macquarie public storage note

Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our

website www.macquarie.com.au/disclosures.

UNITED STATES

PSA US Outperform

Price (at 20:04, 14 Mar 2014 GMT) US$168.17

Valuation US$ 166.73 - DCF (WACC 7.2%, beta 0.9, ERP 5.0%, RFR 3.0%, TGR 1.2%)

12-month target US$ 179.00

12-month TSR % +9.9

GICS sector Real Estate

Market cap US$m 28,977

30-day avg turnover US$m 123.6

Number shares on issue m 172.3

Investment fundamentals Year end 31 Dec 2013A 2014E 2015E 2016E

Revenue m 1,981.7 2,164.0 2,286.9 2,421.6 Total DPS US$ 5.15 5.60 6.34 6.81 Total div yield % 3.1 3.3 3.8 4.0 ROE % 10.0 9.7 10.4 11.4

Source: FactSet, Macquarie Capital (USA), March 2014

(all figures in USD unless noted)

Analyst(s) Shahzeb Zakaria +1 212 231 0647 [email protected] Venkat Kommineni +1212 231 8065 [email protected]

17 March 2014 Macquarie Capital (USA) Inc.

Public Storage The most misunderstood thing in self storage Sector Leading Organic Growth Given PSA’s dominance of the Google search page and sector leading demand

characteristics around its assets, we think the company leads the sector in terms of “true” organic growth (with EXR a close 2

nd, followed by CUBE & SSS).

Optically PSA seems to lag its peers on same store revenue (SSRev) and income

(SSNOI) growth metrics, but we think the difference is attributable to the

definitions of the same store pools, along with the treatment of certain revenue and expense line items (tenant reinsurance, internet marketing, etc).

Whereas PSA only includes those assets in its same store pool that the company

has owned and operated for 3 years at stabilized occupancy levels (mgmt defined

stabilized as high 80s), the other storage REITs may end up including assets after 1 full calendar year of ownership (See pg 2 for same store selection criteria).

As a result of the criteria employed by the other REITs, it is likely that they end up

including assets with some degree of fill-up potential in the same store pools (avg.

REIT same store occupancy levels are in the high 80s currently).

And while there are some investors who understand these differences, we do not think the broader investor base appreciates these nuances.

As a result we think PSA is undervalued. We are upgrading to OP & raising our

TP to $179 (25% premium to Macq NAV, premium inline with SNL historic avg)

from $171.

Dominates the Google Search Page On the top 3 storage search terms on Google, PSA & EXR are neck and neck in

terms of appearing most frequently and at the highest position (organic results).

However, PSA dominates the Google search page for organic results on the #4 and #5 most popular search terms (see Fig 3 & Fig 4).

Locational Quality - #1 on Demand & #5 on Supply Based on our analysis of the locational quality of the storage REIT & U-Haul

portfolios, PSA has the best demand characteristics driven by the sector leading avg population of 309K around its assets (vs database avg of 283K).

PSA ranks #3 overall as it faces more competition (ranks #5 on supply).

However, this additional competition primarily impacts walk-ins. Customers using

the internet to find storage facilities still see the same 10 organic results (& 3/ 7 map results) on the Google search page (for desktop).

PSA deserves highest NAV Premium We use unlevered free cash flow margins (ignoring one time items and forex) to

rank the relative efficiency of the platforms of the four REITs.

Based on our analysis, PSA converts nearly 71% of revenues into unlevered free

cashflow, vs EXR (60%), CUBE (51%) and SSS (50%). While part of the

difference in the margins is driven by economies of scale (lower G&A per asset), the other key driver is prominence on Google (lower cost of customer acquisition).

Based on our analysis of the locational quality of the real estate and the current market cap rates for storage transactions, we believe PSA is currently trading at

a Price to NAV premium of 17.5%, as compared to the SNL reported avg of ~26%+ from 1/1/10 to 3/12/14 (See Fig 14).

Macquarie (USA) Research Public Storage

17 March 2014 2

Inside

Google Search Page 3

Locational Quality Summary 6

Why Same Store Isn’t Really Same Store 7

Valuation 9

Public Storage Public Storage (PSA) is a Maryland incorporated Real Estate Investment Trust

(REIT) and the largest self-storage REIT in the United States. PSA is organized

in three lines of business: 1) Domestic Self-Storage, 2) European Self-Storage,

and 3) Commercial. As of December 31, 2013, PSA’s domestic business included

ownership (directly and indirectly) of 2,187 facilities across 38 states. These

properties constituted approximately 141 million square feet of net rentable space.

The European Self-Storage business involves a 49% ownership interest in

Shurgard Europe, which owns 187 facilities (10m sqf) across 7 Western European

countries (France, Sweden, United Kingdom, Netherlands, Denmark, Belgium

and Germany). The company also owns a self storage facility in United Kingdom

that is managed by Shurgard Europe. Lastly, the Commercial business line

includes a 42% ownership interest in a publicly held REIT called PS Business

Parks, Inc. (PSB), which owns 29.7 m sqf of commercial space. PSA also wholly

owns 1.4 m sqf of space that is managed by PSB.

PSA reported same store revenue growth of +5.3%/+4.7% YoY during

FY13/FY12, as compared to CUBE (+7.4%/+3.8%), EXR (+7.4%/+6.6%) & SSS

(+7.7%/+6.3%).

Fig 1 Same Store Comparisons

Source: Company data, Macquarie Capital (USA), March 2014

Fig 2 PSA US vs MSCI US REIT Index, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.


(all figures in USD unless noted)

CUBE EXR PSA SSS

Same Store

Selection

Criteria

Any stabilized

property owned

for a full year at

turn of year;

subjective

definition of

stabilized.

80% Average

Occupancy for 1

Calendar Year

OR owned for 3

years as of Jan

1.

Owned/Operated

by PSA for 3

stabilized years

(stabilized =

occupancy in

high 80s)

Any property

owned for a full

year as of Jan 1.

Tenant

Reinsurance

Income

Included Included Excluded Included

Internet

Marketing

Costs

Included Included Included Excluded


17 March 2014 3

Google Search Page While on a day-to-day basis there is some variation in how the REITs appear on the Google

Search page (organic results), the general takeaway remains that PSA ranks #1 overall,

due to it dominance of the organic search results for the terms “public storage” and

“public self storage”.

Fig 3 Google - Organic Results Fig 4 Google - Maps Results

Source: Google, Company data, Macquarie Capital (USA), March 2014

98

%

99

%

99

%

10

0%

10

0%

95

%

97

%

95

%

70

%

72

%

91

%

95

%

94

%

60

%

61

%

80

%

88

%

89

%

59

%

57

%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Self StorageSelf Storage Units

Storage Units

Public Storage

Public Self Storage

Google Appearance Rate

PSA

EXR

CUBE

SSS

60

%

66

%

64

%

76

%

79

%

63

%

66

%

63

%

4%

4%

38

%

38

%

35

%

3%

2%

44

% 36

%

45

%

1%

1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Storage Units

Public Storage

Public Self Storage

Google Appearance Rate

PSA

EXR

CUBE

SSS

1.9

1.8

1.7

1.1

1.0

3.0

3.4

3.6

5.3

4.7

4.1

3.2

3.3

5.6

4.7

4.6

4.6

4.0

6.4

5.5

1

2

3

4

5

6

7

8

9

10


Storage Units

Public Storage

Public Self Storage

Highest Rank

PSA

EXR

CUBE

SSS

3.1

2.0

2.0

1.0

1.0

1.8

1.9

2.2

1.6

1.6

3.5

2.8

3.4

2.8

2.8

3.9

3.2

4.1

2.0

2.7

1

2

3

4

5

6

7


Storage Units

Public Storage

Public Self Storage

Highest Rank

PSA

EXR

CUBE

SSS

1.3

1.8

1.5

3.0

3.1

1.6

1.6

1.5

1.3

1.3

1.3

1.3

1.3

1.3

1.3

1.2

1.4

1.2

1.3

1.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5


Storage Units

Public Storage

Public Self Storage

Total Impressions / page

PSA

EXR

CUBE

SSS

1.6

2.2

1.6

2.9

2.8

1.7

2.0

1.6

1.4

1.2

1.2

1.6

1.2

1.2

1.3

1.3

1.3

1.3

1.0

1.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5


Storage Units

Public Storage

Public Self Storage

Total Impressions / page

PSA

EXR

CUBE

SSS


17 March 2014 4

Based on Google Trends, the top 5 self-storage related search terms include 1) self storage, 2)

self storage units, 3) storage units, 4) public self storage & 5) public storage

Fig 5 Google Trends - Top search terms related to “Self Storage” (in United States)

Source: Google, Macquarie Capital (USA), March 2014

Google Spider - Methodology

Our Google Spider indices reflect the results of Google searches using 500 distinct key words

on a daily basis.

Keywords are a combination of “Self Storage” plus a city name (e.g. “Self Storage Houston”).

We repeat this process for the other 4 self storage related search terms (self storage units,

storage units, public self storage and public storage).

We chose 500 different cities based on the total number of locations owned and managed by

the four storage REITs across the country.

The city names are based on addresses listed on the property’s webpage. This results in more

localized searches as we end up using city names like “Bronx”, “Queens” and “Jamaica”

instead of the more general term “New York”.

Based on data collected for the 500 cities, we cover 70%+ locations for all REITs (Fig 6).


17 March 2014 5

Fig 6 Our sample covers a majority of locations owned/managed by the four REITs

Source: Google, Company data, Macquarie Capital (USA), March 2014

Before every search, our script deletes the browser’s 1) temporary internet files, 2)

cookies, 3) history, 4) form data, and 5) saved passwords to ensure that previous

browser activity does not affect the search results.

We do not allow the browser to collect data for “InPrivate Filtering”.

We do not allow location detection in our browser.

We use the results of these 500 queries to calculate the following:

1. Google Appearance Rate: If the REIT owns a property in the reference city, does

the REIT’s web domain appear on the first search results page.

2. Highest Rank: If the REIT owns a property in the reference city AND it appears on

the first search results page, what is the highest ranking.

3. Total Impressions / page: If the REIT owns a property in the reference city AND it

appears on the first search results page, how many times does it appear on the first

page.

We then calculate weighted averages (highest rank & total impressions / page) for the entire

company using the number of locations owned/managed in each of the cities.

Fig 7 Macquarie’s Google Spider ensures previous browsing history has no impact on the search results

Source: Macquarie Capital (USA), March 2014

70% 71%76% 76%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CUBE EXR PSA SSS

% of Owned/Managed Assets Covered in Top 500 Cities


17 March 2014 6

Locational Quality Summary PSA ranks #3 overall but ranks #1 on the demand variables (population, median income, % of

renter occupied & vacant housing units, housing price change & # of businesses).

Fig 8 Score Summary

Source: EASI, FHFA, 2013 Self-Storage Almanac, Macquarie Capital (USA), March 2014

On the supply side PSA ranks #5.

Fig 9 Demand Rankings Fig 10 Supply Rankings

Source: EASI, FHFA, 2013 Self-Storage Almanac, Macquarie Capital (USA), March 2014

Total Standardized Score

Rank Ticker Population

Median

Income

Renter Occupied

Housing Units (%)

Vacant Housing

Units (%)

FHFA Housing

Price Index -

Change

Business

Establishments

# of Facilities

in 3 Miles

Radius

Distance to

Closest

Facility

Total

Score

Weight 30.0% 10.0% 2.5% 2.5% 2.5% 2.5% 40.0% 10.0% 100.0%

1 ) EXR 1.065 1.036 0.999 0.962 1.080 1.031 1.014 1.048 1.035

2 ) CUBE 1.007 1.038 0.942 1.007 0.901 0.942 1.050 1.117 1.032

3 ) PSA 1.095 1.028 1.023 0.963 1.123 1.140 0.970 0.929 1.018

4 ) SSS 0.704 0.982 0.939 1.100 0.611 0.707 1.037 1.093 0.917

5 ) uHaul 0.816 0.831 1.020 1.082 0.808 0.782 0.994 0.992 0.915

Actual Averages

Rank Ticker Population

Median

Income

Renter Occupied

Housing Units (%)

Vacant Housing

Units (%)

FHFA Housing

Price Index -

Change

Business

Establishments

# of Facilities

in 3 Miles

Radius

Distance to

Closest

Facility

# of

Asstes

Weight 30.0% 10.0% 2.5% 2.5% 2.5% 2.5% 40.0% 10.0%

1 ) EXR 301,438 69,906 37.5 9.0 8.3 7,552 11.3 0.80 1,047

2 ) CUBE 284,836 70,038 35.3 9.4 7.0 6,904 10.8 0.85 532

3 ) PSA 309,943 69,387 38.4 9.0 8.7 8,349 11.8 0.71 2,201

4 ) SSS 199,081 66,246 35.3 10.3 4.7 5,177 10.7 0.83 487

5 ) uHaul 230,821 56,082 38.3 10.1 6.2 5,729 11.4 0.76 1,243

1.075 1.050 1.001

0.840 0.786

0.000

0.200

0.400

0.600

0.800

1.000

1.200

PSA EXR CUBE uHaul SSS

Demand Score

1.064 1.048 1.021

0.993 0.962

0.000

0.200

0.400

0.600

0.800

1.000

1.200

CUBE SSS EXR uHaul PSA

Supply Score


17 March 2014 7

Why Same Store Isn’t Really Same Store With the four REITs using unique selection criteria for the same-store pool along with different

definitions of what constitutes same-store revenue and expenses, it becomes challenging to

compare their performance on an apples-to-apples basis. In this section we discuss a few

scenarios to highlight how these different criteria lead to distorted comparisons.

Fig 11 Same-store comparisons


Inclusion of Lease-Up Properties

Of the four REIT operators PSA has the most conservative criteria for including properties in the

same-store pool. A property is included once PSA has owned and operated the asset for 3 years

at stabilized occupancy levels, which management defined as occupancy in the high 80s. Under

such a criterion, it is hard to imagine a fill up asset being included in PSA’s same-store portfolio.

On the other end of the spectrum, we believe SSS has the least strict criteria. SSS’s same-store

pool includes all assets the company has owned for a full calendar year as of January 1st.

Theoretically, if SSS acquired a fill up asset, with occupancy in the 50s, during FY2010, then it

would be included in the same-store pool on January 1st 2012. It is possible that this asset had an

average occupancy in the 70s during FY2011 and eventually stabilized in the high 80s during

FY2012. Inclusion of this asset in the same-store pool during FY2012 would lead to abnormally

high revenue (and NOI) growth figures that would not be sustainable in the future.

The fact that the four REITs have a varying degree of strictness in their same-store definitions,

coupled with the frequent acquisition-disposition activity, makes it extremely difficult to compare

their performance if they acquire assets in the fill-up phase.

Expansion/Improvement of Existing Facilities

All four REITs generally keep an existing property in the same-store pool if they perform

upgrades at the facility. For example, if non-climate controlled units are converted to climate

control units, then the incremental revenue would affect same-store revenues but the cost of

converting the units is capitalized, leading to abnormal growth in same-store revenues and

income (post the initial period when occupancy may slightly decrease, depending on the project).

However, the four companies would remove the facility from the same-store pool if the expansion

is something they deem as “significant”. In our conversations with the management teams, only

EXR disclosed the existence of a specific rule under which a property is removed from the same-

store pool if the rentable square footage in increased by a certain percentage.

CUBE EXR PSA SSS

Same Store Selection Criteria

Any stabilized property owned

for a full year at turn of year;

subjective definition of

stabilized (no occupancy

based definition)

80% Average Occupancy

for 1 Calendar Year OR

owned for 3 years as of

Jan 1.

Owned/Operated by PSA

for 3 stabilized years

(stabilized = occupancy in

high 80s)

Any property owned for a

full year as of Jan 1.

Tenant Reinsurance Income Included Included Excluded Included

Internet Marketing Costs Included Included Included Excluded


17 March 2014 8

Tenant Reinsurance Income

Other than PSA all storage REITs include tenant reinsurance income in their same-store figures

(PSA only includes property rental income). If a REIT acquires an asset from a mom-pop

operator, which usually have low tenant reinsurance penetration levels in the 20s, and increases

the penetration level to the 80s (more in line with the REIT avg.), then same-store revenue and

income may exhibit abnormal growth, depending on the company’s criteria for inclusion in the

same-store pool and the time taken to reach stabilized penetration levels. Given the extremely

high margins of the tenant reinsurance business, it might be especially difficult to compare the

four REITs for same-store NOI growth.

Internet Marketing Costs

All REITs except SSS include internet marketing costs in their same-store expenses. Whereas

SSS includes the yellow page expense in its same-store expenses, internet marketing expenses

are included in G&A. This leads to an artificially high same-store NOI figure, when compared to

the other REITs. And while this cost does not lead to drastic differences, it is another accounting

policy that makes it harder to compare the four REITs.

Fig 12 SSS’s 2013 Q2 SSNOI growth would be ~186 bps lower if we adjusted for capex and internet costs


As a case in point, we analyze the impact of accounting policies for expansionary capital

expenditure at existing facilities and internet marketing costs as it related to SSS’s same-store

figures. Based on our analysis, SSS’s same-store NOI growth would have been 10.3% had the

company included internet marketing costs in expenses and treated expansionary capex as an

expense (since it is adding to same-store revenues). These adjustments are more art than

science as there are multiple defensible ways to account for the differences. Our goal is to

illustrate one way to quantify the increase. Here is the approach we followed:

We prorated internet marketing costs using the number of total facilities and the number of

facilities in the same-store portfolio. For example, we calculated the internet ad spend for the

same-store portfolio for 2013 Q2 as follows: 1,379 * 362 / 393 = 1,270K.

Since capital expenditure varies a lot from quarter to quarter, we use the average capex for the

last 6 quarters. Furthermore, we assume that it takes about a year before capital expenditure

leads to incremental revenue (allowing for build and fill-up time). Using these assumptions, we

calculate run-rate capex (for stabilized stores) to be 3,463K at 2012 Q2 as compared to 2011

Q2’s 2,694K.

Upon adjusting these expenses in the current quarter’s same-store figures, we calculate same-

store NOI growth to be approximately +10.3%, about 186 basis points lower than the reported

figure (impact of internet costs is about 50 bps).

2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2

Same Store Revenue 48,243 49,275 50,651 49,988 50,913 52,040 53,498 57,629 57,841 60,283

Same Store Expenses 18,169 17,527 18,194 17,219 17,958 17,407 17,534 18,979 19,413 18,934

Same Store Revenue (Last Yr) 46,858 46,844 48,122 48,329 49,013 49,493 49,514 53,250 53,519 55,346

Same Store Expenses (Last Yr) 18,056 17,596 18,048 16,840 18,474 17,612 17,713 18,637 18,789 18,497

Internet Ad Spend - SS Portfolio (Est) 660 745 926 1,094 1,070 842 971 1,270

Internet Ad Spend - SS Portfolio (Est) - Last Yr 467 455 537 647 670 663 783 970

Same Store Properties 344 344 344 344 350 345 334 361 362 362

Total Wholly Owned 352 355 388 390 379 383 376 390 393 393

Internet Ad Spend 744 845 1,003 1,215 1,205 910 1,054 1,379

Internet Ad Spend - Last Year 527 516 582 718 754 716 850 1,053

Expansionary Capex (Exisiting Assets) 4,884 1,889 113 297 4,886 8,709 602 10,644 3,731 2,223

Avg. Expansionary Capex (Last 6 Qtrs) 2,694 2,326 2,374 2,775 3,463 2,749 4,209 4,812 5,133

SSNOI Growth 4.4% 8.5% 7.9% 4.1% 7.9% 8.6% 13.1% 11.7% 10.6% 12.2%

Adjusted SSNOI - Internet Exp. 7.4% 3.2% 6.8% 7.4% 12.1% 11.4% 10.3% 11.7%

Adjusted SSNOI - Internet Exp. & Capex 10.3%


17 March 2014 9

Valuation

Fig 13 Price-NTM AFFO Multiple

Source: FactSet, SNL, Macquarie Capital (USA), March 2014

-

5.0x

10.0x

15.0x

20.0x

25.0x

Fe

b-0

6

Ju

n-0

6

Oct-

06

Fe

b-0

7

Ju

n-0

7

Oct-

07

Fe

b-0

8

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CUBE

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Oct-

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1

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EXR

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10.0x

15.0x

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30.0x

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b-0

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PSA

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Oct-

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Mu

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le

SSS


17 March 2014 10

Fig 14 Price-to-NAV Premium/(Discount) – Based on SNL Data (Not on Macquarie NAV Estimates)

Source: SNL, Macquarie Capital (USA), March 2014

Fig 15 Storage Total Returns


Average, 6.4%

(20.0%)

(10.0%)

-

10.0%

20.0%

30.0%

40.0%

Ja

n-1

0

Ap

r-1

0

Ju

l-1

0

Oct-

10

Ja

n-1

1

Ap

r-1

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Oct-

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Ja

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Oct-

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3

Oct-

13

Ja

n-1

4

Pri

ce/N

AV

Pre

miu

m (D

isco

un

t)

CUBE

Average, 20.3%

(10.0%)

-

10.0%

20.0%

30.0%

40.0%

50.0%

Ja

n-1

0

Ap

r-1

0

Ju

l-1

0

Oct-

10

Ja

n-1

1

Ap

r-1

1

Ju

l-1

1

Oct-

11

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oct-

12

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oct-

13

Ja

n-1

4

Pri

ce/N

AV

Pre

miu

m (D

isco

un

t)

EXR

Average, 26.7%

-

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Ja

n-1

0

Ap

r-1

0

Ju

l-1

0

Oct-

10

Ja

n-1

1

Ap

r-1

1

Ju

l-1

1

Oct-

11

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oct-

12

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oct-

13

Ja

n-1

4

Pri

ce/N

AV

Pre

miu

m (D

isco

un

t)

PSA

Average, 4.3%

(20.0%)

(15.0%)

(10.0%)

(5.0%)

-

5.0%

10.0%

15.0%

20.0%

25.0%

Ja

n-1

0

Ap

r-1

0

Ju

l-1

0

Oct-

10

Ja

n-1

1

Ap

r-1

1

Ju

l-1

1

Oct-

11

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oct-

12

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oct-

13

Ja

n-1

4

Pri

ce/N

AV

Pre

miu

m (D

isco

un

t)

SSS

1.2

1.5

3.0

3.8

5.4

5.8

0 5 10

S&P 500

RMS

CUBE

PSA

EXR

SSS

1 Month Total Return

-0.4

8.8

9.1

12.7

15.8

17.9

(10) 0 10 20

S&P 500

CUBE

RMS

PSA

SSS

EXR

QTD Total Return

-0.4

8.8

9.1

12.7

15.8

17.9

(10) 0 10 20

S&P 500

CUBE

RMS

PSA

SSS

EXR

YTD Total Return

4.6

13.9

17.8

17.8

25.0

33.4

0 20 40

RMS

CUBE

S&P 500

PSA

SSS

EXR

1 Year Total Return


17 March 2014 11

Fig 16 Model


Fig 17 Macq vs Consensus Estimates


2011 2012 2013 1Q14E 2Q14E 3Q14E 4Q14E 2014E 2015E 2016E 2017E 2018E

INCOME STATEMENT

Revenues:

Self storage rental income 1,605.9 1,703.9 1,849.9 489.6 499.6 511.7 516.3 2,017.2 2,131.2 2,256.1 2,390.2 2,533.7

Ancillary operations 114.1 123.6 131.9 35.6 36.3 37.3 37.6 146.8 155.6 165.6 176.4 184.3

Interest Income and Other 32.3 22.1 22.6 6.2 5.8 5.3 5.5 22.8 20.0 19.6 20.6 28.8

Total revenues 1,752.4 1,849.6 2,004.3 531.3 541.8 554.3 559.3 2,186.7 2,306.8 2,441.3 2,587.2 2,746.9

Expenses:

Self storage operating costs 505.8 502.2 524.1 156.9 145.3 145.6 122.0 569.7 599.2 633.7 670.6 709.6

Ancillary operations costs 37.4 38.3 41.1 12.5 11.8 11.8 10.0 46.1 48.7 51.7 54.9 58.4

Depreciation and amortization associated with real estate operations 358.5 358.0 387.4 109.5 110.0 110.4 111.1 441.0 452.0 464.3 474.7 477.1

General and adminitrative expenses 52.4 56.8 66.7 19.2 14.8 18.5 17.5 70.0 73.5 76.1 78.7 81.5

Interest Expense 24.2 19.8 6.4 6.1 4.0 2.9 1.6 14.7 3.4 2.9 2.2 3.9

Total operating expenses 978.3 975.0 1,025.7 304.1 285.9 289.2 262.2 1,141.5 1,176.9 1,228.8 1,281.1 1,330.5

Net Operating Income (Includes External) 1,177.1 1,287.1 1,423.4 355.8 378.9 391.5 421.9 1,548.1 1,638.9 1,736.1 1,841.1 1,950.1

Income from Operations:

Non-recurring Items (35.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Gain on sales of real estate investments 9.0 1.5 4.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Minority interest in income from continuing operations:

Common units in the Operating Partnership (12.6) (3.8) (5.1) (1.4) (1.5) (1.5) (1.5) (5.9) (6.3) (6.6) (7.0) (7.4)

Equity in earnings (loss) of unconsolidated entities 58.7 45.6 57.6 15.4 15.7 15.9 16.1 63.1 66.3 69.5 72.8 76.3

Derivatives & Foreign Currency (7.3) 8.9 17.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Income From Continuing Operations 785.9 926.7 1,052.5 241.2 270.0 279.5 311.7 1,102.4 1,189.9 1,275.3 1,371.8 1,485.3

Income (loss) from discontinued operations, net of minority interests 2.3 12.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Gain on sales of real estate, net of income taxes and minority interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Income tax benefit (expense) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Income 788.3 939.3 1,052.5 241.2 270.0 279.5 311.7 1,102.4 1,189.9 1,275.3 1,371.8 1,485.3

Preferred Dividends (226.5) (207.9) (207.7) (54.6) (56.1) (57.5) (58.8) (226.9) (232.0) (226.6) (221.1) (215.7)

Equity Stock Ser. A 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Issuance costs associated with redeemed preferred shares 0.0 (61.7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Income Available For Common Stockholders 561.7 669.7 844.7 186.6 214.0 222.0 253.0 875.6 957.9 1,048.7 1,150.7 1,269.6

Funds From Operations

Net Income 800.9 943.0 1,057.5 242.6 271.5 281.0 313.2 1,108.4 1,196.2 1,281.9 1,378.9 1,492.7

Issuance costs associated with redeemed preferred shares

Combined real estate related depreciation and other amortization 358.5 358.1 387.4 109.5 110.0 110.4 111.1 441.0 452.0 464.3 474.7 477.1

Depreciation and amortization of unconsolidated real estate entities 64.7 75.6 75.5 23.2 23.5 23.9 24.2 94.7 99.4 104.2 109.2 114.5

Gain on sales of real estate properties & other, excluding development (12.8) (14.8) (4.1) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other 47.7 62.4 (13.8) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Equity Stock Ser. A and minority (15.5) (6.8) (7.3) (1.4) (1.5) (1.5) (1.5) (5.9) (6.3) (6.6) (7.0) (7.4)

Preferred share dividends (227.7) (271.2) (209.5) (54.6) (56.1) (57.5) (58.8) (226.9) (232.0) (226.6) (221.1) (215.7)

Normalized Funds From Operations (FFO) Diluted 1,015.7 1,146.4 1,285.7 319.3 347.5 356.3 388.2 1,411.2 1,509.3 1,617.2 1,734.6 1,861.2

Non-Cash derivative gains/losses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Issuance costs (redeemed pfd shares, n/c in items) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Recurring capital expenditures (72.8) (67.7) (71.3) (12.2) (12.2) (12.2) (12.2) (49.0) (49.0) (49.2) (49.8) (50.8)

Adjusted Funds From Operations - Diluted 942.9 1,078.7 1,214.4 307.0 335.3 344.0 375.9 1,362.3 1,460.3 1,568.0 1,684.8 1,810.4

EPS per Share $3.29 $3.90 $4.89 $1.08 $1.24 $1.28 $1.46 $5.07 $5.54 $6.07 $6.66 $7.35

FFO per Share - Normalized $5.95 $6.68 $7.45 $1.85 $2.01 $2.06 $2.25 $8.17 $8.73 $9.36 $10.04 $10.77

AFFO per Share (FAD) $5.52 $6.28 $7.03 $1.78 $1.94 $1.99 $2.18 $7.88 $8.45 $9.07 $9.75 $10.48

DIV per Share $3.65 $4.40 $5.15 $1.40 $1.40 $1.40 $1.40 $5.60 $6.34 $6.81 $7.31 $7.86

Dividends to FAD 66.1% 70.0% 73.2% 78.8% 72.2% 70.3% 64.4% 71.0% 75.0% 75.1% 75.0% 75.0%

Denominator for EPS - Diluted 170.7 171.7 172.7 172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8

Denominator for FFO per share - Diluted 170.7 171.7 172.7 172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8 172.8

EBITDA 1,318.6 1,484.0 1,546.3 392.0 419.8 429.2 461.2 1,702.1 1,796.5 1,901.1 2,015.0 2,140.7

EBITDA Margin % 75% 80% 77% 74% 77% 77% 82% 78% 78% 78% 78% 78%

Public Storage (PSA)

PSA FFO/sh estimate

2014 2015 2016 2017

Macq 8.17 8.73 9.36 10.04

Consensus 8.07 8.54 9.07 9.69


17 March 2014 12

Fig 18 NAV

Note: reflects adjusted balance sheet to account for Shurgard Europe JV note & pref notes deals


Public Storage (PSA)Macquarie Research (USA)

Net Asset Value

in $ thousands 4Q13

NAV per Share $143.18

Forward Twelve-Month NOI $1,582,140

Less: 20% of G&A (14,003)

Plus: Inter-Period Investment Activity

Forward Twelve-Month Cash NOI $1,669,354

Nominal Cap Rate 6.38%

Real Estate Value $26,165,420

Unconsolidated JV NOI $208,737

Nominal Cap Rate 7.38% assumed higher (PSB & Shurgard Europe)

Unconsolidated Real Estate Value $2,828,414

Management & Other Fee Income $22,771

Cap Rate 10.00%

Value of Management Income $227,708

Book Value of Construction in Progress $52,336

Present Value of Development Value Creation 0

Book Value of Land Holdings 0

Value of Development Pipeline $52,336

Cash & Cash Equivalents $85,269 reflects JV/pref deal; term paydown

Accounts / Notes Receivable 211,939 reflects Shurgard note

Other Tangible Assets 64,608

Market Value of Assets Held for Sale 0

Non-Income Producing Assets 0

Vacancy Value 0

Accounts Payable (163,769)

Dividends Payable

Other Liabilities

Other Assets/Liabilities $198,048

Gross Asset Value $29,471,926

Line of Credit $0

Mortgage Loans 88,953

Term Loans & Unsecured Notes 375,000 reflects JV/pref deal

Other Secured Debt

Unconsolidated JV Debt 474,419

Mark-to-Market Debt Adjustment 3,142

Perpetual Preferred Stock 3,787,500 reflects pref deal

Long Term Debt/Preferred $4,729,014

Net Asset Value $24,742,912

Shares Outstanding 172,806

Units Outstanding

Options

Fully Diluted Shares & Units Outstanding 172,806

Net Asset Value / Share $143.18

Current Stock Price $168.17

Premium / Discount to NAV 17.5%

Implied Cap Rate 5.64%

Applied Value / Sq. Ft. $188

Implied Value / Sq. Ft. $218


17 March 2014 13

Fig 19 Risk


Ticker

Price

(2014-03-14) Rating Valuation Risks

PSA 168.17 OPTP: $179.00 based on DCF

methodology.

Risks include a Google algorithm change that would

reduce PSA's advantage for the search term "Public

Self Storage"


17 March 2014 14

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA

Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected

to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 31 December 2013

AU/NZ Asia RSA USA CA EUR

Outperform 47.89% 60.13% 37.97% 39.49% 59.64% 48.65% (for US coverage by MCUSA, 6.52% of stocks followed are investment banking clients)

Neutral 35.56% 22.65% 46.84% 54.50% 35.54% 32.43% (for US coverage by MCUSA, 4.35% of stocks followed are investment banking clients)

Underperform 16.55% 17.22% 15.19% 6.01% 4.82% 18.92% (for US coverage by MCUSA, 0.00% of stocks followed are investment banking clients)

PSA US vs MSCI US REIT Index, & rec history

(all figures in USD currency unless noted)

SSS US vs MSCI US REIT Index, & rec history


EXR US vs MSCI US REIT Index, & rec history


CUBE US vs MSCI US REIT Index, & rec history


GOOG US vs S&P 500, & rec history


Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.


12-month target price methodology

PSA US: US$179.00 based on a DCF methodology

SSS US: US$77.00 based on a DCF methodology

EXR US: US$51.00 based on a DCF methodology

CUBE US: US$18.25 based on a DCF methodology

GOOG US: US$1,300.00 based on a PER methodology


17 March 2014 15

Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

Target price risk disclosures: PSA US: Risks include a Google algorithm change that would reduce PSA's advantage for the search term "Public Self Storage" SSS US: Risks include slower growth due to relatively weaker locational quality of assets and under-performance on Google's organic search. EXR US: Risks include Google entering the storage space as an aggregator. CUBE US: Risks include development focused in the NYC metro GOOG US: Risks for GOOG include slowdowns in global spending on advertising, regulatory/legal risks (including, but not limited to, issues surrounding user privacy), increased competition from companies such as Apple, Microsoft, and others. Disintermediation from key vertically-focused companies, mobile carriers, mobile OEM's, PC OEM's, and others. Additionally, changes in consumer behavior online could negatively impact GOOG.

Analyst certification: The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd ABN 94 122 169 279 (AFSL No. 318062) (MGL) and its related entities (the Macquarie Group) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. 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17 March 2014 16

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Jakarta Tel: (62 21) 515 1818

Mumbai Tel: (91 22) 6653 3000

Singapore Tel: (65) 6601 1111

Bangkok

Tel: (662) 694 7999

Johannesburg Tel: (2711) 583 2000

Munich Tel: (089) 2444 31800

Sydney Tel: (612) 8232 9555

Calgary

Tel: (1 403) 218 6650

Kuala Lumpur Tel: (60 3) 2059 8833

New York Tel: (1 212) 231 2500

Taipei Tel: (886 2) 2734 7500

Denver

Tel: (303) 952 2800

London Tel: (44 20) 3037 2000

Paris Tel: (33 1) 7842 3823

Tokyo Tel: (81 3) 3512 7900

Frankfurt

Tel: (069) 509 578 000

Manila Tel: (63 2) 857 0888

Perth Tel: (618) 9224 0888

Toronto Tel: (1 416) 848 3500

Geneva

Tel: (41) 22 818 7777

Melbourne Tel: (613) 9635 8139

Seoul Tel: (82 2) 3705 8500

Hong Kong

Tel: (852) 2823 3588

Montreal Tel: (1 514) 925 2850

Shanghai Tel: (86 21) 6841 3355

Available to clients on the world wide web at www.macquarieresearch.com and through Thomson Financial, FactSet, Reuters, Bloomberg, and CapitalIQ.

http://www.thai-iod.com/en/publications.asp?type=4

http://dis.kofia.or.kr/fs/dis2/fundMgr/DISFundMgrAnalystPop.jsp?companyCd2=A03053&pageDiv=02

Research

Heads of Equity Research

John O’Connell (Global - Head) (612) 8232 7544 Andrew Root (US) (1 212) 231 2336 Greg MacDonald (Canada) (1 416) 628 3934

Consumer Discretionary & Healthcare

Life Sciences & Technology Jon Groberg (Head of US Consumer Discretionary & Healthcare) (1 212) 231 2612

Healthcare Services Dane Leone (New York) (1 212) 231 6369

Gaming & Leisure Chad Beynon (New York) (1 212) 231 2634

Consumer Retail

Department Stores & Softlines Liz Dunn (New York) (1 212) 231 8066

Sportswear Laurent Vasilescu (New York) (1 212) 231 8046

Energy

US Exploration & Production Joe Magner (Denver) (1 303) 952 2751 Paul Grigel (Denver) (1 303) 952 2754

US Refining Chi Chow (Denver) (1 303) 952 2757

Europe Integrated David Farrell (London) (44 20) 3037 4465

US Natural Gas Vehicle Industry Matthew Blair (Denver) (1 303) 952 2759

Canadian Oil Sands/Heavy Oil Producers Chris Feltin (Calgary) (1 403) 539 8544

Canadian Independents Chris Feltin (Calgary) (1 403) 539 8544

Canadian Integrateds Chris Feltin (Calgary) (1 403) 539 8544

International/Canadian Oil & Gas Producers Cristina Lopez (Calgary) (1 403) 539 8542 David Popowich (Calgary) (1 403) 539 8529 Ray Kwan (Calgary) (1 403) 539 4355

Financials

Banks/Trust Banks David Konrad (Head of Banks) (1 212) 231 0525 Thomas Alonso (New York) (1 212) 231 8047 John Moran (Denver) (1 212) 231 0662

Life Insurance Sean Dargan (New York) (1 212) 231 0663

Financials – cont’d

Mortgage & Consumer Finance Sean Dargan (New York) (1 212) 231 0663 Asim Imran (Toronto) (1 416) 848 3521

Property & Casualty Insurance Amit Kumar (New York) (1 212) 231 8013 Asim Imran (Toronto) (1 416) 848 3521

Industrials

Chemicals Cooley May (New York) (1 212) 231 2586

Construction and Engineering/Machinery Sameer Rathod (San Francisco) (1 415) 762 5034

Electrical Equipment & Building Products Mike Wood (New York) (1 212) 231 6590

Transports & Logistics Kelly Dougherty (New York) (1 212) 231 2493

Waste Services Derek Sbrogna (New York) (1 212) 231 0691

Materials

Paper & Packaging Al Kabili (New York) (1 212) 231 0683

Steel & Metals Aldo Mazzaferro (New York) (1 212) 231 0693

Coal Luke McFarlane (New York) (1 212) 231 2637

Global Metals & Mining Daniel Greenspan (Toronto) (1 416) 848 3541 Pierre Vaillancourt (Toronto) (1 416) 848 3647 Michael Siperco (Toronto) (1 416) 848 3520 Michael Gray (Vancouver) (1 604) 639 6372

Real Estate

REITs Shahzeb Zakaria (New York) (1 212) 231 0647

TMET

Telecommunications Kevin Smithen (New York) (1 212) 231 0695 Greg MacDonald (Toronto) (1 416) 628 3934

Business & Computer Services Kevin McVeigh (New York) (1 212) 231 6191

Cable, Satellite & Entertainment Amy Yong (New York) (1 212) 231 2624

Data Center Infrastructure Rajesh Ghai (San Francisco) (1 415) 216 4718

TMET – cont’d

Internet Ben Schachter (Head of TMET) (1 212) 231 0644 Tom White (New York) (1 212) 231 0643

Semiconductors Deepon Nag (New York) (1 212) 231 8014

Software & IT Hardware Brad Zelnick (New York) (1 212) 231 2618

Media & Entertainment Tim Nollen (New York) (1 212) 231 0635

Utilities & Alternative Energy

Angie Storozynski (Head of US Utilities & Alternative Energy) (1 212) 231 2569 Andrew Weisel (New York) (1 212) 231 1159

Commodities & Precious Metals

Colin Hamilton (Global) (44 20) 3037 4061 Jim Lennon (London) (44 20) 3037 4271 Kona Haque (London) (44 20) 3037 4334

Oil & Gas

Vikas Dwivedi (Houston) (1 713) 275 6352

Economics and Strategy

Dane Leone (New York) (1 212) 231 6369 David Doyle (Toronto) (1 416) 848 3663

Quantitative Analysis

Gavin Smith (New York) (1 212) 231 0588

Find our research at

Macquarie: www.macquarie.com.au/research

Thomson: www.thomson.com/financial

Reuters: www.knowledge.reuters.com

Bloomberg: MAC GO

Factset: http://www.factset.com/home.aspx

CapitalIQ www.capitaliq.com

Contact Gareth Warfield for access (612) 8232 3207

Email addresses

[email protected]

eg. [email protected]

Equities Head of Global Cash Equities

Stevan Vrcelj (Sydney) (612) 8232 5999

Head of US Equities

Ken Savio (New York) (1 212) 231 1184

Head of Canadian Equities

Alex Rothwell (Toronto) (1 416) 848 3677

Sales US Sales

Austin Graham (New York) (1 212) 231 2494 Peter Doerr (Chicago) (1 312) 660 9052 Ross Peet (San Francisco) (1 415) 762 5069

Canada Sales

Roy McDowall (Montreal) (1 514) 925 2864

US Quantitative Specialist Sales

Victor Morange (New York) (1 212) 231 2538

Trading US Sales Trading

Austin Graham (New York) (1 212) 231 2494

Canada Trading

Perry Catellier (Toronto) (1 416) 848 3619

International Sales Trading

Chris Reale (New York) (1 212) 231 2555

mailto:[email protected]

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