PSA · Read the filing

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. In addition, we may not have identified all current facts and circumstances that may affect impairment. Any unidentified impairment loss, or change in conclusions, could have a material adverse impact on our net income.

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 estimate. 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 most impacted by the level of organic growth within our Same Store Facilities (as defined below). Accordingly, a significant portion of management’s time is devoted to maximizing cash flows from our existing self-storage facility portfolio.

During the year ended December 31, 2021, revenues generated by our Same Store Facilities increased by 10.5%, as compared to the previous year, while Same Store cost of operations decreased by 2%. Demand and operating trends have continued to improve, leading to increases in our self-storage rental rates and reduction in advertising expense in all markets while maintaining high levels of occupancy.

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. During 2021, we acquired a near-record high of 232 facilities with 21.8 million net rentable square feet for $5.1 billion. In addition, we developed and expanded self-storage space for a total cost of $218.0 million, adding 1.6 million net rentable square feet. During the year ended December 31, 2021, revenue generated by our acquired and newly developed and expanded facilities increased by 112.9% as compared to the previous year.

Our strong financial profile continues to enable effective access to capital markets in order to support our growth. During 2021, we raised an aggregate of $5.1 billion in four public debt offerings, resulting in aggregate notes payable of $7.5 billion with a weighted average rate of 1.8% at December 31, 2021. Additionally, during 2021, we issued $1.2 billion in three public offerings of our preferred shares offset by $1.2 billion in redemptions of our preferred shares, reducing our weighted average dividend rate from 4.8% at December 31, 2020 to 4.5% at December 31, 2021.

In order to enhance the competitive position of certain of our facilities relative to local competitors (including newly developed facilities) and execute on our climate initiatives and long-term sustainability strategies, we have embarked on our multi-year Property of Tomorrow program to (i) rebrand our properties through 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 $130 million on the program in 2021 and expect to spend approximately $180 million in 2022.

Results of Operations

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 PS Business Parks 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 $276.9 million increase in our Same Store Facilities, and a $160.5 million increase in our Non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities increased 10.5% or $262.7 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 2.0% or $14.2 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 $160.5 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.

Operating Results for 2020 and 2019

In 2020, net income allocable to our common shareholders was $1,098.3 million or $6.29 per diluted common share, compared to $1,272.8 million or $7.29 per diluted common share in 2019, representing a decrease of $174.4 million or $1.00 per diluted common share. The decrease is due primarily to (i) a $105.8 million increase in foreign currency exchange losses associated with our Euro denominated notes payable, (ii) a $40.3 million increase in depreciation and amortization expense, (iii) a $21.1 million increase in general and administrative expense, (iv) a $15.6 million decrease due to the impact of allocations to preferred shareholders with respect to redemption of preferred shares, and (v) a $8.0 million decrease in self-storage net operating income.

The $8.0 million decrease in self-storage net operating income is a result of a $39.4 million decrease in our Same Store Facilities, offset partially by a $31.4 million increase in our non-Same Store Facilities. Revenues for the Same Store Facilities decreased 0.8% or $20.7 million in 2020 as compared to 2019, due primarily to reduced late charges and administrative fees. Cost of operations for the Same Store Facilities increased by 2.7% or $18.8 million in 2020 as compared to 2019, due primarily to a 22.6% ($11.4 million) increase in marketing expenses, a 3.0% ($7.6 million) increase in property tax expense, and a 2.3% ($2.9 million) increase in on-site property manager payroll expense. The increase in net operating income of $31.4 million for the non-Same Store Facilities is due primarily to the impact of facilities acquired in 2020 and 2019 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 the National Association of Real Estate Investment Trusts and are considered helpful measures of REIT performance by REITs and many REIT analysts. FFO represents net income before 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, 2021, FFO was $13.36 per diluted common share, as compared to $9.75 and $10.58 per diluted common share for the years ended December 31, 2020 and 2019, respectively, representing an increase in 2021 of 37.0% or $3.61 per diluted common share, as compared to 2020.

The following tables reconcile diluted earnings per share to FFO per share and set forth the computation of FFO per share:

Year Ended December 31,

(Amounts in thousands, except per share data)

Reconciliation of Diluted Earnings per Share to FFO per Share:

Diluted Earnings per Share $ 9.87 $ 6.29 $ 7.29

Eliminate amounts per share excluded from FFO:

Computation of FFO per Share:

Eliminate items excluded from FFO:

Depreciation from unconsolidated real estate investments 73,729 70,681 71,725

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, casualties, transactional due diligence, and advisory costs. 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 FFO per share to Core FFO per share and FFO to Core FFO, respectively:

Year Ended December 31, Year Ended December 31,

(Amounts in thousands, except per share data)

Reconciliation of FFO per Share to Core FFO per Share:

Foreign currency exchange (gain) loss (0.64) 0.56 0.56 (0.04)

Property losses and tenant claims due to casualties (b) 0.03 — — —

Reconciliation of FFO to Core FFO:

Property losses and tenant claims due to casualties (b) 4,909 — — —

(a)Preferred share redemption charge was presented in allocation of net income to preferred shareholders - redemption and equity in earnings of unconsolidated real estate entities on the Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019.

(b)Property losses and tenant claims due to casualties was presented in general and administrative expenses and ancillary cost of operations on the Consolidated Statement of Income for the year ended December 31, 2021.

Analysis of Net Income - Self-Storage Operations

Our self-storage operations are analyzed in four groups: (i) the 2,274 facilities that we have owned and operated on a stabilized basis since January 1, 2019 (the “Same Store Facilities”), (ii) 338 facilities we acquired after December 31, 2019 (the “Acquired facilities”), (iii) 142 facilities that have been newly developed or expanded, or that had commenced expansion by December 31, 2021 (the “Newly developed and expanded facilities”), and (iv) 33 other facilities, which are otherwise not stabilized with respect to occupancies or rental rates since January 1, 2019 (the “Other non-same store facilities”). See Note 13 to our December 31, 2021 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,

(Dollar amounts and square footage in thousands)

Revenues:

Cost of operations:

Net operating income (a):

Depreciation and amortization expense:

Net income (loss):

Number of facilities at period end:

Other non-same store facilities 33 34 (2.9) % 34 34 —

Net rentable square footage at period end:

(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, 2021 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, 2019. The composition of our Same Store Facilities allows us more effectively to evaluate the ongoing performance of our self-storage portfolio in 2019, 2020, and 2021 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 2,274 facilities (148.7 million net rentable square feet) that represent approximately 75% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at December 31, 2021. 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 (2,274 facilities)

Year Ended December 31, Year Ended December 31,

(Dollar amounts in thousands, except for per square foot data)

Revenues (a):

Direct cost of operations (a):

Indirect cost of operations (a):

Weighted average for the period:

Realized annual rental income per (c):

At December 31:

(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 the 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 the customer’s in-place rent and prevailing market rents, among other factors.

Revenues generated by our Same Store Facilities increased 10.5% in 2021 and decreased 0.8% in 2020, in each case as compared to the previous year. The increase in 2021 is due primarily to (i) an 8.8% 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. The decrease in 2020 is due to the negative impact caused by the COVID Pandemic, certain restrictions on rate increases to existing tenants imposed by local governments due to declared state of emergency, reduced late charges and administrative fees, as well as the continued impact of increased new supply from new developments.

Our growth in revenues, weighted average square foot occupancy, realized annual rent per occupied square foot, and REVPAF for 2021 as compared to 2020 was evident in substantially all of our markets including each of our top 15 markets.

Realized annual rent per occupied square foot increased 8.8% in 2021 as compared to 2020. The increase of realized annual rent per occupied square foot in 2021 as compared to 2020 was due to (i) a 25.8% year over year increase in average rates per square foot charged to new tenants moving in as a result of strong customer demand across all markets, combined with (ii) rate increases to existing tenants in 2021 as compared to the curtailed increases in 2020. At December 31, 2021, annual contract rent per occupied square foot was 11.8% higher as compared to December 31, 2020.

We experienced high occupancy levels throughout 2021. Our average square foot occupancy levels increased 1.9% on a year over year basis during 2021 and at December 31, 2021, our square foot occupancy was 94.8%. The improvement in occupancy trends was due primarily to improved trends in move-outs, with year over year move-outs down 7.9% in 2021. This resulted in an increased average length of stay for 2021, which supports revenue growth through rate increases to long-term tenants and a reduced requirement to replace vacating tenants with new tenants, leading to reduced promotional costs and increased pricing leverage. This reduced requirement to replace vacating tenants with new tenants resulted in lower move-in volumes throughout 2021. With higher occupancy and pricing trends, we reduced promotional discounts given to new move-in customers for 2021 by 49.8% as compared to 2020.

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. Demand fluctuates due

to various local and regional factors, including the overall economy. Demand into our system is also impacted by new supply of self-storage space as well as alternatives to self-storage.

We expect continued revenue growth in 2022 supported by consistently high customer demand and a stable tenant base that will enable us to continue to raise rates to our existing tenants while maintaining a high level of occupancy.

Late Charges and Administrative Fees

Late charges and administrative fees decreased 1.9% year over year for 2021, 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, 2021, 2020, and 2019. 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,

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

Tenants moving in during the period:

Tenants moving out during the period:

Analysis of Same Store Cost of Operations

Cost of operations (excluding depreciation and amortization) decreased 2.0% in 2021 as compared to 2020 due primarily to decreased marketing and on-site property manager payroll expense. Cost of operations (excluding depreciation and amortization) increased 2.7% in 2020 as compared to 2019 due primarily to increased marketing and property tax expense.

Property tax expense increased 3.6% in 2021 as compared to 2020 and increased 3.0% in 2020 as compared to 2019 as a result of higher assessed values. We expect property tax expense growth of approximately 5.0% in 2022 due primarily to higher assessed values and, to a lesser extent, increased tax rates.

On-site property manager payroll expense decreased 11.2% in 2021 as compared to 2020 and increased 2.3% in 2020 as compared to 2019. 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. On October 1, 2021, we increased the wages of all of our property employees by an average of 7.5%, bringing our average pay for non-resident property employees (i.e. those not receiving rent and utility free housing) to $15 per hour. We expect on-

site property manager payroll expense to increase in 2022 driven by increased wage rates, partially offset by expected reduction in labor hours.

Our utility expenses consist primarily of electricity costs, which are dependent upon energy prices, subject to fluctuations due to market conditions, and usage levels. Changes in usage levels are driven primarily by weather and temperature. Utility expense decreased 1.9% in 2021 as compared to 2020 and 8.9% in 2020 as compared to 2019. The decreases experienced in 2021 and 2020 are due primarily to investments we are making in energy saving technology such as solar power and LED lights, which generate favorable returns on investment in the form of lower utility usage.

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 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. Marketing expense increased 22.6% in 2020 as compared to 2019, due primarily to both higher volume of paid search programs we utilized to attract more customers for our space, and cost per click for keyword search terms increased due to more keyword bidding competition from existing self-storage owners and operators, including owners of newly developed facilities and nontraditional storage providers.

Other direct property costs include administrative expenses specific to each self-storage facility, such as property insurance, 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 7.8% in 2021 as compared to 2020 and 1.8% in 2020 as compared to 2019. We continue to experience increased credit card fees due to a long-term trend of more customers paying with credit cards rather than cash, checks, or other methods of payment with lower transaction costs.

Supervisory payroll expense, which represents cash compensation paid to the management personnel who directly and indirectly supervise the on-site property managers, decreased 9.6% in 2021 as compared to 2020, due primarily to lower headcount in 2021 and incentives related to the COVID Pandemic in 2020. Supervisory payroll increased 4.8% in 2020 as compared to 2019 due to higher headcount.

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, repairs and maintenance, customer service, pricing and marketing, operational accounting and finance, and legal costs. Centralized management costs increased 12.8% in 2021 as compared to 2020 and decreased 3.6% in 2020 as compared to 2019. The increase in 2021 was due primarily to an increase in technology and data team costs that support property operations. We expect increases in centralized management costs in 2022 due to continued investment in our technology and data platforms that support our property operations.

Share-based compensation expense includes the amortization of restricted share units and stock options granted to management personnel who directly and indirectly supervise the on-site property managers, as well as those employees responsible for providing shared general corporate functions to the extent their efforts are devoted to self-storage operations. Such functions are listed above under centralized management costs. Share-based compensation expense varies based upon the level of grants and their related vesting and amortization periods, forfeitures, as well as the Company’s common share price on the date of each grant. Share-based compensation expense increased 37.3% in 2021 as compared to 2020 and 17.3% in 2020 as compared to 2019. The increase in 2021 is due primarily to the absence of comparable performance-based share-based compensation expense in 2020 and the accelerated compensation costs recognized in 2021 associated with modifying our share-based compensation plans in July 2020, to allow immediate vesting upon retirement.

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, 2021 Year Ended December 31,

Same Store Facilities Operating Trends by Market (Continued)

Year Ended December 31,

Same Store Facilities Operating Trends by Market (Continued)

As of December 31, 2021 Year Ended December 31,

Same Store Facilities Operating Trends by Market (Continued)

Year Ended December 31,

Acquired Facilities

The Acquired Facilities represent 338 facilities that we acquired in 2019, 2020, and 2021. As a result of the stabilization process and timing of when these facilities were acquired (and resulting reclassification to Same-Store Facilities), 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,

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

Revenues (b):

Cost of operations (b):

Net operating income:

At December 31:

Square foot occupancy:

Annual contract rent per occupied square foot:

Number of facilities:

Net rentable square feet (in thousands):

ACQUIRED FACILITIES (Continued)

Costs to acquire (in thousands):

(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.

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, which includes 47 self-storage facilities and one property that is under construction. Included in the 2021 Acquisition results in the table above are revenues of $61.7 million, NOI of $48.5 million (including Direct NOI of $50.2 million) and square footage occupancy of 92.2% for 2021 since the acquisition on April 28, 2021.

During 2021, we acquired the All Storage portfolio consisting of 56 properties (7.5 million net rentable square feet) for $1.5 billion, with 55 properties closed in the fourth quarter of 2021 and one property expected to close in early 2022.

Subsequent to December 31, 2021, we are under contract to acquire 15 self-storage facilities across 10 states with 1.2 million net rentable square feet, for $212.4 million.

Developed and Expanded Facilities

The developed and expanded facilities include 70 facilities that were developed on new sites since January 1, 2016, and 72 facilities subject to expansion of their net rentable square footage. Of these expansions, 43 were completed at January 1, 2020, 23 were completed in the 24 months ended December 31, 2021, and 6 are currently in process at December 31, 2021. 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,

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

Revenues (b):

Cost of operations (b):

Net operating income (loss):

DEVELOPED AND EXPANDED FACILITIES (Continued)

As of December 31, As of December 31,

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

Square foot occupancy:

Annual contract rent per occupied square foot:

Number of facilities:

Expansions in process 6 6 — 6 6 —

Net rentable square feet (in thousands) (c):

Costs to develop (in thousands):

(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 17.4 million net rentable square feet at December 31, 2021, including 6.0 million in Texas, 2.6 million in Florida, 2.2 million in California, 1.5 million in Colorado, 1.1 million in Minnesota, 0.9 million in North Carolina, 0.6 million in Washington, 0.4 million in each of Missouri and Virginia, 0.3 million in each of Georgia, Michigan, New Jersey and South Carolina and 0.5 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.

At December 31, 2021, we had 22 additional facilities in development, which will have a total of 1.8 million net rentable square feet of storage space and have an aggregate development cost totaling approximately $331.0 million. We expect these facilities to open over the next 18 to 24 months.

The facilities under “expansions completed” represent those facilities where the expansions have been completed at December 31, 2021. We incurred a total of $582.8 million in direct cost to expand these facilities, demolished a total of 1.1 million net rentable square feet of storage space, and built a total of 5.6 million net rentable square feet of new storage space.

The facilities under "expansion in process" represent those facilities where construction is in process at December 31, 2021, and together with additional expansion activities primarily related to our Same Store Facilities at December 31, 2021, we expect to add a total of 2.8 million net rentable square feet of storage space by expanding existing self-storage facilities for an aggregate direct development cost of $469.0 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, 2019, due primarily to casualty events such as hurricanes, floods, and fires.

The other non-same store facilities have an aggregate of 2.2 million net rentable square feet, including 0.6 million in Texas, 0.3 million in California, 0.2 million in each of Georgia, Ohio and Tennessee, and 0.7 million in other states.

Depreciation and amortization expense

Depreciation and amortization expense for Self-Storage Operations increased $160.2 million in 2021 as compared to 2020 and increased $40.3 million in 2020 as compared to 2019, primarily due to acquired, developed and expanded facilities. We expect continued increases in depreciation expense in 2022 as a result of elevated levels of capital expenditures and new facilities that are acquired, developed or expanded in 2022.

The following discussion and analysis of the components of net income present a comparison for the year ended December 31, 2021 to the year ended December 31, 2020. The results of these components for the years ended December 31, 2020 compared to December 31, 2019 was included in our Annual Report on Form 10-K for the year ended December 31, 2020 on page 24, 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 24, 2021.

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,

(Amounts in thousands)

Revenues:

Cost of operations:

Net operating income (loss):

Third party property management (155) 626 (781)

Tenant reinsurance operations: Tenant reinsurance premium revenue increased $17.3 million or 11.6% in 2021 over 2020 as a result of higher average premiums and 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 $133.8 million and $128.0 million in 2021 and 2020, respectively, representing a 4.5% year over year increase in 2021.

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 which drive covered customer losses, such as burglary, as well as catastrophic weather events affecting multiple properties such as hurricanes and floods.

Merchandise sales:Sales of locks, boxes, and packing supplies at our self-storage facilities are primarily impacted by the level of move-ins and other customer traffic at our self-storage facilities. We do not expect any significant changes in revenues or profitability from our merchandise sales in 2022.

Third-party property management: At December 31, 2021, we managed 93 facilities for unrelated third parties, and were under contract to manage 59 additional facilities including 54 facilities that are currently under construction. During 2021, we added 79 facilities to the program, acquired 25 facilities from the program, and had 19 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 lease-up for newly managed properties.

Analysis of items not allocated to our Reportable Segments

Equity in earnings of unconsolidated real estate entities

For all periods presented, we have equity investments in PSB and Shurgard, which we account for 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,

(Amounts in thousands)

Equity in earnings:

Investment in PSB:Throughout all periods presented, we owned 7,158,354 shares of PS Business Parks, Inc. (“PSB”) common stock and 7,305,355 limited partnership units in an operating partnership controlled by PSB, representing an approximate 41% common equity interest as of December 31, 2021 (42% as of December 31, 2020). The limited partnership units are convertible at our option, subject to certain conditions, on a one-for-one basis into PSB common stock.

At December 31, 2021, PSB wholly-owned approximately 28 million rentable square feet of commercial space and had a 95% interest in a 395-unit apartment complex. PSB also manages commercial space that we own pursuant to property management agreements.

Included in our equity earnings from PSB is our equity share of gains on sale of real estate totaling $149.0 million and $11.3 million in 2021 and 2020, respectively. PSB’s filings and selected financial information, including discussion of the factors that affect its earnings, can be accessed through the SEC, and on PSB’s website, www.psbusinessparks.com. Information on this website is not incorporated by reference herein and is not a part of this Annual Report on Form 10-K.

Investment in Shurgard:Throughout all periods presented, we effectively owned, directly and indirectly, 31,268,459 Shurgard common shares, representing an approximate 35% equity interest in Shurgard. Shurgard’s common shares trade on Euronext Brussels under the “SHUR” symbol.

At December 31, 2021, Shurgard owned 253 self-storage facilities with approximately 14 million net rentable square feet. Shurgard pays us license fees for use of the Shurgard® trademark, as described in more detail in Note 4 to our December 31, 2021 consolidated financial statements.

Equity in earnings from Shurgard increased $8.7 million in 2021 as compared to 2020, primarily due to the impact of improved same store operating income. Shurgard’s public filings and publicly reported information, including discussion of the factors that affect its earnings, can be obtained on its website, https://corporate.shurgard.eu and on the website of the Luxembourg Stock Exchange, http://www.bourse.lu. Information on these websites is not incorporated by reference herein and is not a part of this Annual Report on Form 10-K.

For purposes of recording our equity in earnings from Shurgard, the Euro was translated at exchange rates of approximately 1.134 U.S. Dollars per Euro at December 31, 2021 (1.226 at December 31, 2020), and average exchange rates of 1.183 for 2021 and 1.141 for 2020.

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

Year Ended December 31,

(Amounts in thousands)

Share-based compensation expense includes the amortization of restricted share units and stock options granted to certain corporate employees and trustees.

Share-based compensation expense for management personnel who directly and indirectly supervise the on-site property managers, as well as those employees responsible for providing shared general corporate functions to the extent their efforts are devoted to self-storage operations, are included as self-storage cost of operations. See “Same Store Facilities” for further information. Share-based compensation expense varies based upon the level of grants and their related vesting and amortization periods, forfeitures, as well as the Company’s common share price on the date of each grant.

In July 2020, our share-based compensation plans were modified to allow immediate vesting upon retirement (“Retirement Acceleration”), and to extend the exercisability of outstanding stock options up to a year after retirement, for currently outstanding and future grants. Employees are eligible for Retirement Acceleration if they meet certain conditions including length of service, age, notice of intent to retire, and facilitation of succession for their role.

In 2021, share-based compensation expense increased $19.2 million as compared to 2020, primarily due to (i) the absence of comparable performance-based share-based compensation expense in 2020 and (ii) the accelerated compensation costs recognized in 2021 associated with modifying our share-based compensation plans in July 2020, to allow immediate vesting upon retirement.

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 $14.6 million and $11.8 million in 2021 and 2020, respectively, in development costs that were capitalized to newly developed and redeveloped self-storage facilities. During 2020, we incurred $3.2 million in costs associated with the write-off of cancelled development projects.

Tax compliance costs and taxes paid include taxes paid to various state and local authorities, the costs of filing tax returns, and other costs associated with complying with federal and state tax laws. Such costs vary primarily based upon the tax rates and the level of our operations in the various states in which we do business. State income tax increased $2.9 million from 2020 to 2021, due to rising taxable income in certain states where there are differences between federal and state tax laws.

Interest and other income: Interest and other income is comprised of the revenue and cost associated with our commercial operations, interest earned on cash balances, and trademark license fees received from Shurgard, as well as sundry other income items that are received from time to time in varying amounts. For 2021 and 2020, we recognized $12.3 million and $22.3 million interest and other income, respectively. Amounts attributable to commercial operations was $8.1 million and $8.6 million in 2021 and 2020, respectively. Excluding the aforementioned amounts attributable to our commercial operations, interest and other income decreased $9.5 million from 2020 to 2021, primarily due to $5.5 million other income recognized in 2020 related to litigation settlements and early repayment of notes receivable and $3.4 million decrease of interest earned on cash balances from 2020 to 2021.

Interest expense: For 2021 and 2020, we incurred $94.3 million and $59.7 million, respectively, of interest on our outstanding notes payable. In determining interest expense, these amounts were offset by capitalized interest of $3.5 million and $3.4 million during 2021 and 2020, respectively, associated with our development activities. The increase of interest expense in 2021 as compared to 2020 is due to our issuances of debt. At December 31, 2021, we had $7.5 billion of notes payable outstanding, with a weighted average interest rate of approximately 1.8%, compared to $2.5 billion of notes payable outstanding at December 31, 2020.

Foreign Currency Exchange Gain (Loss): For 2021, we recorded foreign currency gains of $111.8 million representing the changes in the U.S. Dollar equivalent of our Euro-denominated unsecured notes due to fluctuations in exchange rates (losses of $98.0 million for 2020). The Euro was translated at exchange rates of approximately 1.134 U.S. Dollars per Euro at December 31, 2021 and 1.226 at December 31, 2020. 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 2021 and 2020, we recorded gains on sale of real estate totaling $13.7 million, and $1.5 million, respectively, primarily in connection with the partial or complete sale of real estate facilities pursuant to eminent domain proceedings.

Liquidity and Capital Resources

Overview

Our expected material cash requirements for the twelve months ended December 31, 2022 and thereafter comprised (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 financing.

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, we are nonetheless able to retain operating cash flow to the extent that our tax depreciation exceeds our maintenance capital expenditures. Retained operating cash flow represents our expected cash flow provided by operating activities, less shareholder distributions and capital expenditures. Our annual operating retained cash flow increased from $200 million to $300 million per year in recent years to approximately $700 million in 2021. We anticipate retained operating cash flow will remain similar in 2022 as compared to 2021.

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 has an “A” credit rating by Standard & Poor’s and “A2” by Moody’s. Our credit ratings on each of our series of preferred shares are “A3” by Moody’s and “BBB+” by Standard & Poor’s. Our credit profile enable us to effectively access both the public and private capital markets to raise capital.

We have a $500.0 million revolving line of credit which we are able to use as temporary “bridge” financing until we are able to raise longer term capital. As of December 31, 2021 and February 22, 2022, there were no borrowings outstanding on the revolving line of credit; however, we do have approximately $21.2 million of outstanding letters of credit which limits our borrowing capacity to $478.8 million. Our line of credit matures on April 19, 2024.

We believe that we have significant financial flexibility to adapt to changing conditions and opportunities. Currently, market rates of interest for our debt, and market coupon rates for our preferred equity, are at historically low levels and we have significant access to these sources of capital. Based upon 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.

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.

Our expected capital resources include: (i) $734.6 million of cash as of December 31, 2021, (ii) $242.8 million in net proceeds from the issuance of our Series S Preferred Shares on January 13, 2022 and (iii) approximately $700.0 million of expected retained operating cash flow over the next twelve months. Over the long term, to the extent that our capital needs 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, (ii) other essential expenditures, and (iii) opportunistic expenditures. We expect our capital needs to increase over the next year as we add projects to our development pipeline and acquire additional properties.

Required Debt Repayments:As of December 31, 2021, the principal outstanding on our debt totaled approximately $7.5 billion, consisting of $23.3 million of secured notes payable, $1.7 billion of Euro-denominated unsecured notes payable and $5.8 billion of U.S. Dollar denominated unsecured notes payable. Approximate principal maturities and interest payments are as follows (amounts in thousands):

We plan to refinance our 2022 unsecured notes when they come due in September 2022.

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 $284.2 million in 2021 and are expected to approximate $300 million in 2022. 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, upgrades to the configuration and layout of the offices and other customer zones to improve the customer experience. We spent approximately $130 million in 2021 and expect to spend $180 million in 2022 on this effort. In addition, we have made investments in LED lighting and the installation of solar panels, which approximated $41 million for the year ended December 31, 2021 and we expect to spend $30 million in 2022.

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 18, 2022, our Board declared a regular common quarterly dividend of $2.00 per common share totaling approximately $350 million, which will be paid at the end of March 2022. Our consistent, long-term dividend policy has been to distribute our taxable income. Future quarterly distributions with respect to the common shares will continue to be determined based upon our REIT distribution requirements after taking into consideration distributions to the preferred shareholders and will be funded with cash flows from operating activities.

The annual distribution requirement with respect to our Preferred Shares outstanding at December 31, 2021 and our Series S Preferred Shares issued on January 13, 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, 2021, we acquired or were under contract to acquire 15 self-storage facilities for a total purchase price of $212.4 million. Seven of these properties are under construction and expected to close as they are completed in 2022.

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, 2021, we had development and expansion projects at a total cost of approximately $800.0 million. Costs incurred through December 31, 2021 were $272.5 million, with the remaining cost to complete of $527.5 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 22, 2022, we have no series of preferred securities that are eligible for redemption, at our option and with 30 days’ notice. See Note 9 to our December 31, 2021 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 2021, we did not repurchase any of our common shares. From the inception of the repurchase program through February 22, 2022, we have repurchased a total of 23,721,916 common shares at an aggregate cost of approximately $679.1 million. Future levels of common share repurchases will be dependent upon our available capital, investment alternatives and the trading price of our common shares.

ITEM 7A.Quantitative and Qualitative Disclosures about Market Risk

To limit our exposure to market risk, we are capitalized primarily with preferred and common equity. Our preferred shares are redeemable at our option generally five years after issuance, but the holder has no redemption option. Our debt is our only market-risk sensitive portion of our capital structure, which totals approximately $7.5 billion at December 31, 2021.

The fair value of our debt at December 31, 2021 is approximately $7.6 billion. The table below summarizes the annual maturities of our debt, which had a weighted average effective rate of 1.8% at December 31, 2021. See Note 7 to our December 31, 2021 consolidated financial statements for further information regarding our debt (amounts in thousands).

We have foreign currency exposure at December 31, 2021 related to (i) our investment in Shurgard, with a book value of $313.5 million, and a fair value of $2.0 billion based upon the closing price of Shurgard’s stock on December 31, 2021, and (ii) €1.5 billion ($1.7 billion) of Euro-denominated unsecured notes payable, providing a natural hedge against the fair value of our investment in Shurgard.

ITEM 8. Financial Statements and Supplementary Data

The financial statements and supplementary data appearing on pages F-3 to F-30 are incorporated herein by reference.

ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

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, 2021, 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, 2021, 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, 2021.

The effectiveness of internal control over financial reporting as of December 31, 2021, 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 2021 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, 2021, 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, 2021, 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, 2021 and 2020, 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, 2021 and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 22, 2022 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 22, 2022

ITEM 9B. Other Information

None.

ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

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 62, 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, and as a director of PS Business Parks, Inc. since August 2003.

H. Thomas Boyle, age 39, has served as Chief Financial Officer since January 1, 2019, and was previously Vice President and Chief Financial Officer, Operations since joining the Company in November 2016. 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.

Nathaniel A. Vitan, age 48, has served as Senior Vice President, Chief Legal Officer and Corporate Secretary since April 20, 2019, and was Vice President and Chief Counsel–Litigation and Operations since joining the Company in June 2016. Prior to joining Public Storage, Mr. Vitan was Assistant General Counsel for Altria Client Services, Inc. and served as a Trial Practice and Appellate Litigation Attorney at Latham & Watkins LLP.

Natalia Johnson, age 44, has served as the Chief Administrative Officer since August 4, 2020. Previously, Ms. Johnson served as Senior Vice President, Chief Human Resources Officer from April 25, 2018 to August 4, 2020 and Senior Vice President of Human Resources from July 2016 to April 2018. 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.

Other information required by this item is hereby incorporated by reference to the material appearing in the Notice and Proxy Statement for the 2022 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 11. Executive Compensation

The information required by this item is hereby incorporated by reference to the material appearing in the Notice and Proxy Statement for the 2022 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Information required by this item is hereby incorporated by reference to the material appearing in the Notice and Proxy Statement for the 2022 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 13.Certain Relationships and Related Transactions and Trustee Independence

ITEM 14. Principal Accountant Fees and Services

PART IV

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))

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 .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.

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

* Denotes management compensatory plan agreement or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PUBLIC STORAGE

Date: February 22, 2022 By: /s/ Joseph D. Russell, Jr.

Joseph D. Russell, Jr.,Chief Executive Officer, President and Trustee

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature Title Date

Joseph D. Russell, Jr.

H. Thomas Boyle

/s/ Ronald L. Havner, Jr. Chairman of the Board February 22, 2022

Ronald L. Havner, Jr.

/s/ Tamara Hughes Gustavson Trustee February 22, 2022

Tamara Hughes Gustavson

/s/ Leslie Stone Heisz Trustee February 22, 2022

Leslie Stone Heisz

/s/ Michelle Millstone-Shroff Trustee February 22, 2022

Michelle Millstone-Shroff

/s/ Shankh S. Mitra Trustee February 22, 2022

Shankh S. Mitra

/s/ David J. Neithercut Trustee February 22, 2022

David J. Neithercut

/s/ Rebecca Owen Trustee February 22, 2022

Rebecca Owen

/s/ Kristy M. Pipes Trustee February 22, 2022

Kristy M. Pipes

/s/ Avedick B. Poladian Trustee February 22, 2022

Avedick B. Poladian

Signature Title Date

/s/ John Reyes Trustee February 22, 2022

John Reyes

/s/ Tariq M. Shaukat Trustee February 22, 2022

Tariq M. Shaukat

/s/ Ronald P. Spogli Trustee February 22, 2022

Ronald P. Spogli

/s/ Paul S. Williams Trustee February 22, 2022

Paul S. Williams

PUBLIC STORAGE

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND SCHEDULES

(Item 15 (a))

Page References

Consolidated Balance sheets as of December 31, 2021 and 2020 F-3

Consolidated Statements of income F-4

Consolidated Statements of comprehensive income F-5

Consolidated Statements of cash flows F-8 - F-9

Notes to consolidated financial statements F-10 - F-30

Schedule:

III – Real estate and accumulated depreciation F-31 - F-33

All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Trustees of Public Storage

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Public Storage (the Company) as of December 31, 2021 and 2020, 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, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

F-1

Purchase Price Allocation

/s/ Ernst & Young LLP

We have served as the Company's auditor since 1980.

Los Angeles, California

February 22, 2022

F-2

PUBLIC STORAGE

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

ASSETS

Real estate facilities, at cost:

Investments in unconsolidated real estate entities 828,763 773,046

LIABILITIES AND EQUITY

Preferred shares called for redemption (Note 9) — 300,000

Commitments and contingencies (Note 14)

Redeemable noncontrolling interests 68,249 —

Equity:

Public Storage shareholders’ equity:

Accumulated other comprehensive loss (53,587) (43,401)

See accompanying notes.

F-3

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share amounts)

For the Years Ended December 31,

Revenues:

Expenses:

Other increases (decreases) to net income:

Allocation to noncontrolling interests (6,376) (4,014) (5,117)

Allocation of net income to:

Net income per common share:

See accompanying notes.

F-4

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

For the Years Ended December 31,

Allocation to noncontrolling interests (6,376) (4,014) (5,117)

See accompanying notes.

F-5

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

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

Contributions by noncontrolling interests — — — — — — 4,148 4,148 —

Distributions to: —

Noncontrolling interests — — — — — — (6,672) (6,672) —

Other comprehensive loss — — — — (830) (830) — (830) —

Acquisition of noncontrolling interests — — (32) — — (32) (1) (33) —

Contributions by noncontrolling interests — — — — — — 2,629 2,629 —

See accompanying notes.

F-6

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

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

Distributions to: —

Noncontrolling interests — — — — — — (5,366) (5,366) —

Acquisition of noncontrolling interests — — (686) — — (686) (6) (692) —

Contributions by noncontrolling interests — — — — — — 2,451 2,451 68,170

Distributions to:

Noncontrolling interests — — — — — — (6,271) (6,271) (391)

See accompanying notes.

F-7

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

For the Years Ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net income to net cash flows from operating activities:

Cash flows from investing activities:

Repayment of note receivable — 7,509 —

Proceeds from sale of real estate investments 16,296 1,796 762

Cash flows from financing activities:

Acquisition of noncontrolling interests (692) (33) (35,000)

Distributions paid to noncontrolling interests (6,662) (5,366) (6,672)

See accompanying notes.

F-8

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

For the Years Ended December 31,

Cash and equivalents, including restricted cash at beginning of the period:

Cash and equivalents, including restricted cash at end of the period:

Supplemental schedule of non-cash investing and financing activities:

Costs incurred during the period remaining unpaid at period end for:

Construction or expansion of real estate facilities (50,051) (32,349) (32,356)

Real estate acquired in exchange for noncontrolling interests (68,170) — —

Real estate acquired in exchange for consideration payable — (3,799) (1,817)

See accompanying notes.

F-9

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

December 31, 2021

1.Description of the Business

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

At December 31, 2021, we have direct and indirect equity interests in 2,787 self-storage facilities (with approximately 198.3 million net rentable square feet) located in 39 states in the United States (“U.S.”) operating under the Public Storage® name, and 0.8 million net rentable square feet of commercial and retail space.

We own an approximate 35% common equity interest in Shurgard Self Storage SA (“Shurgard”), a public company traded on Euronext Brussels under the “SHUR” symbol, which owns 253 self-storage facilities (with approximately 14 million net rentable square feet) located in seven Western European countries, all operating under the Shurgard® name. We also own an approximate 41% common equity interest in PS Business Parks, Inc. (“PSB”), a REIT traded on the New York Stock Exchange under the “PSB” symbol, which owns 28 million net rentable square feet of commercial properties, primarily multi-tenant industrial, flex, and office space, located in six states.

Disclosures of the number and square footage of facilities, as well as the number and coverage of tenant reinsurance policies (Note 14) are unaudited and outside the scope of our independent registered public accounting firm’s audit of our financial statements in accordance with the standards of the Public Company Accounting Oversight Board (U.S.).

2.Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements are presented on an accrual basis in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Accounting Standards Codification of the Financial Accounting Standards Board (“FASB”), and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”).

Summary of Significant Accounting Policies

Consolidation and Equity Method of Accounting

We consider entities to be Variable Interest Entities (“VIEs”) when they have insufficient equity to finance their activities without additional subordinated financial support provided by other parties, or the equity holders as a group do not have a controlling financial interest. In addition, we have general partner interests in limited partnerships along with third-party investors to develop, construct or operate self-storage facilities. As the general partner, we consider the limited partnerships to be VIEs if the limited partners lack both substantive participating rights and substantive kick-out rights. We consolidate VIEs when we have (i) the power to direct the activities most significantly impacting economic performance, and (ii) either the obligation to absorb losses or the right to receive benefits from the VIE. The total assets, primarily real estate assets, and the total liabilities of our consolidated VIEs are not material as of December 31, 2021. We consolidate all other entities when we control them through voting shares or contractual rights. We refer to the entities we consolidate, for the period in which the reference applies, collectively as the “Subsidiaries,” and we eliminate intercompany transactions and balances.

We account for our investments in entities that we do not consolidate but over which we have significant influence using the equity method of accounting. We refer to these entities, for the periods in which the reference applies, collectively as the “Unconsolidated Real Estate Entities,” and we eliminate intra-entity profits and losses and amortize any differences between the cost of our investment and the underlying equity in net assets against equity in earnings as if the Unconsolidated Real Estate Entity were a consolidated subsidiary.

F-10

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

December 31, 2021

Equity in earnings of unconsolidated real estate entities presented on our income statements represents our pro-rata share of the earnings of the Unconsolidated Real Estate Entities. The dividends we receive from the Unconsolidated Real Estate Entities are reflected on our consolidated statements of cash flows as “distributions from cumulative equity in earnings of unconsolidated real estate entities” to the extent of our cumulative equity in earnings, with any excess classified as “distributions in excess of cumulative equity in earnings from unconsolidated real estate entities.”

Use of Estimates

The preparation of consolidated financial statements and accompanying notes in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates and assumptions.

Cash Equivalents and Restricted Cash

Cash equivalents represent highly liquid financial instruments that mature within three months of acquisition such as money market funds with a rating of at least AAA by Standard & Poor's, commercial paper that is rated A1 by Standard & Poor's or deposits with highly rated commercial banks. Restricted cash, which represent amounts used to collateralize our insurance obligations and are restricted from general corporate use, are included in other assets.

Fair Value

As used herein, the term “fair value” is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. In the absence of active markets for identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the balance sheet date.

Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 Significant observable inputs other than Level 1, that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data.

Level 3 Unobservable inputs that are supported by little or no market data for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Our financial instruments consist of cash and cash equivalents, restricted cash, other assets, other liabilities, and notes payable. Cash equivalents, restricted cash, other assets and other liabilities are stated at book value, which approximates fair value as of the balance sheet date due to the short time period to maturity.

We estimate and disclose the fair value of our notes payable using Level 2 inputs by discounting the related future cash flows at a rate based upon quoted interest rates for securities that have similar characteristics such as credit quality and time to maturity.

We use significant judgment to estimate fair values of real estate facilities, goodwill, and other intangible assets for the purposes of purchase price allocation or impairment analysis. In estimating their values, we consider Level 3 inputs such as market prices of land, market capitalization rates, expected returns, earnings multiples, projected levels of earnings, costs of construction, and functional depreciation.

F-11

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

December 31, 2021

Real Estate Facilities

We record real estate facilities at cost. We capitalize all costs incurred to acquire, develop, construct, renovate and improve facilities as part of major repair and maintenance programs, including interest and property taxes incurred during the construction period. We expense the costs of demolition of existing facilities associated with a renovation as incurred. We allocate the net acquisition cost of acquired real estate facilities to the underlying land, buildings, and identified intangible assets based upon their respective individual estimated fair values.

We expense costs associated with dispositions of real estate, as well as routine repairs and maintenance costs, as incurred. We depreciate buildings and improvements on a straight-line basis over estimated useful lives ranging generally between 5 to 25 years.

When we sell a full or partial interest in a real estate facility without retaining a controlling interest following sale, we recognize a gain or loss on sale as if 100% of the property was sold at fair value. If we retain a controlling interest following the sale, we record a noncontrolling interest for the book value of the partial interest sold, and recognize additional paid-in capital for the difference between the consideration received and the partial interest at book value.

Goodwill and Other Intangible Assets

Intangible assets consist of goodwill, the Shurgard® trade name, which Shurgard uses pursuant to a fee-based licensing agreement, and finite-lived assets. Goodwill and the Shurgard® trade name have indefinite lives and are not amortized. Our finite-lived assets consist primarily of (i) acquired customers in place amortized relative to the benefit of the customers in place, with such amortization reflected as depreciation and amortization expense on our income statement and (ii) property tax abatements acquired and amortized relative to the reduction in property tax paid, with such amortization reflected as self-storage cost of operations on our income statement.

Evaluation of Asset Impairment

We evaluate our real estate and finite-lived intangible assets for impairment each quarter. If there are indicators of impairment and we determine that the asset is not recoverable from future undiscounted cash flows to be received through the asset’s remaining life (or, if earlier, the expected disposal date), we record an impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value or net proceeds from expected disposal.

We evaluate our investments in unconsolidated real estate entities for impairment quarterly. We record an impairment charge to the extent the carrying amount exceeds estimated fair value, when we believe any such shortfall is other than temporary.

We evaluate goodwill for impairment annually and whenever relevant events, circumstances, and other related factors indicate that fair value of the related reporting unit may be less than the carrying amount. If we determine that the fair value of the reporting unit exceeds the aggregate carrying amount, no impairment charge is recorded. Otherwise, we record an impairment charge to the extent the carrying amount of the goodwill exceeds the amount that would be allocated to goodwill if the reporting unit were acquired for estimated fair value.

We evaluate other indefinite-lived intangible assets, such as the Shurgard® trade name for impairment at least annually and whenever relevant events, circumstances and other related factors indicate that the fair value is less than the carrying amount. When we conclude that it is likely that the asset is not impaired, we do not record an impairment charge and no further analysis is performed. Otherwise, we record an impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value.

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

Revenue and Expense Recognition

We recognize revenues from self-storage facilities, which primarily comprise rental income earned pursuant to month-to-month leases, as well as associated late charges and administrative fees, as earned. Promotional discounts

F-12

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

December 31, 2021

reduce rental income over the promotional period, which is generally one month. We recognize ancillary revenues when earned.

We accrue for property tax expense based upon actual amounts billed and, in some circumstances, estimates when bills or assessments have not been received from the taxing authorities. If these estimates are incorrect, the timing and amount of expense recognition could be incorrect. We expense cost of operations (including advertising expenditures), general and administrative expense, and interest expense as incurred.

Foreign Currency Exchange Translation

The local currency (primarily the Euro) is the functional currency for our interests in foreign operations. The related balance sheet amounts are translated into U.S. Dollars at the exchange rates at the respective financial statement date, while amounts on our consolidated statements of income are translated at the average exchange rates during the respective period. Cumulative translation adjustments, to the extent not included in cumulative net income, are included in equity as a component of accumulated other comprehensive income (loss).

When financial instruments denominated in a currency other than the U.S. Dollar are expected to be settled in cash in the foreseeable future, the impact of changes in the U.S. Dollar equivalent are reflected in current earnings.

At December 31, 2021, due primarily to our investment in Shurgard (Note 4) and our notes payable denominated in Euros (Note 7), our operating results and financial position are affected by fluctuations in currency exchange rates between the Euro, and to a lesser extent, other European currencies, against the U.S. Dollar. The Euro was translated at exchange rates of approximately 1.134 U.S. Dollars per Euro at December 31, 2021 (1.226 at December 31, 2020), and average exchange rates of 1.183, 1.141 and 1.120 for the years ended December 31, 2021, 2020, and 2019, respectively.

Income Taxes

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 have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no U.S. federal corporate income tax expense related to our REIT taxable income.

Our tenant reinsurance, merchandise, and third party management operations are subject to corporate income tax and such taxes are included in general and administrative expenses. We also incur income and other taxes in certain states, which are included in general and administrative expense.

We recognize tax benefits of uncertain income tax positions that are subject to audit only if we believe it is more likely than not that the position would ultimately be sustained assuming the relevant taxing authorities had full knowledge of the relevant facts and circumstances of our positions. As of December 31, 2021, we had no tax benefits that were not recognized.

Share-Based Compensation

We generally estimate the fair value of share-based payment awards on the date of grant. We determine the fair value of restricted share units ("RSUs") based on the closing market price of the Company’s common stock on the date of grant. We value stock options with no market conditions at the grant date using the Black-Scholes option-pricing model. We value stock options with market conditions at the grant date using a Monte-Carlo valuation simulation. Our determination of the fair value of share-based payment awards on the date of grant using an option-pricing model or Monte-Carlo valuation simulation is affected by our stock price as well as assumptions regarding a number of subjective and complex variables. These variables include, but are not limited to, our expected stock price volatility over the expected term of the awards and actual and projected stock option exercise behaviors. For performance-based restricted share units and stock options, we adjust compensation cost each quarter as needed for any changes in the assessment of the probability that the specified performance criteria will be achieved.

F-13

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

December 31, 2021

We amortize the grant-date fair value of awards as compensation expense over the service period, which begins on the grant date and ends on the expected vesting date. For awards that are earned solely upon the passage of time and continued service, the entire cost of the award is amortized on a straight-line basis over the service period. For awards with market and/or performance conditions, the individual cost of each vesting is amortized separately over each individual service period (the “accelerated attribution” method). The estimated number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. In amortizing share-based compensation expense, we do not estimate future forfeitures. Instead, we reverse previously amortized share-based compensation expense with respect to grants that are forfeited in the period the employee terminates employment.

In July 2020, we modified our share-based compensation plans to allow immediate vesting upon retirement (“Retirement Acceleration”), and to extend the exercisability of outstanding stock options up to a year after retirement, for currently outstanding and future grants. Prior to the modification, unvested awards were forfeited, and outstanding vested stock options were cancelled, upon retirement. Employees are eligible for Retirement Acceleration if they meet certain conditions including length of service, age, notice of intent to retire, and facilitation of succession for their role. This modification results in accelerating amortization of compensation expense for each grant by changing the end of the service period from the original vesting date to the date an employee is expected to be eligible for Retirement Acceleration, if earlier.

3.Real Estate Facilities

Activity in real estate facilities during 2021, 2020, and 2019 is as follows:

For the Years Ended December 31,

(Amounts in thousands)

Operating facilities, at cost:

Accumulated depreciation:

Construction in process:

Write-off of cancelled projects — (3,226) —

During 2021, we acquired 232 self-storage facilities (21,830,000 net rentable square feet of storage space), for a total cost of $5.1 billion, consisting $5.0 billion in cash and $68.2 million in partnership units in our subsidiary. Approximately $174.9 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing $218.0 million during 2021, adding 1.6 million net rentable square feet of self-storage

F-14

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

December 31, 2021

space. Construction in process at December 31, 2021 consists of projects to develop new self-storage facilities and expand existing self-storage facilities.

During 2021, we sold portions of real estate facilities in connection with eminent domain proceedings for $16.3 million in cash proceeds and recorded a related gain on sale of real estate of approximately $13.7 million.

During 2020, we acquired 62 self-storage facilities (5.1 million net rentable square feet of storage space), for a total cost of $792.3 million which includes the assumption of a $3.8 million liability. Approximately $14.9 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing $138.7 million during 2020, adding 1.1 million net rentable square feet of self-storage space. Included in general and administrative expense in 2020 is $3.2 million in development projects which were cancelled.

During 2019, we acquired 44 self-storage facilities and one commercial facility (3.1 million net rentable square feet of storage space and 46,000 net rentable square feet of commercial space), for a total cost of $439.6 million, consisting of $437.8 million in cash and the assumption of $1.8 million in mortgage notes. Approximately $18.5 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing $379.1 million during 2019, adding 3.7 million net rentable square feet of self-storage space.

At December 31, 2021, the adjusted basis of real estate facilities for U.S. federal tax purposes was approximately $15.8 billion (unaudited).

F-15

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

December 31, 2021

4.Investments in Unconsolidated Real Estate Entities

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

PSA US Equity

PSA · 10-K · period ended 2021-12-31

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7A.Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

ITEM 9A. Controls and Procedures

ITEM 9B. Other Information

ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

ITEM 10. Trustees, Executive Officers and Corporate Governance

ITEM 11. Executive Compensation

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

ITEM 13.Certain Relationships and Related Transactions and Trustee Independence

ITEM 14. Principal Accountant Fees and Services

ITEM 15. Exhibits and Financial Statement Schedules

PSA US Equity☆

PSA · 10-K · period ended 2021-12-31

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7A.Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

ITEM 9A. Controls and Procedures

ITEM 9B. Other Information

ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

ITEM 10. Trustees, Executive Officers and Corporate Governance

ITEM 11. Executive Compensation

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

ITEM 13.Certain Relationships and Related Transactions and Trustee Independence

ITEM 14. Principal Accountant Fees and Services

ITEM 15. Exhibits and Financial Statement Schedules

PSA US Equity