EDGAR 10-K Filing

Company CIK: 1393311
Filing Year: 2023
Filename: 1393311_10-K_2023_0001393311-23-000012.json

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ITEM 1. BUSINESS
ITEM 1. Business
Cautionary Statement Regarding Forward Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements relating to our 2023 outlook and all underlying assumptions, our proposal to acquire Life Storage, Inc. (“Life Storage”), 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 “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. Risks and uncertainties that may impact future results and performance include, but are not limited to, those described in Part 1, Item 1A, “Risk Factors” of this report and in our other filings with the Securities and Exchange Commission (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, our ability to consummate acquisition transactions, including our proposed acquisition of Life Storage, and to realize the intended benefits of such transactions, 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 as a result 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.
General Discussion of our 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, development, and operation of self-storage facilities and other related operations including tenant reinsurance and third-party self-storage management. We are the industry leading owner and operator of self-storage properties, with the most recognized brand in the self-storage industry, including our ubiquitous orange color.
Self-storage Operations:
We acquire, develop, own, and operate self-storage facilities, which offer storage spaces for lease on a month-to-month basis, for personal and business use. We are the largest owner and operator of self-storage facilities in the United States (“U.S.”), with physical presence in most major markets and 40 states. We believe our scale, brand name, and technology platform afford us competitive advantages. At December 31, 2022, we held interests in and consolidated 2,869 self-storage facilities (an aggregate of 204 million net rentable square feet of space) operating under the Public Storage® name.
Other Operations:
We manage insurance programs whereby customers at our facilities, including those we manage for third parties, have the option of purchasing insurance from a non-affiliated insurance company to cover certain losses to their stored goods. A wholly-owned, consolidated subsidiary of Public Storage fully reinsures these policies and thereby assumes all risk of losses under the policies. This subsidiary receives from the non-affiliated insurance company reinsurance premiums substantially equal to the premiums collected from our tenants. These policies cover claims for losses related to specified events up to a maximum limit of $5,000 per storage unit. We reinsure all risks in this program but purchase insurance from an independent third party insurer to cover this exposure for a limit of $15.0 million for losses in excess of $5.0 million per occurrence. At December 31, 2022, there were approximately 1.2 million certificates of insurance held by our self-storage customers, representing aggregate coverage of approximately $5.6 billion.
At December 31, 2022, we managed 114 facilities for third parties, and were under contract to manage 78 additional facilities including 73 facilities that are currently under construction. In addition, we sell merchandise, primarily locks and cardboard boxes at our self-storage facilities.
We hold a 35% interest in Shurgard Self Storage Limited (“Shurgard”). Shurgard is a public company traded on Euronext Brussels under the “SHUR” symbol. At December 31, 2022, Shurgard owned and operated 266 self-storage facilities (15 million net rentable square feet) located in seven countries in Western Europe under the Shurgard® name. We previously held a significant equity interest in PS Business Parks, Inc. (“PSB”), which we sold in July 2022 in connection with PSB’s merger with an unaffiliated third party.
For all periods presented herein, we have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended (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 met these requirements in all periods presented herein and we expect to continue to qualify as a REIT.
We file annually with the SEC annual reports on Form 10-K, which include consolidated financial statements certified by our independent registered public accountants. We also file quarterly with the SEC quarterly reports on Form 10-Q, which include unaudited consolidated financial statements. We expect to continue such reporting.
On our website, www.publicstorage.com, we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, definitive proxy statements, and other reports required to be filed with or furnished to the SEC, as well as all supplements and amendments to those filings, as soon as reasonably practicable after the filings, supplements, and amendments are electronically filed with or furnished to the SEC. The information contained on our website is not a part of, or incorporated by reference into, this Annual Report on Form 10-K.
Competition
Ownership and operation of self-storage facilities is highly fragmented. As the largest owner of self-storage facilities, we believe that we own approximately 9% of the self-storage square footage in the U.S. and that collectively the five largest self-storage owners in the U.S. own approximately 20%, with the remaining 80% owned by regional and local operators. We believe our Public Storage® brand awareness, as well as our digital customer experience described below, provide us with a competitive advantage in acquiring and retaining customers relative to other self-storage operators.
The high level of ownership fragmentation in the industry is partially attributable to the relative simplicity of managing a local self-storage facility, such that small-scale owners can operate self-storage facilities at a basic level of profitability without significant managerial or operational infrastructure. Our facilities compete with nearby self-storage facilities owned by other operators, who use marketing channels, including Internet advertising, signage, and banners, and offer services similar to ours. As a result, competition is significant and affects the occupancy levels, rental rates, rental income, and operating expenses of our facilities. However, we believe that the economies of scale inherent in this business result in our being able to operate self-storage facilities at a materially higher level of cash flow per square foot than other operators without our scale.
Technology
We believe technology enables revenue optimization and cost efficiencies. Over the past few years we have invested in additional technologies that we believe have enabled us to operate and compete more effectively by providing customers with an enhanced digital experience.
Convenient shopping experience: Customers can conveniently shop for available storage space, reviewing attributes such as facility location, size, amenities (such as climate-control), and pricing through the following marketing channels:
•Our Website: The online marketing channel is a key source of customers. Approximately 79% of our move-ins in 2022 were sourced through our website and we believe that many of our other customers who reserved directly through our customer care center or arrived at a facility and moved in without a reservation, have reviewed our pricing and availability online through our website. We seek to update the structure, layout, and content of our website regularly in order to enhance our placement in “unpaid” search in Google and related websites, to improve the efficiency of our bids in “paid” search campaigns, and to maximize users’ likelihood of reserving space on our website.
•Our Customer Care Center: Our customer care center is staffed by skilled sales specialists and customer service representatives. Customers reach our customer care center by calling our advertised toll-free telephone numbers provided on search engines, from our website, the Public Storage App, or from our in-store kiosks. We believe giving customers the option to interact with a live agent, despite the higher marginal cost relative to a reservation made on our website, enhances our ability to close sales with potential customers and results in greater satisfaction. We also have live Internet chat capability as another channel for our customers to engage our agents, cost effectively improving customer responsiveness.
•Our Properties: Customers can also shop for available space at any one of our facilities. Property managers access the same information that is available on our website and to our customer care center agents and can inform the customer of available space at that site or at our other nearby storage facilities. Property managers are trained to maximize the conversion of such “walk in” shoppers into customers. We are expanding the use of in-store kiosks to give customers the options of a full self-service experience or a two-way video assisted service via our existing customer care center.
eRental® move-in process: To further enhance the move-in experience, we offer our eRental® process whereby prospective tenants (including those who initially reserved a space) are able to execute their rental agreement from their smartphone or computer and then go directly to their space on the move-in date. More than half of customers utilized our eRental® process during 2022.
Public Storage App: We maintain an industry leading customer smartphone application. The Public Storage App provides our customers with digital access to our properties, as well as payment and other account management functions.
Centralized information network: Our centralized reporting and information network enables us to identify changing market conditions and operating trends and analyze customer data. Our network allows us to quickly change each of our individual property’s pricing and promotions, and drive marketing spending, such as the relative level of bidding for various paid search terms on paid search engines.
Growth and Investment Strategies
Our ongoing growth strategies consist of: (i) improving the operating performance of our existing self-storage facilities, (ii) acquiring and developing facilities, and (iii) growing ancillary business activities including tenant reinsurance and third-party management services. While our long-term strategy includes each of these elements, in the short term the level of growth in our asset base in any period is dependent upon the cost and availability of capital, as well as the relative attractiveness of available investment alternatives.
Improve the operating performance of existing facilities: We regularly update and enhance our strategies to increase the net cash flow of our existing self-storage facilities through maximizing revenues and controlling operating costs. We maximize revenues through striking the appropriate balance between occupancy and rates to new and existing
tenants by regularly adjusting (i) our promotional and other discounts, (ii) the rental rates we charge to new and existing customers, and (iii) our marketing spending and intensity. We inform these pricing and marketing decisions by observing their impact on web and customer care center traffic, reservations, move-ins, move-outs, tenant length of stay, and other indicators of response. The size and scope of our operations have enabled us to achieve high operating margins and a low level of administrative costs relative to revenues through the centralization of many functions, such as facility maintenance, employee compensation and benefits programs, revenue management, and the development and documentation of standardized operating procedures.
Acquire existing properties: We seek to capitalize on the fragmentation of the self-storage industry through acquiring attractively priced, well-located existing self-storage facilities. We believe our presence in and knowledge of substantially all of the major markets in the U.S. enhances our ability to identify attractive acquisition opportunities. Data on the rental rates and occupancy levels of our existing facilities provide us an advantage in evaluating the potential of acquisition opportunities. Our aggressiveness in bidding for particular marketed facilities depends upon many factors including the potential for future growth, the quality of construction and location, the cash flow we expect from the facility when operated on our platform, how well the facility fits into our current geographic footprint, and our return on capital expectations.
Develop new self-storage facilities and expand existing facilities: The development of new self-storage locations and the expansion of existing facilities has been an important source of our growth. Our operating experience in major markets and experience in stabilizing new properties provides us advantages in developing new facilities. We plan to increase our development activity when we identify attractive risk adjusted return profiles with yields above those of acquisitions. However, our level of development is dependent upon many factors, including the cost and availability of land, the cost and availability of construction materials and labor, zoning and permitting limitations, our cost of capital, the cost of acquiring facilities relative to developing new facilities, and local demand and economic conditions.
Grow ancillary business activities: We pursue growth initiatives aimed at increasing our insurance offering coverage for tenants who choose to protect their stored items against loss and desire to maximize their storage experience. As we grow our self-storage portfolio we have the opportunity to increase the growth profile of our tenant reinsurance business.
Our third party management business enables us to generate revenues through management fees, expand our presence, increase our economies of scale, promote our brand, and enhance our ability to acquire additional facilities over the medium and long-term as a result of strategic relationships forged with third-party owners.
Compliance with Government Regulations
We are subject to various laws, ordinances, and regulations, including various federal, state, and local regulations that apply generally to the ownership of real property and the operation of self-storage facilities. These include various laws and regulations concerning environmental matters, labor matters, and employee safety and health matters. Further, our insurance activities are subject to state insurance laws and regulations as determined by the particular insurance commissioner for each state in accordance with certain federal regulations.
We are committed to a long-term environmental stewardship program that reduces emissions of hazardous materials into the environment and the remediation of identified existing environmental concerns, including environmentally-friendly capital initiatives and building and operating properties with high structural resilience and low obsolescence. We accrue environmental assessments and estimated remediation costs when it is probable that such efforts will be required and the related costs can be reasonably estimated. Our current practice is to conduct environmental investigations in connection with property acquisitions. Although there can be no assurance, we are not aware of any environmental contamination of any of our facilities that individually or in the aggregate would be material to our overall business, financial condition, or results of operations.
Refer to Item 1A, “Risk Factors” below for a discussion of certain risks related to government regulations, including risks related to environmental regulations, emergency regulations adopted in response to wildfires, flooding, or public health crises that restrict access to our facilities or the rents we can charge our customers, wage regulations, income tax regulations including relating to REIT qualification, and property tax regulations.
Aside from the regulations discussed therein, we are not aware of any government regulations that have resulted or that we expect will result in compliance costs that had or will have a material effect on our capital expenditures, earnings, or competitive position.
Human Capital Resources
Our employees are the foundation of our business and fundamental to our ability to execute our corporate strategies and build long-term value for our stakeholders. In order to maintain a strong foundation, our key human capital management objectives are to attract, develop, and retain the highest quality talent. We achieve these objectives by committing to our employees to provide a diverse and inclusive workplace, regular and open communication, competitive and supportive compensation and benefits programs, and opportunities for career growth and development. Together with our core values of doing the right thing and integrity in all that we do, which serve as the cornerstone of our corporate culture, we believe that this commitment facilitates employee engagement and their commitment to Public Storage.
We have approximately 5,900 employees, including 5,090 customer facing roles (such as property level and customer care center personnel), 380 field management employees, and 430 employees in our corporate operations.
The following is an overview of our key programs and initiatives focused on attracting, developing, and retaining the highest quality talent:
Diversity and Inclusion
We are committed to creating an inclusive and diverse workplace where all employees feel valued, included, and excited to be part of a best-in-class team. Our employees come from all different races, backgrounds, and life experiences, and we celebrate inclusion and value the diversity each person brings to Public Storage. Our commitment to diversity and inclusion makes us a stronger company and instills a sense of pride across our teams as we serve our customers.
In 2021, our Chief Executive Officer signed the CEO Action for Diversity & Inclusion pledge, reflecting our commitment to foster an environment where everyone feels valued and included. This commitment extends not just throughout Public Storage but across the real estate industry. In this regard, in 2022, we made a founding donor contribution to the Nareit Dividends through Diversity, Equity & Inclusion Giving Campaign, which is directed at taking actionable and sustainable measures that support the recruitment, inclusion, development, and advancement of women, black professionals, other people of color, ethnically diverse individuals, and members of other under-represented groups in REITs and the publicly traded real estate industry.
Public Storage hires based on skills, personality, and experience, without regard to age, gender, race, ethnicity, religion, sexual orientation, or other protected characteristic. We maintain policies regarding diversity, equal opportunity, pay-for-performance, discrimination, harassment, and labor (including opposition to child, forced, and compulsory labor). We also maintain a policy of requiring that diverse candidate slates be considered for all director positions and above.
Adherence to our practice of hiring “the best” has fostered a diverse and inclusive employee base that reflects the diversity of the customers we serve. Our commitment to diversity is evident at all levels of the organization. Additionally, by having a balanced mix of generations in the organization, we gain from the experiences each age group brings - our employees are 9% Boomer, 38% Gen X, 36% Gen Y and 17% Gen Z.
We publicly disclose our annual Consolidated EEO-1 report, which reflects the race, ethnicity, and gender composition of our workforce, on the Investor Relations section of our website.
Communication and Engagement
Given the geographically dispersed nature of our business, regular and clear communication is critical to ensuring that employees feel informed, included, and engaged. We communicate through various channels, including email communications, a monthly newsletter and town halls, where we provide employees company strategy and performance updates, employee recognitions and other information and the opportunity to ask questions of our leaders.
In order to better understand the effectiveness of our engagement strategies, we conduct various surveys that measure employee commitment, motivation, and engagement, and solicit employee feedback that helps us improve. In 2022, 85% of our employees participated in our employee engagement survey, an increase from 80% in 2021, and we achieved employee engagement of 76%. We are committed to continuous listening and improvement for our employees, and our feedback tools have guided enhancements for our employees, including the development of additional career progression opportunities and enhancements to our employee compensation and benefits programs.
We believe that the success of our engagement strategies can also be seen through third party surveys and recognition. Among other recognitions, we are proud to be named in 2022 a Great Place to Work® and included on the 2022 Forbes and Statista “America’s Best Large Employers” award list. We have also been recognized by Comparably, Inc. as a “Choice Employer” with an “A+” Culture Score based on employee responses across 18 culture metrics, among other recognitions.
Compensation, Health, Wellness, and Safety
Public Storage maintains compensation and benefits programs designed to incentivize, reward, and support our employees. We believe in aligning employee compensation with our short- and long-term performance goals and providing the compensation and incentives needed to attract, motivate, and retain employees who are crucial to our success. We tailor our compensation programs to each employee group to ensure competitiveness in the market and to drive employee engagement.
We are committed to the total well-being of all our employees and provide resources to help support them in times of need along with access to targeted solutions to help them achieve their personal and financial goals. We provide affordable health plans and programs to virtually all our employees. Anyone working 20 hours or more is eligible to participate in our health benefit offerings, which include medical, dental, vision, flexible and health savings accounts, discount programs, and income protection plans. We also offer a 401(k) plan with generous matching employer contributions to help our employees prepare for retirement. In addition to these programs, we maintain various employee support programs, including access to counseling, life planning tools, and discount programs for fitness, legal services, and home, auto, and pet insurance. Finally, we offer a range of educational tools and resources, including a dedicated health and wellness website, to help empower our employees to maintain a healthy and balanced lifestyle.
We are committed to providing safe self-storage facilities for our customers and employees. We conduct monthly safety trainings at all of our properties and an annual safety training at our headquarters. We did not have any fatal injuries in 2022 and we publicly disclose our employee health and safety data in our annual Sustainability Report.
Training, Development, Growth, and Recognition
We provide robust training and development programs across all levels of Public Storage that are intended to provide our employees with the skills, tools, and knowledge they need to not only grow as individuals but also contribute to the value of the organization through strong engagement.
Most new hires join us as property managers without any experience in the self-storage industry. We provide a hands-on new hire training program that provides close coaching and development. All new hires in leadership roles complete property-level training that gives them a hands-on view of our day-to-day operations at our properties to provide our leaders with an understanding of the fundamentals of our business and operations. We also provide numerous career development opportunities for existing employees across Public Storage, including management training programs. Many of our training and career development programs leverage our online learning platform of training courses and reference materials. Public Storage employees completed over 430,000 formal training hours in 2022. In addition to formal training programs, we also offer a variety of one-on-one coaching, job shadowing, and mentoring programs.
Performance Management and Succession Planning
Our performance management processes are designed to be collaborative, where employees and management work together to plan, monitor, and review the employee’s objectives and career aspirations and set short- and long-term goals to achieve outcomes. This process is continual, with regular opportunities for management and employees to give and receive feedback.
Succession planning is a top priority for management and our Board of Trustees (our “Board”) to ensure business continuity. Leaders at all levels review development opportunities, provide feedback, and facilitate career progression conversations on an ongoing basis to ensure that employees can reach their full potential. Additionally, in 2022, we began development of a new leadership accelerator program for women and diverse employees, which includes individual mentorship and hands-on experiences directed at further enhancing our bench of women and minority leaders and management succession planning.
No less than annually, the executive teams meet to review succession bench strength, calibrate talent, and provide recommendations to prepare succession candidates for future leadership roles within the organization. This broad and collaborative approach to talent management works to ensure opportunities are made available to employees to grow outside of their current function and responsibilities.
Climate Change and Environmental Stewardship
We are committed to managing climate-related risks and opportunities. This commitment is a key component of our recognition that we must operate in a responsible and sustainable manner that aligns with our long-term corporate strategy and promotes our best interests along with those of our stakeholders, including our customers, investors, employees, and the communities in which we do business.
Our management Environmental, Social, and Governance Steering Committee (our “Sustainability Committee”) guides our commitment to sustainability and has primary responsibility for climate-related activities. The Sustainability Committee reports to our Board and its Committees, which oversee all of our sustainability initiatives.
We consider potential environmental impacts-both positive and negative-in our decision making across the business. The following features of our properties reflect our commitment to responsible environmental stewardship:
- Low environmental impact. Our property portfolio has an inherently light footprint. On average, one to two Public Storage employees operate each property at any given time, and our customers are only occasionally on-site because they do not work or reside there. As a result, our properties consume less energy, emit less carbon, use less water, and produce less waste relative to other real estate types.
- Proactive Initiatives. Despite our light environmental footprint, we proactively strive to reduce our impact further through initiatives such as “on demand” LED lighting, solar power generation, and low-water-use landscaping. These are environmentally friendly initiatives that also generate economic returns on invested capital. Additionally, we have recently partnered with The BRE Group to develop a green building certification program for self-storage facilities in the U.S. through its BREEAM® validation and certification system.
- Low obsolescence. Our properties have retained functional and physical usefulness over many decades. In fact, many customers favor our single-story, drive-up properties built in the 1970s and 1980s due to their central locations and accessibility. This contrasts with other real estate types that require frequent reinvestment (i.e., capital expenditures) to stay current with consumer preference, remain competitive with newer competition, offset heavier wear-and-tear by users, and maintain structural operating efficiency.
- High structural resilience. We build and operate our properties to withstand the test of time, including general aging and acute and chronic risks from rising water levels, changing temperatures, and natural disasters.
We measure and monitor our environmental impact and leverage sustainability measures to reduce this impact while achieving cost efficiencies in our operations by implementing a range of energy, water, and waste management initiatives. Many of these initiatives are integrated into our ongoing Property of Tomorrow capital investment program.
In regard to climate, we assess risks and opportunities in conjunction with ongoing operating and risk management processes across the company. We give primary consideration to physical, regulatory, legal, market, and
reputational risks. Examples of these risks include heat/water stress, natural disasters, pandemics, temperature change, and regulatory compliance. We are addressing potential heat stress risks (e.g., higher energy costs, more frequent power outages, and impacts on our customers and workforce) through initiatives such as converting to LED lighting, solar power generation installation, and analyzing battery storage and microgrids. We are addressing potential water stress risks (e.g., increased costs and decreased availability) through initiatives such as efficient plumbing systems, low-water use irrigation systems, drought tolerant and native landscaping, water run-off controls, and storm water retention. We address the remaining risks primarily through natural disaster resilient development, redevelopment, and capital expenditures.
We will continue to utilize our unique competitive advantages in furthering our environmental stewardship efforts and addressing the effects of climate change. Our commitment includes:
•expanding our greenhouse gas emissions inventory to include Scopes 1, 2, and 3 for the entire portfolio;
•analyzing opportunities to work with our vendors and suppliers on emissions;
•enhancing our internal processes and controls in anticipation of forthcoming SEC climate disclosure rules;
•evaluating the feasibility of instituting well-founded medium and/or long-term greenhouse gas emissions reduction targets or other science-based, climate-focused targets in a manner aligned with the ambitious carbon reduction goals of the Paris Climate Agreement;
•continuing to enhance our environmental management system to further infuse sustainability across our organization, enhance our program, and bolster the results of our sustainability efforts;
•continuing to provide regular updates to our stakeholders on our ongoing efforts through our annual Sustainability Report; and
•continuing publicly to disclose detailed information on our greenhouse gas emissions (consistent with TCFD standards), including through the Carbon Disclosure Project, as well as information on energy and water usage, green energy generation, and similar metrics.
Our annual Sustainability Report, which details our commitment to environmental stewardship along with our results, performance and progress, is accessible on our website at www.publicstorage.com.
Cybersecurity
Public Storage devotes significant resources to protecting and continuing to improve the security of our computer systems, software, networks, and other technology assets. Our security efforts are designed to preserve the confidentiality, integrity, and continued availability of all information owned by, or in the care of, the Company and protect against, among other things, cybersecurity attacks by unauthorized parties attempting to obtain access to confidential information, destroy data, disrupt or degrade service, sabotage systems, or cause other damage.
Board Oversight
Our Board considers cybersecurity risk one of the most significant risks to our business. The Board has delegated to the Audit Committee oversight of cybersecurity and other information technology risks affecting the Company. The Audit Committee periodically evaluates our cybersecurity strategy to ensure its effectiveness. Management provides quarterly reports to the Audit Committee regarding cybersecurity and other information technology risks, and the Audit Committee in turn provides reports to the full Board.
As part of our Board refreshment efforts in recent years, we have focused on adding trustees with information technology skills. Currently, ten members of our Board, including all four members of our Audit Committee, have cybersecurity experience from their principal occupation or other professional experience. In addition, several members of our Audit Committee have attended third-party director education courses on cybersecurity since 2021, including cyber risk governance, and privacy issues and trends.
Cybersecurity Risk Identification and Management
A dedicated team of technology professionals works throughout the year to monitor all matters of risk relating to cybersecurity. Our Chief Technology Officer and our Vice President, Management Information Systems, oversee our information security program and report to our executive management team through our Chief Administrative Officer. Their teams are responsible for leading enterprise-wide cyber resilience strategy, policy, standards, architecture, and processes.
We identify and address information security risks by employing a defense-in-depth methodology, consisting of both proactive and reactive elements, that provides multiple, redundant defensive measures and prescribes actions to take in case a security control fails or a vulnerability is exploited. We leverage internal resources, along with strategic external partnerships, to mitigate cybersecurity threats to the Company. We have partnerships for Security Operations Center (SOC) services, penetration testing (PENTEST), incident response (IR), and various third-party assessments. We deploy both commercially available solutions and proprietary systems to manage threats to our information technology environment actively.
Our cybersecurity oversight infrastructure is part of our internal control environment and our controls include information security standards. In addition, we are certified against top information security standards, specifically the Payment Card Industry Data Security Standard (PCI DSS), to ensure we comply with this rigorous standard specifically for the safe handling and protection of credit card data. Annually, we are assessed, either internally or by an independent third-party, against the National Institute of Standards and Technology (NIST) Cyber Security Framework. We also have policies and procedures to oversee and identify the cybersecurity risks associated with our use of third-party service providers, including the regular review of SOC reports, relevant cyber attestations, and other independent cyber ratings. These processes include technical controls and processes, as well as contractual mechanisms to mitigate risk. Additionally, throughout the year, we utilize reports prepared by our external partners, which provide an independent ranking of our cybersecurity maturity and coverage, to assess our cyber proficiency on an standalone basis and comparatively against peers and other companies. Our cyber proficiency consistently ranks as “advanced.” We also regularly engage appropriate external resources regarding emerging threats to navigate the diverse cybersecurity landscape.
In addition to ensuring adequate safeguards are in place to minimize the chance of a successful cyberattack, the Company has established well-defined response procedures to address any cyber event that may occur despite these robust safeguards. These response procedures are designed to identify, analyze, contain, and remediate such cyber incidents to ensure a timely, consistent, and compliant response to actual or attempted data incidents impacting the Company. Recently, the Company completed two separate Disaster Response and Business Continuity Plan exercises to validate our current readiness, and the Company devotes appropriate resources and enlists partners to adapt to the evolving threat landscape. Each year, the Company tests these response procedures, including through disaster response and business continuity plan exercises, in our continuous effort to adapt to the evolving threat landscape. These exercises are intended to challenge and validate our information security response and resources through simulated cybersecurity incidents, including engagement of outside cybersecurity legal counsel, other third party partners, executive management, and our Board.
The Company takes data protection seriously and ensures every employee understands their role in keeping Public Storage safe from cyber-attacks. We employ a robust information security and training program for our employees, including mandatory computer-based training, regular internal communications, and ongoing end-user testing to measure the effectiveness of our information security program. As part of this commitment, we require our employees to complete a Cybersecurity Awareness eCourse and acknowledge our Information Security policy each year. In addition, we have an established schedule and process for regular phishing awareness campaigns that are designed to emulate real-world contemporary threats and provide immediate feedback (and, if necessary, additional training or remedial action) to employees.
We have experienced no material information security breaches in the last three years. As such, we have not spent any material amount of capital on addressing information security breaches in the last three years, nor have we incurred any material expenses from penalties and settlements related to a material breach during this same time.
We believe we are adequately insured against losses related to a potential information security breach, and we maintain cybersecurity insurance coverage that we believe is appropriate for the size and complexity of our business.
Seasonality
We experience minor seasonal fluctuations in the demand for self-storage space, with demand and rental rates generally higher in the summer months than in the winter months. We believe that these fluctuations result in part from increased moving activity during the summer months.

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ITEM 1A. RISK FACTORS
ITEM 1A. Risk Factors
In addition to the other information in our Annual Report on Form 10-K, you should consider the risks described below that we believe may be material to investors in evaluating the Company. This section contains forward-looking statements, and in considering these statements, you should refer to the qualifications and limitations on our forward-looking statements that are described in Item 1, “Business.”
Risks Related to Our Properties and Our Business
Natural disasters, terrorist attacks, civil unrest, or other events that could damage or otherwise disrupt our ability to operate our facilities could adversely impact our business and financial results.
Natural disasters, such as earthquakes, fires, hurricanes, and floods, terrorist attacks, civil unrest, and other events that damage our facilities or our customers' property, or that make our facilities temporarily unavailable, have in the past and may in the future adversely impact our business and financial results. Damage and business interruption losses could exceed the aggregate limits of our insurance coverage. In addition, because we self-insure a portion of our risks, losses below a certain level may not be covered by insurance. See Note 14 to our December 31, 2022 consolidated financial statements for a description of the risks of losses that are not covered by third-party insurance contracts. In addition, customer perceptions about the risk of property loss from these events could negatively impact self-storage demand.
We are subject to risks from the consequences of climate change, including severe weather events, as well as the transition to a low-carbon economy and other steps taken to prevent or mitigate climate change.
Our self-storage facilities are located in areas that may be subject to the direct impacts of climate change, such as increased destructive weather events like floods, fires, and drought, which could result in significant damage to our facilities, increased capital expenditures, increased expenses, reduced revenues, or reduced demand for our facilities. Indirect impacts of climate change could also adversely impact our business, including through increased costs, such as insurance costs or regulatory compliance costs. In addition, the ongoing transition to a low-carbon economy presents certain risks for us and our customers, including stranded assets, increased costs, lower profitability, lower property values, lower household wealth, and macroeconomic risks related to high energy costs and energy shortages, among other things. Consistent with our commitment to sustainability in our business operations, we have undertaken a number of initiatives to reduce emissions and energy consumption, water usage, and waste, including through our Property of Tomorrow program, pursuant to which we are upgrading all of our older properties by the end of 2025, which has already resulted in investment of approximately $370 million in improvements through December 31, 2022. In addition, we have made investments in LED lighting and the installation of solar panels of approximately $100 million since 2021 through December 31, 2022. Governmental, political, and societal pressures, including expectations of institutional and activist investors and other interest groups, could require us to accelerate our initiatives and, with it, the costs of their implementation. These same potential governmental, political, and social pressure could in the future result in (i) costly changes to newly developed facilities or retrofits of our existing facilities to reduce carbon emissions through multiple avenues, including changes to insulation, space configuration, lighting, heating, and air conditioning, (ii) increased energy costs as a result of transitioning to less carbon-intensive, but more expensive, sources of energy to operate our facilities, and (iii) consumers reducing their individual carbon footprints by owning fewer durable material consumer goods, collectibles, and other such items requiring storage, resulting in a reduced demand for our self-storage space. In addition, our reputation and investor relationships could be damaged as a result of our involvement with activities perceived to be causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.
Operating costs, including property taxes, could increase.
We could be subject to increases in property or other taxes, repair and maintenance costs, payroll, utility costs, insurance premiums, workers compensation, and other operating expenses due to various factors such as inflation, labor shortages, commodity and energy price increases, weather, increases to minimum wage rates, supply chain disruptions, and
changes to governmental safety and real estate use limitations and other governmental actions. Our property tax expense, which totaled approximately $386.7 million during the year ended December 31, 2022, generally depends upon the assessed value of our real estate facilities as determined by assessors and government agencies and, accordingly, could be subject to substantial increases if such agencies change their valuation approaches or opinions or if new laws are enacted, especially if new approaches are adopted or laws are enacted that result in increased property tax assessments in states or geographies where we have a high concentration of facilities. See also “We have exposure to increased property tax in California” below.
The acquisition of existing properties or self-storage operating companies is subject to risks that may adversely affect our growth and financial results.
We have acquired self-storage facilities and self-storage operating companies in the past, and we expect to continue to do so in the future. We face significant competition for suitable acquisition properties and companies from other real estate investors, including operating companies and private equity funds. As a result, we may be unable to acquire the companies or additional properties we desire or the purchase price for desirable companies or properties may be significantly increased. Failures or unexpected circumstances in integrating facilities or companies that we acquire, or circumstances we did not detect or anticipate during due diligence, such as environmental matters, needed repairs or deferred maintenance, customer collection issues, assumed liabilities, turnover of critical personnel involved in acquired operating companies, or the effects of increased property tax following reassessment of a newly-acquired property, as well as the general risks of real estate investment and mergers and acquisitions, could jeopardize realization of the anticipated earnings from an acquisition.
On February 5, 2023, we disclosed that we have made a proposal to acquire all of the outstanding shares and units of Life Storage for consideration consisting of our common shares. Our public offer followed prior rebuffs by Life Storage of our attempts to negotiate privately, and on February 16, 2023, Life Storage announced it had rejected the offer. While we currently intend to engage in discussions with Life Storage, there can be no assurance that Life Storage will engage with us regarding our proposal or that we and Life Storage will agree to an acquisition transaction. Additionally, Life Storage can avail itself of various takeover defenses, including the ability unilaterally to classify its board of trustees under the Maryland Unsolicited Takeover Act (MUTA). Even if we reach an agreement with Life Storage, there can be no assurance that the conditions to closing such transaction would be satisfied in a timely manner or at all. Further, if a transaction is consummated, there can be no assurance that we will realize the benefits we hope to achieve through the transaction, and the complexities of combining the two companies may result in unknown liabilities and unforeseen increased expenses. If a transaction is not consummated, we nevertheless may incur significant costs associated with our pursuit of the transaction.
Our development program subjects us to risks.
At December 31, 2022, we had a pipeline of development projects totaling $979.6 million (subject to contingencies), and we expect to continue to seek additional development projects. There are significant risks involved in developing self-storage facilities, such as delays or cost increases due to changes in or failure to meet government or regulatory requirements, failure of revenue to meet our underwriting estimates, delays caused by weather issues, unforeseen site conditions, or personnel problems. Self-storage space is generally not pre-leased, and rent-up of newly developed space can be delayed or ongoing cash flow yields can be reduced due to competition, reductions in storage demand, or other factors.
There is significant competition among self-storage operators and from other storage alternatives.
Our self-storage facilities generate most of our revenue and earnings. Significant competition from self-storage operators, property developers, and other storage alternatives may adversely impact our ability to attract and retain customers and may negatively impact our ability to generate revenue. Competition in the local market areas in which many of our properties are located is significant and affects our occupancy levels, rental rates, and operating expenses. There is also an increasing influx of capital from outside financing sources driving more money, development, and supply into the industry. Development of self-storage facilities may increase, which may intensify competition as newly developed facilities are opened. Development of self-storage facilities by other operators could increase, due to increases in availability of funds for investment or other reasons, and further intensify competition.
Demand for self-storage facilities may be affected by customer perceptions and factors outside of our control.
Significantly lower logistics costs could introduce new competitors, such as valet-style storage services, which may reduce the demand for traditional self-storage. Customer preferences and/or needs for self-storage could change, decline, or shift to other product types, thereby impacting our business model and ability to grow and/or generate revenues. Shifts in population and demographics could cause the geographical distribution of our portfolio to be suboptimal and affect our ability to maintain occupancy and attract new customers. Security incidents could result in the perception that our properties are not safe. If our customers do not feel our properties are safe, they may select competitors for their self-storage needs, or if there is an industry perception of inadequate security generally, customer use of self-storage could be negatively impacted.
Our newly developed and expanded facilities, and facilities that we manage for third party owners, may negatively impact the revenues of our existing facilities.
We continue to develop new self-storage facilities and expand our existing self-storage facilities. In addition, we are seeking to increase the number of self-storage facilities that we manage for third party owners in exchange for a fee, many of which are in the process of stabilization and are near our existing stabilized self-storage facilities. In order to hasten the fill-up of these new facilities, we aggressively price such space during the fill-up period. While we believe that this aggressive pricing allows us to increase our market share relative to our competitors and increase the cash flows of these properties, such pricing and the added capacity may also negatively impact our existing stabilized self-storage facilities that are near these unstabilized facilities.
Many of our existing self-storage facilities may be at a competitive disadvantage to newly developed facilities.
There is a significant level of development of new self-storage facilities, by us and other operators. These newly developed facilities are generally of high quality, with a more fresh and vibrant appearance, more amenities (such as climate control), more attractive office configurations, newer elements, and a more attractive retail presence as compared to many of our existing stabilized self-storage facilities, some of which were built as much as 50 years ago. Such qualitative differentials may negatively impact our ability to compete with these facilities for new tenants and our existing tenants may move to newly developed facilities.
We may incur significant liabilities from environmental contamination or moisture infiltration.
Existing or future laws impose or may impose liability on us to clean up environmental contamination on or around properties that we currently or previously owned or operated, even if we were not responsible for or aware of the environmental contamination or even if such environmental contamination occurred prior to our involvement with the property. We have conducted preliminary environmental assessments on most of our properties, which have not identified any material liabilities. These assessments, commonly referred to as “Phase 1 Environmental Assessments,” include an investigation (excluding soil or groundwater sampling or analysis) and a review of publicly available information regarding the site and other nearby properties.
We are also subject to potential liability relating to moisture infiltration, which can result in mold or other damage to our or our customers’ property, as well as potential health concerns. When we receive a complaint or otherwise become aware that an air quality concern exists, we implement corrective measures and seek to work proactively with our customers to resolve issues, subject to our contractual limitations on liability for such claims.
We are not aware of any environmental contamination or moisture infiltration related liabilities at any of our properties that could be material to our overall business, financial condition, or results of operation. However, we may not have detected all material liabilities, we could acquire properties with material undetected liabilities, or new conditions could arise or develop at our properties, any of which could result in a cash settlement or adversely affect our ability to sell, lease, operate, or encumber affected facilities.
Economic conditions can adversely affect our business, financial condition, growth, and access to capital.
Economic downturns or adverse economic or industry conditions, including those related to high levels of inflation, could adversely impact our financial results, growth, and access to capital. Our revenues and operating cash flow can be negatively impacted by reductions in employment and population levels, household and disposable income, and
other general economic factors that lead to a reduction in demand for self-storage space in each of the markets in which we operate.
Our ability to raise capital on attractive terms to fund our activities may be adversely affected by challenging market conditions, including high interest rates resulting from government efforts to manage inflation. In periods when the capital and credit markets experience significant volatility, the amounts, sources, and cost of capital available to us may be adversely affected. If we were unable to raise capital at reasonable rates, prospective earnings growth through expanding our asset base could be limited.
We have exposure to European operations through our ownership in Shurgard.
We own approximately 35% of the common shares of Shurgard, and this investment has a $275.8 million book value and a $1.4 billion market value (based upon the closing trading price of Shurgard’s common stock) at December 31, 2022. We recognized $26.4 million in equity in earnings and received $37.8 million in dividends in 2022 with respect to Shurgard.
Shurgard, as an owner, operator, and developer of self-storage facilities, is subject to many of the same risks we are with respect to self-storage. However, through our investment in Shurgard, we are exposed to additional risks unique to the various European markets in which Shurgard operates, which may adversely impact our business and financial results, and many of which are referred to in Shurgard’s public filings. These risks include the following:
•Currency risks: Currency fluctuations can impact the fair value of our investment in Shurgard, our equity earnings, our ongoing dividends, and any other related repatriations of cash.
•Legislative, tax, and regulatory risks: Shurgard is subject to a variety of local, national, and pan-European laws and regulations related to permitting and land use, the environment, labor, and other areas, as well as income, property, sales, and value added and employment tax. These laws and regulations can be difficult to apply or interpret, can vary in each country or locality, and are subject to unexpected changes in their form and application due to regional, national, or local political uncertainty and other factors. Such changes, or Shurgard’s failure to comply with these laws, could subject it to penalties or other sanctions, adverse changes in business processes, and, potentially, adverse income tax, property tax, or other tax burdens.
•Impediments to capital repatriation could negatively impact the realization of our investment in Shurgard: Laws in Europe and the U.S. may create, impede, or increase our cost to repatriate distributions received from Shurgard or proceeds from the sale of Shurgard shares.
•Risks of collective bargaining: Collective bargaining, which is prevalent in certain areas in Europe, could negatively impact Shurgard’s labor costs or operations. Many of Shurgard’s employees participate in various national unions.
•Potential operating and individual country risks: Economic slowdowns or extraordinary political or social change in the countries in which it operates have posed, and could continue to pose, challenges or result in future reductions of Shurgard’s operating cash flows.
•Liquidity of our ownership stake: We have no plans to liquidate our interest in Shurgard. However, while Shurgard is a publicly held entity, if we chose to, our ability to liquidate our shares in Shurgard in an efficient manner could be limited by the level of Shurgard’s public “float” relative to any ownership stake we sought to sell. Our existing relationship with our legacy joint venture partner may place further contractual limitations on our ability to sell all of the shares we own if we desired to do so.
•Impediments of Shurgard’s public ownership structure: Shurgard’s strategic decisions, involving activities such as borrowing money, capital contributions, raising capital from third parties, and selling or acquiring significant assets, are determined by its board of directors. As a result, Shurgard may be precluded from taking advantage of opportunities that we would find attractive but that we may not be able to pursue separately, or it could take actions that we do not agree with.
Public health and other crises, such as the COVID-19 Pandemic, have adversely impacted, and may in the future adversely impact, our business.
Our business is subject to risks from public health and other crises like the COVID-19 Pandemic, including, among others:
•risk of illness or death of our employees or customers;
•negative impacts on economic conditions in our markets, which may reduce the demand for self-storage;
•risk that there could be an out-migration of population from certain high-cost major markets;
•government restrictions that (i) limit or prevent use of our facilities, (ii) limit our ability to increase rent or otherwise limit the rent we can charge, (iii) limit our ability to collect rent or evict delinquent tenants, or (iv) limit our ability to complete development and redevelopment projects;
•risk that we could experience a change in the move-out patterns of our long-term customers due to economic uncertainty and increases in unemployment, which could lead to lower occupancies and rent “roll down” as long-term customers are replaced with new customers at lower rates; and
•risk of negative impacts on the cost and availability of debt and equity capital, which could have a material impact upon our capital and growth plans.
We have been and may in the future be adversely impacted by emergency regulations adopted in response to significant events, such as natural disasters or public health crises, that could adversely impact our operations.
In response to significant events, local, state, and federal governments have and may in the future adopt regulations that could impact our operations. For example, in response to wildfires in 2018 and 2019 and floods in 2023, the State of California and some localities in California adopted temporary regulations that imposed certain limits on the rents we could charge at certain of our facilities and the extent to which we could increase rents to existing tenants. Similarly, in response to the COVID-19 Pandemic, certain localities adopted restrictions on the use of certain of our facilities, limited our ability to increase rents, limited our ability to collect rent or evict delinquent tenants, and limited our ability to complete development and redevelopment projects. Similar restrictions could be imposed in the future in response to significant events and these restrictions could adversely impact our operations.
Our marketing and pricing strategies may fail to be effective or may be constrained by factors outside of our control.
Marketing initiatives, including our increasing dependence on Google to source customers, may fail to be effective and could negatively impact financial performance. Approximately 65% of our new storage customers in 2022 were sourced directly or indirectly through “unpaid” search and “paid” search campaigns on Google. We believe that the vast majority of customers searching for self-storage use Google at some stage in their shopping experience. Google is providing tools to allow smaller and less sophisticated operators to bid for search terms, increasing competition for self-storage search terms. The predominance of Google in the shopping experience, as well as Google’s enabling of additional competitors to bid for placements in self-storage search terms, may reduce the number of new customers that we can procure, and/or increase our costs to obtain new customers.
In addition, the inability to utilize our pricing methodology due to regulatory or market constraints could also significantly impact our financial results.
We are exposed to ongoing litigation and other legal and regulatory actions, which may divert management’s time and attention, require us to pay damages and expenses or restrict the operation of our business.
We have approximately 5,900 employees and 1.8 million customers, and we conduct business at facilities in 40 states. As a result, we are subject to the risk of legal claims and proceedings (including class actions) and regulatory enforcement actions across many jurisdictions in the ordinary course of our business and otherwise, and we could incur significant liabilities and substantial legal fees as a result of these actions. Resolution of these claims and actions may divert time and attention by our management and could involve payment of damages or expenses by us, all of which may
be significant, and could damage our reputation and our brand. In addition, any such resolution could involve our agreement to terms that restrict the operation of our business. The results of legal proceedings cannot be predicted with certainty. We cannot guarantee that losses incurred in connection with any current or future legal or regulatory proceedings or actions will not exceed any provisions we may have set aside in respect of such proceedings or actions or any available insurance coverage. Any such legal claims, proceedings, and regulatory enforcement actions could negatively impact our operating results, cash flow available for distribution or reinvestment, and/or the price of our common shares.
In addition, through exercising their authority to regulate our activities, governmental agencies can otherwise negatively impact our business by increasing costs or decreasing revenues.
Our failure to modernize and adopt advancements in information technology may hinder or prevent us from achieving strategic objectives.
Our inability to adapt and deliver new capabilities in time with strategic requirements may cause the organization to miss market competitive timing, first mover position, or to suffer material loss due to failed technology choices or implementation.
The failure or disruption of our computer and communications systems, on which we are heavily dependent, could significantly harm our business.
We are heavily dependent upon automated information technology and Internet commerce, with more than half of our new customers coming from the telephone or over the Internet. We centrally manage significant components of our operations with our computer systems, including our financial information, and we also rely extensively on third-party vendors to retain data, process transactions, and provide other systems services. These systems are subject to damage or interruption from power outages, computer and telecommunications failures, hackers, including through a ransomware attack, computer worms, viruses, and other destructive or disruptive security breaches, and catastrophic events. Such incidents could also result in significant costs to repair or replace such networks or information systems, as well as actual monetary losses in case of a breach that resulted in fraudulent payments or other cash transactions. As a result, our operations could be severely impacted by a natural disaster, terrorist attack, attack by hackers, acts of vandalism, data theft, misplaced or lost data, programming or human error, or other circumstance that results in a significant outage of our systems or those of our third party providers, despite our use of back up and redundancy measures.
If our confidential information is compromised or corrupted, including as a result of a cybersecurity breach, our reputation and business relationships could be damaged, which could adversely affect our financial condition and operating results.
In the ordinary course of our business we acquire and store sensitive data, including personally identifiable information of our prospective and current customers and our employees. The secure processing and maintenance of this information is critical to our operations and business strategy. Although we believe we have taken commercially reasonable steps to protect the security of our confidential information, information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyberattacks. Despite our security measures, we have experienced security breaches due to cyberattacks and additional breaches could occur in the future. In these cases, our information technology and infrastructure could be vulnerable and our or our customers’ or employees’ confidential information could be compromised or misappropriated. Any such breach could result in serious and harmful consequences for us or our tenants.
Our confidential information may also be compromised due to programming or human error or malfeasance. We must continually evaluate and adapt our systems and processes to address the evolving threat landscape, and therefore there is no guarantee that they will be adequate to safeguard against all data security breaches or misuses of data. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and changing requirements applicable to our business from multiple regulatory agencies at the local, state, federal, or international level, compliance with those requirement could also result in additional costs, or we could fail to comply with those requirements due to various reasons such as not being aware of them.
Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers, or damage our reputation, any of which could adversely affect our results of operations, reputation, and competitive position. In addition, our customers could lose confidence in our ability to protect their
personal information, which could cause them to discontinue leasing our self-storage facilities. Such events could lead to lost future revenues and adversely affect our results of operations, or result in remedial and other costs, fines, or lawsuits, which could be in excess of any available insurance that we have procured.
Ineffective succession planning for our CEO and executive management, as well as for our other key employees, may impact the execution of our strategic plan.
We may not effectively or appropriately identify ready-now succession candidates for our CEO and executive management team, which may negatively impact our ability to meet key strategic goals. Failure to implement succession plans for other key employees may leave us vulnerable to retirements and turnover.
We may fail to protect our intellectual property adequately.
We maintain a portfolio of trademarks and trade dress that we believe are fundamental to the success of the Public Storage® brand. While we actively seek to enforce and expand our rights, our trademark and trade dress could be deemed generic and indistinct and lose protection. We also own and seek to protect other intellectual property, such as propriety systems, processes, data, and other trade secrets that we have collected and developed in the course of operating our business and that we believe provides us with various competitive advantages. Our protections could be inadequate or we could lose rights to our other intellectual property and trade secrets. Competitor use of our trademarks and trade names could lead to likelihood of confusion, tarnishment of our brand, and loss of legal protection for our marks.
Risks Related to Our Ownership, Organization and Structure
Takeover attempts or changes in control could be thwarted, even if beneficial to shareholders.
In certain circumstances, shareholders might desire a change in control or acquisition of us in order to realize a premium over the then-prevailing market price of our shares or for other reasons. However, the following could prevent, deter, or delay such a transaction:
•Provisions of Maryland law may impose limitations that may make it more difficult for a third party to negotiate or effect a business combination transaction or control share acquisition with Public Storage. Currently, our Board has opted not to subject the Company to these provisions of Maryland law, but it could choose to do so in the future without shareholder approval.
•To protect against the loss of our REIT status due to concentration of ownership levels, our declaration of trust generally limits the ability of a person, other than the Hughes family or “designated investment entities” (each as defined in our declaration of trust), to own, actually or constructively, more than 3% of our outstanding common shares or 9.9% of the outstanding shares of any class or series of preferred or equity shares. Our Board may grant, and has previously granted, a specific exemption. These limits could discourage, delay, or prevent a transaction involving a change in control of the Company not approved by our Board.
•Similarly, current provisions of our declaration of trust and powers of our Board could have the same effect, including (1) limitations on removal of trustees, (2) restrictions on the acquisition of our shares of beneficial interest, (3) the power to issue additional common shares, preferred shares, or equity shares on terms approved by our Board without obtaining shareholder approval, (4) the advance notice provisions of our bylaws, and (5) our Board’s ability under Maryland law, without obtaining shareholder approval, to implement takeover defenses that we may not yet have and to take, or refrain from taking, other actions that could have the effect of delaying, deterring, or preventing a transaction or a change in control.
Holders of our preferred shares have dividend, liquidation, and other rights that are senior to the rights of the holders of our common shares.
Holders of our preferred shares are entitled to cumulative dividends before any dividends may be declared or set aside on our common shares. Upon liquidation, holders of our preferred shares will receive a liquidation preference of $25,000 per share (or $25.00 per depositary share) plus any accrued and unpaid distributions before any payment is made to the common shareholders. These preferences may limit the amount received by our common shareholders either from ongoing distributions or upon liquidation. In addition, our preferred shareholders have the right to elect two additional
directors to our Board whenever dividends are in arrears in an aggregate amount equivalent to six or more quarterly dividends, whether or not consecutive.
Preferred Shareholders are subject to certain risks.
Holders of our preferred shares have preference rights over our common shareholders with respect to liquidation and distributions, which give them some assurance of continued payment of their stated dividend rate, and receipt of their principal upon liquidation of the Company or redemption of their securities. However, holders of our Preferred Shares should consider the following risks:
•The Company has in the past, and could in the future, issue or assume additional debt. Preferred shareholders would be subordinated to the interest and principal payments of such debt, which would increase the risk that there would not be sufficient funds to pay distributions or liquidation amounts to the preferred shareholders.
•The Company has in the past, and could in the future, issue additional preferred shares that, while pari passu to the existing preferred shares, increases the risk that there would not be sufficient funds to pay distributions to the preferred shareholders.
•While the Company has no plans to do so, if the Company were to lose its REIT status or no longer elect REIT status, it would no longer be required to distribute its taxable income to maintain REIT status. If, in such a circumstance, the Company ceased paying dividends, unpaid distributions to the preferred shareholders would continue to accumulate. The preferred shareholders would have the ability to elect two additional members to serve on our Board until the arrearage was cured. The preferred shareholders would not receive any compensation (such as interest) for the delay in the receipt of distributions, and it is possible that the arrearage could accumulate indefinitely.
•Holders of our Preferred Shares have limited rights in the event the Company ceases to pay dividends to shareholders, and have no rights with respect to a Company decision to discontinue listing the Preferred Shares on a national securities exchange or file reports with the SEC, including following a change of control transaction.
Risks Related to Government Regulations and Taxation
We would incur adverse tax consequences if we failed to qualify as a REIT, and we would have to pay substantial U.S. federal corporate income taxes.
REITs are subject to a range of complex organizational and operational requirements. A qualifying REIT does not generally incur U.S. federal corporate income tax on its “REIT taxable income” (generally, taxable income subject to specified adjustments, including a deduction for dividends paid and excluding net capital gain) that it distributes to its shareholders. Our REIT status is also dependent upon the REIT qualification of PSB through the end of its taxable year ended December 31, 2022, as a result of our substantial ownership interest in it prior to the closing of the PSB merger with and unaffiliated third party. We believe we have qualified as a REIT and we intend to continue to maintain our REIT status.
However, there can be no assurance that we qualify or will continue to qualify as a REIT, because of the highly technical nature of the REIT rules, the ongoing importance of factual determinations, the possibility of unidentified issues in prior periods, or changes in our circumstances, as well as share ownership limits in our declaration of trust that do not necessarily ensure that our shareholder base is sufficiently diverse for us to qualify as a REIT. For any year we fail to qualify as a REIT, unless certain relief provisions apply (the granting of such relief could nonetheless result in significant excise or penalty taxes), we would not be allowed a deduction for dividends paid, we would be subject to U.S. federal corporate income tax on our taxable income, and generally we would not be allowed to elect REIT status until the fifth year after such a disqualification. In addition, for tax years beginning after December 31, 2022, we would possibly also be subject to certain taxes enacted by the Inflation Reduction Act of 2022 that are applicable to non-REIT corporations, including the corporate alternative minimum tax and nondeductible one percent excise tax on certain stock repurchases. Any taxes, interest, and penalties incurred would reduce our cash available for distributions to shareholders and could negatively affect our stock price. However, for years in which we failed to qualify as a REIT, we would not be subject to REIT rules that require us to distribute substantially all of our taxable income to our shareholders.
Dividends payable by REITs do not qualify for the preferential tax rates available for some dividends.
Dividends payable by REITs may be taxed at higher rates than dividends of non-REIT corporations. The maximum U.S. federal income tax rate for qualified dividends paid by domestic non-REIT corporations to U.S. stockholders that are individuals, trusts, or estates is generally 20%. Dividends paid by REITs to such stockholders are generally not eligible for that rate, but under current tax law, such stockholders may deduct up to 20% of ordinary dividends (i.e., dividends not designated as capital gain dividends or qualified dividend income) received from a REIT for taxable years beginning before January 1, 2026. Although this deduction reduces the effective tax rate applicable to certain dividends paid by REITs, such tax rate may still be higher than the tax rate applicable to regular corporate qualified dividends. This may cause investors to view REIT investments as less attractive than investments in non-REIT corporations, which in turn may adversely affect the value of the stock of REITs, including our stock.
Changes in tax laws could negatively impact us.
The United States Treasury Department and Congress frequently review federal income tax legislation, regulations and other guidance. We cannot predict whether, when, or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted, but these changes might include, in particular, increases in the U.S. federal income tax rates that apply to us or our shareholders in certain circumstances, possibly with retroactive effect.
We may pay some taxes, reducing cash available for shareholders.
Even if we qualify as a REIT for U.S. federal corporate income tax purposes, we may be subject to some federal, foreign, state, and local taxes on our income and property. Certain consolidated corporate subsidiaries of the Company have elected to be treated as taxable REIT subsidiaries (“TRSs”) for U.S. federal corporate income tax purposes, and are taxable as regular corporations and subject to certain limitations on intercompany transactions. If tax authorities determine that amounts paid by our TRSs to us are not reasonable compared to similar arrangements among unrelated parties, we could be subject to a 100% penalty tax on the excess payments, and ongoing intercompany arrangements could have to change, resulting in higher ongoing tax payments. To the extent the Company is required to pay federal, foreign, state, or local taxes, or federal penalty taxes due to existing laws or changes thereto, we will have less cash available for distribution to shareholders.
In addition, certain local and state governments have imposed taxes on self-storage rent. While in most cases those taxes are paid by our customers, they increase the cost of self-storage rental to our customers and can negatively impact our revenues. Other local and state governments may impose self-storage rent taxes in the future.
We have exposure to increased property tax in California.
Approximately $767.2 million of our 2022 net operating income is from our properties in California, and we incurred approximately $47.2 million in related property tax expense. Due to the impact of Proposition 13, which generally limits increases in assessed values to 2% per year, the assessed value and resulting property tax we pay is less than it would be if the properties were assessed at current values. From time to time, proposals have been made to reduce the beneficial impact of Proposition 13, most recently in the November 2020 ballot. While this ballot initiative failed, there can be no assurance that future initiatives or other legislative actions will not eliminate or reduce the benefit of Proposition 13 with respect to our properties. If the beneficial effect of Proposition 13 were ended for our properties, our property tax expense could increase substantially, adversely affecting our cash flow from operations and net income.
We are subject to new and changing legislation and regulations, including the California Privacy Rights Act (CPRA).
We are subject to new and changing legislation and regulations, including the Americans with Disabilities Act of 1990 and legislation regarding property taxes, income taxes, REIT status, labor and employment, privacy, and lien sales at the city, county, state, and federal level, which could materially impact our business and operations. Failure to comply with applicable laws, regulations, and policies may subject us to increased litigation and regulatory actions and negatively affect our business and operations or reputation.
On November 3, 2020, Californians passed a ballot measure that creates the California Privacy Rights Act (“CPRA”). The CPRA amends and expands the California Consumer Privacy Act (CCPA), which went into effect on January 1, 2020. The CPRA, which went into effect on January 1, 2023, provides new rights and amends existing rights
found in the CCPA. It also creates a new privacy enforcement authority, the California Privacy Protection Agency (“CalPPA”). The CPRA grants the Attorney General and the CalPPA the authority to issue regulations on a wide range of topics. It therefore remains unclear what, if any, modifications will be made to the CPRA or how it will be interpreted. While we believe we have developed processes to comply with current privacy requirements, a regulatory agency may not agree with certain of our implementation decisions, which could subject us to litigation, regulatory actions, or changes to our business practices that could increase costs or reduce revenues. Other states have also enacted or are considering enacting privacy laws similar to those passed in California. Similar laws may be implemented in other jurisdictions in which we do business and in ways that may be more restrictive than those in California, increasing the cost of compliance, as well as the risk of noncompliance, on our business.
Our tenant reinsurance business is subject to governmental regulation, which could reduce our profitability or limit our growth.
We hold Limited Lines Self-Service Storage Insurance Agent licenses from a number of individual state departments of insurance and are subject to state governmental regulation and supervision. Our continued ability to maintain these Limited Lines Self-Service Storage Insurance Agent licenses in the jurisdictions in which we are licensed depends on our compliance with related rules and regulations. The regulatory authorities in each jurisdiction generally have broad discretion to grant, renew, and revoke licenses and approvals, to promulgate, interpret, and implement regulations, and to evaluate compliance with regulations through periodic examinations, audits, and investigations of the affairs of insurance agents. As a result of regulatory or private action in any jurisdiction, we may be temporarily or permanently suspended from continuing some or all of our reinsurance activities, or otherwise fined, penalized, or subject to an adverse judgment, which could reduce our net income.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
ITEM 2. Properties
At December 31, 2022, we had controlling ownership interests in 2,869 self-storage facilities located in 40 states within the U.S.:
At December 31, 2022
Number of Storage Facilities Net Rentable Square Feet
(in thousands)
California
Southern 258 19,159
Northern 182 11,592
Texas 414 35,191
Florida 338 23,499
Illinois 133 8,645
Georgia 122 8,267
North Carolina 107 7,848
Virginia 118 7,781
Maryland 105 7,678
Washington 104 7,300
Colorado 86 6,414
Minnesota 65 5,206
New York 69 4,809
South Carolina 72 4,312
New Jersey 60 4,098
Ohio 60 3,987
Arizona 56 3,939
Michigan 51 3,740
Indiana 46 3,016
Missouri 43 2,845
Oklahoma 36 2,692
Tennessee 42 2,625
Oregon 44 2,566
Pennsylvania 35 2,501
Nevada 32 2,210
Massachusetts 28 1,976
Kansas 24 1,462
Other states (14 states) 139 8,859
Total (a) 2,869 204,217
(a)See Schedule III: Real Estate and Accumulated Depreciation in our consolidated financial statements included in this Annual Report on Form 10-K, for a summary of land, building, accumulated depreciation, square footage, and number of properties by market.
At December 31, 2022, five of our facilities with a net book value of $17 million were encumbered by an aggregate of $10 million in mortgage notes payable.
The configuration of self-storage facilities has evolved over time. The oldest facilities are comprised generally of multiple single-story buildings, and have on average approximately 500 primarily “drive up” spaces per facility, and a small rental office. The most prevalent recently constructed facilities have higher density footprints with large, multi-story buildings with climate control and 1,000 or more self-storage spaces, a more imposing and visible retail presence, and a
prominent and large rental office designed to appeal to customers as an attractive and retail-focused “store.” Our self-storage portfolio includes facilities with characteristics of the oldest facilities, characteristics of the most recently constructed facilities, and those with characteristics of both older and recently constructed facilities. Most spaces have between 25 and 400 square feet and an interior height of approximately eight to 12 feet.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. Legal Proceedings
For a description of the Company’s legal proceedings, see “Note 14. Commitments and Contingencies” to our consolidated financial statements included in this Annual Report on Form 10-K.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Our common shares of beneficial interest (NYSE: PSA) have been listed on the NYSE since October 19, 1984. As of February 16, 2023, there were approximately 10,071 holders of record of our 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. From the inception of the repurchase program through February 21, 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 December 31, 2022. 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.
Refer to Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” for information about our equity compensation plans.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our consolidated financial statements and notes thereto.
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.
We believe the following are our critical accounting estimates, because they are reasonably likely to have a material impact on the portrayal of our financial condition and results, and they require us to make judgments and estimates about matters that involve a significant level of uncertainty.
Impairment of Long-Lived Assets: The analysis of impairment of our long-lived assets, including our real estate facilities, involves identification of indicators of impairment, including unfavorable operational results and significant cost overruns on construction, projections of future operating cash flows, and estimates of fair values, all of which require significant judgment and subjectivity. In particular, these estimates are sensitive to significant assumptions, such as the projections of future rental rates, stabilized occupancy level, future profit margin, discount rates, and capitalization rates, all of which could be affected by our expectations about future market or economic conditions. Others could come to materially different conclusions.
Allocating Purchase Price for Acquired Real Estate Facilities: We estimate the fair values of the assets and liabilities of acquired real estate facilities, which consist principally of land and buildings, for purposes of allocating the aggregate purchase price of acquired real estate facilities. We estimate the fair value of land based upon price per square foot derived from observable transactions involving comparable land in similar locations as adjusted for location quality, parcel size, and date of sale associated with the acquired facilities. The fair value estimate of land is sensitive to the adjustments made to the land market transactions used in the estimate, particularly when there is a lack of recent comparable land market data. For large portfolio acquisitions, we estimate the fair value of buildings primarily using the income approach by estimating the fair value of hypothetical vacant acquired facilities and adjusting for the estimated fair value of land. For individual and small portfolio acquisitions, we estimate the fair value of buildings primarily based upon the estimated current replacement cost, which we calculate by estimating the replacement cost of new purpose-built self-storage facilities in similar geographic regions and adjusting for age, quality, amenities, and configuration associated with
the buildings acquired. The fair value estimate of buildings is sensitive to assumptions used in both the income approach, such as lease-up period, future stabilized operating cash flows, capitalization rate and discount rate, and in the replacement cost approach, such as current cost adjustment, soft cost and developer profit estimates. Others could come to materially different conclusions as to the estimated fair values of land and buildings, which would result in different depreciation and amortization expense, gains and losses on sale of real estate assets, as well as the level of land and buildings on our consolidated balance sheet.
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 2022, revenues generated by our Same Store Facilities increased by 14.8% ($409.9 million), as compared to 2021, while Same Store cost of operations increased by 5.7% ($39.9 million). Demand and operating trends softened in the second half of 2022 and returned to historical seasonal patterns as compared to what we experienced in 2020 and 2021. We expect the trends to continue in 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 2020, we acquired a total of 368 facilities with 31.7 million net rentable square feet for $6.6 billion. In our non-same store portfolio, we also have developed and expanded self-storage facilities of 17.7 million net rentable square feet for a total cost of $1.6 billion. During 2022, net operating income generated by our Acquired Facilities and Newly Developed and Expanded Facilities increased 98.2% ($226.3 million), as compared to 2021.
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 by the end of 2025. We spent approximately $189 million on the program in 2022 and expect to spend approximately $160 million in 2023 on this effort.
On April 24, 2022, PSB entered into an Agreement and Plan of Merger whereby affiliates of Blackstone Real Estate (“Blackstone”) agreed to acquire all outstanding shares of PSB’s common stock for $187.50 per share in cash. On July 20, 2022, PSB announced that it completed the merger transaction with Blackstone. Each share of PSB common stock and each common unit of partnership interest we held in PSB were converted into the right to receive the merger consideration of $187.50 per share or unit, including a $5.25 closing cash dividend per share or unit, and a $0.22 prorated quarterly cash dividend per share or unit, for a total of $187.72 per share or unit. 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, which was classified within gain on sale of our equity investment in PS Business Parks, Inc. in the Consolidated Statement of Income.
In connection with the sale of our equity investment in PSB, on August 4, 2022, we paid a special cash dividend of $13.15 per common share, totaling approximately $2.3 billion, to shareholders of record as of August 1, 2022.
On February 5, 2023, we disclosed that we made a proposal to acquire all of the outstanding shares and units of Life Storage for consideration consisting of Public Storage common shares at an exchange ratio of 0.4192 Public Storage common shares for each outstanding Life Storage share or unit. Our public offer followed prior rebuffs by Life Storage of our attempts to negotiate privately. For more detail about the proposal, please see our Current Report on Form 8-K filed with the SEC on February 6, 2023. On February 16, 2023, Life Storage announced it had rejected the offer. We currently
intend to pursue the proposed transaction. In the event we enter into and consummate an acquisition of Life Storage, the acquisition would have a significant impact on our future results of operations.
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, payable on March 30, 2023 to shareholders of record as of March 15, 2023. The distribution equates to an annualized increase to the Company’s regular common dividend from $8.00 to $12.00 per share.
Results of Operations
Operating Results for 2022 and 2021
In 2022, net income allocable to our common shareholders was $4,142.3 million or $23.50 per diluted common share, compared to $1,732.4 million or $9.87 per diluted common share in 2021, representing an increase of $2,409.9 million or $13.63 per diluted common share. The increase is due primarily to (i) a $2.1 billion gain on sale of our equity investment in PSB and (ii) a $614.3 million increase in self-storage net operating income, partially offset by (iii) a $174.7 million increase in depreciation and amortization expense, (iv) a $125.1 million decrease in equity in earnings of unconsolidated real estate entities due to sale of our equity investment in PSB, and (v) a $45.5 million increase in interest expense.
The $614.3 million increase in self-storage net operating income in 2022 as compared to 2021 is a result of a $370.1 million increase attributable to our Same Store Facilities and a $244.2 million increase attributable to our non-same store facilities. Revenues for the Same Store Facilities increased 14.8% or $409.9 million in 2022 as compared to 2021, 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 5.7% or $39.9 million in 2022 as compared to 2021, due primarily to increased property tax expense, on-site property manager payroll expense, marketing expense, other direct property costs, and centralized management costs. The increase in net operating income of $244.2 million for the non-same store facilities is due primarily to the impact of facilities acquired in 2021 and the fill-up of recently developed and expanded facilities.
Operating Results for 2021 and 2020
In 2021, net income allocable to our common shareholders was $1,732.4 million or $9.87 per diluted common share, compared to $1,098.3 million or $6.29 per diluted common share in 2020, representing an increase of $634.1 million or $3.58 per diluted common share. The increase is due primarily to (i) a $437.4 million increase in self-storage net operating income, (ii) a $209.7 million increase in foreign currency exchange gains associated with our Euro denominated notes payable, and (iii) our $149.0 million equity share of gains on sale of real estate recorded by PSB in 2021, partially offset by (iv) a $160.2 million increase in depreciation and amortization expense.
The $437.4 million increase in self-storage net operating income in 2021 as compared to 2020 is a result of a $279.5 million increase in our Same Store Facilities and a $157.9 million increase in our non-Same Store Facilities. Revenues for the Same Store Facilities increased 10.6% or $265.8 million in 2021 as compared to 2020, due primarily to higher realized annual rent per available square foot and weighted average square foot occupancy. Cost of operations for the Same Store Facilities decreased by 1.9% or $13.8 million in 2021 as compared to 2020, due primarily to (i) a 36.1% ($22.4 million) decrease in marketing expenses and (ii) an 11.2% ($14.4 million) decrease in on-site property manager payroll. The increase in net operating income of $157.9 million for the Non-Same Store Facilities is due primarily to the impact of facilities acquired in 2021 and 2020 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 year ended December 31, 2022, FFO was $16.46 per diluted common share as compared to $13.36 and $9.75 per diluted common share for the years ended December 31, 2021 and 2020, respectively, representing an increase in 2022 of 23.2%, or $3.10 per diluted common share, as compared to 2021.
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 loss contingency accruals and casualties, unrealized gain on private equity investments and our equity share of merger transaction costs, severance of a senior executive, lease termination income, and casualties 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:
Year Ended December 31, Year Ended December 31,
2022 2021 Percentage Change 2021 2020 Percentage Change
(Amounts in thousands, except per share data)
Reconciliation of Net Income to FFO and Core FFO:
Net income allocable to common shareholders $ 4,142,288 $ 1,732,444 139.1 % $ 1,732,444 $ 1,098,335 57.7 %
Eliminate items excluded from FFO:
Depreciation and amortization 881,569 709,349 709,349 549,975
Depreciation from unconsolidated real estate investments 54,822 73,729 73,729 70,681
Depreciation allocated to noncontrolling interests and restricted share unitholders (6,622) (4,415) (4,415) (3,850)
Gains on sale of real estate investments, including our equity share from investments (54,403) (165,272) (165,272) (12,791)
Gain on sale of equity investment in PS Business Parks, Inc. (2,116,839) - - -
FFO allocable to common shares $ 2,900,815 $ 2,345,835 23.7 % $ 2,345,835 $ 1,702,350 37.8 %
Eliminate the impact of items excluded from Core FFO, including our equity share from investments:
Foreign currency exchange (gain) loss (98,314) (111,787) (111,787) 97,953
Preferred share redemption charge - 31,604 31,604 48,265
Property losses and tenant claims due to casualties (a) 4,817 4,909 4,909 -
Other items (338) (543) (543) 4,412
Core FFO allocable to common shares $ 2,806,980 $ 2,270,018 23.7 % $ 2,270,018 $ 1,852,980 22.5 %
Reconciliation of Diluted Earnings per Share to FFO per Share and Core FFO per Share:
Diluted earnings per share $ 23.50 $ 9.87 138.1 % $ 9.87 $ 6.29 56.9 %
Eliminate amounts per share excluded from FFO:
Depreciation and amortization 5.27 4.44 4.44 3.53
Gains on sale of real estate investments, including our equity share from investments (0.31) (0.95) (0.95) (0.07)
Gain on sale of equity investment in PS Business Parks, Inc. (12.00) - - -
FFO per share $ 16.46 $ 13.36 23.2 % $ 13.36 $ 9.75 37.0 %
Eliminate the per share impact of items excluded from Core FFO, including our equity share from investments:
Foreign currency exchange (gain) loss (0.57) (0.64) (0.64) 0.56
Preferred share redemption charge - 0.18 0.18 0.28
Property losses and tenant claims due to casualties (a) 0.03 0.03 0.03 -
Other items - - - 0.02
Core FFO per share $ 15.92 $ 12.93 23.1 % $ 12.93 $ 10.61 21.9 %
Diluted weighted average common shares 176,280 175,568 175,568 174,642
(a)Property losses and tenant claims due to casualties were related to Hurricane Ian in 2022, and Hurricane Ida in 2021, and were included in general and administrative expenses and ancillary cost of operations on the Consolidated Statements of Income.
Analysis of Net Income - Self-Storage Operations
Our self-storage operations are analyzed in four groups: (i) the 2,276 facilities that we have owned and operated on a stabilized basis since January 1, 2020 (the “Same Store Facilities”), (ii) 368 facilities we acquired since January 1, 2020 (the “Acquired Facilities”), (iii) 153 facilities that have been newly developed or expanded, or that had commenced expansion by December 31, 2022 (the “Newly Developed and Expanded Facilities”), and (iv) 72 other facilities, which are otherwise not stabilized with respect to occupancies or rental rates since January 1, 2020 (the “Other Non-same Store Facilities”). See Note 13 to our December 31, 2022 consolidated financial statements “Segment Information,” for a reconciliation of the amounts in the tables below to our total net income.
Self-Storage Operations
Summary Year Ended December 31, Year Ended December 31,
2022 2021 Percentage Change 2021 2020 Percentage Change
(Dollar amounts and square footage in thousands)
Revenues:
Same Store Facilities $ 3,175,207 $ 2,765,263 14.8 % $ 2,765,263 $ 2,499,486 10.6 %
Acquired Facilities 402,892 161,364 149.7 % 161,364 11,365 1319.8 %
Newly Developed and Expanded Facilities 269,245 197,058 36.6 % 197,058 145,360 35.6 %
Other Non-Same Store Facilities 98,684 79,881 23.5 % 79,881 65,419 22.1 %
3,946,028 3,203,566 23.2 % 3,203,566 2,721,630 17.7 %
Cost of operations:
Same Store Facilities 738,491 698,629 5.7 % 698,629 712,390 (1.9) %
Acquired Facilities 135,911 57,921 134.6 % 57,921 6,742 759.1 %
Newly Developed and Expanded Facilities 79,466 70,029 13.5 % 70,029 62,871 11.4 %
Other Non-Same Store Facilities 26,341 25,451 3.5 % 25,451 25,540 (0.3) %
980,209 852,030 15.0 % 852,030 807,543 5.5 %
Net operating income (a):
Same Store Facilities 2,436,716 2,066,634 17.9 % 2,066,634 1,787,096 15.6 %
Acquired Facilities 266,981 103,443 158.1 % 103,443 4,623 2137.6 %
Newly Developed and Expanded Facilities 189,779 127,029 49.4 % 127,029 82,489 54.0 %
Other Non-Same Store Facilities 72,343 54,430 32.9 % 54,430 39,879 36.5 %
Total net operating income 2,965,819 2,351,536 26.1 % 2,351,536 1,914,087 22.9 %
Depreciation and amortization expense:
Same Store Facilities 471,458 451,802 4.4 % 451,802 452,622 (0.2) %
Acquired Facilities 309,312 167,119 85.1 % 167,119 11,904 1303.9 %
Newly Developed and Expanded Facilities 63,362 56,411 12.3 % 56,411 48,573 16.1 %
Other Non-Same Store Facilities 44,014 38,096 15.5 % 38,096 40,158 (5.1) %
Total depreciation and amortization expense 888,146 713,428 24.5 % 713,428 553,257 29.0 %
Net income (loss):
Same Store Facilities 1,965,258 1,614,832 21.7 % 1,614,832 1,334,474 21.0 %
Acquired Facilities (42,331) (63,676) (33.5) % (63,676) (7,281) 774.6 %
Newly Developed and Expanded Facilities 126,417 70,618 79.0 % 70,618 33,916 108.2 %
Other Non-Same Store Facilities 28,329 16,334 73.4 % 16,334 (279) (5954.5) %
Total net income $ 2,077,673 $ 1,638,108 26.8 % $ 1,638,108 $ 1,360,830 20.4 %
Number of facilities at period end:
Same Store Facilities 2,276 2,276 - 2,276 2,276 -
Acquired Facilities 368 294 25.2 % 294 62 374.2 %
Newly Developed and Expanded Facilities 153 145 5.5 % 145 137 5.8 %
Other Non-Same Store Facilities 72 72 - 72 73 -
2,869 2,787 2.9 % 2,787 2,548 9.4 %
Net rentable square footage at period end:
Same Store Facilities 149,118 149,118 - 149,118 149,118 -
Acquired Facilities 31,709 26,905 17.9 % 26,905 5,075 430.1 %
Newly Developed and Expanded Facilities 17,700 16,606 6.6 % 16,606 15,088 10.1 %
Other Non-Same Store Facilities 5,690 5,690 - 5,690 5,770 (1.4) %
204,217 198,319 3.0 % 198,319 175,051 13.3 %
(a)Net operating income or “NOI” is a non-GAAP financial measure that excludes the impact of depreciation and amortization expense, which is based upon historical real estate costs and assumes that building values diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. We utilize NOI in determining current property values, evaluating property performance, and in evaluating property operating trends. We believe that investors and analysts utilize NOI in a similar manner. NOI is not a substitute for net income, operating cash flow, or other related financial measures, in evaluating our operating results. See Note 13 to our December 31, 2022 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, 2020. The composition of our Same Store Facilities allows us more effectively to evaluate the ongoing performance of our self-storage portfolio in 2020, 2021, and 2022 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 of these 2,276 facilities (149.1 million net rentable square feet) that represent approximately 73% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at December 31, 2022. 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 (2,276 facilities)
Year Ended December 31, Year Ended December 31,
2022 2021 Percentage Change 2021 2020 Percentage Change
(Dollar amounts in thousands, except for per square foot data)
Revenues (a):
Rental income $ 3,074,192 $ 2,683,116 14.6% $ 2,683,116 $ 2,415,822 11.1%
Late charges and administrative fees 101,015 82,147 23.0% 82,147 83,664 (1.8)%
Total revenues 3,175,207 2,765,263 14.8% 2,765,263 2,499,486 10.6%
Direct cost of operations (a):
Property taxes 279,388 267,961 4.3% 267,961 258,453 3.7%
On-site property manager payroll 119,139 114,426 4.1% 114,426 128,819 (11.2)%
Repairs and maintenance 58,468 52,703 10.9% 52,703 50,700 4.0%
Utilities 43,457 40,548 7.2% 40,548 41,345 (1.9)%
Marketing 45,906 39,682 15.7% 39,682 62,101 (36.1)%
Other direct property costs 80,991 73,646 10.0% 73,646 68,332 7.8%
Total direct cost of operations 627,349 588,966 6.5% 588,966 609,750 (3.4)%
Direct net operating income (b) 2,547,858 2,176,297 17.1% 2,176,297 1,889,736 15.2%
Indirect cost of operations (a):
Supervisory payroll (35,017) (37,058) (5.5)% (37,058) (40,965) (9.5)%
Centralized management costs (61,922) (55,350) 11.9% (55,350) (49,129) 12.7%
Share-based compensation (14,203) (17,255) (17.7)% (17,255) (12,546) 37.5%
Net operating income 2,436,716 2,066,634 17.9% 2,066,634 1,787,096 15.6%
Depreciation and amortization expense (471,458) (451,802) 4.4% (451,802) (452,622) (0.2)%
Net income $ 1,965,258 $ 1,614,832 21.7% $ 1,614,832 $ 1,334,474 21.0%
Gross margin (before indirect costs, depreciation and amortization expense) 80.2% 78.7% 1.9% 78.7% 75.6% 4.1%
Gross margin (before depreciation and amortization expense) 76.7% 74.7% 2.7% 74.7% 71.5% 4.5%
Weighted average for the period:
Square foot occupancy 94.9% 96.3% (1.5)% 96.3% 94.5% 1.9%
Realized annual rental income per (c):
Occupied square foot $ 21.73 $ 18.67 16.4% $ 18.67 $ 17.15 8.9%
Available square foot $ 20.61 $ 17.99 14.6% $ 17.99 $ 16.20 11.0%
At December 31:
Square foot occupancy 92.4% 94.8% (2.5)% 94.8% 94.2% 0.6%
Annual contract rent per occupied square foot (d) $ 23.02 $ 19.96 15.3% $ 19.96 $ 17.81 12.1%
(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 14.8% and 10.6% in 2022 and 2021, respectively, in each case as compared to the previous year. The increase in 2022 is due primarily to (i) a 16.4% increase in realized annual rent per occupied square foot for 2022 as compared to 2021, partially offset by (ii) a 1.5% decrease in average occupancy for 2022 as compared to 2021. The increase in 2021 is due primarily to (i) an 8.9% increase in realized annual rent per occupied square foot for 2021 as compared to 2020 and, to a lesser extent, (ii) a 1.9% increase in average occupancy for 2021 as compared to 2020.
Our growth in revenues, realized annual rent per occupied square foot, and REVPAF for 2022 as compared to 2021 was evident in each of our markets. Our weighted average square foot occupancy remained strong across our markets for 2022.
The increase in realized annual rent per occupied square foot in 2022 as compared to the same periods in 2021 was due to rate increases to existing long-term tenants in substantially all of our markets in 2022 as compared to curtailed increases in certain markets in 2021, combined with a 6.2% increase in average rates per square foot charged to new tenants moving in, as a result of strong customer demand in most of our markets. These improvements were partially offset by increases in move-out activity and promotional discounts given during 2022 as compared to 2021. At December 31, 2022, annual contract rent per occupied square foot was 15.3% higher as compared to December 31, 2021.
We experienced high occupancy levels throughout 2022 with a weighted average square foot occupancy of 94.9%, although representing a decrease of 1.5% during 2022 as compared to 2021. Year-over-year move-out volumes increased 9.7% and year-over-year move-in volumes increased 4.5% in 2022 as compared to 2021, leading to a lower square foot occupancy at December 31, 2022 of 92.4% as compared to 94.8% at December 31, 2021.
Move-out volumes were partially impacted by rental rate increases to our existing tenants in 2022 as compared to 2021. However, move-out activity from tenants not receiving increases was also higher in 2022 compared to 2021 but remains below pre-2020 levels. Average length of stay of our tenants increased in 2022 as compared to 2021, which supported our revenue growth by contributing to the number of tenants eligible for rental rate increases in 2022.
In order to attract more new tenants to replace those that vacated in the second half of 2022, we took a number of actions including increasing promotional discounting, reducing rental rates to new customers, and increasing marketing expense.
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 demand in 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. We will continue to support demand levels 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 2023 as compared to high levels of growth in 2022 and 2021. With a wide range of potential macroeconomic pathways for 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 23.0% in 2022 and decreased 1.8% in 2021, in each case as compared to the previous year. The increase in 2022 is due to (i) higher late charges collected on delinquent accounts driven by more delinquent accounts compared to 2021 and to a lesser extent (ii) higher administrative fees charged per move-in combined with higher move-in volumes. The decrease in 2021 as compared to 2020 is due to (i) an acceleration in average collections whereby a greater percentage of tenants paid their monthly rent promptly to avoid the incurrence of such fees and (ii) reduced move-in administrative fees due to lower move-ins.
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 years ended December 31, 2022, 2021, and 2020. 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.
Year Ended December 31, Year Ended December 31,
2022 2021 Change 2021 2020 Change
(Amounts in thousands, except for per square foot amounts)
Tenants moving in during the period:
Average annual contract rent per square foot $ 18.11 $ 17.06 6.2% $ 17.06 $ 13.53 26.1%
Square footage 97,783 93,607 4.5% 93,607 104,636 (10.5)%
Contract rents gained from move-ins $ 1,770,850 $ 1,596,935 10.9% $ 1,596,935 $ 1,415,725 12.8%
Promotional discounts given $ 46,087 $ 38,203 20.6% $ 38,203 $ 75,785 (49.6)%
Tenants moving out during the period:
Average annual contract rent per square foot $ 20.65 $ 17.52 17.9% $ 17.52 $ 15.52 12.9%
Square footage 101,399 92,466 9.7% 92,466 100,670 (8.1)%
Contract rents lost from move-outs $ 2,093,889 $ 1,620,004 29.3% $ 1,620,004 $ 1,562,398 3.7%
Analysis of Same Store Cost of Operations
Cost of operations (excluding depreciation and amortization) increased 5.7% in 2022 as compared to 2021 due primarily to increased property tax expense, on-site property manager payroll expense, marketing expense, other direct property costs, and centralized management costs. Cost of operations (excluding depreciation and amortization) decreased 1.9% in 2021 as compared to 2020 due primarily to decreased marketing expense and on-site property manager payroll expense, partially offset by increased property tax expense, other direct property costs, and centralized management costs.
Property tax expense increased 4.3% and 3.7% in 2022 and 2021, respectively, in each case as compared to the previous year, as a result of higher assessed values. We expected property tax expense growth of approximately 5.3% in 2023 due primarily to higher assessed values.
On-site property manager payroll expense increased 4.1% in 2022 as compared to 2021 and decreased 11.2% in 2021 as compared to 2020. The increase in 2022 is primarily due to competitive labor conditions experienced in most geographical markets, partially offset by a decline in hours worked driven by revisions in operational processes. The decrease in 2021 is primarily due to (i) a year-over-year decline in hours worked due to staffing reductions from reduced move-in and move-out activity and revisions to other operational processes and (ii) a temporary $3.00 hourly incentive increase and enhancement of paid time off benefits to all of our property managers between April 1, 2020 and June 30, 2020 in response to the COVID Pandemic, partially offset by wage increases in response to competitive labor conditions experienced in most geographical markets since the second quarter of 2021. We expect on-site property manager payroll expense to increase in 2023 driven by increased wage rates, partially offset by expected reduction in labor hours driven by revisions in operational processes.
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 15.7% in 2022 as compared to 2021, by utilizing a higher volume of online paid search programs to attract new tenants. We decreased marketing expense by 36.1% in 2021 as compared to 2020 due primarily to lower volume of paid search programs we utilized in 2021 given strong demand and high occupancies in many of our same store properties.
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 10.0% in 2022 as compared to 2021 and 7.8% in 2021 as compared to 2020. These increases were due primarily to an increase in credit card fees as 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 2023 primarily driven by increase in credit card fees.
Centralized management costs represents administrative and cash compensation expenses for shared general corporate functions to the extent their efforts are devoted to self-storage operations. Such functions include information technology support, hardware, and software, as well as centralized administration of payroll, benefits, training, facilities management, customer service, pricing and marketing, operational accounting and finance, and legal costs. Centralized management costs increased 11.9% in 2022 as compared to 2021 and 12.7% in 2021 as compared to 2020. These increases were due primarily to an increase in technology and data team costs that support property operations. We expect centralized managements costs to remain flat in 2023 compared to 2022.
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 December 31, 2022
Year Ended December 31,
Number
of
Facilities Square
Feet
(millions) Realized Rent per
Occupied Square Foot Average Occupancy Realized Rent per
Available Square Foot
2022 2021 Change 2022 2021 Change 2022 2021 Change
Los Angeles 212 15.3 $ 32.55 $ 27.32 19.1 % 96.9 % 98.2 % (1.3) % $ 31.55 $ 26.83 17.6 %
San Francisco 128 7.8 31.43 28.08 11.9 % 95.3 % 97.2 % (2.0) % 29.95 27.29 9.7 %
New York 90 6.4 30.60 27.44 11.5 % 94.5 % 96.3 % (1.9) % 28.92 26.43 9.4 %
Miami 83 5.8 27.92 22.42 24.5 % 95.6 % 97.1 % (1.5) % 26.70 21.77 22.6 %
Seattle-Tacoma 86 5.7 25.11 21.95 14.4 % 94.2 % 95.3 % (1.2) % 23.67 20.93 13.1 %
Washington DC 90 5.5 25.42 22.65 12.2 % 93.4 % 95.3 % (2.0) % 23.74 21.58 10.0 %
Chicago 129 8.1 19.28 16.63 15.9 % 93.6 % 95.7 % (2.2) % 18.05 15.92 13.4 %
Dallas-Ft. Worth 106 7.0 17.28 14.72 17.4 % 94.6 % 95.8 % (1.3) % 16.35 14.11 15.9 %
Atlanta 101 6.6 17.39 14.49 20.0 % 93.7 % 96.0 % (2.4) % 16.29 13.91 17.1 %
Houston 95 6.8 15.88 13.58 16.9 % 93.6 % 94.3 % (0.7) % 14.86 12.81 16.0 %
Orlando-Daytona 69 4.4 17.96 14.87 20.8 % 95.9 % 95.7 % 0.2 % 17.22 14.23 21.0 %
Philadelphia 56 3.5 20.92 18.55 12.8 % 94.4 % 97.1 % (2.8) % 19.75 18.02 9.6 %
West Palm Beach 37 2.6 25.40 21.15 20.1 % 95.9 % 96.8 % (0.9) % 24.35 20.48 18.9 %
Tampa 51 3.4 18.87 15.51 21.7 % 95.0 % 96.2 % (1.2) % 17.93 14.92 20.2 %
Charlotte 50 3.8 15.01 12.46 20.5 % 95.0 % 95.9 % (0.9) % 14.26 11.95 19.3 %
All other markets 893 56.4 17.91 15.51 15.5 % 94.8 % 96.2 % (1.5) % 16.98 14.93 13.7 %
Totals 2,276 149.1 $ 21.73 $ 18.67 16.4 % 94.9 % 96.3 % (1.5) % $ 20.61 $ 17.99 14.6 %
Same Store Facilities Operating Trends by Market (Continued)
Year Ended December 31,
Revenues ($000's) Direct Expenses ($000's) Indirect Expenses ($000's) Net Operating Income ($000's)
2022 2021 Change 2022 2021 Change 2022 2021 Change 2022 2021 Change
Los Angeles $ 492,438 $ 417,935 17.8 % $ 62,909 $ 58,765 7.1 % $ 11,287 $ 11,014 2.5 % $ 418,242 $ 348,156 20.1 %
San Francisco 238,642 216,832 10.1 % 35,100 33,929 3.5 % 6,645 6,689 (0.7) % 196,897 176,214 11.7 %
New York 190,639 174,251 9.4 % 44,968 42,982 4.6 % 5,335 5,450 (2.1) % 140,336 125,819 11.5 %
Miami 160,813 131,175 22.6 % 28,259 26,100 8.3 % 4,016 4,182 (4.0) % 128,538 100,893 27.4 %
Seattle-Tacoma 138,426 122,217 13.3 % 23,295 22,457 3.7 % 3,894 4,060 (4.1) % 111,237 95,700 16.2 %
Washington DC 135,483 122,902 10.2 % 27,850 26,531 5.0 % 4,140 4,079 1.5 % 103,493 92,292 12.1 %
Chicago 152,089 133,771 13.7 % 57,184 51,764 10.5 % 5,917 5,797 2.1 % 88,988 76,210 16.8 %
Dallas-Ft. Worth 118,577 102,074 16.2 % 26,047 24,196 7.7 % 4,548 4,645 (2.1) % 87,982 73,233 20.1 %
Atlanta 113,572 96,721 17.4 % 22,299 19,041 17.1 % 4,756 4,879 (2.5) % 86,517 72,801 18.8 %
Houston 105,071 90,192 16.5 % 28,554 27,281 4.7 % 4,289 4,397 (2.5) % 72,228 58,514 23.4 %
Orlando-Daytona 78,622 64,982 21.0 % 14,883 13,543 9.9 % 3,487 3,284 6.2 % 60,252 48,155 25.1 %
Philadelphia 72,597 66,000 10.0 % 15,685 15,105 3.8 % 2,717 2,730 (0.5) % 54,195 48,165 12.5 %
West Palm Beach 66,203 55,558 19.2 % 13,232 11,710 13.0 % 1,917 2,010 (4.6) % 51,054 41,838 22.0 %
Tampa 63,047 52,443 20.2 % 13,033 11,767 10.8 % 2,385 2,404 (0.8) % 47,629 38,272 24.4 %
Charlotte 56,671 47,411 19.5 % 9,405 9,113 3.2 % 2,324 2,208 5.3 % 44,942 36,090 24.5 %
All other markets 992,317 870,799 14.0 % 204,646 194,682 5.1 % 43,485 41,835 3.9 % 744,186 634,282 17.3 %
Totals $ 3,175,207 $ 2,765,263 14.8 % $ 627,349 $ 588,966 6.5 % $ 111,142 $ 109,663 1.3 % $ 2,436,716 $ 2,066,634 17.9 %
Same Store Facilities Operating Trends by Market (Continued)
As of December 31, 2022
Year Ended December 31,
Number
of
Facilities Square
Feet
(millions) Realized Rent per
Occupied Square Foot Average Occupancy Realized Rent per
Available Square Foot
2021 2020 Change 2021 2020 Change 2021 2020 Change
Los Angeles 212 15.3 $ 27.32 $ 25.81 5.9 % 98.2 % 96.6 % 1.7 % $ 26.83 $ 24.93 7.6 %
San Francisco 128 7.8 28.08 26.59 5.6 % 97.2 % 96.0 % 1.3 % 27.29 25.53 6.9 %
New York 90 6.4 27.44 25.86 6.1 % 96.3 % 95.1 % 1.3 % 26.43 24.58 7.5 %
Miami 83 5.8 22.42 19.73 13.6 % 97.1 % 94.4 % 2.9 % 21.77 18.62 16.9 %
Seattle-Tacoma 86 5.7 21.95 20.23 8.5 % 95.3 % 94.1 % 1.3 % 20.93 19.04 9.9 %
Washington DC 90 5.5 22.65 21.05 7.6 % 95.3 % 94.4 % 1.0 % 21.58 19.88 8.6 %
Chicago 129 8.1 16.63 14.96 11.2 % 95.7 % 93.8 % 2.0 % 15.92 14.04 13.4 %
Dallas-Ft. Worth 106 7.0 14.72 13.33 10.4 % 95.8 % 93.0 % 3.0 % 14.11 12.40 13.8 %
Atlanta 101 6.6 14.49 13.11 10.5 % 96.0 % 92.8 % 3.4 % 13.91 12.17 14.3 %
Houston 95 6.8 13.58 12.45 9.1 % 94.3 % 92.2 % 2.3 % 12.81 11.48 11.6 %
Orlando-Daytona 69 4.4 14.87 13.57 9.6 % 95.7 % 94.4 % 1.4 % 14.23 12.81 11.1 %
Philadelphia 56 3.5 18.55 16.86 10.0 % 97.1 % 96.1 % 1.0 % 18.02 16.20 11.2 %
West Palm Beach 37 2.6 21.15 18.36 15.2 % 96.8 % 94.7 % 2.2 % 20.48 17.39 17.8 %
Tampa 51 3.4 15.51 13.71 13.1 % 96.2 % 93.4 % 3.0 % 14.92 12.80 16.6 %
Charlotte 50 3.8 12.46 11.10 12.3 % 95.9 % 92.9 % 3.2 % 11.95 10.31 15.9 %
All other markets 893 56.4 15.51 14.09 10.1 % 96.2 % 94.5 % 1.8 % 14.93 13.31 12.2 %
Totals 2,276 149.1 $ 18.67 $ 17.15 8.9 % 96.3 % 94.5 % 1.9 % $ 17.99 $ 16.20 11.0 %
Same Store Facilities Operating Trends by Market (Continued)
Year Ended December 31,
Revenues ($000's) Direct Expenses ($000's) Indirect Expenses ($000's) Net Operating Income ($000's)
2021 2020 Change 2021 2020 Change 2021 2020 Change 2021 2020 Change
Los Angeles $ 417,935 $ 389,109 7.4 % $ 58,765 $ 62,787 (6.4) % $ 11,014 $ 10,371 6.2 % $ 348,156 $ 315,951 10.2 %
San Francisco 216,832 202,927 6.9 % 33,929 35,029 (3.1) % 6,689 6,337 5.6 % 176,214 161,561 9.1 %
New York 174,251 162,637 7.1 % 42,982 43,849 (2.0) % 5,450 4,881 11.7 % 125,819 113,907 10.5 %
Miami 131,175 112,742 16.3 % 26,100 26,353 (1.0) % 4,182 4,115 1.6 % 100,893 82,274 22.6 %
Seattle-Tacoma 122,217 111,693 9.4 % 22,457 23,228 (3.3) % 4,060 4,057 0.1 % 95,700 84,408 13.4 %
Washington DC 122,902 113,694 8.1 % 26,531 26,926 (1.5) % 4,079 3,667 11.2 % 92,292 83,101 11.1 %
Chicago 133,771 118,560 12.8 % 51,764 50,338 2.8 % 5,797 5,473 5.9 % 76,210 62,749 21.5 %
Dallas-Ft. Worth 102,074 90,153 13.2 % 24,196 25,744 (6.0) % 4,645 4,365 6.4 % 73,233 60,044 22.0 %
Atlanta 96,721 85,125 13.6 % 19,041 19,633 (3.0) % 4,879 4,366 11.7 % 72,801 61,126 19.1 %
Houston 90,192 81,144 11.2 % 27,281 27,830 (2.0) % 4,397 4,141 6.2 % 58,514 49,173 19.0 %
Orlando-Daytona 64,982 58,793 10.5 % 13,543 14,604 (7.3) % 3,284 2,910 12.9 % 48,155 41,279 16.7 %
Philadelphia 66,000 59,666 10.6 % 15,105 15,461 (2.3) % 2,730 2,633 3.7 % 48,165 41,572 15.9 %
West Palm Beach 55,558 47,364 17.3 % 11,710 11,708 - % 2,010 1,904 5.6 % 41,838 33,752 24.0 %
Tampa 52,443 45,205 16.0 % 11,767 12,410 (5.2) % 2,404 2,155 11.6 % 38,272 30,640 24.9 %
Charlotte 47,411 41,106 15.3 % 9,113 9,627 (5.3) % 2,208 2,027 8.9 % 36,090 29,452 22.5 %
All other markets 870,799 779,568 11.7 % 194,682 204,223 (4.7) % 41,835 39,238 6.6 % 634,282 536,107 18.3 %
Totals $ 2,765,263 $ 2,499,486 10.6 % $ 588,966 $ 609,750 (3.4) % $ 109,663 $ 102,640 6.8 % $ 2,066,634 $ 1,787,096 15.6 %
Acquired Facilities
The Acquired Facilities represent 368 facilities that we acquired in 2020, 2021, and 2022. 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 Year Ended December 31, Year Ended December 31,
2022 2021 Change (a) 2021 2020 Change (a)
($ amounts in thousands, except for per square foot amounts)
Revenues (b):
2020 Acquisitions
$ 75,647 $ 54,890 $ 20,757 $ 54,890 $ 11,365 $ 43,525
2021 Acquisitions
312,300 106,474 205,826 106,474 - 106,474
2022 Acquisitions
14,945 - 14,945 - - -
Total revenues 402,892 161,364 241,528 161,364 11,365 149,999
Cost of operations (b):
2020 Acquisitions
26,168 25,216 952 25,216 6,742 18,474
2021 Acquisitions
101,859 32,705 69,154 32,705 - 32,705
2022 Acquisitions
7,884 - 7,884 - - -
Total cost of operations 135,911 57,921 77,990 57,921 6,742 51,179
Net operating income:
2020 Acquisitions
49,479 29,674 19,805 29,674 4,623 25,051
2021 Acquisitions
210,441 73,769 136,672 73,769 - 73,769
2022 Acquisitions
7,061 - 7,061 - - -
Net operating income 266,981 103,443 163,538 103,443 4,623 98,820
Depreciation and amortization expense (309,312) (167,119) (142,193) (167,119) (11,904) (155,215)
Net loss $ (42,331) $ (63,676) $ 21,345 $ (63,676) $ (7,281) $ (56,395)
At December 31:
Square foot occupancy:
2020 Acquisitions
88.4% 88.2% 0.2% 88.2% 63.5% 38.9%
2021 Acquisitions
83.1% 79.9% 4.0% 79.9% - -
2022 Acquisitions
79.4% - - - - -
83.4% 81.4% 2.5% 81.4% 63.5% 28.2%
Annual contract rent per occupied square foot:
2020 Acquisitions
$ 17.39 $ 14.82 17.3% $ 14.82 $ 12.50 18.6%
2021 Acquisitions
17.81 15.62 14.0% 15.62 - -
2022 Acquisitions
11.48 - - - - -
$ 16.84 $ 15.46 8.9% $ 15.46 $ 12.50 23.7%
Number of facilities:
2020 Acquisitions
62 62 - 62 62 -
2021 Acquisitions
232 232 - 232 - 232
2022 Acquisitions
74 - 74 - - -
368 294 74 294 62 232
Net rentable square feet (in thousands) (c):
2020 Acquisitions
5,075 5,075 - 5,075 5,075 -
2021 Acquisitions
21,908 21,830 78 21,830 - 21,830
2022 Acquisitions
4,726 - 4,726 - - -
31,709 26,905 4,804 26,905 5,075 21,830
ACQUIRED FACILITIES (Continued)
As of
December 31, 2022
Costs to acquire (in thousands):
2020 Acquisitions
$ 796,065
2021 Acquisitions
5,115,276
2022 Acquisitions
730,480
$ 6,641,821
(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 31.7 million net rentable square feet, including 11.2 million in Texas, 3.9 million in Maryland, 1.8 million in Florida, 1.2 million in Oklahoma, 1.1 million in Virginia, 0.9 million in North Carolina, 0.8 million in each of Arizona, Colorado and Ohio, 0.6 million in each of California, Georgia, Illinois, Minnesota, and South Carolina, 0.5 million in each of Idaho, Indiana, Michigan, Missouri, Nebraska, Oregon, and Pennsylvania, 0.4 million in each of Alabama, Nevada, and Tennessee, 0.3 million in Washington, and 1.2 million in other states.
We have been active in acquiring facilities in recent years. Since the beginning of 2020, we acquired a total of 368 facilities with 31.7 million net rentable square feet for $6.6 billion. During 2022, these facilities contributed net operating income of $267.0 million.
During 2022, we acquired the Neighborhood Storage portfolio in the Ocala, Florida market, consisting of 28 properties with 1.2 million net rentable square feet, which includes 26 properties closed in December 2022 for $179.8 million and two properties that are under construction and expected to close in early 2023.
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. Included in the Acquisition results in the table above are ezStorage portfolio revenues of $100.8 million, NOI of $79.9 million (including Direct NOI of $82.7 million), and average square footage occupancy of 89.6% for 2022.
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 $79.2 million, NOI of $48.4 million (including Direct NOI of $51.2 million), and average square footage occupancy of 79.4% for 2022.
We remain active in seeking to acquire additional self-storage facilities. Subsequent to December 31, 2022, we acquired or were under contract to acquire eight self-storage facilities across five states with 0.5 million net rentable square feet, for $70.5 million. Future acquisition volume is likely to be impacted by increasing cost of capital requirements and overall macro-economic uncertainties.
Developed and Expanded Facilities
The developed and expanded facilities include 62 facilities that were developed on new sites since January 1, 2017, and 91 facilities expanded to increase their net rentable square footage. Of these expansions, 51 were completed before 2021, 27 were completed in 2021 or 2022, and 13 are currently in process at December 31, 2022. The following table summarizes operating data with respect to the Developed and Expanded Facilities:
DEVELOPED AND EXPANDED FACILITIES
Year Ended December 31, Year Ended December 31,
2022 2021 Change (a) 2021 2020 Change (a)
($ amounts in thousands, except for per square foot amounts)
Revenues (b):
Developed in 2017 $ 35,216 $ 27,593 $ 7,623 $ 27,593 $ 21,541 $ 6,052
Developed in 2018 36,789 28,308 8,481 28,308 20,163 8,145
Developed in 2019 16,444 11,921 4,523 11,921 6,455 5,466
Developed in 2020 6,838 3,405 3,433 3,405 301 3,104
Developed in 2021 8,333 1,602 6,731 1,602 - 1,602
Developed in 2022 687 - 687 - - -
Expansions completed before 2021 95,029 70,091 24,938 70,091 47,886 22,205
Expansions completed in 2021 or 2022 51,374 33,746 17,628 33,746 29,333 4,413
Expansions in process 18,535 20,392 (1,857) 20,392 19,681 711
Total revenues 269,245 197,058 72,187 197,058 145,360 51,698
Cost of operations (b):
Developed in 2017 10,416 9,932 484 9,932 9,625 307
Developed in 2018 10,742 9,983 759 9,983 10,364 (381)
Developed in 2019 5,622 5,240 382 5,240 4,685 555
Developed in 2020 1,702 1,679 23 1,679 383 1,296
Developed in 2021 3,539 1,546 1,993 1,546 - 1,546
Developed in 2022 738 - 738 - - -
Expansions completed before 2021 30,357 28,554 1,803 28,554 25,083 3,471
Expansions completed in 2021 or 2022 12,554 8,949 3,605 8,949 8,187 762
Expansions in process 3,796 4,146 (350) 4,146 4,544 (398)
Total cost of operations 79,466 70,029 9,437 70,029 62,871 7,158
Net operating income (loss):
Developed in 2017 24,800 17,661 7,139 17,661 11,916 5,745
Developed in 2018 26,047 18,325 7,722 18,325 9,799 8,526
Developed in 2019 10,822 6,681 4,141 6,681 1,770 4,911
Developed in 2020 5,136 1,726 3,410 1,726 (82) 1,808
Developed in 2021 4,794 56 4,738 56 - 56
Developed in 2022 (51) - (51) - - -
Expansions completed before 2021 64,672 41,537 23,135 41,537 22,803 18,734
Expansions completed in 2021 or 2022 38,820 24,797 14,023 24,797 21,146 3,651
Expansions in process 14,739 16,246 (1,507) 16,246 15,137 1,109
Net operating income 189,779 127,029 62,750 127,029 82,489 44,540
Depreciation and amortization expense (63,362) (56,411) (6,951) (56,411) (48,573) (7,838)
Net income $ 126,417 $ 70,618 $ 55,799 $ 70,618 $ 33,916 $ 36,702
DEVELOPED AND EXPANDED FACILITIES (Continued)
As of December 31,
As of December 31,
2022 2021 Change (a) 2021 2020 Change (a)
($ amounts in thousands, except for per square foot amounts)
Square foot occupancy:
Developed in 2017 89.3% 91.4% (2.3)% 91.4% 88.7% 3.0%
Developed in 2018 87.5% 88.6% (1.2)% 88.6% 86.5% 2.4%
Developed in 2019 87.3% 87.3% - 87.3% 84.6% 3.2%
Developed in 2020 94.3% 88.9% 6.1% 88.9% 34.0% 161.5%
Developed in 2021 82.4% 48.8% 68.9% 48.8% - -
Developed in 2022 41.6% - - - - -
Expansions completed before 2021 86.7% 86.6% 0.1% 86.6% 75.0% 15.5%
Expansions completed in 2021 or 2022 80.0% 81.4% (1.7)% 81.4% 90.8% (10.4)%
Expansions in process 81.8% 89.2% (8.3)% 89.2% 94.4% (5.5)%
84.1% 85.3% (1.4)% 85.3% 81.2% 5.0%
Annual contract rent per occupied square foot:
Developed in 2017 $ 19.77 $ 16.03 23.3% 16.03 12.64 26.8%
Developed in 2018 20.84 17.08 22.0% 17.08 12.73 34.2%
Developed in 2019 18.19 14.58 24.8% 14.58 9.69 50.5%
Developed in 2020 21.75 17.67 23.1% 17.67 10.08 75.3%
Developed in 2021 18.04 15.41 17.1% 15.41 - -
Developed in 2022 13.84 - - - - -
Expansions completed before 2021 16.17 13.64 18.5% 13.64 10.41 31.0%
Expansions completed in 2021 or 2022 21.52 19.14 12.4% 19.14 18.19 5.2%
Expansions in process 26.49 24.03 10.2% 24.03 21.87 9.9%
$ 18.98 $ 16.08 18.0% 16.08 12.79 25.7%
Number of facilities:
Developed in 2017 16 16 - 16 16 -
Developed in 2018 18 18 - 18 18 -
Developed in 2019 11 11 - 11 11 -
Developed in 2020 3 3 - 3 3 -
Developed in 2021 6 6 - 6 - 6
Developed in 2022 8 - 8 - - -
Expansions completed before 2021 51 51 - 51 51 -
Expansions completed in 2021 or 2022 27 27 - 27 25 2
Expansions in process 13 13 - 13 13 -
153 145 8 145 137 8
Net rentable square feet (in thousands) (c):
Developed in 2017 2,040 2,040 - 2,040 2,040 -
Developed in 2018 2,069 2,069 - 2,069 2,069 -
Developed in 2019 1,057 1,057 - 1,057 1,057 -
Developed in 2020 347 347 - 347 347 -
Developed in 2021 681 681 - 681 - 681
Developed in 2022 631 - 631 - - -
Expansions completed before 2021 6,879 6,879 - 6,879 6,873 6
Expansions completed in 2021 or 2022 3,247 2,636 611 2,636 1,741 895
Expansions in process 749 897 (148) 897 961 (64)
17,700 16,606 1,094 16,606 15,088 1,518
As of
December 31, 2022
Costs to develop (in thousands):
Developed in 2017 $ 239,871
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
Expansions completed before 2021 (d) 478,659
Expansions completed in 2021 or 2022 (d) 231,270
$ 1,620,158
(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 17.7 million net rentable square feet at December 31, 2022, including 5.0 million in Texas, 3.2 million in Florida, 2.2 million in California, 1.5 million in Colorado, 1.4 million in Minnesota, 0.9 million in North Carolina, 0.7 million in Michigan, 0.4 million in each of Missouri, New Jersey, South Carolina, and Washington, 0.3 million in Virginia, 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 December 31, 2022. We incurred a total of $709.9 million in direct cost to expand these facilities, demolished a total of 1.2 million net rentable square feet of storage space, and built a total of 6.3 million net rentable square feet of new storage space.
At December 31, 2022, we had 22 additional facilities in development, which will have a total of 2.1 million net rentable square feet of storage space and have an aggregate development cost totaling approximately $492.3 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 December 31, 2022, and together with additional future expansion activities primarily related to our Same Store Facilities at December 31, 2022, we expect to add a total of 2.5 million net rentable square feet of storage space by expanding existing self-storage facilities for an aggregate direct development cost of $487.3 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, 2020, 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 5.7 million net rentable square feet, including 1.1 million in Texas, 0.6 million in each of Florida and Washington, 0.4 million in each of California and Virginia, 0.3 million in each of Indiana and South Carolina, 0.2 million in each of Arizona, Georgia, Kentucky, Massachusetts, and Tennessee, and 1.0 million in other states.
During 2022, 2021, and 2020, the average occupancy for these facilities totaled 91.4%, 92.7%, and 85.5%, respectively, and the realized rent per occupied square foot totaled $18.42, $14.61, and $12.69, respectively.
Depreciation and amortization expense
Depreciation and amortization expense for Self-Storage Operations increased $174.7 million in 2022 as compared to 2021 and increased $160.2 million in 2021 as compared to 2020, primarily due to newly acquired facilities of $5.1 billion in 2021. We expect continued increases in depreciation expense in 2023 as a result of elevated levels of capital expenditures and new facilities that are acquired, developed or expanded in 2023.
The following discussion and analysis of the components of net income, including Ancillary Operations and items not allocated to segments, present a comparison for the year ended December 31, 2022 to the year ended December 31, 2021. The results of these components for the years ended December 31, 2021 compared to December 31, 2020 was included in our Annual Report on Form 10-K for the year ended December 31, 2021 on page 23, under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed with the SEC on February 22, 2022.
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:
Year Ended December 31,
2022 2021 Change
(Amounts in thousands)
Revenues:
Tenant reinsurance premiums $ 188,201 $ 166,585 $ 21,616
Merchandise 28,303 28,466 (163)
Third party property management 19,631 17,207 2,424
Total revenues 236,135 212,258 23,877
Cost of operations:
Tenant reinsurance 36,830 33,932 2,898
Merchandise 17,113 17,274 (161)
Third party property management 18,755 17,362 1,393
Total cost of operations 72,698 68,568 4,130
Net operating income (loss):
Tenant reinsurance 151,371 132,653 18,718
Merchandise 11,190 11,192 (2)
Third party property management 876 (155) 1,031
Total net operating income $ 163,437 $ 143,690 $ 19,747
Tenant reinsurance operations: Tenant reinsurance premium revenue increased $21.6 million or 13.0% in 2022 over 2021, 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 $139.0 million and $133.9 million in 2022 and 2021, respectively, representing a 3.8% year over year increase in 2022.
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. Included in cost of operations are $2.7 million of estimated claims costs related to Hurricane Ian for 2022, as compared to $2.0 million of estimated claims costs related to Hurricane Ida for 2021.
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 2023.
Third-party property management: At December 31, 2022, in our third-party property management program, we managed 114 facilities for unrelated third parties, and were under contract to manage 78 additional facilities including 73
facilities that are currently under construction. During 2022, we added 60 facilities to the program, acquired three facilities from the program, and had 17 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 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:
Year Ended December 31,
2022 2021 Change
(Amounts in thousands)
Equity in earnings:
PSB $ 80,596 $ 207,722 $ (127,126)
Shurgard 26,385 24,371 2,014
Total equity in earnings $ 106,981 $ 232,093 $ (125,112)
Investment in PSB: On April 24, 2022, PSB entered into an Agreement and Plan of Merger whereby affiliates of Blackstone agreed to acquire all outstanding shares of PSB’s common stock for $187.50 per share in cash. On July 20, 2022, PSB announced that it completed the merger transaction with Blackstone. Each share of PSB common stock and each common unit of partnership interest we held in PSB were converted into the right to receive the merger consideration of $187.50 per share or unit, including a $5.25 closing cash dividend per share or unit, and a $0.22 prorated quarterly cash dividend per share or unit, for a total of $187.72 per share or unit. 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, which was classified within gain on sale of our equity investment in PS Business Parks, Inc. in the Consolidated Statement of Income. Accordingly, equity in earnings from PSB for the year ended December 31, 2022 reflect activities through the merger date, July 20, 2022.
Included in our equity earnings from PSB is our equity share of gains on sale of real estate totaling $49.1 million and $149.0 million for the years ended December 31, 2022 and 2021, respectively. Our equity share of earnings from PSB contributed $57.7 million and $99.3 million to Core FFO in 2022 and 2021, respectively.
As a result of closing the sale of PSB, we will no longer recognize equity in earnings from PSB in the future.
Investment in Shurgard: Included in our equity earnings from Shurgard for the year ended December 31, 2022 is our equity share of gains on sale of real estate totaling $3.5 million.
For purposes of recording our equity in earnings from Shurgard, the Euro was translated at exchange rates of approximately 1.070 U.S. Dollars per Euro at December 31, 2022 (1.134 at December 31, 2021), and average exchange rates of 1.054 for 2022 and 1.183 for 2021. Accordingly, our equity in earnings from Shurgard was negatively impacted by the strengthening of the U.S. Dollar against the Euro by approximately 10.9% during the year ended December 31, 2022.
General and administrative expense: The following table sets forth our general and administrative expense:
Year Ended December 31,
2022 2021 Change
(Amounts in thousands)
Share-based compensation expense $ 37,865 $ 37,760 $ 105
Development and acquisition costs 17,540 8,892 8,648
Federal and State tax expense and related compliance costs 16,086 11,530 4,556
Legal costs 4,014 6,194 (2,180)
Corporate management costs 21,808 18,594 3,214
Other costs 17,429 18,284 (855)
Total $ 114,742 $ 101,254 $ 13,488
Development and acquisition costs primarily represent internal and external expenses related to our development and acquisition of real estate facilities and varies primarily based upon the level of activities. The amounts in the above table are net of $17.4 million and $14.6 million in 2022 and 2021, respectively, in development costs that were capitalized to newly developed and redeveloped self-storage facilities. During 2022, we wrote off $7.0 million of accumulated development costs for cancelled development and redevelopment projects driven by significant increases in construction costs from when the projects were initiated.
Interest and other income: The following table sets forth our interest and other income:
Year Ended December 31,
2022 2021 Change
(Amounts in thousands)
Interest earned on cash balances $ 20,824 $ 101 $ 20,723
Commercial operations 9,846 8,127 1,719
Unrealized gain on private equity investments 4,685 - 4,685
Other 5,212 4,078 1,134
Total $ 40,567 $ 12,306 $ 28,261
Interest expense: For 2022 and 2021, we incurred $142.4 million and $94.3 million, respectively, of interest on our outstanding notes payable. In determining interest expense, these amounts were offset by capitalized interest of $6.0 million and $3.5 million during 2022 and 2021, respectively, associated with our development activities. The increase of interest expense in 2022 as compared to 2021 is due to our issuances of debt to fund our 2021 acquisition activity. At December 31, 2022, we had $6.9 billion of notes payable outstanding, with a weighted average interest rate of approximately 2.0%.
Foreign Currency Exchange Gain: For 2022, we recorded foreign currency gains of $98.3 million, representing primarily the changes in the U.S. Dollar equivalent of our Euro-denominated unsecured notes due to fluctuations in exchange rates (gains of $111.8 million for 2021). The Euro was translated at exchange rates of approximately 1.070 U.S. Dollars per Euro at December 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.
Gain on Sale of Real Estate: In 2022 and 2021, we recorded gains on sale of real estate totaling $1.5 million and $13.7 million, respectively, in connection with the partial sale of real estate facilities pursuant to eminent domain proceedings.
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 $500 million for 2023.
The REIT distribution requirement limits cash flow from operations that can be retained and reinvested in the business, increasing our reliance upon raising capital to fund growth. 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 December 31, 2022 and February 21, 2023, there were no borrowings outstanding on the revolving line of credit; however, we do have approximately $18.6 million of outstanding letters of credit, which limits our borrowing capacity to $481.4 million as of February 21, 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 were to change significantly in the long run, 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) $775.3 million of cash as of December 31, 2022 and (ii) approximately $500.0 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) $70.5 million in property acquisitions currently under contract and (ii) $606.6 million of remaining spending on our current development pipeline, which will be incurred primarily in the next 18 to 24 months. 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 December 31, 2022, the principal outstanding on our debt totaled approximately $6.9 billion, consisting of $10.1 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 are as follows (amounts in thousands):
2023 $ 151,532
2024 933,385
2025 367,561
2026 1,251,404
2027 587,643
Thereafter 4,349,115
$ 7,640,640
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 $452.3 million in 2022 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 $189 million in 2022 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 $56 million for the year ended December 31, 2022 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 February 4, 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 March 2023. 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. Our future aggregate annual common dividend distributions may increase as a result of the issuance of additional common shares, including any shares that would be issued if we were to consummate our recently proposed acquisition of Life Storage.
The annual distribution requirement with respect to our preferred shares outstanding at December 31, 2022 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 December 31, 2022, we acquired or were under contract to acquire eight self-storage facilities for a total purchase price of $70.5 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 December 31, 2022, we had development and expansion projects at a total cost of approximately $979.6 million. Costs incurred through December 31, 2022 were $373.0 million, with the remaining cost to complete of $606.6 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 February 21, 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 December 31, 2022 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 2022, we did not repurchase any of our common shares. From the inception of the repurchase program through February 21, 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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
To limit our exposure to market risk, we are capitalized primarily with preferred and common equity. Our preferred shares are redeemable at our option generally five years after issuance, but the holder has no redemption option. Our debt, which totals approximately $6.9 billion at December 31, 2022, is the only market-risk sensitive portion of our capital structure.
The fair value of our debt at December 31, 2022 is approximately $6.0 billion. The table below summarizes the annual maturities of our debt, which had a weighted average effective rate of 2.0% at December 31, 2022. See Note 7 to our December 31, 2022 consolidated financial statements for further information regarding our debt (amounts in thousands).
2023 2024 2025 2026 2027 Thereafter Total
Debt $ 8,270 $ 807,159 $ 259,170 $ 1,150,138 $ 500,140 $ 4,185,709 $ 6,910,586
We have foreign currency exposure at December 31, 2022 related to (i) our investment in Shurgard, with a book value of $275.8 million, and a fair value of $1.4 billion based upon the closing price of Shurgard’s stock on December 31, 2022, 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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. Financial Statements and Supplementary Data
The financial statements and supplementary data appearing on pages to are incorporated herein by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. 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.
As of December 31, 2022, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022, at a reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee on Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the framework in Internal Control-Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.
The effectiveness of internal control over financial reporting as of December 31, 2022, has been audited by Ernst & Young LLP, an independent registered public accounting firm. Ernst & Young LLP’s report on our internal control over financial reporting appears below.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2022 to which this report relates that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of Public Storage
Opinion on Internal Control over Financial Reporting
We have audited Public Storage’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Public Storage (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity and redeemable noncontrolling interests and cash flows for each of the three years in the period ended December 31, 2022 and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 21, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Los Angeles, California
February 21, 2023

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ITEM 9B. OTHER INFORMATION
ITEM 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. Trustees, Executive Officers and Corporate Governance
The following is a biographical summary of the current executive officers of the Company:
Joseph D. Russell, Jr., age 63, has served as Chief Executive Officer since January 1, 2019, and as President since July 2016. Prior to joining Public Storage, Mr. Russell was President and Chief Executive Officer of PS Business Parks, Inc. from August 2002 to July 2016. Mr. Russell has also served as a trustee of Public Storage since January 1, 2019.
H. Thomas Boyle, age 40, has served as Chief Financial Officer since January 1, 2019 and Chief Investment Officer since January 1, 2023. Previously, Mr. Boyle was Vice President and Chief Financial Officer, Operations, from November 2016, when he joined the Company, until January 2019. Prior to joining Public Storage, Mr. Boyle served in roles of increasing responsibilities with Morgan Stanley since 2005, from analyst to his last role as Executive Director, Equity and Debt Capital Markets.
Natalia N. Johnson, age 45, has served as Chief Administrative Officer since August 4, 2020. Previously, Ms. Johnson was Senior Vice President, Chief Human Resources Officer from April 2018 until August 2020, and prior to that was Senior Vice President of Human Resources, a position she held since joining the Company in July 2016. Prior to joining Public Storage, Ms. Johnson held a variety of senior management positions at Bank of America, including Chief Operating Officer for Mortgage Technology and Human Resources Executive for the Mortgage Business, and worked for Coca-Cola Andina and San Cristόbal Insurance.
Nathaniel A. Vitan, age 49, has served as Senior Vice President, Chief Legal Officer and Corporate Secretary since April 20, 2019, and was previously Vice President and Chief Counsel-Litigation and Operations since joining the Company in June 2016 until April 2019. Prior to joining Public Storage, Mr. Vitan was Assistant General Counsel for Altria Client Services LLC from 2008 to 2016, and before then was a Trial and Appellate Practice attorney at Latham & Watkins LLP.
David Lee, age 47, has served as Chief Operating Officer since November 1, 2021 and as the Company’s principal operating officer since February 21, 2023. Prior to joining Public Storage, Mr. Lee held various roles of increasing responsibility at The UPS Store since 2002, most recently as Senior Vice President of Operations.
Other information required by this item is hereby incorporated by reference to the material appearing in the Company’s Notice and Proxy Statement for its 2023 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. Executive Compensation
The information required by this item is hereby incorporated by reference to the material appearing in the Company’s Notice and Proxy Statement for its 2023 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The following table sets forth information, as of December 31, 2022 on the Company’s equity compensation plans:
Equity Compensation Plan Information
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants, and rights Weighted-average exercise price of outstanding options, warrants, and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A))
(A) (B) (C)
Equity compensation plans approved by security holders (a) 3,815,547 (b)
$ 209.53 (c)
1,724,352
Equity compensation plans not approved by security holders (d) - - -
Total 3,815,547 (b)
$ 209.53 (c)
1,724,352
a)The Company’s equity compensation plans are described more fully in Note 11 to the December 31, 2022 financial statements. All plans have been approved by the Company’s shareholders.
b)Includes (i) stock options to purchase 3,307,964 common shares, including performance-based stock options as to which the performance period had not ended or the Compensation Committee had not certified performance as of December 31, 2022, which stock options are reflected in the table above assuming a maximum payout, (ii) 498,032 restricted share units, including performance-based restricted share units as to which the performance period had not ended as of December 31, 2022, which restricted share units are reflected in the table above assuming a maximum payout, and (iii) 9,551 fully vested deferred share units. All restricted share units, if and when vested, and all deferred share units will be settled in common shares on a one-for-one basis.
c)Represents the weighted average exercise price of stock options to purchase 1,854,041 common shares, excluding the performance-based stock options described in footnote (b), above. The 498,032 restricted share units would vest for no consideration.
d)There were no securities outstanding or available for future issuance under equity compensation plans not approved by the Company’s shareholders.
Other information required by this item is hereby incorporated by reference to the material appearing in the Company’s Notice and Proxy Statement for its 2023 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. Certain Relationships and Related Transactions and Trustee Independence
The information required by this item is hereby incorporated by reference to the material appearing in the Company’s Notice and Proxy Statement for its 2023 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. Principal Accountant Fees and Services
The information required by this item is hereby incorporated by reference to the material appearing in the Company’s Notice and Proxy Statement for its 2023 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act of 1934.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. Exhibits and Financial Statement Schedules
a. 1. Financial Statements
The financial statements listed in the accompanying Index to Consolidated Financial Statements and Schedules hereof are filed as part of this report.
2.Financial Statement Schedules
The financial statements schedules listed in the accompanying Index to Consolidated Financial Statements and Schedules are filed as part of this report.
3.Exhibits
See Index to Exhibits contained herein.
b.Exhibits:
See Index to Exhibits contained herein.
c.Financial Statement Schedules
Not applicable.
PUBLIC STORAGE
INDEX TO EXHIBITS (1)
(Items 15(a)(3) and 15(c))
3.1 Restated Declaration of Trust of Public Storage, a Maryland real estate investment trust. Filed herewith.
3.2 Amended and Restated Bylaws of Public Storage. Filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and incorporated herein by reference.
3.3 Articles Supplementary for Public Storage 5.150% Cumulative Preferred Shares, Series F. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 23, 2017 and incorporated herein by reference.
3.4 Articles Supplementary for Public Storage 5.050% Cumulative Preferred Shares, Series G. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated July 31, 2017 and incorporated herein by reference.
3.5 Articles Supplementary for Public Storage 5.600% Cumulative Preferred Shares, Series H. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated February 28, 2019 and incorporated herein by reference.
3.6 Articles Supplementary for Public Storage 4.875% Cumulative Preferred Shares, Series I. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 5, 2019 and incorporated herein by reference.
3.7 Articles Supplementary for Public Storage 4.700% Cumulative Preferred Shares, Series J. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 5, 2019 and incorporated herein by reference.
3.8 Articles Supplementary for Public Storage 4.750% Cumulative Preferred Shares, Series K. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 11, 2019 and incorporated herein by reference.
3.9 Articles Supplementary for Public Storage 4.625% Cumulative Preferred Shares, Series L. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 8, 2020 and incorporated herein by reference.
3.10 Articles Supplementary for Public Storage 4.125 % Cumulative Preferred Shares, Series M. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated August 11, 2020 and incorporated herein by reference.
3.11 Articles Supplementary for Public Storage 3.875% Cumulative Preferred Shares, Series N. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 29, 2020 and incorporated herein by reference.
3.12 Articles Supplementary for Public Storage 3.900% Cumulative Preferred Shares, Series O. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 9, 2020 and incorporated herein by reference.
3.13 Articles Supplementary for Public Storage 4.000% Cumulative Preferred Shares, Series P. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 7, 2021 and incorporated herein by reference.
3.14 Articles Supplementary for Public Storage 3.950% Cumulative Preferred Shares, Series Q. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated August 10, 2021 and incorporated herein by reference.
3.15 Articles Supplementary for Public Storage 4.000% Cumulative Preferred Shares, Series R. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 9, 2021 and incorporated herein by reference.
3.16 Articles Supplementary for Public Storage 4.100% Cumulative Preferred Shares, Series S. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated January 4, 2022 and incorporated herein by reference.
4.1 Description of the Company’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. Filed as Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and incorporated herein by reference.
4.2 Master Deposit Agreement, dated as of May 31, 2007. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 6, 2007 and incorporated herein by reference.
4.3 Indenture, dated as of September 18, 2017, between Public Storage and Wells Fargo Bank, National Association, as trustee. Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated September 18, 2017 and incorporated herein by reference.
4.4 First Supplemental Indenture, dated as of September 18, 2017, between Public Storage and Wells Fargo Bank, National Association, as trustee, including the form of Global Note representing the 2022 Notes and the form of Global Note representing the 2027 Notes. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated September 18, 2017 and incorporated herein by reference.
4.5 Second Supplemental Indenture, dated as of April 12, 2019, between Public Storage and Wells Fargo Bank, National Association, as trustee, including the form of Global Note representing the 2029 Notes. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated April 12, 2019 and incorporated herein by reference.
4.6 Third Supplemental Indenture, dated as of January 24, 2020, between Public Storage and Wells Fargo Bank, National Association, as trustee, including the form of Global Note representing the 2032 Notes. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated January 24, 2020 and incorporated herein by reference.
4.7 Fourth Supplemental Indenture, dated as of January 19, 2021, between Public Storage and Wells Fargo Bank, National Association, as trustee, including the form of Global Note representing the 2026 Notes. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated January 14, 2021 and incorporated herein by reference.
4.8 Fifth Supplemental Indenture, dated as of April 23, 2021, between Public Storage and Wells Fargo Bank, National Association, as trustee, including the form of Global Note representing the Floating Rate Notes. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated April 23, 2021 and incorporated herein by reference.
4.9 Sixth Supplemental Indenture, dated as of April 23, 2021, between Public Storage and Wells Fargo Bank, National Association, as trustee, including the form of Global Note representing the 2028 Notes. Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated April 23, 2021 and incorporated herein by reference.
4.10 Seventh Supplemental Indenture, dated as of April 23, 2021, between Public Storage and Wells Fargo Bank, National Association, as trustee, including the form of Global Note representing the 2031 Notes. Filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K dated April 23, 2021 and incorporated herein by reference.
4.11 Eighth Supplemental Indenture, dated as of September 9, 2021, between Public Storage and Wells Fargo Bank, National Association, as trustee, including the form of Global Note representing the 2030 Notes. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated September 9, 2021 and incorporated herein by reference.
4.12 Ninth Supplemental Indenture, dated as of November 9, 2021, between Public Storage and Computershare Trust Company, N.A. (as successor to Wells Fargo Bank, National Association), as trustee, including the form of Global Note representing the 2026 Notes. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated November 9, 2021 and incorporated herein by reference.
4.13 Tenth Supplemental Indenture, dated as of November 9, 2021, between Public Storage and Computershare Trust Company, N.A. (as successor to Wells Fargo Bank, National Association), as trustee, including the form of Global Note representing the 2028 Notes. Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated November 9, 2021 and incorporated herein by reference.
4.14 Eleventh Supplemental Indenture, dated as of November 9, 2021, between Public Storage and Computershare Trust Company, N.A. (as successor to Wells Fargo Bank, National Association), as trustee, including the form of Global Note representing the 2031 Notes. Filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K dated November 9, 2021 and incorporated herein by reference.
10.1 Note Purchase Agreement, dated as of November 3, 2015, by and among Public Storage and the signatories thereto. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 3, 2015 and incorporated herein by reference.
10.2 Note Purchase Agreement, dated as of April 12, 2016, by and among Public Storage and the signatories thereto. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 12, 2016 and incorporated herein by reference.
10.3 Second Amended and Restated Credit Agreement, dated April 19, 2019, by and among Public Storage, the lenders party thereto, Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporation, as joint lead arrangers and as joint bookrunners, Bank of America, N.A., as syndication agent, and Citibank, N.A., as documentation agent. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 19, 2019 and incorporated herein by reference.
10.4 Form of Trustee and Officer Indemnification Agreement. Filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference.
10.5* Public Storage 2007 Equity and Performance-Based Incentive Compensation Plan, as Amended (2007 Plan). Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 1, 2014 and incorporated herein by reference.
10.6* Public Storage 2016 Equity and Performance-Based Incentive Compensation Plan (2016 Plan). Filed herewith.
10.7* Public Storage 2021 Equity and Performance-Based Incentive Compensation Plan (2021 Plan). Filed herewith.
10.8* Form of 2007 Plan Restricted Stock Unit Agreement. Filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.
10.9* Form of 2007 Plan Restricted Stock Unit Agreement (deferral of receipt of shares). Filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.
10.10* Form of 2007 Plan Stock Option Agreement. Filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.
10.11* Form of 2007 Plan Trustee Stock Option Agreement. Filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.
10.12* Form of 2016 Plan Restricted Stock Unit Agreement (deferral of receipt of shares). Filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference.
10.13* Form of 2016 Plan Trustee Non-Qualified Stock Option Agreement. Filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference.
10.14* Form of 2016 Plan Restricted Stock Unit Agreement (deferral of receipt of shares) (2018). Filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.
10.15* Form of 2016 Plan Trustee Deferred Stock Unit Agreement (2018). Filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.
10.16* Form of 2016 Plan Executive Restricted Stock Unit Agreement (2018). Filed as Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.
10.17* Form of 2016 Employee Stock Unit Agreement (2020). Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and incorporated herein by reference.
10.18* Form of 2016 Plan Employee Non-Qualified Stock Option Agreement (2020). Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and incorporated herein by reference.
10.19* Form of 2016 Plan Performance-Based Non-Qualified Stock Option Agreement (2020). Filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and incorporated herein by reference.
10.20* Form of 2021 Plan Employee Stock Unit Agreement (2021). Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and incorporated herein by reference.
10.21* Form of 2021 Plan Employee Stock Unit Agreement (2022). Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 and incorporated herein by reference.
10.22* Form of 2021 Plan Trustee Non-Qualified Stock Option Agreement. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 and incorporated herein by reference.
10.23* Form of 2021 Plan Performance-Based Non-Qualified Stock Option Agreement (2022). Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 and incorporated herein by reference.
10.24* Form of 2021 Plan Performance-Based Stock Unit Agreement (2022). Filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 and incorporated herein by reference.
21 Listing of Subsidiaries. Filed herewith.
23.1 Consent of Ernst & Young LLP. Filed herewith.
31.1 Rule 13a - 14(a) Certification. Filed herewith.
31.2 Rule 13a - 14(a) Certification. Filed herewith.
32 Section 1350 Certifications. Filed herewith.
101 .INS 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.
* Denotes management compensatory plan agreement or arrangement.