in July 2014.  See below for additional information on the impact these refinancing activities have on our equity in earnings from Shurgard Europe.  The increase for the nine month periods is due primarily to our equity share of improved property operations and our $1.4 million equity share of a lease termination charge during the nine months ended September 30, 2013.

In July 2014, Shurgard Europe completed the following financing transactions: (i) amended its bank loan to, among other things, expand the outstanding borrowings from €82.9 million to €125.0 million, set the interest rate at Euribor plus 1.8%, and extend the maturity to January 2018, (ii) issued €300.0 million (issued in three equal tranches of 7, 10 and 12 year maturities) of unsecured senior notes with an average interest rate of 3.0%, and (iii)

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fully repaid its €311.0 million shareholder loan.  As a result, we received a total of $204.9 million for our 49% share of the shareholder loan. 

Shurgard Europe has no material development pipeline and no expectations in the short-term of any material third party facility acquisitions.  Accordingly, at least in the short-term, our future earnings from Shurgard Europe will be affected primarily by the operating results of its existing facilities, as well as the exchange rate between the U.S. Dollar and currencies in the countries Shurgard Europe conducts its business, principally the Euro. 

European Same Store Facilities:  The Shurgard Europe Same Store Pool represents the 174 facilities (9.2 million net rentable square feet, representing 92% of the aggregate net rentable square feet of Shurgard Europe’s self-storage portfolio) that have been consolidated and operated by Shurgard Europe on a stabilized basis since January 1, 2012 and therefore provide meaningful comparisons for 2013 and 2014.  We evaluate the performance of these facilities because Shurgard Europe’s ability to effectively manage stabilized facilities represents an important measure of its ability to grow its earnings over the long-term. 

The following table reflects 100% of the operating results of those 174 facilities.  We restate the exchange rates used in prior year’s presentation to the actual exchange rates for the three and nine months ended September 30, 2014.  However, only our pro rata share of the operating results for these facilities, based upon the actual exchange rates for each period, is included in “equity in earnings of unconsolidated real estate entities” on our statements of income. 

In Note 4 to our September 30, 2014 financial statements, we disclose Shurgard Europe’s consolidated operating results for the nine months ended September 30, 2014 and 2013.  Shurgard Europe’s consolidated operating results include 13 additional facilities that are not Same Store Facilities, and are based upon historical exchange rates rather than constant exchange rates for each of the respective periods.

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Selected Operating Data for the Shurgard Europe Same Store Pool (174 facilities):	Three Months Ended September 30,					Nine Months Ended September 30,
					Percentage					Percentage
	2014		2013		Change	2014		2013		Change
		(Dollar amounts in thousands, except weighted average data,
		utilizing constant exchange rates) (a)
Revenues (including late charges and
administrative fees)	$	52,947	$	51,279	3.3%	$	158,767	$	154,785	2.6%
Less: Cost of operations (excluding
depreciation and amortization expenses)		21,791		21,219	2.7%		67,609		66,834	1.2%
Net operating income (b)	$	31,156	$	30,060	3.6%	$	91,158	$	87,951	3.6%
Gross margin		58.8%		58.6%	0.3%		57.4%		56.8%	1.1%
Weighted average for the period:
Square foot occupancy		87.1%		81.3%	7.1%		85.1%		80.3%	6.0%
Realized annual rent, prior to late
charges and administrative fees, per (c):
Occupied square foot	$	25.78	$	26.78	(3.7)%	$	26.40	$	27.31	(3.3)%
Available square foot (“REVPAF”)	$	22.46	$	21.77	3.2%	$	22.47	$	21.93	2.5%
At September 30:
Square foot occupancy							90.0%		82.6%	9.0%
Annual contract rent per occupied
square foot (d)						$	27.23	$	28.81	(5.5)%
Total net rentable square feet
(in thousands)							9,244		9,244	-
Average Euro to the U.S. Dollar for the
period (a):
Constant exchange rates used herein		1.326		1.326	-		1.356		1.356	-
Actual historical exchange rates		1.326		1.324	0.2%		1.356		1.317	3.0%

(a)In order to isolate changes in the underlying operations from the impact of exchange rates, the amounts in this table are presented on a constant exchange rate basis.  The amounts for three and nine months ended September 30, 2013 have been restated using the actual exchange rates for the three and nine months ended September 30, 2014.

(b)We present Shurgard Europe’s same-store net operating income or “NOI,” which is a non-GAAP financial measure that excludes the impact of depreciation and amortization expense.  We believe that NOI is a meaningful measure of operating performance, because we utilize NOI in making decisions with respect to capital allocations, in determining current property values, in evaluating property performance and in comparing period-to-period and market-to-market property operating results.  In addition, we believe the investment community utilizes NOI in determining operating performance and real estate values, and does not consider depreciation expense because it is based upon historical cost. NOI is not a substitute for net income, net operating cash flow, or other related GAAP financial measures, in evaluating Shurgard Europe’s operating results. 

(c)Realized annual rent per occupied square foot is computed by dividing annualized rental income, before late charges and administrative fees, by the weighted average occupied square feet for the period.  Realized annual rent per available square foot (“REVPAF”) is computed by dividing annualized rental income, before late charges and administrative fees, by the total available 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.

(d)Contract rent represents the applicable contractual monthly rent charged to tenants, excluding the impact of promotional discounts, late charges and administrative fees.

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NOI increased 3.6% in each of the three and nine month periods ended September 30, 2014, as compared to the same periods in 2013, principally due to increases of 3.3% and 2.6%, respectively, in revenue, partially offset by  increases of 2.7% and 1.2%, respectively, in cost of operations.  Due to the limited number of facilities in this portfolio and lack of geographic concentration, as well as recent volatile economic conditions in Western Europe, it is difficult to estimate revenue growth.  However, based upon current trends, it appears that revenue should increase modestly in the last quarter of 2014.   

Other Investments:  The “Other Investments” at September 30, 2014 are comprised primarily of our equity in earnings from various limited partnerships that own an aggregate of 13 self-storage facilities (750,000 net rentable square feet).  Our future earnings with respect to the Other Investments will be dependent upon the operating results of the facilities these entities own. See Note 4 to our September 30, 2014 financial statements under the “Other Investments” for certain condensed combined financial information of these entities.

Ancillary Operations

Ancillary revenues and expenses include amounts associated with (i) the reinsurance of policies against losses to goods stored by customers in our self-storage facilities in the U.S., (ii) merchandise sales, (iii) commercial property operations and (iv) management of 41self-storage facilities owned by third parties and the Unconsolidated Real Estate Entities.   

Commercial property operations are included in our commercial segment and all other ancillary revenues and costs of operations are not allocated to any segment.  See Note 11 to our September 30, 2014 financial statements for further information regarding our segments and for a reconciliation of these ancillary revenues and cost of operations to our net income. 

The following table sets forth our ancillary operations as presented on our income statements:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014		2013		Change		2014		2013		Change
		(Amounts in thousands)
Ancillary Revenues:
Tenant reinsurance premiums	$	24,117	$	21,722	$	2,395	$	70,020	$	63,121	$	6,899
Commercial		3,887		3,593		294		11,858		10,617		1,241
Merchandise and other		9,321		8,664		657		26,718		25,278		1,440
Total revenues		37,325		33,979		3,346		108,596		99,016		9,580
Ancillary Cost of Operations:
Tenant reinsurance		6,151		4,757		1,394		19,764		12,226		7,538
Commercial		1,392		1,329		63		4,000		3,958		42
Merchandise and other		5,471		4,966		505		15,828		14,698		1,130
Total cost of operations		13,014		11,052		1,962		39,592		30,882		8,710
Commercial depreciation		731		696		35		2,152		2,083		69
Ancillary net income:
Tenant reinsurance		17,966		16,965		1,001		50,256		50,895		(639)
Commercial		1,764		1,568		196		5,706		4,576		1,130
Merchandise and other		3,850		3,698		152		10,890		10,580		310
Total ancillary net income	$	23,580	$	22,231	$	1,349	$	66,852	$	66,051	$	801

Tenant reinsurance operations:We reinsure policies offered through a non-affiliated insurance company against losses to goods stored by customers in the domestic self-storage facilities we operate.  The level of tenant reinsurance revenues is largely dependent upon the number of customers that participate in the insurance program and the average premium rates charged.  Cost of operations primarily includes claims paid that are not covered by

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our outside third-party insurers, as well as claims adjustment expenses.  Tenant reinsurance cost of operations for the nine months ended September 30, 2014 includes a $7.8 million accrual related to a legal settlement and a $4.1 million reduction associated with the recognition of a deferred tax asset.  The increases of $1.4million and $3.9 million in ongoing cost of operations for the three and nine months ended September 30, 2014, respectively, as compared to the same periods in 2013, are due primarily to an increase in exposure associated with more insured tenants and, to a lesser extent, claims resulting from extreme weather conditions in early 2014.

Tenant reinsurance revenue with respect to our Same Store Facilities increased from $20.0 million and $58.5 million in the three and nine months ended September 30, 2013 to $21.1 million and $62.1 million in the same periods in 2014 primarily due to more insured tenants and, to a lesser extent, higher average premium rates charged.  The remaining increases are due primarily to the acquisition of 152 self-storage facilities from third parties since January 1, 2013.

We expect continued increases in tenant insurance revenues in the remainder of 2014 as the tenant insurance revenues with respect to the facilities we acquired in 2013 are reflected for a full year, combined with the acquisition of additional facilities in 2014.     

Commercial operations:We also own and operate commercial facilities, primarily the leasing of small retail storefronts and office space located on or near our existing self-storage facilities.  We do not expect any significant changes in revenues or profitability from our commercial operations. 

Merchandise sales and other: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.  These amounts include, to a much lesser extent, the results of our management of 41 self-storage facilities in the U.S. for third party owners and other partnerships that we account for on the equity method.  We do not expect any significant changes in revenues or profitability from our merchandise sales and other in the remainder of 2014.

Other Income and Expense Items

Interest and other income:  Interest and other income for the three months ended September 30, 2014 and 2013, totaled $0.7 million and $5.6 million, respectively, representing a reduction of $4.9 million.  Interest and other income for the nine months ended September 30, 2014 and 2013, totaled $4.2 million  and $16.7 million, respectively, representing a reduction of $12.5 million.  As described more fully in Note 5 to our September 30, 2014 financial statements, these reductions were primarily due to the sale of a 51% interest in the loan receivable from Shurgard Europe on January 28, 2014 to our joint venture partner, and the repayment of the remaining 49% balance due to us in July 2014.

The remainder of our interest and other income is comprised primarily of interest earned on cash balances as well as sundry other income items that are received from time to time in varying amounts.  Interest income on cash balances has been minimal, because rates have been at historic lows of 0.1% or less, and we expect this trend to continue in the foreseeable future.  Future earnings from sundry other income items are not predictable. 

Depreciation and amortization: Depreciation and amortization increased to $111.1 million and $326.5 million for the three and nine months ended September 30, 2014 as compared to $96.5 million and $278.5 million for the same periods in 2013, due principally to the 152 facilities acquired from third parties since January 1, 2013.  Included in depreciation and amortization is amortization expense of tenant intangibles for facilities acquired from third parties, which is being amortized relative to the expected future benefit of the customers in place for each period.  Such amortization expense totaled $12.6 million and $37.4 million for the three and nine months ended September 30, 2014 as compared to $5.1million and $9.8 million for the same periods in 2013.  Based upon the facilities we own at September 30, 2014, amortization expense with respect to such intangibles is estimated at $9.1 million for the remainder of 2014.  The level of future depreciation and amortization will primarily depend upon the level of acquisitions of facilities and the level of capital expenditures we incur on our facilities. 

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General and administrative expense: The following table sets forth our general and administrative expense:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014		2013		Change		2014		2013		Change
		(Amounts in thousands)
Share-based compensation expense	$	8,794	$	8,592	$	202	$	22,158	$	21,491	$	667
Costs of senior executives		419		419		-		5,141		4,892		249
Development and acquisition costs		3,372		3,077		295		7,879		6,088		1,791
Tax compliance costs and taxes paid		1,083		1,002		81		3,443		3,394		49
Legal costs		1,401		702		699		3,159		2,824		335
Public company costs		848		709		139		2,553		2,379		174
Other costs		1,957		3,149		(1,192)		7,907		8,920		(1,013)
Total	$	17,874	$	17,650	$	224	$	52,240	$	49,988	$	2,252

Share-based compensation expense includes the amortization of restricted share units and stock options granted to employees, as well as related employer taxes.  The level of share-based compensation expense varies based upon the level of grants and forfeitures.  We expect increases in share-based compensation expense for the remainder of 2014 similar to those experienced in the first nine months of 2014.  See Note 10 to our September 30, 2014 financial statements for further information on our share-based compensation. 

Costs of senior executives represent the cash compensation paid to our Chief Executive Officer and Chief Financial Officer.  The increase reflects additional incentive compensation.

Development and acquisition costs represent internal and external expenses related to our acquisition and development activities and varies primarily based upon the level of development and acquisition activities undertaken.  The increases are due primarily to increased development activities.

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. 

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 directors’ costs, and costs associated with maintaining compliance with applicable laws and regulations, including the Dodd-Frank Act and Sarbanes-Oxley Act. 

Our future general and administrative expenses are difficult to estimate, due to their dependence upon many factors, including those noted above.  

Interest expense: Interest expense was $1.2 million and $6.8 million for the three and nine months ended September 30, 2014, as compared to $0.5 million and $4.6 million for the same periods in 2013.  Increases in interest expense were due primarily to increased outstanding borrowings, primarily our term loan, offset partially by principal repayments on our notes payable.  See Note 6 to our September 30, 2014 financial statements for a schedule of our notes payable balances, principal repayment requirements and average interest rates.  On September 30, 2014, we repaid the outstanding balance of our term loan.   

Foreign Exchange Gain (Loss): We recorded foreign currency translation losses of $3.0 million and $7.0 million for the three and nine months ended September 30, 2014, as compared to foreign currency translation

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gains of $16.1 million and $9.3 million for the same periods in 2013, respectively, 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. 

In July 2014, Shurgard Europe repaid its loan payable to us and, as a result, no further foreign exchange gains or losses on the loan are expected. 

Net Income Allocable to Preferred Shareholders:  Net income allocable to preferred shareholders increased during the three and nine months ended September 30, 2014 as compared to the same periods in 2013 due primarily to higher average outstanding preferred shares.  Based upon our preferred shares outstanding at September 30, 2014, our quarterly distribution to our preferred shareholders is expected to be approximately $60.8 million. 

Net Operating Income

In our discussions above, we refer to net operating income or “NOI,” which is a non-GAAP financial measure that excludes the impact of depreciation and amortization expense.  We believe that NOI is a meaningful measure of operating performance, because we utilize NOI in making decisions with respect to capital allocations, in determining current property values, in evaluating property performance and in comparing period-to-period and market-to-market property operating results.  In addition, we believe the investment community utilizes NOI in determining operating performance and real estate values, and does not consider depreciation expense because it is based upon historical cost.  NOI is not a substitute for net income, net operating cash flow, or other related GAAP financial measures, in evaluating our operating results.  The following table reconciles NOI generated by our self-storage facilities to our operating income:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
		(Amounts in thousands)
Self-storage net operating income:
Same Store Facilities	$	347,228	$	323,609	$	974,021	$	913,238
Non Same Store Facilities		40,064		17,618		101,166		46,100
		387,292		341,227		1,075,187		959,338
Self-storage depreciation expense:
Same Store Facilities		(77,977)		(78,733)		(235,029)		(237,773)
Non Same Store Facilities		(32,369)		(17,108)		(89,360)		(38,619)
		(110,346)		(95,841)		(324,389)		(276,392)
Self-storage net income:
Same Store Facilities		269,251		244,876		738,992		675,465
Non Same Store Facilities		7,695		510		11,806		7,481
Total net income from self-storage		276,946		245,386		750,798		682,946
Ancillary operating revenue		37,325		33,979		108,596		99,016
Ancillary cost of operations		(13,014)		(11,052)		(39,592)		(30,882)
Commercial depreciation and
amortization		(731)		(696)		(2,152)		(2,083)
General and administrative expenses		(17,874)		(17,650)		(52,240)		(49,988)
Operating income	$	282,652	$	249,967	$	765,410	$	699,009

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Liquidity and Capital Resources

Financial Strategy:  Our financial profile is characterized by a low level of debt-to-total-capitalization.  In general, we seek to finance our investment activities and debt obligations with retained operating cash flow, and when not sufficient, the issuance of preferred and common securities.  When market conditions are not favorable to issue either preferred or common securities, we will use bank debt as bridge financing.  Given the low interest rate environment coupled with having only $71.6 million of debt outstanding at September 30, 2014, we may seek to issue a modest amount of medium to long-term debt.

Unlike most REITs, we have elected to use predominantly preferred securities in our capital structure as a form of leverage despite the fact that the dividend rates of our preferred securities exceed the prevailing market interest rates on conventional debt.  We have chosen this method of financing for the following reasons: (i) under the REIT structure, a significant amount of operating cash flow needs to be distributed to our shareholders, making it difficult, relative to a traditional taxable corporation, to repay debt with operating cash flow alone, (ii) our perpetual preferred shares have no sinking fund requirement or maturity date and do not require redemption, all of which eliminate future refinancing risks, (iii) after the end of a non-call period, we have the option to redeem the preferred shares at any time, which enables us to refinance higher coupon preferred shares with new preferred shares at lower rates if appropriate, (iv) preferred shares do not contain covenants, thus allowing us to maintain significant financial flexibility, and (v) dividends on the preferred shares can be applied to satisfy our REIT distribution requirements.

We have generally been able to raise preferred capital at an attractive cost relative to the issuance of our common shares, and as a result, our issuances of common shares for cash have been minimal over the past several years.  During the early part of 2013, we issued preferred securities with coupons as low as 5.2%.  Since then, rates increased and market conditions for the issuance of common and preferred capital worsened, and as a result during the last three months of 2013, we borrowed approximately $750.1 million from banks to bridge finance our acquisition activities during that timeframe (see discussion of our bridge financing below).  Since then, coupon rates and market conditions have improved, and in March and April 2014, we issued $285.0 million of preferred securities at a market coupon rate of 6.375%, and in June 2014, we issued $287.5 million of preferred securities at a market coupon rate of 6.0%.  The market coupon rate on our preferred securities is influenced by long-term interest rates. 

Our credit ratings on each of our series of preferred shares are “A3” by Moody’s, “BBB+” by Standard & Poor’s and “A” by Fitch Ratings.  In recent years, we have been one of the largest and most frequent issuers of preferred equity in the U.S.  

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 operating expenses, capital improvements and distributions to our shareholders for the foreseeable future. 

As of September 30, 2014, our capital resources totaled approximately $519 million, consisting of cash and cash equivalents totaling $98 million, $135 million of retained operating cash flow for the remainder of 2014, and approximately $286 million of available borrowing capacity on our line of credit.  Retained operating cash flow represents our expected cash flow provided by operating activities, after deducting estimated distributions to our common and preferred shareholders, and estimated capital expenditure requirementsfor the three months ending December 31, 2014.

At September 30, 2014, we had estimated remaining 2014 capital commitments totaling approximately $241 million, consisting of $4 million in maturities on notes payable, $160 million in property acquisitions, as well as approximately $77 million of spending on our development pipeline.  In addition, we expect that our capital commitments will continue to grow during the remainder of 2014 as we continue to seek additional development and acquisition opportunities. 

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We believe we have a variety of possibilities to raise additional capital, including the issuance of common or preferred securities, issuing debt, expanding the borrowing capacity of our credit facility, or entering into joint venture arrangements to acquire or develop facilities. 

Debt Service Requirements:As of September 30, 2014, our outstanding debt totaled approximately $71.6 million.  Approximate principal maturities of our outstanding debt are as follows (amounts in thousands):

2014 (remainder)	$	3,986
2015		30,955
2016		16,100
2017		5,970
2018		11,077
Thereafter		3,544
	$	71,632

The remaining maturities on our notes payable are nominal compared to our annual cash from operations. 

Capital Expenditure Requirements: Capital expenditures include major repairs or replacements to elements of our facilities, which keep the facilities in good operating condition and maintain their visual appeal to the customer, which totaled $63.6 million during the nine months ended September 30, 2014.  Capital expenditures do not include costs relating to the development of new facilities or the expansion of net rentable square footage of existing facilities.  For the year ending December 31, 2014, we expect to incur approximately $76 million for capital expenditures and to fund such amounts with cash provided by operating activities.  For the last four years, such capital expenditures have ranged between approximately $0.55 and $0.60 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 Internal Revenue 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 the nine months ended September 30, 2014 totaled $896.7 million, consisting of $170.9 million to preferred shareholders and $725.8 million to common shareholders and restricted share unitholders.  All of these distributions were REIT qualifying distributions.

We estimate the distribution requirements with respect to our Preferred Shares outstanding at September 30, 2014 to be approximately $60.8 million per quarter. 

On October 30, 2014, our Board of Trustees declared a regular common quarterly dividend of $1.40 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 are obligated to pay distributions to noncontrolling interests in our consolidated subsidiaries based upon the cash provided by operating activities of the respective subsidiary.  Such distributions are estimated at approximately $7.0 million in 2014, with respect to such noncontrolling interests outstanding at September 30, 2014. 

Real Estate Investment Activities:  Subsequent to September 30, 2014, we acquired ten self-storage facilities for approximately $98 million in cash.  As of November 4, 2014, we have four additional self-storage facilities under contract, for an aggregate purchase price of approximately $63 million, with estimated closing dates in the fourth quarter of 2014.  During the remainder of 2014, we will continue to seek to acquire other self-storage

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facilities from third parties; however, it is difficult to estimate the amount of third party acquisitions we will undertake. 

As of September 30, 2014, we had development and expansion projects at a total cost of approximately $342 million.  A total of $73 million in costs were incurred through September 30, 2014 with respect to these projects, with approximately $77 million of the remaining costs expected to be incurred in the last three months of 2014, and the remainder primarily in 2015.  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 available sites for building that meet our risk-adjusted yield expectations, as well as the challenges in obtaining building permits for self-storage activities in certain municipalities.

Shurgard Europe: In July 2014, Shurgard Europe completed the following financing transactions: (i) amended its bank loan to, among other things, expand the outstanding borrowings from €82.9 million to €125.0 million, set the interest rate at Euribor plus 1.8%, and extend the maturity to January 2018, (ii) issued €300.0 million (issued in three equal tranches of 7, 10 and 12 year maturities) of unsecured senior notes with an average interest rate of 3.0%, and (iii) fully repaid its €311.0 million shareholder loan.  As a result, we received a total of $204.9 million for our 49% share of the shareholder loan. 

Redemption of Preferred Securities: We have no series of preferred shares that are redeemable before April 2015 and none of our preferred securities are redeemable at the option of the holders. 

Repurchases of Company’s Common Shares: Our Board of Trustees has authorized management to repurchase up to 35,000,000 of our common shares on the open market or in privately negotiated transactions.  During the nine months ended September 30, 2014, we did not repurchase any of our common shares.  From the inception of the repurchase program through November 4, 2014, we have repurchased a total of 23,721,916 common shares at an aggregate cost of approximately $679.1 million.  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. 

Contractual Obligations

Our significant contractual obligations at September 30, 2014 and their impact on our cash flows and liquidity are summarized below for the years ending December 31 (amounts in thousands):

			Remainder of
	Total		2014		2015		2016		2017		2018		Thereafter
Long-term debt (1)	$	78,136	$	4,900	$	33,263	$	17,657	$	6,640	$	11,610	$	4,066
Operating leases (2)		74,531		1,173		3,860		3,770		2,709		2,428		60,591
Construction commitments (3)		67,479		53,983		13,496		-		-		-		-
Total	$	220,146	$	60,056	$	50,619	$	21,427	$	9,349	$	14,038	$	64,657

(1)Amounts include principal and interest payments (all of which are fixed-rate) on our notes payable based on their contractual terms.  See Note 6 to our September 30, 2014 financial statements for additional information on our notes payable. 

(2)We lease land, equipment and office space under various operating leases.  Certain leases are cancelable; however, significant penalties would be incurred upon cancellation.  Amounts reflected above consider continuance of the lease without cancellation. 

(3)Amounts exclude an additional $202.2 million in future expected development spending that was not under contract at September 30, 2014.

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We estimate the annual distribution requirements with respect to our Preferred Shares outstanding at September 30, 2014 to be approximately $243.1 million per year.  Dividends are paid when and if declared by our Board of Trustees and accumulate if not paid. 

Off-Balance Sheet Arrangements: At September 30, 2014, we had no material off-balance sheet arrangements as defined under Regulation S-K 303(a)(4) and the instructions thereto.

Item 3.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 $71.6 million and represents 0.1% of the book value of our equity at September 30, 2014.

We have foreign currency exposure related to our investment in Shurgard Europe, which has a book value of $412.7million at September 30, 2014. 

The fair value of our fixed rate debt at September 30, 2014 approximates book value.  The table below summarizes the annual maturities of our fixed rate debt which had a weighted average fixed rate of 4.5% at September 30, 2014.  See Note 6 to our September 30, 2014 financial statements for further information regarding our fixed rate debt (amounts in thousands).

	Remainder of
	2014		2015		2016		2017		2018		Thereafter		Total
Fixed rate debt	$	3,986	$	30,955	$	16,100	$	5,970	$	11,077	$	3,544	$	71,632

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Item 4.Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

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, (“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 recognizes 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 is 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 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.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at a reasonable assurance level. 

Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.OTHER INFORMATION

Item 1.           Legal Proceedings

The information set forth under the heading “Contingent Losses” in Note 12 to our September 30, 2014 financial statements is incorporated by reference in this Item 1.

Item 1A.        Risk Factors

In addition to the other information in this Quarterly Report on Form 10-Q, you should carefully consider the risks described in our Annual Report on Form 10-K filed for the year ended December 31, 2013, in Part I, Item 1A, Risk Factors, and in our other filings with the SEC.  These factors may materially affect our business, financial condition and operating results and could cause our actual results to differ materially from expectations.  In addition, in considering the forward-looking statements contained in this Form 10-Q and elsewhere, you should refer to the qualifications and limitations on our forward-looking statements that are described in Forward Looking Statements at the beginning of Part I, Item 2 of this Form 10-Q.  

Item 2.           Unregistered Sales of Equity Securities and Use of Proceeds

Common Share Repurchases

Our Board of Trustees has authorized management to repurchase up to 35,000,000 of our common shares on the open market or in privately negotiated transactions.  During the three months ended September 30 2014, we did not repurchase any of our common shares.  From the inception of the repurchase program through November 4, 2014, we have repurchased a total of 23,721,916 common shares 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 September 30, 2014.  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.

Preferred Share Redemptions

We had no preferred redemptions during the three months ended September 30, 2014.

Item 6.           Exhibits

Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index which is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATED:   November 4, 2014
PUBLIC STORAGE
By:	/s/ John Reyes
	John Reyes Senior Vice President and Chief Financial Officer (Principal financial officer and duly authorized officer)

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PUBLIC STORAGE

INDEX TO EXHIBITS (1) 

(Items 15(a)(3) and 15(c))

3.1	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.
3.2	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.
3.3	Articles Supplementary for Public Storage 6.875% Cumulative Preferred Shares, Series O.  Filed with the Registrant’s Current Report on Form 8-K dated April 8, 2010 and incorporated by reference herein.
3.4	Articles Supplementary for Public Storage 6.500% Cumulative Preferred Shares, Series P.  Filed with the Registrant’s Current Report on Form 8-K dated October 6, 2010 and incorporated by reference herein.
3.5	Articles Supplementary for Public Storage 6.5% Cumulative Preferred Shares, Series Q.  Filed with the Registrant’s Current Report on Form 8-K dated May 2, 2011 and incorporated by reference herein.
3.6	Articles Supplementary for Public Storage 6.35% Cumulative Preferred Shares, Series R.  Filed with the Registrant’s Current Report on Form 8-K dated July 20, 2011 and incorporated by reference herein.
3.7	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.
3.8	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.
3.9	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.
3.10	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.
3.11	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.
3.12	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.
3.13	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 12, 2014 and incorporated by reference herein.
3.14	Articles Supplementary for Public Storage 6.000% Cumulative Preferred Shares, Series Z.  Filed with the Registrant’s Current Report on Form 8-K dated May 30, 2014 and incorporated by reference herein.

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4.1	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.
10.1	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.
10.2	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.
10.3	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.
10.4	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.
10.5	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.
10.5.1	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.
10.6*	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.
10.7*	Public Storage, Inc. 2001 Stock Option and Incentive Plan (“2001 Plan”).  Filed with PSI’s Registration Statement on Form S-8 (SEC File No. 333-59218) and incorporated herein by reference.
10.8*	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.
10.9*	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.
10.10*	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.
10.11*	Public Storage 2007 Equity and Performance-Based Incentive Compensation Plan, as amended effective May 1, 2014.  Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated May 1, 2014 and incorporated herein by reference.
10.12*	Form of 2007 Plan Restricted Stock Unit Agreement.  Filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference.

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10.13*	Form of 2007 Plan Stock Option Agreement.  Filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference.
10.14*	Form of Indemnity Agreement.  Filed with Registrant’s Amendment No. 1 to Registration Statement on Form S-4 (SEC File No. 333-141448) and incorporated herein by reference.

10.15*	Amendment to Form of Trustee Stock Option Agreement. Filed as Exhibit 10.30 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.
10.16*	Revised Form of Trustee Stock Option Agreement. Filed as Exhibit 10.31 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.
10.17	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 as Exhibit 10.1 to Registrant’s Current Report on Form 8-K and incorporated herein by reference.
10.18*	Employment Agreement and General Release dated as of February 19, 2014 between the Registrant and Steven M. Glick. Filed with the Registrant’s Current Report on Form 8-K dated February 25, 2014 and incorporated herein by reference.
12	Statement Re: Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.  Filed herewith.
31.1	Rule 13a – 14(a) Certification.  Filed herewith.
31.2	Rule 13a – 14(a) Certification.  Filed herewith.
32	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.

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