Public Storage - Quarter Report: 2023 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2023

☐ 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.

Former name, former address and former fiscal, if changed since last report: N/A

Securities registered pursuant to Section 12b of the Act:

Title of Class

Trading Symbol

Name of each exchange on which registered

Common Shares, $0.10 par value

PSA

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 5.150% Cum Pref Share, Series F, $0.01 par value

PSAPrF

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 5.050% Cum Pref Share, Series G, $0.01 par value

PSAPrG

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 5.600% Cum Pref Share, Series H, $0.01 par value

PSAPrH

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 4.875% Cum Pref Share, Series I, $0.01 par value

PSAPrI

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 4.700% Cum Pref Share, Series J, $0.01 par value

PSAPrJ

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 4.750% Cum Pref Share, Series K, $0.01 par value

PSAPrK

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 4.625% Cum Pref Share, Series L, $0.01 par value

PSAPrL

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 4.125% Cum Pref Share, Series M, $0.01 par value

PSAPrM

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 3.875% Cum Pref Share, Series N, $0.01 par value

PSAPrN

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 3.900% Cum Pref Share, Series O, $0.01 par value

PSAPrO

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 4.000% Cum Pref Share, Series P, $0.01 par value

PSAPrP

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 3.950% Cum Pref Share, Series Q, $0.01 par value

PSAPrQ

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 4.000% Cum Pref Share, Series R, $0.01 par value

PSAPrR

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 4.100% Cum Pref Share, Series S, $0.01 par value

PSAPrS

New York Stock Exchange

0.875% Senior Notes due 2032

PSA32

New York Stock Exchange

0.500% Senior Notes due 2030

PSA30

New York Stock Exchange

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.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated
filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☒

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

Indicate the number of the registrant’s outstanding common shares of beneficial interest, as of April 28, 2023:

Common Shares of beneficial interest, $0.10 par value per share – 175,812,057 shares

PUBLIC STORAGE

INDEX


PART I	FINANCIAL INFORMATION	Pages

Item 1.	Consolidated Financial Statements (Unaudited)

	Consolidated Balance Sheets	1

	Consolidated Statements of Income	2

	Consolidated Statements of Comprehensive Income	3

	Consolidated Statements of Equity and Redeemable Noncontrolling Interests	4-5

	Consolidated Statements of Cash Flows	6-7

	Condensed Notes to Consolidated Financial Statements	8-20

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21-44

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	45

PART II	OTHER INFORMATION (Items 3, 4 and 5 are not applicable)

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 6.	Exhibits	46

PUBLIC STORAGE

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)


	March 31, 2023		December 31, 2022
	(Unaudited)

ASSETS

Cash and equivalents	$	695,424	$	775,253
Real estate facilities, at cost:
Land	5,293,989		5,273,073
Buildings	19,129,120		18,946,053
	24,423,109		24,219,126
Accumulated depreciation	(8,759,281)		(8,554,155)
	15,663,828		15,664,971
Construction in process	377,348		372,992
	16,041,176		16,037,963

Investments in unconsolidated real estate entities	285,692		275,752
Goodwill and other intangible assets, net	219,730		232,517
Other assets	265,756		230,822
Total assets	$	17,507,778	$	17,552,307

LIABILITIES AND EQUITY

Notes payable	$	6,899,335	$	6,870,826

Accrued and other liabilities	470,395		514,680
Total liabilities	7,369,730		7,385,506

Commitments and contingencies (Note 14)



Equity:
Public Storage shareholders’ equity:
Preferred Shares, $0.01 par value, 100,000,000 shares authorized, 174,000 shares issued (in series) and outstanding, (174,000 at December 31, 2022) at liquidation preference	4,350,000		4,350,000
Common Shares, $0.10 par value, 650,000,000 shares authorized, 175,466,222 shares issued and outstanding (175,265,668 shares at December 31, 2022)	17,547		17,527
Paid-in capital	5,923,564		5,896,423
Accumulated deficit	(168,952)		(110,231)
Accumulated other comprehensive loss	(76,448)		(80,317)
Total Public Storage shareholders’ equity	10,045,711		10,073,402
Noncontrolling interests	92,337		93,399
Total equity	10,138,048		10,166,801
Total liabilities and equity	$	17,507,778	$	17,552,307

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share amounts)

(Unaudited)



	Three Months Ended March 31,
	2023		2022

Revenues:
Self-storage facilities	$	1,032,184	$	917,015
Ancillary operations	62,048		56,430
	1,094,232		973,445

Expenses:
Self-storage cost of operations	268,615		245,494
Ancillary cost of operations	19,676		15,515
Depreciation and amortization	221,650		222,128
General and administrative	25,544		23,069
Interest expense	36,101		33,124
	571,586		539,330

Other increases (decreases) to net income:
Interest and other income	18,634		3,379
Equity in earnings of unconsolidated real estate entities	5,995		43,424
Foreign currency exchange (loss) gain	(26,860)		35,377



Net income	520,415		516,295
Allocation to noncontrolling interests	(2,707)		(2,352)
Net income allocable to Public Storage shareholders	517,708		513,943
Allocation of net income to:
Preferred shareholders	(48,678)		(48,365)

Restricted share units	(1,442)		(1,454)
Net income allocable to common shareholders	$	467,588	$	464,124
Net income per common share:
Basic	$	2.67	$	2.65
Diluted	$	2.65	$	2.63

Basic weighted average common shares outstanding	175,451		175,170
Diluted weighted average common shares outstanding	176,228		176,336

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)



	Three Months Ended March 31,
	2023		2022

Net income	$	520,415	$	516,295
Foreign currency translation gain (loss) on investment in Shurgard	3,869		(6,795)
Total comprehensive income	524,284		509,500
Allocation to noncontrolling interests	(2,707)		(2,352)
Comprehensive income allocable to Public Storage shareholders	$	521,577	$	507,148

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Three Months Ended March 31, 2023

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

(Unaudited)


	Cumulative Preferred Shares		Common Shares		Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Public Storage Shareholders' Equity		Noncontrolling Interests		Total Equity
Balances at December 31, 2022	$	4,350,000	$	17,527	$	5,896,423	$	(110,231)	$	(80,317)	$	10,073,402	$	93,399	$	10,166,801


Issuance of common shares in connection with share-based compensation (200,554 shares) (Note 11)	—		20		25,159		—		—		25,179		—		25,179
Taxes withheld upon net share settlement of restricted share units (Note 11)	—		—		(8,932)		—		—		(8,932)		—		(8,932)
Share-based compensation cost (Note 11)	—		—		10,914		—		—		10,914		—		10,914

Contributions by noncontrolling interests	—		—		—		—		—		—		4		4

Net income	—		—		—		520,415		—		520,415		—		520,415
Net income allocated to noncontrolling interests	—		—		—		(2,707)		—		(2,707)		2,707		—
Distributions to:
Preferred shareholders (Note 9)	—		—		—		(48,678)		—		(48,678)		—		(48,678)
Noncontrolling interests	—		—		—		—		—		—		(3,773)		(3,773)
Common shareholders and restricted share unitholders ($3.00 per share) (Note 9)	—		—		—		(527,751)		—		(527,751)		—		(527,751)
Other comprehensive income	—		—		—		—		3,869		3,869		—		3,869
Balances at March 31, 2023	$	4,350,000	$	17,547	$	5,923,564	$	(168,952)	$	(76,448)	$	10,045,711	$	92,337	$	10,138,048

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Three Months Ended March 31, 2022

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

(Unaudited)


	Cumulative Preferred Shares		Common Shares		Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Public Storage Shareholders' Equity		Noncontrolling Interests		Total Equity		Redeemable Noncontrolling Interests
Balances at December 31, 2021	$	4,100,000	$	17,513	$	5,821,667	$	(550,416)	$	(53,587)	$	9,335,177	$	20,112	$	9,355,289	$	68,249
Issuance of 10,000 preferred shares	250,000		—		(7,168)		—		—		242,832		—		242,832		—

Issuance of common shares in connection with share-based compensation (77,984 shares)	—		8		8,099		—		—		8,107		—		8,107		—
Taxes withheld upon net settlement of restricted share units	—		—		(10,574)		—		—		(10,574)		—		(10,574)		—
Share-based compensation cost	—		—		15,650		—		—		15,650		—		15,650		—

Contributions by noncontrolling interests	—		—		—		—		—		—		791		791		15,426
Net income	—		—		—		516,295		—		516,295		—		516,295		—
Net income allocated to noncontrolling interests	—		—		—		(2,352)		—		(2,352)		1,692		(660)		660
Distributions to:
Preferred shareholders	—		—		—		(48,365)		—		(48,365)		—		(48,365)		—
Noncontrolling interests	—		—		—		—		—		—		(2,046)		(2,046)		(509)
Common shareholders and restricted share unitholders ($2.00 per share)	—		—		—		(351,263)		—		(351,263)		—		(351,263)		—
Other comprehensive loss	—		—		—		—		(6,795)		(6,795)		—		(6,795)		—
Balances at March 31, 2022	$	4,350,000	$	17,521	$	5,827,674	$	(436,101)	$	(60,382)	$	9,698,712	$	20,549	$	9,719,261	$	83,826

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



	For the Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	520,415	$	516,295
Adjustments to reconcile net income to net cash flows from operating activities:


Depreciation and amortization	221,650		222,128
Equity in earnings of unconsolidated real estate entities	(5,995)		(43,424)
Distributions from cumulative equity in earnings of unconsolidated real estate entities	324		15,501
Unrealized foreign currency exchange loss (gain)	26,825		(35,377)
Share-based compensation expense	9,845		13,928
Other	2,890		2,042
Changes in operating assets and liabilities:
Other assets	(36,611)		(8,885)
Accrued and other liabilities	(42,450)		(25,967)
Net cash flows from operating activities	696,893		656,241
Cash flows from investing activities:
Capital expenditures to maintain real estate facilities	(96,642)		(99,549)
Development and expansion of real estate facilities	(68,874)		(76,705)
Acquisition of real estate facilities and intangible assets	(46,795)		(112,277)




Net cash flows used in investing activities	(212,311)		(288,531)
Cash flows from financing activities:
Repayments on notes payable	(129)		(236)

Issuance of preferred shares	—		242,832
Issuance of common shares in connection with share-based compensation	25,116		8,073

Taxes paid upon net share settlement of restricted share units	(8,932)		(10,574)

Contributions by noncontrolling interests	4		791
Distributions paid to preferred shareholders, common shareholders and restricted share unitholders	(576,251)		(399,584)
Distributions paid to noncontrolling interests	(3,773)		(2,555)
Net cash flows used in financing activities	(563,965)		(161,253)
Net cash flows (used in) from operating, investing, and financing activities	(79,383)		206,457
Net effect of foreign exchange impact on cash and equivalents, including restricted cash	—		173
(Decrease) Increase in cash and equivalents, including restricted cash	$	(79,383)	$	206,630

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



	For the Three Months Ended March 31,
	2023		2022

Cash and equivalents, including restricted cash at beginning of the period:
Cash and equivalents	$	775,253	$	734,599
Restricted cash included in other assets	29,904		26,691
	$	805,157	$	761,290

Cash and equivalents, including restricted cash at end of the period:
Cash and equivalents	$	695,424	$	940,524
Restricted cash included in other assets	30,350		27,396
	$	725,774	$	967,920

Supplemental schedule of non-cash investing and financing activities:

Costs incurred during the period remaining unpaid at period end for:
Capital expenditures to maintain real estate facilities	$	(11,514)	$	(14,119)
Construction or expansion of real estate facilities	(50,625)		(42,245)

Real estate acquired in exchange for noncontrolling interests	—		(15,426)

See accompanying notes.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

1.Description of the Business

Public Storage (referred to herein as “the Company,” “we,” “us,” or “our”), a Maryland real estate investment trust that has elected to be taxed as a real estate investment trust (“REIT”), was organized in 1980. Our principal business activities include the ownership and operation of self-storage facilities that offer storage spaces for lease, generally on a month-to-month basis, for personal and business use, ancillary activities such as tenant reinsurance, merchandise sales, and third party management, as well as the acquisition and development of additional self-storage space.

At March 31, 2023, we had direct and indirect equity interests in 2,877 self-storage facilities (with approximately 204.9 million net rentable square feet) located in 40 states in the United States (“U.S.”) operating under the Public Storage® name, and 1.2 million net rentable square feet of commercial and retail space.

At March 31, 2023, we owned a 35% common equity interest in Shurgard Self Storage Limited (“Shurgard”), a public company traded on the Euronext Brussels under the “SHUR” symbol, which owned 266 self-storage facilities (with approximately 15 million net rentable square feet) located in seven Western European countries, all operating under the Shurgard® name.

2.Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

We have prepared the accompanying interim consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Accounting Standards Codification of the Financial Accounting Standards Board (“FASB”), and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”). In our opinion, the interim consolidated financial statements presented herein reflect all adjustments, primarily of a normal recurring nature, that are necessary to present fairly the interim consolidated financial statements. Because they do not include all of the disclosures required by GAAP for complete annual financial statements, these interim consolidated financial statements should be read together with the audited Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Certain amounts previously reported in our March 31, 2022 Statements of Cash Flows have been reclassified to conform to the March 31, 2023 presentation, with respect to the separate presentation of changes in operating assets and liabilities in the cash flows from operating activities section.

Disclosures of the number and square footage of facilities, as well as the number and coverage of tenant reinsurance policies (Note 14) 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.).

Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Summary of Significant Accounting Policies

There have been no significant changes to the Company's significant accounting policies described in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements included in Item 8 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

3.Real Estate Facilities

Activity in real estate facilities during the three months ended March 31, 2023 is as follows:


	Three Months Ended March 31, 2023


	(Amounts in thousands)
Operating facilities, at cost:
Beginning balance	$	24,219,126
Capital expenditures to maintain real estate facilities	93,740
Acquisitions	44,936

Developed or expanded facilities opened for operation	65,307
Ending balance	24,423,109
Accumulated depreciation:
Beginning balance	(8,554,155)
Depreciation expense	(205,126)

Ending balance	(8,759,281)
Construction in process:
Beginning balance	372,992
Costs incurred to develop and expand real estate facilities	70,981
Write-off of cancelled projects	(1,318)
Developed or expanded facilities opened for operation	(65,307)
Ending balance	377,348
Total real estate facilities at March 31, 2023	$	16,041,176

During the three months ended March 31, 2023, we acquired five self-storage facilities (0.3 million net rentable square feet of storage space), for a total cost of $46.8 million in cash. Approximately $1.9 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing $65.3 million during the three months ended March 31, 2023, adding 0.4 million net rentable square feet of self-storage space. Construction in process at March 31, 2023 consisted of projects to develop new self-storage facilities and expand existing self-storage facilities.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

4.Investments in Unconsolidated Real Estate Entities

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


	Investments in Unconsolidated Real Estate Entities at

	March 31, 2023		December 31, 2022


Shurgard	$	285,692	$	275,752


		Equity in Earnings of Unconsolidated Real Estate Entities for the
	Three Months Ended March 31,
		2023		2022

PSB		$	—	$	36,886
Shurgard		5,995		6,538
Total		$	5,995	$	43,424

Investment in PSB

On July 20, 2022, in connection with the closing of the merger of PS Business Parks, Inc. (“PSB”) with affiliates of Blackstone Real Estate (“Blackstone”), we completed the sale of our 41% common equity interest in PSB in its entirety. At the close of the merger transaction, we received a total of $2.7 billion of cash proceeds and recognized a gain of $2.1 billion during the third quarter of 2022.

Since the sale of PSB in July 2022, we no longer recognize equity in earnings or receive cash distributions from PSB. During the three months ended March 31, 2022, we received cash distributions from PSB totaling $15.2 million.

Investment in Shurgard

Throughout all periods presented, we effectively owned, directly and indirectly 31,268,459 Shurgard common shares, representing a 35% equity interest in Shurgard.

Based upon the closing price at March 31, 2023 (€44.10 per share of Shurgard common stock, at 1.088 exchange rate of U.S. Dollars to the Euro), the shares we owned had a market value of approximately $1.5 billion.

Our equity in earnings of Shurgard comprised our equity share of Shurgard’s net income, less amortization of the Shurgard Basis Differential (defined below). During each of the three months ended March 31, 2023 and 2022, we received $0.9 million of trademark license fees that Shurgard pays to us for the use of the Shurgard® trademark. We eliminated $0.3 million of intra-entity profits and losses for each of the three months ended March 31, 2023 and 2022, representing our equity share of the trademark license fees. We classify the remaining license fees we receive from Shurgard as interest and other income on our income statement.

At March 31, 2023, our investment in Shurgard’s real estate assets exceeded our pro-rata share of the underlying amounts on Shurgard’s balance sheet by approximately $63.3 million ($67.8 million at December 31, 2022). This differential (the “Shurgard Basis Differential”) includes our basis adjustments in Shurgard’s real estate assets net of related deferred income taxes. The Shurgard Basis Differential is being amortized as a reduction to equity in earnings of the Unconsolidated Real Estate Entities. Such amortization totaled approximately $4.5 million and $1.3 million during the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023 and 2022, we translated the book value of our investment in Shurgard from Euro to U.S. Dollars and recorded $3.9 million other comprehensive income and $6.8 million other comprehensive loss during the three month ended March 31, 2023 and 2022, respectively.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

5.Goodwill and Other Intangible Assets

Goodwill and other intangible assets consisted of the following (amounts in thousands):


	At March 31, 2023						At December 31, 2022
	Gross Book Value		Accumulated Amortization		Net Book Value		Gross Book Value		Accumulated Amortization		Net Book Value
Goodwill	$	165,843	$	—	$	165,843	$	165,843	$	—	$	165,843
Shurgard® Trade Name	18,824		—		18,824		18,824		—		18,824
Finite-lived intangible assets, subject to amortization	759,964		(724,901)		35,063		758,106		(710,256)		47,850
Total goodwill and other intangible assets	$	944,631	$	(724,901)	$	219,730	$	942,773	$	(710,256)	$	232,517

Finite-lived intangible assets consist primarily of acquired customers in place. Amortization expense related to intangible assets subject to amortization was $14.6 million and $33.9 million for the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023, intangibles increased $1.9 million, in connection with the acquisition of real estate facilities (Note 3).

The estimated future amortization expense for our finite-lived intangible assets at March 31, 2023 is as follows (amounts in thousands):


Year	Amount
Remainder of 2023	$	23,545
2024	6,175
Thereafter	5,343
Total	$	35,063

6.Credit Facility

We have a revolving credit agreement (the “Credit Facility”) with a $500 million borrowing limit that matures on April 19, 2024. Amounts drawn on the Credit Facility bear annual interest at rates ranging from LIBOR plus 0.7% to LIBOR plus 1.350% depending upon the ratio of our Total Indebtedness to Gross Asset Value (as defined in the Credit Facility) (LIBOR plus 0.75% at March 31, 2023). We are also required to pay a quarterly facility fee ranging from 0.07% per annum to 0.25% per annum depending upon the ratio of our Total Indebtedness to our Gross Asset Value (0.10% per annum at March 31, 2023). At March 31, 2023 and May 3, 2023, we had no outstanding borrowings under this Credit Facility. We had undrawn standby letters of credit, which reduce our borrowing capacity, totaling $18.6 million at March 31, 2023 ($18.6 million at December 31, 2022). The Credit Facility has various customary restrictive covenants with which we were in compliance at March 31, 2023.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

7.Notes Payable

Our notes payable are reflected net of issuance costs (including original issue discounts), which are amortized as interest expense on the effective interest method over the term of each respective note. Our notes payable at March 31, 2023 and December 31, 2022 are set forth in the tables below:


			Amounts at March 31, 2023
	Coupon Rate	Effective Rate	Principal		Unamortized Costs		Book Value		Fair Value

			($ amounts in thousands)
U.S. Dollar Denominated Unsecured Debt

Notes due April 23, 2024	SOFR+0.47%	5.091%	$	700,000	$	(749)	$	699,251	$	694,272
Notes due February 15, 2026	0.875%	1.030%	500,000		(2,137)		497,863		449,291
Notes due November 9, 2026	1.500%	1.640%	650,000		(3,139)		646,861		586,358
Notes due September 15, 2027	3.094%	3.218%	500,000		(2,360)		497,640		470,930
Notes due May 1, 2028	1.850%	1.962%	650,000		(3,430)		646,570		569,513
Notes due November 9, 2028	1.950%	2.044%	550,000		(2,698)		547,302		479,934
Notes due May 1, 2029	3.385%	3.459%	500,000		(1,869)		498,131		465,044
Notes due May 1, 2031	2.300%	2.419%	650,000		(5,526)		644,474		539,458
Notes due November 9, 2031	2.250%	2.322%	550,000		(3,046)		546,954		449,666
			5,250,000		(24,954)		5,225,046		4,704,466

Euro Denominated Unsecured Debt
Notes due April 12, 2024	1.540%	1.540%	108,779		—		108,779		105,871
Notes due November 3, 2025	2.175%	2.175%	263,259		—		263,259		251,539
Notes due September 9, 2030	0.500%	0.640%	761,451		(8,332)		753,119		561,682
Notes due January 24, 2032	0.875%	0.978%	543,893		(4,724)		539,169		387,388
			1,677,382		(13,056)		1,664,326		1,306,480

Mortgage Debt, secured by 5 real estate facilities with a net book value of $16.9 million	3.407%	3.407%	9,963		—		9,963		9,656

			$	6,937,345	$	(38,010)	$	6,899,335	$	6,020,602

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)


	Amounts at
	December 31, 2022
	Book Value		Fair Value

	($ amounts in thousands)
U.S. Dollar Denominated Unsecured Debt
Notes due April 23, 2024	699,075		691,309
Notes due February 15, 2026	497,678		441,849
Notes due November 9, 2026	646,643		578,899
Notes due September 15, 2027	497,508		466,029
Notes due May 1, 2028	646,401		558,197
Notes due November 9, 2028	547,182		468,509
Notes due May 1, 2029	498,053		456,855
Notes due May 1, 2031	644,303		530,390
Notes due November 9, 2031	546,866		443,514
	5,223,709		4,635,551

Euro Denominated Unsecured Debt
Notes due April 12, 2024	107,035		104,344
Notes due November 3, 2025	259,039		246,119
Notes due September 9, 2030	740,634		566,204
Notes due January 24, 2032	530,317		396,297
	1,637,025		1,312,964

Mortgage Debt	10,092		9,568

	$	6,870,826	$	5,958,083

U.S. Dollar Denominated Unsecured Notes

The U.S. Dollar denominated unsecured notes (the “U.S. Dollar Denominated Unsecured Notes”) have various financial covenants with which we were in compliance at March 31, 2023. Included in these covenants are (a) a maximum Debt to Total Assets of 65% (approximately 14% at March 31, 2023) and (b) a minimum ratio of Adjusted EBITDA to Interest Expense of 1.5x (approximately 25x for the twelve months ended March 31, 2023) as well as covenants limiting the amount we can encumber our properties with mortgage debt.

Euro Denominated Unsecured Notes

Our Euro denominated unsecured notes (the “Euro Notes”) consist of four tranches: (i) €242.0 million issued to institutional investors on November 3, 2015, (ii) €100.0 million issued to institutional investors on April 12, 2016, (iii) €500.0 million issued in a public offering on January 24, 2020, and (iv) €700.0 million issued in a public offering on September 9, 2021. The Euro Notes have financial covenants similar to those of the U.S. Dollar Denominated Unsecured Notes.

We reflect changes in the U.S. Dollar equivalent of the amount payable including the associated interest, as a result of changes in foreign exchange rates as “Foreign currency exchange (loss) gain” on our income statement (losses of $27.1 million and gains of $35.4 million for the three months ended March 31, 2023 and 2022, respectively).

Mortgage Notes

We assumed our non-recourse mortgage debt in connection with property acquisitions, and we recorded such debt at fair value with any premium or discount to the stated note balance amortized using the effective interest method.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

At March 31, 2023, the related contractual interest rates of our mortgage notes are fixed, ranging between 3.2% and 7.1%, and mature between November 1, 2023 and July 1, 2030.

At March 31, 2023, approximate principal maturities of our Notes Payable are as follows (amounts in thousands):


	Unsecured Debt		Mortgage Debt		Total

Remainder of 2023	$	—	$	8,141	$	8,141
2024	808,779		124		808,903
2025	263,259		131		263,390
2026	1,150,000		138		1,150,138
2027	500,000		140		500,140
Thereafter	4,205,344		1,289		4,206,633
	$	6,927,382	$	9,963	$	6,937,345
Weighted average effective rate	2.2%		3.4%		2.2%

Cash paid for interest totaled $22.4 million and $22.2 million for the three months ended March 31, 2023 and 2022, respectively. Interest capitalized as real estate totaled $1.7 million and $1.2 million for the three months ended March 31, 2023 and 2022, respectively.

8.Noncontrolling Interests

There are noncontrolling interests related to several subsidiaries we consolidate of which we do not own 100% of the equity. At March 31, 2023, certain of these subsidiaries have issued 499,966 partnership units to third-parties that are convertible on a one-for-one basis (subject to certain limitations) into common shares of the Company at the request of the unitholder.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

9.Shareholders’ Equity

Preferred Shares

At March 31, 2023 and December 31, 2022, we had the following series of Cumulative Preferred Shares (“Preferred Shares”) outstanding:


				At March 31, 2023			At December 31, 2022
Series	Earliest Redemption Date	Dividend Rate		Shares Outstanding	Liquidation Preference		Shares Outstanding	Liquidation Preference

				(Dollar amounts in thousands)
Series F	6/2/2022	5.150	%	11,200	$	280,000	11,200	$	280,000
Series G	8/9/2022	5.050	%	12,000	300,000		12,000	300,000
Series H	3/11/2024	5.600	%	11,400	285,000		11,400	285,000
Series I	9/12/2024	4.875	%	12,650	316,250		12,650	316,250
Series J	11/15/2024	4.700	%	10,350	258,750		10,350	258,750
Series K	12/20/2024	4.750	%	9,200	230,000		9,200	230,000
Series L	6/17/2025	4.625	%	22,600	565,000		22,600	565,000
Series M	8/14/2025	4.125	%	9,200	230,000		9,200	230,000
Series N	10/6/2025	3.875	%	11,300	282,500		11,300	282,500
Series O	11/17/2025	3.900	%	6,800	170,000		6,800	170,000
Series P	6/16/2026	4.000	%	24,150	603,750		24,150	603,750
Series Q	8/17/2026	3.950	%	5,750	143,750		5,750	143,750
Series R	11/19/2026	4.000	%	17,400	435,000		17,400	435,000
Series S	1/13/2027	4.100	%	10,000	250,000		10,000	250,000
Total Preferred Shares				174,000	$	4,350,000	174,000	$	4,350,000

The holders of our Preferred Shares have general preference rights with respect to liquidation, quarterly distributions, and any accumulated unpaid distributions. Except as noted below, holders of the Preferred Shares do not have voting rights. 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 (our “Board”) until the arrearage has been cured. At March 31, 2023, there were no dividends in arrears. The affirmative vote of at least 66.67% of the outstanding shares of a series of Preferred Shares is required for any material and adverse amendment to the terms of such series. The affirmative vote of at least 66.67% of the outstanding shares of all of our Preferred Shares, voting as a single class, is required to issue shares ranking senior to our Preferred Shares.

Except under certain conditions relating to the Company’s qualification as a REIT, the Preferred Shares are not redeemable prior to the dates indicated on the table above. On or after the respective dates, each of the series of Preferred Shares is redeemable at our option, in whole or in part, at $25.00 per depositary share, plus accrued and unpaid dividends. Holders of the Preferred Shares cannot require us to redeem such shares.

Upon issuance of our Preferred Shares, we classify the liquidation value as preferred equity on our consolidated balance sheet with any issuance costs recorded as a reduction to Paid-in capital.

Dividends

On February 4, 2023, our Board of Trustees declared a 50% increase in its regular common quarterly dividend from $2.00 to $3.00 per share. The distribution equates to an annualized increase to the Company’s regular common dividend from $8.00 to $12.00 per share.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

Common share dividends paid, including amounts paid to our restricted share unitholders, totaled $527.6 million ($3.00 per share) and $351.2 million ($2.00 per share) for the three months ended March 31, 2023 and 2022, respectively. Preferred share dividends paid totaled $48.7 million and $48.4 million for the three months ended March 31, 2023 and 2022, respectively.

10.Related Party Transactions

At March 31, 2023, Tamara Hughes Gustavson, a current member of our Board, held less than a 0.1% equity interest in, and is a manager of, a limited liability company that owns 65 self-storage facilities in Canada. Two of Ms. Gustavson’s adult children owned the remaining equity interest in the limited liability company. These facilities operate under the Public Storage® tradename, which we license to the owners of these facilities for use in Canada on a royalty-free, non-exclusive basis. We have no ownership interest in these facilities and we do not own or operate any facilities in Canada. If we chose to acquire or develop our own facilities in Canada, we would have to share the use of the Public Storage® name in Canada. We have a right of first refusal, subject to limitations, to acquire the stock or assets of the corporation engaged in the operation of these facilities if their owners agree to sell them. Our subsidiaries reinsure risks relating to loss of goods stored by customers in these facilities, and have received premium payments of approximately $0.5 million for each of the three months ended March 31, 2023 and 2022.

11.Share-Based Compensation

Under various share-based compensation plans and under terms established or modified by our Board or a committee thereof, we grant equity awards to trustees, officers, and key employees, including non-qualified options to purchase the Company’s common shares, restricted share units (“RSUs”), deferred share units (“DSUs”), and unrestricted common shares issued in lieu of trustee compensation.

We recorded share-based compensation expense associated with our equity awards in the various expense categories in the Consolidated Statements of Income as set forth in the following table. In addition, $0.7 million and $1.0 million of share-based compensation cost was capitalized as real estate facilities for the three months ended March 31, 2023 and 2022, respectively.


	Three Months Ended March 31,

		2023		2022

		(Amounts in thousands)

Self-storage cost of operations		$	4,210	$	4,864
Ancillary cost of operations		31		266
General and administrative		5,604		8,798
Total		$	9,845	$	13,928

Included in share-based compensation is $0.5 million and $4.2 million during the three months ended March 31, 2023 and 2022, respectively, in connection with retirement acceleration as discussed in Note 2 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of March 31, 2023, there was $100.4 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of three years.

Stock Options

We have service-based and performance-based stock options outstanding. Performance-based stock options outstanding vest upon meeting certain performance conditions or market conditions. Stock options generally vest over 3 to 5 years, expire 10 years after the grant date, and have an exercise price equal to the closing trading price of our

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

common shares on the grant date. New shares are issued for options exercised. Employees cannot require the Company to settle their awards in cash.

During the three months ended March 31, 2023, 117,168 stock options were granted, 150,658 options were exercised, and 25,816 options were forfeited. A total of 3,105,177 stock options were outstanding at March 31, 2023 (3,164,483 at December 31, 2022).

For the stock options granted during the three months ended March 31, 2023, vesting is dependent upon meeting certain market conditions over the three-year period from March 15, 2023 through March 14, 2026, with continued service-based vesting through the first quarter of 2028. These stock options require relative achievement of the Company’s total shareholder return as compared to the weighted average total shareholder return of specified peer groups and can result in grantees earning up to 200% of the target options originally granted.

For the three months ended March 31, 2023 and 2022, we incurred share-based compensation cost for outstanding stock options of $3.2 million and $3.9 million, respectively.

Restricted Share Units

We have service-based and performance-based RSUs outstanding, which generally vest over 5 to 8 years from the grant date. Performance-based RSUs outstanding vest upon meeting certain performance conditions or market conditions. Upon vesting, the grantee receives new common shares equal to the number of vested RSUs, less common shares withheld to satisfy the grantee’s statutory tax liabilities arising from the vesting.

During the three months ended March 31, 2023, 38,895 RSUs were granted, 12,514 RSUs were forfeited and 67,748 RSUs vested. The vesting resulted in the issuance of 48,817 common shares. A total of 434,680 RSUs were outstanding at March 31, 2023 (476,047 at December 31, 2022).

During the three months ended March 31, 2023, 37,211 RSUs were awarded where vesting is dependent upon meeting certain market conditions over a three-year period from March 15, 2023 through March 14, 2026, with continued service-based vesting through the first quarter of 2028. These RSUs require relative achievement of the Company’s total shareholder return as compared to the weighted average total shareholder return of specified peer groups and can result in grantees earning up to 200% of the target RSUs originally granted.

Also included in the RSUs granted during the three months ended March 31, 2023 are 1,684 service-based RSUs.

For the three months ended March 31, 2023 and 2022, we incurred share-based compensation cost for RSUs of $7.2 million and $10.8 million, respectively.

Trustee Deferral Program

Non-management trustees may elect to receive all or a portion of their cash retainers in cash, unrestricted common shares, or fully-vested DSUs to be settled at a specified future date. Unrestricted common shares and/or DSUs will be granted to the non-management trustee on the last day of each calendar quarter based on the cash retainer earned for that quarter and converted into a number of shares or units based on the applicable closing price of our common shares on such date. During the three months ended March 31, 2023, we granted 501 DSUs and 212 unrestricted common shares. During the three months ended March 31, 2023, 867 previously granted DSUs were settled in common shares.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

12. Net Income per Common Share

We allocate net income to (i) noncontrolling interests based upon their contractual rights in the respective subsidiaries or for participating noncontrolling interests based upon their participation in both distributed and undistributed earnings of the Company, (ii) preferred shareholders, for distributions paid or payable, (iii) preferred shareholders, to the extent redemption cost exceeds the related original net issuance proceeds (a “preferred share redemption charge”), and (iv) RSUs, for non-forfeitable dividends paid and adjusted for participation rights in undistributed earnings of the Company.

We calculate basic and diluted net income per common share based upon net income allocable to common shareholders, divided by (i) weighted average common shares for basic net income per common share, and (ii) weighted average common shares adjusted for the impact of dilutive stock options outstanding for diluted net income per common share. Potentially dilutive stock options representing 264,512 common shares were excluded from the computation of diluted earnings per share for the three months ended March 31, 2023, because their effect would have been antidilutive.

The following table reconciles the numerators and denominators of the basic and diluted net income per common shares computation for the three months ended March 31, 2023 and 2022, respectively (in thousands, except per share amounts):


	Three Months Ended March 31,

		2023		2022
Numerator for basic and dilutive net income per common share – net income allocable to common shareholders		$	467,588	$	464,124

Denominator for basic net income per share - weighted average common shares outstanding		175,451		175,170
Net effect of dilutive stock options - based on treasury stock method		777		1,166
Denominator for dilutive net income per share - weighted average common shares outstanding		176,228		176,336

Net income per common share:
Basic		$	2.67	$	2.65
Dilutive		$	2.65	$	2.63

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

13.Segment Information

Our operating segments reflect the significant components of our operations where discrete financial information is evaluated separately by our chief operating decision maker.

Self-Storage Operations

The Self-Storage Operations reportable segment reflects the aggregated rental operations from the self-storage facilities we own from (i) Same Store Facilities, (ii) Acquired Facilities, (iii) Developed and Expanded Facilities, and (iv) Other Non-Same Store Facilities. The presentation in the table below sets forth the Net Operating Income (“NOI”) of this reportable segment, as well as the related depreciation expense. For all periods presented, substantially all of our real estate facilities, goodwill and other intangible assets, other assets, and accrued and other liabilities are associated with the Self-Storage Operations reportable segment.

Ancillary Operations

The Ancillary Operations reflects the combined operations of our tenant reinsurance, merchandise sales, and third party property management operating segments.

Presentation of Segment Information

The following table reconciles NOI and net income attributable to our reportable segment to our consolidated net income:


	Three Months Ended March 31,

		2023		2022

		(amounts in thousands)
Self-Storage Operations Reportable Segment
Revenue		$	1,032,184	$	917,015
Cost of operations		(268,615)		(245,494)
Net operating income		763,569		671,521
Depreciation and amortization		(221,650)		(222,128)
Net income		541,919		449,393

Ancillary Operations
Revenue		62,048		56,430
Cost of operations		(19,676)		(15,515)
Net operating income		42,372		40,915

Total net income allocated to segments		584,291		490,308

Other items not allocated to segments:
General and administrative		(25,544)		(23,069)
Interest and other income		18,634		3,379
Interest expense		(36,101)		(33,124)
Equity in earnings of unconsolidated real estate entities		5,995		43,424
Foreign currency exchange (loss) gain		(26,860)		35,377



Net income		$	520,415	$	516,295

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

14. 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 carry property, earthquake, general liability, employee medical insurance, and workers compensation coverage through internationally recognized insurance carriers, subject to deductibles. Our deductible for general liability is $2.0 million per occurrence. Our annual deductible for property loss is $25.0 million per occurrence. This deductible decreases to $5.0 million once we reach $35.0 million in aggregate losses for occurrences that exceed $5.0 million. Insurance carriers’ aggregate limits on these policies of $75.0 million for property losses and $102.0 million for general liability losses are higher than estimates of maximum probable losses that could occur from individual catastrophic events determined in recent engineering and actuarial studies; however, in case of multiple catastrophic events, these limits could be exceeded.

We reinsure a program that provides insurance to our customers from an independent third-party insurer. This program covers customer 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 to cover this exposure for a limit of $15.0 million for losses in excess of $5.0 million per occurrence. We are subject to licensing requirements and regulations in all states. Customers participate in the program at their option. At March 31, 2023, there were approximately 1.3 million certificates held by our self-storage customers, representing aggregate coverage of approximately $5.8 billion.

Commitments

We have construction commitments representing future expected payments for construction under contract totaling $249.5 million at March 31, 2023. We expect to pay approximately $189.6 million in the remainder of 2023, $59.4 million in 2024, and $0.5 million in 2025 for these construction commitments.

We have future contractual payments on land, equipment and office space under various lease commitments totaling $62.5 million at March 31, 2023. We expect to pay approximately $2.1 million in the remainder of 2023, $3.1 million in 2024, $3.0 million in each of 2025 and 2026, $2.1 million in 2027, and $49.2 million thereafter for these commitments.

15. Subsequent Events

Subsequent to March 31, 2023, we acquired or were under contract to acquire 12 self-storage facilities across three states with 0.9 million net rentable square feet, for $139.0 million.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding 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. Such forward-looking statements include statements relating to our 2023 outlook and all underlying assumptions, our expected acquisition, disposition, development, and redevelopment activity, supply and demand for our self-storage facilities, information relating to operating trends in our markets, expectations regarding operating expenses, including property tax changes, expectations regarding the impacts from inflation and a potential future recession, our strategic priorities, expectations with respect to financing activities, rental rates, cap rates, and yields, leasing expectations, our credit ratings, and all other statements other than statements of historical fact. Such statements are based on management’s beliefs and assumptions made based on information currently available to management and may be identified by the use of the words “outlook,” “guidance,” “expects,” “believes,” “anticipates,” “should,” “estimates,” and similar expressions.

These forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results and performance to be materially different from those expressed or implied in the forward-looking statements. Factors and risks that may impact future results and performance include, but are not limited to those factors and risks described in Part 1, Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on February 21, 2023 and in our other filings with the SEC. These include changes in demand for our facilities, impacts of natural disasters, adverse changes in laws and regulations including governing property tax, evictions, rental rates, minimum wage levels, and insurance, adverse economic effects from the COVID-19 Pandemic, international military conflicts, or similar events impacting public health and/or economic activity, increases in the costs of our primary customer acquisition channels, adverse impacts to us and our customers from inflation, unfavorable foreign currency rate fluctuations, changes in federal or state tax laws related to the taxation of REITs, security breaches, including ransomware, or a failure of our networks, systems, or technology.

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 cautionary statement. We expressly disclaim any obligation to update publicly or otherwise revise any forward-looking statements, whether because of new information, new estimates, or other factors, events or circumstances after the date of these forward-looking statements, except when expressly required by law. Given these risks and uncertainties, you should not rely on any forward-looking statements in this report, or which management may make orally or in writing from time to time, neither as predictions of future events nor guarantees of future performance.

Critical Accounting Estimates

The preparation of consolidated financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) requires us to make judgments, assumptions, and estimates that affect the amounts reported. On an ongoing basis, we evaluate our estimates and assumptions. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenues, and expenses that are not readily apparent from other sources.

During the three months ended March 31, 2023, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

Overview

Our self-storage operations generate most of our net income, and our earnings growth is impacted by the levels of growth within our Same Store Facilities (as defined below) as well as within our Acquired Facilities and Newly Developed and Expanded Facilities (both as defined below). Accordingly, a significant portion of management’s time is devoted to maximizing cash flows from our existing self-storage facility portfolio.

During the three months ended March 31, 2023, revenues generated by our Same Store Facilities increased by 9.8% ($75.5 million), as compared to the same period in 2022, while Same Store cost of operations increased by 5.6% ($11.0 million). Demand and operating trends softened in the second half of 2022 continuing through the first quarter of 2023 and returned to historical seasonal patterns as compared to what we experienced in 2020 and 2021. We expect these trends to lead to moderating levels of income growth through 2023.

In addition to managing our existing facilities for organic growth, we have grown and plan to continue to grow through the acquisition and development of new facilities and expansion of our existing self-storage facilities. Since the beginning of 2021, we acquired a total of 311 facilities with 27.0 million net rentable square feet for $5.9 billion. In our non-same store portfolio, we also have developed and expanded self-storage facilities of 15.6 million net rentable square feet for a total cost of $1.3 billion. During the three months ended March 31, 2023, net operating income generated by our Acquired Facilities and Newly Developed and Expanded Facilities increased 31.7% ($25.3 million), as compared to the same period in 2022.

We have experienced recent inflationary impacts on our cost of operations including labor, utilities, and repairs and maintenance, and costs of development and expansion activities, and we may continue to experience such impacts in the future. We have implemented various initiatives to manage the adverse impacts, such as enhancements in operational processes and investments in technology to reduce payroll hours, achievement of economies of scale from recent acquisitions with supervisory payroll allocated over a broader number of self-storage facilities, and investments in solar power and LED lights to lower utility usage.

In order to enhance the competitive position of certain of our facilities relative to local competitors (including newly developed facilities), we have embarked on our multi-year Property of Tomorrow program to (i) rebrand our properties with more pronounced, attractive, and clearly identifiable color schemes and signage, (ii) enhance the energy efficiency of our properties, and (iii) upgrade the configuration and layout of the offices and other customer zones to improve the customer experience. We expect to complete the program in 2025. We spent approximately $32 million on the program in the three months ended March 31, 2023 and expect to spend approximately $160 million over 2023 on this effort.

Results of Operations

Operating Results for the Three Months Ended March 31, 2023 and 2022

For the three months ended March 31, 2023, net income allocable to our common shareholders was $467.6 million or $2.65 per diluted common share, compared to $464.1 million or $2.63 per diluted common share for the same period in 2022, representing an increase of $3.5 million or $0.02 per diluted common share. The increase is due primarily to (i) a $92.0 million increase in self-storage net operating income and (ii) a $15.3 million increase in interest and other income, partially offset by (iii) a $62.2 million increase in foreign currency exchange losses primarily associated with our Euro denominated notes payable and (iv) a $37.4 million decrease in equity in earnings of unconsolidated real estate entities due to our sale of PSB in July 2022.

The $92.0 million increase in self-storage net operating income in the three months ended March 31, 2023 as compared to the same period in 2022 is a result of a $64.4 million increase attributable to our Same Store Facilities and a $27.6 million increase attributable to our non-same store facilities. Revenues for the Same Store Facilities increased 9.8% or $75.5 million in the three months ended March 31, 2023 as compared to the same period in 2022, due primarily to higher realized annual rent per occupied square foot, partially offset by a decline in occupancy. Cost of operations for the Same Store Facilities increased by 5.6% or $11.0 million in the three months ended March 31, 2023 as compared to the same period in 2022, due primarily to increased property tax expense, repairs and maintenance expenses, marketing expense, and other direct property costs. The increase in net operating income of $27.6 million for the non-same store facilities is due primarily to the impact of facilities acquired in 2021 and 2022 and the fill-up of recently developed and expanded facilities.

Funds from Operations and Core Funds from Operations

Funds from Operations (“FFO”) and FFO per share are non-GAAP measures defined by Nareit. We believe that FFO and FFO per share are useful to REIT investors and analysts in measuring our performance because Nareit’s definition of FFO excludes items included in net income that do not relate to or are not indicative of our operating and financial performance. FFO represents net income before depreciation and amortization, which is excluded because it is based upon historical costs and assumes that building values diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. FFO also excludes gains or losses on sale of real estate assets and real estate impairment charges, which are also based upon historical costs and are impacted by historical depreciation. FFO and FFO per share are not a substitute for net income or earnings per share. FFO is not a substitute for net cash flow in evaluating our liquidity or ability to pay dividends, because it excludes investing and financing activities presented on our consolidated 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 March 31, 2023, FFO was $3.94 per diluted common share as compared to $3.83 per diluted common share for the same period in 2022, representing an increase of 2.9%, or $0.11 per diluted common share.

We also present “Core FFO” and “Core FFO per share” non-GAAP measures that represent FFO and FFO per share excluding the impact of (i) foreign currency exchange gains and losses, (ii) charges related to the redemption of preferred securities, and (iii) certain other non-cash and/or nonrecurring income or expense items primarily representing, with respect to the periods presented below, the impact of contingency resolution, due diligence costs incurred in pursuit of strategic transactions, unrealized gain on private equity investments, and our equity share of severance of a senior executive from our equity investees. We review Core FFO and Core FFO per share to evaluate our ongoing operating performance and we believe they are used by investors and REIT analysts in a similar manner. However, Core FFO and Core FFO per share are not substitutes for net income and net income per share. Because other REITs may not compute Core FFO or Core FFO per share in the same manner as we do, may not use the same terminology or may not present such measures, Core FFO and Core FFO per share may not be comparable among REITs.

The following table reconciles net income to FFO and Core FFO and reconciles diluted earnings per share to FFO per share and Core FFO per share:


	Three Months Ended March 31,
		2023		2022		Percentage Change

		(Amounts in thousands, except per share data)
Reconciliation of Net Income to FFO and Core FFO:
Net income allocable to common shareholders		$	467,588	$	464,124	0.7	%
Eliminate items excluded from FFO:
Depreciation and amortization		219,787		220,795
Depreciation from unconsolidated real estate investments		8,529		18,037
Depreciation allocated to noncontrolling interests and restricted share unitholders		(1,473)		(1,657)
Gains on sale of real estate investments, including our equity share from investments		—		(25,095)

FFO allocable to common shares		$	694,431	$	676,204	2.7	%
Eliminate the impact of items excluded from Core FFO, including our equity share from investments:
Foreign currency exchange loss (gain)		26,860		(35,377)


Other items		(2,133)		2,547
Core FFO allocable to common shares		$	719,158	$	643,374	11.8	%

Reconciliation of Diluted Earnings per Share to FFO per Share and Core FFO per Share:
Diluted earnings per share		$	2.65	$	2.63	0.8	%
Eliminate amounts per share excluded from FFO:
Depreciation and amortization		1.29		1.35
Gains on sale of real estate investments, including our equity share from investments		—		(0.15)

FFO per share		$	3.94	$	3.83	2.9	%
Eliminate the per share impact of items excluded from Core FFO, including our equity share from investments:
Foreign currency exchange loss (gain)		0.15		(0.20)


Other items		(0.01)		0.02
Core FFO per share		$	4.08	$	3.65	11.8	%

Diluted weighted average common shares		176,228		176,336

Analysis of Net Income - Self-Storage Operations

Our self-storage operations are analyzed in four groups: (i) the 2,348 facilities that we have owned and operated on a stabilized basis since January 1, 2021 (the “Same Store Facilities”), (ii) 311 facilities we acquired since January 1, 2021 (the “Acquired Facilities”), (iii) 136 facilities that have been newly developed or expanded, or that will commence expansion by December 31, 2023 (the “Newly Developed and Expanded Facilities”), and (iv) 82 other facilities, which are otherwise not stabilized with respect to occupancies or rental rates since January 1, 2021 (the “Other Non-same Store Facilities”). See Note 13 to our March 31, 2023 consolidated financial statements “Segment Information,” for a reconciliation of the amounts in the tables below to our total net income.


Self-Storage Operations
Summary	Three Months Ended March 31,
		2023		2022		Percentage Change

		(Dollar amounts and square footage in thousands)
Revenues:
Same Store Facilities		$	848,724	$	773,260	9.8	%
Acquired Facilities		95,222		69,303		37.4	%
Newly Developed and Expanded Facilities		62,031		51,084		21.4	%
Other Non-Same Store Facilities		26,207		23,368		12.1	%
		1,032,184		917,015		12.6	%
Cost of operations:
Same Store Facilities		207,219		196,176		5.6	%
Acquired Facilities		32,879		24,217		35.8	%
Newly Developed and Expanded Facilities		19,353		16,450		17.6	%
Other Non-Same Store Facilities		9,164		8,651		5.9	%
		268,615		245,494		9.4	%
Net operating income (a):
Same Store Facilities		641,505		577,084		11.2	%
Acquired Facilities		62,343		45,086		38.3	%
Newly Developed and Expanded Facilities		42,678		34,634		23.2	%
Other Non-Same Store Facilities		17,043		14,717		15.8	%
Total net operating income		763,569		671,521		13.7	%

Depreciation and amortization expense:
Same Store Facilities		126,794		120,891		4.9	%
Acquired Facilities		67,249		77,139		(12.8)	%
Newly Developed and Expanded Facilities		14,401		12,310		17.0	%
Other Non-Same Store Facilities		13,206		11,788		12.0	%
Total depreciation and amortization expense		221,650		222,128		(0.2)	%

Net income (loss):
Same Store Facilities		514,711		456,193		12.8	%
Acquired Facilities		(4,906)		(32,053)		(84.7)	%
Newly Developed and Expanded Facilities		28,277		22,324		26.7	%
Other Non-Same Store Facilities		3,837		2,929		31.0	%
Total net income		$	541,919	$	449,393	20.6	%

Number of facilities at period end:
Same Store Facilities		2,348		2,348		—	%
Acquired Facilities		311		242		28.5	%
Newly Developed and Expanded Facilities		136		125		8.8	%
Other Non-Same Store Facilities		82		82		—	%
		2,877		2,797		2.9	%
Net rentable square footage at period end:
Same Store Facilities		155,453		155,453		—	%
Acquired Facilities		27,047		22,611		19.6	%
Newly Developed and Expanded Facilities		15,584		14,263		9.3	%
Other Non-Same Store Facilities		6,793		6,791		—	%
		204,877		199,118		2.9	%

(a)Net operating income or “NOI” is a non-GAAP financial measure that excludes the impact of depreciation and amortization expense, which is based upon historical real estate costs and assumes that building values diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. We utilize NOI in determining current property values, evaluating property performance, and evaluating property operating trends. We believe that investors and analysts utilize NOI in a similar manner. NOI is not a substitute for net income, operating cash flow, or other related financial measures, in evaluating our operating results. See Note 13 to our March 31, 2023 consolidated financial statements for a reconciliation of NOI to our total net income for all periods presented.

Same Store Facilities

The Same Store Facilities consist of facilities we have owned and operated on a stabilized level of occupancy, revenues, and cost of operations since January 1, 2021. Our Same Store Facilities increased from 2,276 facilities at December 31, 2022 to 2,348 at March 31, 2023. The composition of our Same Store Facilities allows us more effectively to evaluate the ongoing performance of our self-storage portfolio in 2021, 2022, and 2023 and exclude the impact of fill-up of unstabilized facilities, which can significantly affect operating trends. We believe investors and analysts use Same Store information in a similar manner. However, because other REITs may not compute Same Store Facilities in the same manner as we do, may not use the same terminology or may not present such a measure, Same Store Facilities may not be comparable among REITs.

The following table summarizes the historical operating results (for all periods presented) of these 2,348 facilities (155.5 million net rentable square feet) that represent approximately 76% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at March 31, 2023. It includes various measures and detail that we do not include in the analysis of the developed, acquired, and other non-same store facilities, due to the relative magnitude and importance of the Same Store Facilities relative to our other self-storage facilities.

Selected Operating Data for the Same Store Facilities (2,348 facilities)


	Three Months Ended March 31,
		2023		2022		Percentage Change

		(Dollar amounts in thousands, except for per square foot data)
Revenues (a):
Rental income		$	820,442	$	748,560	9.6%
Late charges and administrative fees		28,282		24,700		14.5%
Total revenues		848,724		773,260		9.8%

Direct cost of operations (a):
Property taxes		76,871		73,237		5.0%
On-site property manager payroll		32,592		31,804		2.5%
Repairs and maintenance		18,052		15,940		13.2%
Utilities		12,583		11,967		5.1%
Marketing		15,580		11,740		32.7%
Other direct property costs		23,258		20,762		12.0%
Total direct cost of operations		178,936		165,450		8.2%
Direct net operating income (b)		669,788		607,810		10.2%

Indirect cost of operations (a):
Supervisory payroll		(9,215)		(9,940)		(7.3)%
Centralized management costs		(15,923)		(16,790)		(5.2)%
Share-based compensation		(3,145)		(3,996)		(21.3)%
Net operating income		641,505		577,084		11.2%
Depreciation and amortization expense		(126,794)		(120,891)		4.9%
Net income		$	514,711	$	456,193	12.8%

Gross margin (before indirect costs, depreciation and amortization expense)		78.9%		78.6%		0.4%

Gross margin (before depreciation and amortization expense)		75.6%		74.6%		1.3%

Weighted average for the period:
Square foot occupancy		93.2%		95.5%		(2.4)%

Realized annual rental income per (c):
Occupied square foot		$	22.65	$	20.16	12.4%
Available square foot		$	21.10	$	19.25	9.6%

At March 31:
Square foot occupancy		92.8%		95.0%		(2.3)%
Annual contract rent per occupied square foot (d)		$	22.94	$	20.71	10.8%

(a)Revenues and cost of operations do not include tenant reinsurance and merchandise sale revenues and expenses generated at the facilities. See “Ancillary Operations” below for more information.

(b)Direct net operating income (“Direct NOI”), a subtotal within NOI, is a non-GAAP financial measure that excludes the impact of supervisory payroll, centralized management costs, and share-based compensation in addition to depreciation and amortization expense. We utilize direct net operating income in evaluating property performance and in evaluating property operating trends as compared to our competitors.

(c)Realized annual rent per occupied square foot is computed by dividing rental income, before late charges and administrative fees, by the weighted average occupied square feet for the period. Realized annual rent per available square foot (“REVPAF”) is computed by dividing rental income, before late charges and administrative fees, by the total available net rentable square feet for the period. These measures exclude late charges and administrative fees in order to provide a better measure of our ongoing level of revenue. Late charges are dependent upon the level of delinquency, and administrative fees are dependent upon the level of move-ins. In addition, the rates charged for late charges and administrative fees can vary independently from rental rates. These measures take into consideration promotional discounts, which reduce rental income.

(d)Annual contract rent represents the agreed upon monthly rate that is paid by our tenants in place at the time of measurement. Contract rates are initially set in the lease agreement upon move-in, and we adjust them from time to time with notice. Contract rent excludes other fees that are charged on a per-item basis, such as late charges and administrative fees, does not reflect the impact of promotional discounts, and does not reflect the impact of rents that are written off as uncollectible.

Analysis of Same Store Revenue

We believe a balanced occupancy and rate strategy maximizes our revenues over time. We regularly adjust rental rates and promotional discounts offered (generally, “$1.00 rent for the first month”), as well as our marketing efforts to maximize revenue from new tenants to replace tenants that vacate.

We typically increase rental rates to our long-term tenants (generally, those who have been with us for at least a year) every six to twelve months. As a result, the number of long-term tenants we have in our facilities is an important factor in our revenue growth. The level of rate increases to long-term tenants is based upon evaluating the additional revenue from the increase against the negative impact of incremental move-outs, by considering customers’ in-place rent and prevailing market rents, among other factors.

Revenues generated by our Same Store Facilities increased 9.8% in the three months ended March 31, 2023, as compared to the same period in 2022, due primarily to (i) a 12.4% increase in realized annual rent per occupied square foot, partially offset by (ii) a 2.4% decrease in average occupancy.

The increase in realized annual rent per occupied square foot in the three months ended March 31, 2023 as compared to the same period in 2022 was due to rate increases to existing long-term tenants, partially offset by a 7.5% decrease in average rates per square foot charged to new tenants moving in who replaced tenants moving out with higher rental rates during the three months ended March 31, 2023 as compared to the same period in 2022. The growth rate in realized annual rent per occupied square foot has decelerated since the second half of 2022 as a result of increases in moving-out activity that drove us to lower move-in rates and increase promotion discounts to replace tenants that vacate. At March 31, 2023, annual contract rent per occupied square foot was 10.8% higher as compared to March 31, 2022.

We experienced high occupancy levels throughout the three months ended March 31, 2023 with a weighted average square foot occupancy of 93.2%, representing a decrease of 2.4% as compared to the same period in 2022. Occupancy levels, although strong, have gradually declined since the second half of 2022 as move-out activity increased and customer demand softened. We lowered move-in rental rates and increased promotional activity and advertising spending to increase move-in activity at our facilities, which led to a year-over year 12.5% increase in move-in volumes that more than offset the year-over year 11.5% increase in move-out volumes for the three months ended March 31, 2023. Although the move-in volumes net of move-out volumes were higher in the three months ended March 31, 2023 as compared to the same period in 2022, at March 31, 2023, the average square foot occupancy was 92.8% as compared to 95.0% at March 31, 2022, due primarily to lower occupancy levels at December 31, 2022 of 92.3% as compared to December 31, 2021 of 94.7%.

Move-out volumes were partially impacted by rental rate increases to our existing tenants in the three months ended March 31, 2023 as compared to the same period in 2022. However, move-out activity from tenants not receiving increases was also higher in the three months ended March 31, 2023 as compared to the same period in 2022, returning to pre-2020 levels. Average length of stay of our tenants slightly increased in the three months ended March 31, 2023 as compared to the same period in 2022, which supported our revenue growth by contributing to the number of tenants eligible for rental rate increases.

Demand historically has been higher in the summer months than in the winter months and, as a result, rental rates charged to new tenants have typically been higher in the summer months than in the winter months. More typical seasonal patterns of demand with lower demand in the winter months returned in 2022. Demand fluctuates due to various local and regional factors, including the overall economy. Demand for our facilities is also impacted by new supply of self-storage space and alternatives to self-storage.

We expect weaker industry-wide demand in the remainder of 2023 as compared to 2022 driven by a weaker macroeconomic outlook and more limited moving activities, with move-out activities and occupancy levels returning to pre-2020 levels. To mitigate the negative impact of macroeconomic challenges, we will continue to support demand levels to our self-storage facilities with increased marketing expense, lowering rental rates to new customers, and increased promotional discounting. As a result, we expect revenue growth to decline significantly in the remainder of 2023 as compared to high levels of growth in 2022 and 2021. With a wide range of potential macroeconomic pathways for the remainder of 2023, the range of potential revenue growth rates is wide including the potential for year-over-year declines in revenue in the second half of 2023.

Late Charges and Administrative Fees

Late charges and administrative fees increased 14.5% in the three months ended March 31, 2023 as compared to the same period in 2022, due to (i) higher late charges collected on delinquent accounts driven by more delinquent accounts and to a lesser extent (ii) higher administrative fees resulting from higher move-in volumes.

Selected Key Statistical Data

The following table sets forth average annual contract rent per square foot and total square footage for tenants moving in and moving out during the three months ended March 31, 2023 and 2022. It also includes promotional discounts, which vary based upon the move-in contractual rates, move-in volume, and percentage of tenants moving in who receive the discount.


	Three Months Ended March 31,
		2023		2022		Change

		(Amounts in thousands, except for per square foot amounts)

Tenants moving in during the period:
Average annual contract rent per square foot		$	15.89	$	17.17	(7.5)%
Square footage		27,437		24,390		12.5%
Contract rents gained from move-ins		$	108,993	$	104,694	4.1%
Promotional discounts given		$	15,800	$	11,199	41.1%

Tenants moving out during the period:
Average annual contract rent per square foot		$	21.13	$	19.35	9.2%
Square footage		26,652		23,907		11.5%
Contract rents lost from move-outs		$	140,789	$	115,650	21.7%

Analysis of Same Store Cost of Operations

Cost of operations (excluding depreciation and amortization) increased 5.6% in the three months ended March 31, 2023 as compared to the same period in 2022 due primarily to increased property tax expense, repairs and maintenance expense, marketing expense, and other direct property costs.

Property tax expense increased 5.0% in the three months ended March 31, 2023 as compared to the same period in 2022, as a result of higher assessed values. We expect property tax expense to grow 5.2% in 2023 due primarily to higher assessed values.

On-site property manager payroll expense increased 2.5% in the three months ended March 31, 2023 as compared to the same period in 2022, due primarily to increases in wage rates as a result of competitive labor conditions experienced in most geographical markets. We expect an inflationary increase in on-site property manager payroll expense in 2023 driven by increased wage rates, partially offset by expected reduction in labor hours driven by revisions in operational processes.

Repairs and maintenance expense increased 13.2% in the three months ended March 31, 2023 as compared to the same period in 2022. Repairs and maintenance expense levels are dependent upon many factors such as (i) damage and equipment malfunctions, (ii) short-term local supply and demand factors for material and labor, and (iii) weather conditions, which can impact costs such as snow removal, roof repairs, and HVAC maintenance and repairs. We expect a moderate year-over-year increase in repairs and maintenance expense in the remainder of 2023.

Marketing expense includes Internet advertising and the operating costs of our telephone reservation center. Internet advertising expense, comprising keyword search fees assessed on a “per click” basis, varies based upon demand for self-storage space, the quantity of people inquiring about self-storage through online search, occupancy levels, the number and aggressiveness of bidding competitors, and other factors. These factors are volatile; accordingly, Internet advertising can increase or decrease significantly in the short-term. We increased marketing expense by 32.7% in the three months ended March 31, 2023 as compared to the same period in 2022, by utilizing a higher volume of online paid search programs to attract new tenants.

Other direct property costs include administrative expenses specific to each self-storage facility, such as property loss, telephone and data communication lines, business license costs, bank charges related to processing the facilities’ cash receipts, tenant mailings, credit card fees, eviction costs, and the cost of operating each property’s rental office. These costs increased 12.0% in the three months ended March 31, 2023 as compared to the same period in 2022. These increases were due primarily to an increase in credit card fees as a result of year-over-year increases in revenues, and to a lesser extent, a long-term trend of more customers paying with credit cards rather than cash, checks, or other methods of payment with lower transaction costs. We expect a moderate increase in other direct property costs in the remainder of 2023 primarily driven by an increase in credit card fees.

Analysis of Market Trends

The following tables set forth selected market trends in our Same Store Facilities:

Same Store Facilities Operating Trends by Market


	As of March 31, 2023		Three Months Ended March 31,
	Number of Facilities	Square Feet (millions)	Realized Rent per Occupied Square Foot						Average Occupancy						Realized Rent per Available Square Foot
			2023		2022		Change		2023		2022		Change		2023		2022		Change
Los Angeles	215	15.6	$	35.00	$	29.31	19.4	%	95.9	%	97.7	%	(1.8)	%	$	33.56	$	28.64	17.2	%
San Francisco	130	8.0	32.14		29.75		8.0	%	94.2	%	96.0	%	(1.9)	%	30.28		28.55		6.1	%
New York	92	6.7	31.80		28.82		10.3	%	92.8	%	95.2	%	(2.5)	%	29.52		27.45		7.5	%
Miami	88	6.3	29.62		25.81		14.8	%	93.6	%	96.9	%	(3.4)	%	27.72		25.02		10.8	%
Seattle-Tacoma	89	6.0	25.92		23.54		10.1	%	92.4	%	94.8	%	(2.5)	%	23.95		22.32		7.3	%
Washington DC	90	5.5	26.14		24.13		8.3	%	91.8	%	94.0	%	(2.3)	%	23.99		22.69		5.7	%
Dallas-Ft. Worth	111	7.6	18.13		16.03		13.1	%	92.9	%	95.0	%	(2.2)	%	16.84		15.22		10.6	%
Atlanta	103	6.8	18.11		16.14		12.2	%	90.9	%	94.9	%	(4.2)	%	16.46		15.31		7.5	%
Chicago	130	8.2	20.11		18.00		11.7	%	91.5	%	94.6	%	(3.3)	%	18.39		17.02		8.0	%
Houston	101	7.5	16.74		14.74		13.6	%	92.0	%	94.0	%	(2.1)	%	15.40		13.85		11.2	%
Orlando-Daytona	69	4.4	19.42		16.50		17.7	%	94.9	%	96.2	%	(1.4)	%	18.42		15.87		16.1	%
Philadelphia	56	3.5	21.57		19.82		8.8	%	92.4	%	96.0	%	(3.7)	%	19.94		19.03		4.8	%
West Palm Beach	39	2.8	26.13		23.29		12.2	%	93.9	%	97.1	%	(3.3)	%	24.53		22.60		8.5	%
Tampa	53	3.5	19.86		17.61		12.8	%	93.1	%	95.8	%	(2.8)	%	18.49		16.87		9.6	%
Charlotte	52	3.9	15.89		13.89		14.4	%	93.2	%	95.5	%	(2.4)	%	14.81		13.26		11.7	%
All other markets	930	59.2	18.49		16.74		10.5	%	93.2	%	95.3	%	(2.2)	%	17.22		15.95		8.0	%
Totals	2,348	155.5	$	22.65	$	20.16	12.4	%	93.2	%	95.5	%	(2.4)	%	$	21.10	$	19.25	9.6	%

Same Store Facilities Operating Trends by Market (Continued)


	Three Months Ended March 31,
	Revenues ($000's)						Direct Expenses ($000's)						Indirect Expenses ($000's)						Net Operating Income ($000's)
	2023		2022		Change		2023		2022		Change		2023		2022		Change		2023		2022		Change
Los Angeles	$	133,611	$	113,948	17.3	%	$	17,685	$	16,098	9.9	%	$	2,849	$	3,702	(23.0)	%	$	113,077	$	94,148	20.1	%
San Francisco	61,638		58,078		6.1	%	9,862		8,983		9.8	%	1,634		1,753		(6.8)	%	50,142		47,342		5.9	%
New York	51,173		47,642		7.4	%	13,385		12,700		5.4	%	1,338		1,435		(6.8)	%	36,450		33,507		8.8	%
Miami	44,947		40,378		11.3	%	7,920		7,458		6.2	%	1,092		1,134		(3.7)	%	35,935		31,786		13.1	%
Seattle-Tacoma	37,048		34,565		7.2	%	6,894		6,293		9.6	%	1,021		1,065		(4.1)	%	29,133		27,207		7.1	%
Washington DC	34,294		32,377		5.9	%	7,259		7,217		0.6	%	1,043		1,039		0.4	%	25,992		24,121		7.8	%
Dallas-Ft. Worth	33,443		30,141		11.0	%	7,832		7,073		10.7	%	1,200		1,237		(3.0)	%	24,411		21,831		11.8	%
Atlanta	29,368		27,245		7.8	%	6,154		5,190		18.6	%	1,223		1,283		(4.7)	%	21,991		20,772		5.9	%
Chicago	39,039		36,008		8.4	%	16,385		15,070		8.7	%	1,426		1,596		(10.7)	%	21,228		19,342		9.8	%
Houston	30,051		26,957		11.5	%	8,228		7,565		8.8	%	1,110		1,211		(8.3)	%	20,713		18,181		13.9	%
Orlando-Daytona	21,047		18,158		15.9	%	4,071		3,645		11.7	%	860		905		(5.0)	%	16,116		13,608		18.4	%
Philadelphia	18,371		17,500		5.0	%	4,100		4,183		(2.0)	%	686		690		(0.6)	%	13,585		12,627		7.6	%
West Palm Beach	17,706		16,298		8.6	%	3,807		3,277		16.2	%	529		515		2.7	%	13,370		12,506		6.9	%
Tampa	16,883		15,372		9.8	%	3,603		3,265		10.4	%	625		648		(3.5)	%	12,655		11,459		10.4	%
Charlotte	15,222		13,595		12.0	%	2,771		2,458		12.7	%	597		635		(6.0)	%	11,854		10,502		12.9	%
All other markets	264,883		244,998		8.1	%	58,980		54,975		7.3	%	11,050		11,878		(7.0)	%	194,853		178,145		9.4	%
Totals	$	848,724	$	773,260	9.8	%	$	178,936	$	165,450	8.2	%	$	28,283	$	30,726	(8.0)	%	$	641,505	$	577,084	11.2	%

Acquired Facilities

The Acquired Facilities represent 311 facilities that we acquired in 2021, 2022, and 2023. As a result of the stabilization process and timing of when these facilities were acquired, year-over-year changes can be significant. The following table summarizes operating data with respect to the Acquired Facilities:


ACQUIRED FACILITIES	Three Months Ended March 31,
		2023		2022		Change (a)

		($ amounts in thousands, except for per square foot amounts)
Revenues (b):
2021 Acquisitions		$	83,241	$	68,825	$	14,416
2022 Acquisitions		11,601		478		11,123
2023 Acquisitions		380		—		380
Total revenues		95,222		69,303		25,919

Cost of operations (b):
2021 Acquisitions		27,126		23,898		3,228
2022 Acquisitions		5,582		319		5,263
2023 Acquisitions		171		—		171
Total cost of operations		32,879		24,217		8,662

Net operating income:
2021 Acquisitions		56,115		44,927		11,188
2022 Acquisitions		6,019		159		5,860
2023 Acquisitions		209		—		209
Net operating income		62,343		45,086		17,257
Depreciation and amortization expense		(67,249)		(77,139)		9,890
Net loss		$	(4,906)	$	(32,053)	$	27,147

At March 31:
Square foot occupancy:
2021 Acquisitions		83.1%		82.3%		1.0%
2022 Acquisitions		82.3%		43.5%		89.2%
2023 Acquisitions		82.2%		—%		—%
		82.9%		81.0%		2.3%
Annual contract rent per occupied square foot:
2021 Acquisitions		$	17.84	$	15.87	12.4%
2022 Acquisitions		12.02		12.80		(6.1)%
2023 Acquisitions		11.33		—		—%
		$	16.76	$	15.82	5.9%
Number of facilities:
2021 Acquisitions		232		232		—
2022 Acquisitions		74		10		64
2023 Acquisitions		5		—		5
		311		242		69
Net rentable square feet (in thousands) (c):
2021 Acquisitions (d)		22,009		21,830		179
2022 Acquisitions		4,726		781		3,945
2023 Acquisitions		312		—		312
		27,047		22,611		4,436

ACQUIRED FACILITIES (Continued)


	As of March 31, 2023
Costs to acquire (in thousands):
2021 Acquisitions (d)	$	5,115,276
2022 Acquisitions	730,480
2023 Acquisitions	46,795
	$	5,892,551

(a)Represents the percentage change with respect to square foot occupancy and annual contract rent per occupied square foot, and the absolute nominal change with respect to all other items.

(b)Revenues and cost of operations do not include tenant reinsurance and merchandise sale revenues and expenses generated at the facilities. See “Ancillary Operations” below for more information.

(c)The Acquired Facilities have an aggregate of approximately 27.0 million net rentable square feet, including 10.9 million in Texas, 3.9 million in Maryland, 1.6 million in Florida, 1.2 million in Virginia, 1.0 million in Oklahoma, 0.9 million in North Carolina, 0.7 million in Idaho, 0.6 million in each of Arizona, Colorado, and South Carolina, 0.5 million in Nebraska, 0.4 million in each of Georgia, Indiana, and Oregon, 0.3 million in each of California, Minnesota, Nevada, Ohio, Tennessee, and Washington, and 1.5 million in other states.

(d)We have completed the expansion projects on facilities acquired in 2021 for $26.7 million, adding 179,000 net rentable square feet of storage space as of March 31, 2023.

We have been active in acquiring facilities in recent years. Since the beginning of 2021, we acquired a total of 311 facilities with 27.0 million net rentable square feet for $5.9 billion. During the three months ended March 31, 2023, these facilities contributed net operating income of $62.3 million, consistent with our original underwritten expectations.

During 2021, we acquired the ezStorage portfolio, consisting of 48 properties (4.1 million net rentable square feet) for acquisition cost of $1.8 billion. As of March 31, 2023, we have completed the expansion projects on four properties of this portfolio for $26.3 million, adding 169,000 net rentable square feet of storage space. Included in the Acquisition results in the table above are ezStorage portfolio revenues of $25.6 million, NOI of $20.0 million (including Direct NOI of $20.5 million), and average square footage occupancy of 85.7% for the three months ended March 31, 2023.

During 2021, we acquired the All Storage portfolio, consisting of 56 properties (7.5 million net rentable square feet) for $1.5 billion. Included in the Acquisition results in the table above are All Storage portfolio revenues of $21.4 million, NOI of $13.3 million (including Direct NOI of $14.2 million), and average square footage occupancy of 78.5% for the three months ended March 31, 2023.

We remain active in seeking to acquire additional self-storage facilities. Subsequent to March 31, 2023, we acquired or were under contract to acquire 12 self-storage facilities across three states with 0.9 million net rentable square feet, for $139.0 million. Future acquisition volume is likely to be impacted by increasing cost of capital requirements and overall macro-economic uncertainties.

Developed and Expanded Facilities

The developed and expanded facilities include 49 facilities that were developed on new sites since January 1, 2018, and 87 facilities expanded to increase their net rentable square footage. Of these expansions, 61 were completed before 2022, 13 were completed in 2022 or 2023, and 13 are currently in process at March 31, 2023. The following table summarizes operating data with respect to the Developed and Expanded Facilities:


DEVELOPED AND EXPANDED FACILITIES
	Three Months Ended March 31,
		2023		2022		Change (a)

		($ amounts in thousands, except for per square foot amounts)
Revenues (b):
Developed in 2018		$	9,780	$	8,293	$	1,487
Developed in 2019		4,375		3,626		749
Developed in 2020		1,901		1,482		419
Developed in 2021		2,609		1,429		1,180
Developed in 2022		1,086		—		1,086
Developed in 2023		25		—		25
Expansions completed before 2022		33,744		28,348		5,396
Expansions completed in 2022 or 2023		4,614		3,111		1,503
Expansions in process		3,897		4,795		(898)
Total revenues		62,031		51,084		10,947

Cost of operations (b):
Developed in 2018		2,833		2,555		278
Developed in 2019		1,507		1,368		139
Developed in 2020		424		428		(4)
Developed in 2021		917		855		62
Developed in 2022		983		—		983
Developed in 2023		229		—		229
Expansions completed before 2022		10,094		9,385		709
Expansions completed in 2022 or 2023		1,521		847		674
Expansions in process		845		1,012		(167)
Total cost of operations		19,353		16,450		2,903

Net operating income (loss):
Developed in 2018		6,947		5,738		1,209
Developed in 2019		2,868		2,258		610
Developed in 2020		1,477		1,054		423
Developed in 2021		1,692		574		1,118
Developed in 2022		103		—		103
Developed in 2023		(204)		—		(204)
Expansions completed before 2022		23,650		18,963		4,687
Expansions completed in 2022 or 2023		3,093		2,264		829
Expansions in process		3,052		3,783		(731)
Net operating income		42,678		34,634		8,044
Depreciation and amortization expense		(14,401)		(12,310)		(2,091)
Net income		$	28,277	$	22,324	$	5,953


DEVELOPED AND EXPANDED FACILITIES (Continued)
	As of March 31,
	2023		2022		Change (a)

	($ amounts in thousands, except for per square foot amounts)
Square foot occupancy:
Developed in 2018	88.0%		88.6%		(0.7)%
Developed in 2019	87.3%		88.4%		(1.2)%
Developed in 2020	93.1%		92.0%		1.2%
Developed in 2021	83.6%		67.4%		24.0%
Developed in 2022	59.1%		—%		—%
Developed in 2023	19.4%		—%		—%
Expansions completed before 2022	87.4%		87.4%		—%
Expansions completed in 2022 or 2023	76.1%		80.9%		(5.9)%
Expansions in process	80.0%		88.2%		(9.3)%
	83.9%		86.4%		(2.9)%
Annual contract rent per occupied square foot:
Developed in 2018	$	20.79	$	18.06	15.1%
Developed in 2019	18.34		15.54		18.0%
Developed in 2020	22.31		19.08		16.9%
Developed in 2021	18.23		15.28		19.3%
Developed in 2022	13.73		—		—%
Developed in 2023	8.70		—		—%
Expansions completed before 2022	17.97		15.80		13.7%
Expansions completed in 2022 or 2023	17.42		17.88		(2.6)%
Expansions in process	27.55		25.85		6.6%
	$	18.34	$	16.36	12.1%
Number of facilities:
Developed in 2018	18		18		—
Developed in 2019	11		11		—
Developed in 2020	3		3		—
Developed in 2021	6		6		—
Developed in 2022	8		—		8
Developed in 2023	3		—		3
Expansions completed before 2022	61		61		—
Expansions completed in 2022 or 2023	13		13		—
Expansions in process	13		13		—
	136		125		11
Net rentable square feet (in thousands) (c):
Developed in 2018	2,069		2,069		—
Developed in 2019	1,057		1,057		—
Developed in 2020	347		347		—
Developed in 2021	681		681		—
Developed in 2022	631		—		631
Developed in 2023	268		—		268
Expansions completed before 2022	8,381		8,410		(29)
Expansions completed in 2022 or 2023	1,435		875		560
Expansions in process	715		824		(109)
	15,584		14,263		1,321


	As of March 31, 2023
Costs to develop (in thousands):
Developed in 2018	$	262,187
Developed in 2019	150,387
Developed in 2020	42,063
Developed in 2021	115,632
Developed in 2022	100,089
Developed in 2023	46,679
Expansions completed before 2022 (d)	506,594
Expansions completed in 2022 or 2023 (d)	119,048
	$	1,342,679

(a)Represents the percentage change with respect to square foot occupancy and annual contract rent per occupied square foot, and the absolute nominal change with respect to all other items.

(b)Revenues and cost of operations do not include tenant reinsurance and merchandise sales generated at the facilities. See “Ancillary Operations” below for more information.

(c)The facilities included above have an aggregate of approximately 15.6 million net rentable square feet at March 31, 2023, including 3.7 million in Texas, 3.0 million in Florida, 2.1 million in California, 1.4 million in each of Colorado and Minnesota, 0.8 million in North Carolina, 0.7 million in Michigan, 0.4 million in Missouri, 0.3 million in each of New Jersey, South Carolina, Virginia, and Washington, and 0.9 million in other states.

(d)These amounts only include the direct cost incurred to expand and renovate these facilities, and do not include (i) the original cost to develop or acquire the facility or (ii) the lost revenue on space demolished during the construction and fill-up period.

It typically takes at least three to four years for a newly developed or expanded self-storage facility to stabilize with respect to revenues. Physical occupancy can be achieved as early as two to three years following completion of the development or expansion through offering lower rental rates during fill-up. As a result, even after achieving high occupancy, there can still be a period of elevated revenue growth as the tenant base matures and higher rental rates are achieved.

We believe that our development and redevelopment activities generate favorable risk-adjusted returns over the long run. However, in the short run, our earnings are diluted during the construction and stabilization period due to the cost of capital to fund the development cost, as well as the related construction and development overhead expenses included in general and administrative expense.

We typically underwrite new developments to stabilize at approximately an 8.0% NOI yield on cost. Our developed facilities have thus far leased up as expected and are at various stages of their revenue stabilization periods. The actual annualized yields that we may achieve on these facilities upon stabilization will depend on many factors, including local and current market conditions in the vicinity of each property and the level of new and existing supply.

The facilities under “expansions completed” represent those facilities where the expansions have been completed at March 31, 2023. We incurred a total of $625.6 million in direct cost to expand these facilities, demolished a total of 1.1 million net rentable square feet of storage space, and built a total of 6.1 million net rentable square feet of new storage space.

At March 31, 2023, we had 25 additional facilities in development, which will have a total of 2.4 million net rentable square feet of storage space and have an aggregate development cost totaling approximately $537.8 million. We expect these facilities to open over the next 18 to 24 months.

The facilities under “expansion in process” represent those facilities where construction is in process at March 31, 2023, and together with additional future expansion activities primarily related to our Same Store Facilities at March 31, 2023, we expect to add a total of 2.4 million net rentable square feet of storage space by expanding existing self-storage facilities for an aggregate direct development cost of $488.2 million.

Other Non-Same Store Facilities

The “Other Non-Same Store Facilities” represent facilities which, while not newly acquired, developed, or expanded, are not fully stabilized since January 1, 2021, including facilities undergoing fill-up as well as facilities damaged in casualty events such as hurricanes, floods, and fires.

The Other Non-Same Store Facilities have an aggregate of 6.8 million net rentable square feet, including 1.2 million in Texas, 0.5 million in Pennsylvania, 0.4 million in each of California, Illinois, Michigan, Ohio, and Washington, 0.3 million in each of Arizona, Florida, and South Carolina, 0.2 million in each of Alabama, Colorado, Georgia, Minnesota, Missouri, and Virginia, and 1.0 million in other states.

During the three months ended March 31, 2023 and 2022, the average occupancy for these facilities totaled 86.2% and 89.1%, respectively, and the realized rent per occupied square foot totaled $17.83 and $15.24, respectively.

Depreciation and amortization expense

Depreciation and amortization expense for Self-Storage Operations decreased $0.5 million in the three months ended March 31, 2023, as compared to the same period in 2022, due to a decline in amortization of intangible assets related to our 2021 and 2022 acquisitions.

Ancillary Operations

Ancillary revenues and expenses include amounts associated with the reinsurance of policies against losses to goods stored by tenants in our self-storage facilities, sale of merchandise at our self-storage facilities, and management of property owned by unrelated third parties. The following table sets forth our ancillary operations:


	Three Months Ended March 31,

		2023		2022		Change

		(Amounts in thousands)
Revenues:
Tenant reinsurance premiums		$	49,298	$	45,195	$	4,103
Merchandise		6,820		6,871		(51)
Third party property management		5,930		4,364		1,566
Total revenues		62,048		56,430		5,618
Cost of operations:
Tenant reinsurance		9,572		7,277		2,295
Merchandise		4,213		3,904		309
Third party property management		5,891		4,334		1,557
Total cost of operations		19,676		15,515		4,161
Net operating income:
Tenant reinsurance		39,726		37,918		1,808
Merchandise		2,607		2,967		(360)
Third party property management		39		30		9
Total net operating income		$	42,372	$	40,915	$	1,457

Tenant reinsurance operations: Tenant reinsurance premium revenue increased $4.1 million or 9.1% in the three months ended March 31, 2023 over the same period in 2022, as a result of an increase in our tenant base with respect to acquired, newly developed, and expanded facilities and the third party properties we manage. Tenant reinsurance premium revenue generated from tenants at our Same-Store Facilities were $37.1 million and $35.8 million in the three months ended March 31, 2023 and 2022, respectively, representing a 3.6% increase.

We expect future growth will come primarily from customers of newly acquired and developed facilities, as well as additional tenants at our existing unstabilized self-storage facilities.

Cost of operations primarily includes claims paid as well as claims adjustment expenses. Claims expenses vary based upon the number of insured tenants and the volume of events that drive covered customer losses, such as burglary, as well as catastrophic weather events affecting multiple properties such as hurricanes and floods.

Merchandise sales: Sales of locks, boxes, and packing supplies at our self-storage facilities are primarily impacted by the level of move-ins and other customer traffic at our self-storage facilities. We do not expect any significant changes in revenues or profitability from our merchandise sales in the remainder of 2023.

Third-party property management: At March 31, 2023, in our third-party property management program, we managed 116 facilities for unrelated third parties, and were under contract to manage 77 additional facilities including 71 facilities that are currently under construction. During the three months ended March 31, 2023, we added seven facilities to the program and had six properties exit the program due to sales to other buyers. While we expect this business to increase in scope and size, we do not expect any significant changes in overall profitability of this business in the near term as we seek new properties to manage and are in the earlier stages of fill-up for newly managed properties.

Analysis of items not allocated to segments

Equity in earnings of unconsolidated real estate entities

We account for the equity investments in PSB (prior to the sale of our investment in PSB) and Shurgard using the equity method and record our pro-rata share of the net income of these entities. The following table, and the discussion below, sets forth our equity in earnings of unconsolidated real estate entities:


	Three Months Ended March 31,

		2023		2022		Change

		(Amounts in thousands)
Equity in earnings:
PSB		$	—	$	36,886	$	(36,886)
Shurgard		5,995		6,538		(543)
Total equity in earnings		$	5,995	$	43,424	$	(37,429)

Investment in PSB: On July 20, 2022, in connection with the closing of the merger of PSB with Blackstone, we completed the sale of our 41% common equity interest in PSB in its entirety. At the close of the merger transaction, we received a total of $2.7 billion of cash proceeds and recognized a gain of $2.1 billion during the third quarter of 2022.

Since the sale of PSB in July 2022, we no longer recognize equity in earnings from PSB. Included in our equity earnings from PSB for the three months ended March 31, 2022 is our equity share of gains on sale of real estate totaling $23.6 million. Our equity share of earnings from PSB contributed $25.5 million to Core FFO in the three months ended March 31, 2022.

Investment in Shurgard: For purposes of recording our equity in earnings from Shurgard, the Euro was translated at exchange rates of approximately 1.088 U.S. Dollars per Euro at March 31, 2023 (1.070 at December 31, 2022), and average exchange rates of 1.073 and 1.122 for the three months ended March 31, 2023 and 2022, respectively. Included in our equity in earnings from Shurgard were $8.5 million and $8.3 million of our share of depreciation and amortization expense for the three months ended March 31, 2023 and 2022, respectively.

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


	Three Months Ended March 31,

		2023		2022		Change

		(Amounts in thousands)

Share-based compensation expense		$	5,604	$	8,798	$	(3,194)
Development and acquisition costs		5,157		2,840		2,317
Federal and State tax expense and related compliance costs		3,316		2,734		582
Legal costs		581		240		341
Corporate management costs		6,737		5,846		891
Other costs		4,149		2,611		1,538
Total		$	25,544	$	23,069	$	2,475

Interest and other income: The following table sets forth our interest and other income:


	Three Months Ended March 31,

		2023		2022		Change

		(Amounts in thousands)

Interest earned on cash balances		$	11,859	$	136	$	11,723
Commercial operations		2,383		2,082		301
Unrealized gain on private equity investments		2,218		—		2,218
Other		2,174		1,161		1,013
Total		$	18,634	$	3,379	$	15,255

Interest expense: For the three months ended March 31, 2023 and 2022, we incurred $37.8 million and $34.3 million, respectively, of interest on our outstanding notes payable. In determining interest expense, these amounts were offset by capitalized interest of $1.7 million and $1.2 million during the three months ended March 31, 2023 and 2022, respectively, associated with our development activities. The increase of interest expense in the three months ended March 31, 2023 as compared to the same period in 2022 is due to the increase of Compounded Secured Overnight Financing Rate (“SOFR”) on our $700.0 million variable rate unsecured notes, partially offset by the interest savings on the $500.0 million unsecured notes redeemed in August 2022. At March 31, 2023, we had $6.9 billion of notes payable outstanding, with a weighted average interest rate of approximately 2.2%.

Foreign Currency Exchange (Loss) Gain: For the three months ended March 31, 2023 and 2022, we recorded foreign currency losses of $26.9 million and gains of $35.4 million, respectively, representing primarily the changes in the U.S. Dollar equivalent of our Euro-denominated unsecured notes due to fluctuations in exchange rates. The Euro was translated at exchange rates of approximately 1.088 U.S. Dollars per Euro at March 31, 2023, 1.070 at December 31, 2022, 1.111 at March 31, 2022, and 1.134 at December 31, 2021. Future gains and losses on foreign currency will be dependent upon changes in the relative value of the Euro to the U.S. Dollar and the level of Euro-denominated notes payable outstanding.

Liquidity and Capital Resources

Overview and our Sources of Capital

While operating as a REIT allows us to minimize the payment of U.S. federal corporate income tax expense, we are required to distribute at least 90% of our taxable income to our shareholders. Notwithstanding this requirement, our annual operating retained cash flow increased from $200 million to $300 million per year in recent years to approximately $700 million in 2021 and $1 billion in 2022. Retained operating cash flow represents our expected cash flow provided by operating activities (including property operating costs and interest payments described below), less shareholder distributions and capital expenditures. We expect retained cash flow of approximately $400 million for 2023.

Capital needs in excess of retained cash flow are met with: (i) medium and long-term debt, (ii) preferred equity, and (iii) common equity. We select among these sources of capital based upon relative cost, availability, the desire for leverage, and considering potential constraints caused by certain features of capital sources, such as debt covenants. We view our line of credit, as well as any short-term bank loans, as bridge financing.

Because raising capital is important to our growth, we endeavor to maintain a strong financial profile characterized by strong credit metrics, including low leverage relative to our total capitalization and operating cash flows. We are one of the highest rated REITs, as rated by major rating agencies Moody’s and Standard & Poor’s. Our senior notes payable have an “A” credit rating by Standard & Poor’s and “A2” by Moody’s. Our credit ratings on each of our series of preferred shares are “A3” by Moody’s and “BBB+” by Standard & Poor’s. Our credit profile enables us to effectively access both the public and private capital markets to raise capital.

We have a $500.0 million revolving line of credit that we are able to use as temporary “bridge” financing until we are able to raise longer term capital. As of March 31, 2023 and May 3, 2023, there were no borrowings outstanding on the revolving line of credit; however, we do have approximately $19.4 million of outstanding letters of credit, which limits our borrowing capacity to $480.6 million as of May 3, 2023. Our line of credit matures on April 19, 2024.

We believe that we have significant financial flexibility to adapt to changing conditions and opportunities, and we have significant access to sources of capital including debt and preferred equity. While the costs of financing have increased recently, based on our strong credit profile and our substantial current liquidity relative to our capital requirements noted below, we would not expect any potential capital market dislocations to have a material impact upon our expected capital and growth plans over the next 12 months. However, if capital market conditions deteriorated significantly for a long period of time, our access to or cost of debt and preferred equity capital could be negatively impacted and potentially affect future investment activities.

Our current and expected capital resources include: (i) $695.4 million of cash as of March 31, 2023 and (ii) approximately $400.0 million of expected retained operating cash flow over the next twelve months. We believe that our cash provided by our operating activities will continue to be sufficient to enable us to meet our ongoing cash requirements for interest payments on debt, maintenance capital expenditures, and distributions to our shareholders for the foreseeable future.

As described below, our current committed cash requirements consist of (i) $139.0 million in property acquisitions currently under contract, (ii) $648.6 million of remaining spending on our current development pipeline, which will be incurred primarily in the next 18 to 24 months, and (iii) $8.2 million in scheduled principal repayments on our mortgage notes in the next twelve months. We have no principal payments on unsecured notes until April 2024. Our cash requirements may increase over the next year as we add projects to our development pipeline and acquire additional properties. Additional potential cash requirements could result from various activities including the redemption of outstanding preferred securities, repurchases of common stock, or merger and acquisition activities, as and to the extent we determine to engage in such activities.

Over the long term, to the extent that our cash requirements exceed our capital resources, we believe we have a variety of possibilities to raise additional capital including issuing common or preferred securities, issuing debt, or entering into joint venture arrangements to acquire or develop facilities.

Cash Requirements

The following summarizes our expected material cash requirements, which comprise (i) contractually obligated expenditures, including payments of principal and interest, (ii) other essential expenditures, including property operating expenses, maintenance capital expenditures and dividends paid in accordance with REIT distribution requirements, and (iii) opportunistic expenditures, including acquisitions and developments and repurchases of our securities. We expect to satisfy these cash requirements through operating cash flow and opportunistic debt and equity financings.

Required Debt Repayments: As of March 31, 2023, the principal outstanding on our debt totaled approximately $6.9 billion, consisting of $10.0 million of secured notes payable, $1.7 billion of Euro-denominated unsecured notes payable and $5.3 billion of U.S. Dollar denominated unsecured notes payable. Approximate principal maturities and interest payments (including $44.5 million estimated interests on $700 million variable rate unsecured notes) are as follows (amounts in thousands):


	Principal		Interest		Total
Remainder of 2023	$	8,141	$	111,444	$	119,585
2024	808,903		128,998		937,901
2025	263,390		108,578		371,968
2026	1,150,138		101,402		1,251,540
2027	500,140		87,639		587,779
Thereafter	4,206,633		163,867		4,370,500
	$	6,937,345	$	701,928	$	7,639,273

Capital Expenditure Requirements: Capital expenditures include general maintenance, major repairs, or replacements to elements of our facilities to keep our facilities in good operating condition and maintain their visual appeal. Capital expenditures do not include costs relating to the development of new facilities or redevelopment of existing facilities to increase their available rentable square footage.

Capital expenditures totaled $93.7 million in the first three months of 2023 and are expected to approximate $450 million in 2023. In addition to standard capital repairs of building elements reaching the end of their useful lives, our capital expenditures in recent years have included incremental expenditures to enhance the competitive position of certain of our facilities relative to local competitors pursuant to a multi-year program. Such investments include development of more pronounced, attractive, and clearly identifiable color schemes and signage and upgrades to the configuration and layout of the offices and other customer zones to improve the customer experience. We spent approximately $32 million in the first three months of 2023 and expect to spend $160 million in 2023 on this effort. In addition, we have made investments in LED lighting and the installation of solar panels, which approximated $9 million for the three months ended March 31, 2023 and we expect to spend $132 million in 2023.

We believe that these incremental investments improve customer satisfaction, the attractiveness and competitiveness of our facilities to new and existing customers and, in the case of LED lighting and solar panels, reduce operating costs.

Requirement to Pay Distributions: For all periods presented herein, we have elected to be treated as a REIT, as defined in the Code. For each taxable year in which we qualify for taxation as a REIT, we will not be subject to U.S. federal corporate income tax on our “REIT taxable income” (generally, taxable income subject to specified adjustments, including a deduction for dividends paid and excluding our net capital gain) that is distributed to our shareholders. We believe we have met these requirements in all periods presented herein, and we expect to continue to qualify as a REIT.

On May 2, 2023, our Board declared a regular common quarterly dividend of $3.00 per common share totaling approximately $526 million, which will be paid at the end of June 2023. This represented a 50% increase in the $2.00 per common share quarterly dividend paid during 2022. Our consistent, long-term dividend policy has been to distribute 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 flows from operating activities.

The annual distribution requirement with respect to our preferred shares outstanding at March 31, 2023 is approximately $194.7 million per year.

Real Estate Investment Activities: We continue to seek to acquire additional self-storage facilities from third parties. Subsequent to March 31, 2023, we acquired or were under contract to acquire 12 self-storage facilities for a total purchase price of $139.0 million.

We are actively seeking to acquire additional facilities. However, future acquisition volume will depend upon whether additional owners will be motivated to market their facilities, which will in turn depend upon factors such as economic conditions and the level of seller confidence.

As of March 31, 2023, we had development and expansion projects at a total cost of approximately $1.0 billion. Costs incurred through March 31, 2023 were $377.3 million, with the remaining cost to complete of $648.6 million expected to be incurred primarily in the next 18 to 24 months. Some of these projects are subject to contingencies such as entitlement approval. We expect to continue to seek to add projects to maintain and increase our robust pipeline. Our ability to do so continues to be challenged by various constraints such as difficulty in finding projects that meet our risk-adjusted yield expectations and challenges in obtaining building permits for self-storage facilities in certain municipalities.

Property Operating Expenses: The direct and indirect cost of our operations impose significant cash requirements. Direct operating costs include property taxes, on-site property manager payroll, repairs and maintenance, utilities, and marketing. Indirect operating costs include supervisory payroll and centralized management costs. The cash requirements from these operating costs will vary year to year based on, among other things, changes in the size of our portfolio and changes in property tax rates and assessed values, wage rates, and marketing costs in our markets.

Redemption of Preferred Securities: Historically, we have taken advantage of refinancing higher coupon preferred securities with lower coupon preferred securities. In the future, we may also elect to finance the redemption of preferred securities with proceeds from the issuance of debt. As of May 3, 2023, we have two series of preferred securities that are eligible for redemption, at our option and with 30 days’ notice: our 5.150% Series F Preferred Shares ($280.0 million) and our 5.050% Series G Preferred Shares ($300.0 million). See Note 9 to our March 31, 2023 consolidated financial statements for the redemption dates of all of our series of preferred shares. Redemption of such preferred shares will depend upon many factors, including the rate at which we could issue replacement preferred securities. None of our preferred securities are redeemable at the option of the holders.

Repurchases of Common Shares: Our Board has authorized management to repurchase up to 35,000,000 of our common shares on the open market or in privately negotiated transactions. During three months ended March 31, 2023, we did not repurchase any of our common shares. From the inception of the repurchase program through May 3, 2023, we have repurchased a total of 23,721,916 common shares at an aggregate cost of approximately $679.1 million. Future levels of common share repurchases will be dependent upon our available capital, investment alternatives and the trading price of our common shares.

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, which totals approximately $6.9 billion at March 31, 2023, is the only market-risk sensitive portion of our capital structure.

The fair value of our debt at March 31, 2023 is approximately $6.0 billion. The table below summarizes the annual maturities of our debt, which had a weighted average effective rate of 2.2% at March 31, 2023. See Note 7 to our March 31, 2023 consolidated financial statements for further information regarding our debt (amounts in thousands).


	Remainder of 2023		2024		2025		2026		2027		Thereafter		Total

Debt	$	8,141	$	808,903	$	263,390	$	1,150,138	$	500,140	$	4,206,633	$	6,937,345

We have foreign currency exposure at March 31, 2023 related to (i) our investment in Shurgard, with a book value of $285.7 million, and a fair value of $1.5 billion based upon the closing price of Shurgard’s stock on March 31, 2023, and (ii) €1.5 billion ($1.7 billion) of Euro-denominated unsecured notes payable, providing a natural hedge against the fair value of our investment in Shurgard.

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 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in accordance with SEC guidelines and that such information is communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures in reaching that level of reasonable assurance. We also have investments in certain unconsolidated real estate entities and because we do not control these entities, our disclosure controls and procedures with respect to such entities are substantially more limited than those we maintain with respect to our consolidated subsidiaries.

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 March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

ITEM 1. Legal Proceedings

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, 2022, 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. There have been no material changes to the risk factors relating to the Company disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

In addition, in considering the forward-looking statements contained in this Quarterly Report on 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 Quarterly Report on Form 10-Q.

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

Common Share Repurchases

Our Board has authorized management to repurchase up to 35,000,000 of our common shares on the open market or in privately negotiated transactions. From the inception of the repurchase program through May 3, 2023, we have repurchased a total of 23,721,916 common shares (all purchased prior to 2010) at an aggregate cost of approximately $679.1 million. Our common share repurchase program does not have an expiration date and there are 11,278,084 common shares that may yet be repurchased under our repurchase program as of March 31, 2023. 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.

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.

PUBLIC STORAGE

INDEX TO EXHIBITS (1)

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


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			Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101 .SCH			Inline XBRL Taxonomy Extension Schema. Filed herewith.

101 .CAL			Inline XBRL Taxonomy Extension Calculation Linkbase. Filed herewith.

101 .DEF			Inline XBRL Taxonomy Extension Definition Linkbase. Filed herewith.

101 .LAB			Inline XBRL Taxonomy Extension Label Linkbase. Filed herewith.

101 .PRE			Inline XBRL Taxonomy Extension Presentation Link. Filed herewith.

104			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

_ (1) SEC			File No. 001-33519 unless otherwise indicated.

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: May 3, 2023
			PUBLIC STORAGE
			By:			/s/ H. Thomas Boyle
						H. Thomas Boyle Senior Vice President, Chief Financial and Investment Officer