filings.toolsItem 15. Exhibits and Financial Statement Schedules
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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))
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 21, 2023 | 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 | ||||||
| /s/ Joseph D. Russell, Jr. | Chief Executive Officer, President and Trustee (principal executive officer) | February 21, 2023 | ||||||
| Joseph D. Russell, Jr. | ||||||||
| /s/ H. Thomas Boyle | Chief Financial Officer and Chief Investment Officer (principal financial officer) | February 21, 2023 | ||||||
| H. Thomas Boyle | ||||||||
| /s/ Ronald L. Havner, Jr. | Chairman of the Board | February 21, 2023 | ||||||
| Ronald L. Havner, Jr. | ||||||||
| /s/ Tamara Hughes Gustavson | Trustee | February 21, 2023 | ||||||
| Tamara Hughes Gustavson | ||||||||
| /s/ Leslie Stone Heisz | Trustee | February 21, 2023 | ||||||
| Leslie Stone Heisz | ||||||||
| /s/ Michelle Millstone-Shroff | Trustee | February 21, 2023 | ||||||
| Michelle Millstone-Shroff | ||||||||
| /s/ Shankh S. Mitra | Trustee | February 21, 2023 | ||||||
| Shankh S. Mitra | ||||||||
| /s/ David J. Neithercut | Trustee | February 21, 2023 | ||||||
| David J. Neithercut | ||||||||
| /s/ Rebecca Owen | Trustee | February 21, 2023 | ||||||
| Rebecca Owen | ||||||||
| /s/ Kristy M. Pipes | Trustee | February 21, 2023 | ||||||
| Kristy M. Pipes | ||||||||
| /s/ Avedick B. Poladian | Trustee | February 21, 2023 | ||||||
| Avedick B. Poladian |
| Signature | Title | Date | ||||||
| /s/ John Reyes | Trustee | February 21, 2023 | ||||||
| John Reyes | ||||||||
| /s/ Tariq M. Shaukat | Trustee | February 21, 2023 | ||||||
| Tariq M. Shaukat | ||||||||
| /s/ Ronald P. Spogli | Trustee | February 21, 2023 | ||||||
| Ronald P. Spogli | ||||||||
| /s/ Paul S. Williams | Trustee | February 21, 2023 | ||||||
| Paul S. Williams |
PUBLIC STORAGE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
(Item 15 (a))
| Page References | |||||
| Report of Independent Registered Public Accounting Firm Auditor name: Ernst & Young LLP; Firm ID: (42); Auditor location: Los Angeles, California | F-1 - F-2 | ||||
| Consolidated Balance sheets as of December 31, 2022 and 2021 | F-3 | ||||
| For the years ended December 31, 2022, 2021, and 2020: | |||||
| Consolidated Statements of income | F-4 | ||||
| Consolidated Statements of comprehensive income | F-5 | ||||
| Consolidated Statements of equity and redeemable noncontrolling interests | F-6 - F-7 | ||||
| Consolidated Statements of cash flows | F-8 - F-9 | ||||
| Notes to consolidated financial statements | F-10 - F-31 | ||||
| Schedule: | |||||
| III – Real estate and accumulated depreciation | F-32 - F-34 |
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, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity and redeemable noncontrolling interests and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (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, 2022 and 2021, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 21, 2023 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 | ||||||||
| Description of the Matter | For the year ended December 31, 2022, the Company completed the acquisition of 74 self-storage facilities for a total purchase price of $730.5 million. As further discussed in Notes 2 and 3 of the consolidated financial statements, the transactions were accounted for as asset acquisitions, and the purchase price was allocated based on a relative fair value of assets acquired and liabilities assumed, which consisted principally of land and buildings. Auditing the accounting for the Company’s 2022 acquisitions of self-storage facilities was subjective because the Company, with the assistance of its external valuation specialist, must exercise a high level of management judgment in determining the estimated fair value of acquired land and buildings. Determining the fair value of acquired land was difficult due to the lack of available directly comparable land market information. The estimated fair value of the acquired buildings was based upon (i) the income approach, which included estimating the fair value of hypothetical vacant acquired buildings and adjusting for the estimated fair value of land or (ii) estimated replacement costs, which were calculated by estimating the cost of building similar facilities in comparable markets and adjusting those costs for the age, quality, and configuration associated with the acquired facilities. Determining the fair value of the acquired buildings was challenging due to the judgment utilized by management in determining the assumptions utilized in, or the adjustments applied to, the valuation of each building. | |||||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over management’s accounting for acquired self-storage facilities, including controls over the review of assumptions underlying the purchase price allocation and accuracy of the underlying data used. For example, we tested controls over the determination of the fair value of the land and building assets, including the controls over the review of the valuation models and the underlying assumptions used to develop such estimates. For the 2022 acquisitions of self-storage facilities described above, our procedures included, but were not limited to, evaluating the sensitivity of changes in significant assumptions on the purchase price allocation. We performed a sensitivity analysis to evaluate the impact on the Company’s financial statements resulting from changes in allocated land and building values. For certain of these asset acquisitions, we also read the purchase agreements, evaluated whether the Company had appropriately determined whether the transaction was a business combination or asset acquisition, evaluated the methods and significant assumptions used by the Company, and tested the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. Additionally, for certain of these asset acquisitions, we involved our valuation specialists to assist in the assessment of the methodology utilized by the Company, in addition to performing corroborative analyses to assess whether the conclusions in the valuation were supported by observable market data. For example, our valuation specialists used independently identified data sources to evaluate management’s selected comparable land sales, income approach assumptions, and replacement cost assumptions. |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1980.
Los Angeles, California
February 21, 2023
F-2
PUBLIC STORAGE
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
| December 31, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Cash and equivalents | $ | 775,253 | $ | 734,599 | |||||||
| Real estate facilities, at cost: | |||||||||||
| Land | 5,273,073 | 5,134,060 | |||||||||
| Buildings | 18,946,053 | 17,673,773 | |||||||||
| 24,219,126 | 22,807,833 | ||||||||||
| Accumulated depreciation | (8,554,155) | (7,773,308) | |||||||||
| 15,664,971 | 15,034,525 | ||||||||||
| Construction in process | 372,992 | 272,471 | |||||||||
| 16,037,963 | 15,306,996 | ||||||||||
| Investments in unconsolidated real estate entities | 275,752 | 828,763 | |||||||||
| Goodwill and other intangible assets, net | 232,517 | 302,894 | |||||||||
| Other assets | 230,822 | 207,656 | |||||||||
| Total assets | $ | 17,552,307 | $ | 17,380,908 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Notes payable | $ | 6,870,826 | $ | 7,475,279 | |||||||
| Accrued and other liabilities | 514,680 | 482,091 | |||||||||
| Total liabilities | 7,385,506 | 7,957,370 | |||||||||
| Commitments and contingencies (Note 14) | |||||||||||
| Redeemable noncontrolling interests | — | 68,249 | |||||||||
| Equity: | |||||||||||
| Public Storage shareholders’ equity: | |||||||||||
| Preferred Shares, $0.01 par value, 100,000,000 shares authorized, 174,000 shares issued (in series) and outstanding, (164,000 at December 31, 2021) at liquidation preference | 4,350,000 | 4,100,000 | |||||||||
| Common Shares, $0.10 par value, 650,000,000 shares authorized, 175,265,668 shares issued and outstanding (175,134,455 shares at December 31, 2021) | 17,527 | 17,513 | |||||||||
| Paid-in capital | 5,896,423 | 5,821,667 | |||||||||
| Accumulated deficit | (110,231) | (550,416) | |||||||||
| Accumulated other comprehensive loss | (80,317) | (53,587) | |||||||||
| Total Public Storage shareholders’ equity | 10,073,402 | 9,335,177 | |||||||||
| Noncontrolling interests | 93,399 | 20,112 | |||||||||
| Total equity | 10,166,801 | 9,355,289 | |||||||||
| Total liabilities, redeemable noncontrolling interests and equity | $ | 17,552,307 | $ | 17,380,908 |
See accompanying notes.
F-3
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
| For the Years Ended December 31, | |||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Self-storage facilities | $ | 3,946,028 | $ | 3,203,566 | 2,721,630 | ||||||||||||||||||||||||
| Ancillary operations | 236,135 | 212,258 | 193,438 | ||||||||||||||||||||||||||
| 4,182,163 | 3,415,824 | 2,915,068 | |||||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||
| Self-storage cost of operations | 980,209 | 852,030 | 807,543 | ||||||||||||||||||||||||||
| Ancillary cost of operations | 72,698 | 68,568 | 59,919 | ||||||||||||||||||||||||||
| Depreciation and amortization | 888,146 | 713,428 | 553,257 | ||||||||||||||||||||||||||
| General and administrative | 114,742 | 101,254 | 83,199 | ||||||||||||||||||||||||||
| Interest expense | 136,319 | 90,774 | 56,283 | ||||||||||||||||||||||||||
| 2,192,114 | 1,826,054 | 1,560,201 | |||||||||||||||||||||||||||
| Other increases (decreases) to net income: | |||||||||||||||||||||||||||||
| Interest and other income | 40,567 | 12,306 | 22,323 | ||||||||||||||||||||||||||
| Equity in earnings of unconsolidated real estate entities | 106,981 | 232,093 | 80,497 | ||||||||||||||||||||||||||
| Foreign currency exchange gain (loss) | 98,314 | 111,787 | (97,953) | ||||||||||||||||||||||||||
| Gain on sale of real estate | 1,503 | 13,683 | 1,493 | ||||||||||||||||||||||||||
| Gain on sale of equity investment in PS Business Parks, Inc. | 2,128,860 | — | — | ||||||||||||||||||||||||||
| Net income | 4,366,274 | 1,959,639 | 1,361,227 | ||||||||||||||||||||||||||
| Allocation to noncontrolling interests | (17,127) | (6,376) | (4,014) | ||||||||||||||||||||||||||
| Net income allocable to Public Storage shareholders | 4,349,147 | 1,953,263 | 1,357,213 | ||||||||||||||||||||||||||
| Allocation of net income to: | |||||||||||||||||||||||||||||
| Preferred shareholders | (194,390) | (186,579) | (207,068) | ||||||||||||||||||||||||||
| Preferred shareholders - redemptions (Note 9) | — | (28,914) | (48,265) | ||||||||||||||||||||||||||
| Restricted share units | (12,469) | (5,326) | (3,545) | ||||||||||||||||||||||||||
| Net income allocable to common shareholders | $ | 4,142,288 | $ | 1,732,444 | $ | 1,098,335 | |||||||||||||||||||||||
| Net income per common share: | |||||||||||||||||||||||||||||
| Basic | $ | 23.64 | $ | 9.91 | $ | 6.29 | |||||||||||||||||||||||
| Diluted | $ | 23.50 | $ | 9.87 | $ | 6.29 | |||||||||||||||||||||||
| Basic weighted average common shares outstanding | 175,257 | 174,858 | 174,494 | ||||||||||||||||||||||||||
| Diluted weighted average common shares outstanding | 176,280 | 175,568 | 174,642 |
See accompanying notes.
F-4
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
| For the Years Ended December 31, | |||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||
| Net income | $ | 4,366,274 | $ | 1,959,639 | $ | 1,361,227 | |||||||||||||||||||||||
| Foreign currency exchange (loss) gain on investment in Shurgard | (26,730) | (10,186) | 21,489 | ||||||||||||||||||||||||||
| Total comprehensive income | 4,339,544 | 1,949,453 | 1,382,716 | ||||||||||||||||||||||||||
| Allocation to noncontrolling interests | (17,127) | (6,376) | (4,014) | ||||||||||||||||||||||||||
| Comprehensive income allocable to Public Storage shareholders | $ | 4,322,417 | $ | 1,943,077 | $ | 1,378,702 |
See accompanying notes.
F-5
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(Amounts in thousands, except share and per share amounts)
| Cumulative Preferred Shares | Common Shares | Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Public Storage Shareholders' Equity | Noncontrolling Interests | Total Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2019 | $ | 4,065,000 | $ | 17,442 | $ | 5,710,934 | $ | (665,575) | $ | (64,890) | $ | 9,062,911 | $ | 16,756 | $ | 9,079,667 | $ | — | |||||||||||||||||||||||||||||||||||
| Issuance of 49,900 preferred shares (Note 9) | 1,247,500 | — | (39,294) | — | — | 1,208,206 | — | 1,208,206 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Redemption and shares called for redemption of 60,800 preferred shares (Note 9) | (1,520,000) | — | — | — | — | (1,520,000) | — | (1,520,000) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares in connection with share-based compensation (163,127 shares) (Note 11) | — | 16 | 12,648 | — | — | 12,664 | — | 12,664 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense, net of cash paid in lieu of common shares (Note 11) | — | — | 22,845 | — | — | 22,845 | — | 22,845 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of noncontrolling interests | — | — | (32) | — | — | (32) | (1) | (33) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Contributions by noncontrolling interests | — | — | — | — | — | — | 2,629 | 2,629 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,361,227 | — | 1,361,227 | — | 1,361,227 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net income allocated to noncontrolling interests | — | — | — | (4,014) | — | (4,014) | 4,014 | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions to: | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred shareholders (Note 9) | — | — | — | (207,068) | — | (207,068) | — | (207,068) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests | — | — | — | — | — | — | (5,366) | (5,366) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common shareholders and restricted share unitholders ($8.00 per share) | — | — | — | (1,399,361) | — | (1,399,361) | — | (1,399,361) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 21,489 | 21,489 | — | 21,489 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | $ | 3,792,500 | $ | 17,458 | $ | 5,707,101 | $ | (914,791) | $ | (43,401) | $ | 8,558,867 | $ | 18,032 | $ | 8,576,899 | $ | — | |||||||||||||||||||||||||||||||||||
| Issuance of 47,300 preferred shares (Note 9) | 1,182,500 | — | (35,045) | — | — | 1,147,455 | — | 1,147,455 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Redemption of 35,000 preferred shares (Note 9) | (875,000) | — | — | — | — | (875,000) | — | (875,000) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares in connection with share-based compensation (552,713 shares) (Note 11) | — | 55 | 95,805 | — | — | 95,860 | — | 95,860 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense, net of cash paid in lieu of common shares (Note 11) | — | — | 54,492 | — | — | 54,492 | — | 54,492 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of noncontrolling interests | — | — | (686) | — | — | (686) | (6) | (692) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Contributions by noncontrolling interests | — | — | — | — | — | — | 2,451 | 2,451 | 68,170 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,959,639 | — | 1,959,639 | — | 1,959,639 | — |
See accompanying notes.
F-6
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(Amounts in thousands, except share and per share amounts)
| Cumulative Preferred Shares | Common Shares | Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Public Storage Shareholders' Equity | Noncontrolling Interests | Total Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||||
| Net income allocated to noncontrolling interests | — | — | — | (6,376) | — | (6,376) | 5,906 | (470) | 470 | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions to: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred shareholders (Note 9) | — | — | — | (186,579) | — | (186,579) | — | (186,579) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests | — | — | — | — | — | — | (6,271) | (6,271) | (391) | ||||||||||||||||||||||||||||||||||||||||||||
| Common shareholders and restricted share unitholders ($8.00 per share) | — | — | — | (1,402,309) | — | (1,402,309) | — | (1,402,309) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (10,186) | (10,186) | — | (10,186) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | $ | 4,100,000 | $ | 17,513 | $ | 5,821,667 | $ | (550,416) | $ | (53,587) | $ | 9,335,177 | $ | 20,112 | $ | 9,355,289 | $ | 68,249 | |||||||||||||||||||||||||||||||||||
| Issuance of 10,000 preferred shares (Note 9) | 250,000 | — | (7,168) | — | — | 242,832 | — | 242,832 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares in connection with share-based compensation (283,190 shares) (Note 11) | — | 29 | 35,376 | — | — | 35,405 | — | 35,405 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common shares (151,977 shares) | — | (15) | 15 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Taxes paid upon net share settlement of restricted share units | — | — | (16,827) | — | — | (16,827) | — | (16,827) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense (Note 11) | — | — | 63,360 | — | — | 63,360 | — | 63,360 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Contributions by noncontrolling interests | — | — | — | — | — | — | 6,708 | 6,708 | 15,426 | ||||||||||||||||||||||||||||||||||||||||||||
| Reclassification from redeemable noncontrolling interests to noncontrolling interests | — | — | — | — | — | — | 83,826 | 83,826 | (83,826) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 4,366,274 | — | 4,366,274 | — | 4,366,274 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net income allocated to noncontrolling interests | — | — | — | (17,127) | — | (17,127) | 16,467 | (660) | 660 | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions to: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred shareholders (Note 9) | — | — | — | (194,390) | — | (194,390) | — | (194,390) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests | — | — | — | — | — | — | (33,714) | (33,714) | (509) | ||||||||||||||||||||||||||||||||||||||||||||
| Common shareholders and restricted share unitholders ($21.15 per share) | — | — | — | (3,714,572) | — | (3,714,572) | — | (3,714,572) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (26,730) | (26,730) | — | (26,730) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2022 | $ | 4,350,000 | $ | 17,527 | $ | 5,896,423 | $ | (110,231) | $ | (80,317) | $ | 10,073,402 | $ | 93,399 | $ | 10,166,801 | $ | — |
See accompanying notes.
F-7
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
| For the Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 4,366,274 | $ | 1,959,639 | $ | 1,361,227 | |||||||||||
| Adjustments to reconcile net income to net cash flows from operating activities: | |||||||||||||||||
| Gain on sale of equity investment in PS Business Parks, Inc. | (2,128,860) | — | — | ||||||||||||||
| Gain on sale of real estate | (1,503) | (13,683) | (1,493) | ||||||||||||||
| Depreciation and amortization | 888,146 | 713,428 | 553,257 | ||||||||||||||
| Equity in earnings of unconsolidated real estate entities | (106,981) | (232,093) | (80,497) | ||||||||||||||
| Distributions from cumulative equity in earnings of unconsolidated real estate entities | 134,769 | 150,488 | 72,098 | ||||||||||||||
| Unrealized foreign currency exchange (gain) loss | (97,563) | (111,787) | 97,953 | ||||||||||||||
| Share-based compensation expense | 56,703 | 59,815 | 33,363 | ||||||||||||||
| Other | 6,156 | 17,748 | 6,994 | ||||||||||||||
| Total adjustments | (1,249,133) | 583,916 | 681,675 | ||||||||||||||
| Net cash flows from operating activities | 3,117,141 | 2,543,555 | 2,042,902 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Capital expenditures to maintain real estate facilities | (459,773) | (270,238) | (169,998) | ||||||||||||||
| Development and expansion of real estate facilities | (313,511) | (281,981) | (189,413) | ||||||||||||||
| Acquisition of real estate facilities and intangible assets | (757,944) | (5,047,106) | (792,266) | ||||||||||||||
| Distributions in excess of cumulative equity in earnings from unconsolidated real estate entities | 13,670 | 19,518 | 24,658 | ||||||||||||||
| Repayment of note receivable | — | — | 7,509 | ||||||||||||||
| Proceeds from sale of real estate investments | 1,543 | 16,296 | 1,796 | ||||||||||||||
| Proceeds from sale of equity investment in PS Business Parks, Inc. | 2,636,011 | — | — | ||||||||||||||
| Net cash flows from (used in) investing activities | 1,119,996 | (5,563,511) | (1,117,714) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Repayments on notes payable | (513,495) | (2,218) | (2,020) | ||||||||||||||
| Issuance of notes payable, net of issuance costs | — | 5,038,904 | 545,151 | ||||||||||||||
| Issuance of preferred shares | 242,832 | 1,147,455 | 1,208,206 | ||||||||||||||
| Issuance of common shares in connection with share-based compensation | 35,271 | 95,860 | 12,664 | ||||||||||||||
| Redemption of preferred shares | — | (1,175,000) | (1,220,000) | ||||||||||||||
| Taxes paid upon net share settlement of restricted share units | (16,827) | (13,069) | (10,518) | ||||||||||||||
| Acquisition of noncontrolling interests | — | (692) | (33) | ||||||||||||||
| Contributions by noncontrolling interests | 1,669 | 2,451 | 2,629 | ||||||||||||||
| Distributions paid to preferred shareholders, common shareholders and restricted share unitholders | (3,908,497) | (1,588,888) | (1,606,429) | ||||||||||||||
| Distributions paid to noncontrolling interests | (34,223) | (6,662) | (5,366) | ||||||||||||||
| Net cash flows (used in) from financing activities | (4,193,270) | 3,498,141 | (1,075,716) | ||||||||||||||
| Net cash flows from operating, investing, and financing activities | 43,867 | 478,185 | (150,528) | ||||||||||||||
| Net effect of foreign exchange impact on cash and equivalents, including restricted cash | — | 505 | (426) | ||||||||||||||
| Increase (decrease) in cash and equivalents, including restricted cash | $ | 43,867 | $ | 478,690 | $ | (150,954) |
See accompanying notes.
F-8
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
| For the Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Cash and equivalents, including restricted cash at beginning of the period: | |||||||||||||||||
| Cash and equivalents | $ | 734,599 | $ | 257,560 | $ | 409,743 | |||||||||||
| Restricted cash included in other assets | 26,691 | 25,040 | 23,811 | ||||||||||||||
| $ | 761,290 | $ | 282,600 | $ | 433,554 | ||||||||||||
| Cash and equivalents, including restricted cash at end of the period: | |||||||||||||||||
| Cash and equivalents | $ | 775,253 | $ | 734,599 | $ | 257,560 | |||||||||||
| Restricted cash included in other assets | 29,904 | 26,691 | 25,040 | ||||||||||||||
| $ | 805,157 | $ | 761,290 | $ | 282,600 | ||||||||||||
| Supplemental schedule of non-cash investing and financing activities: | |||||||||||||||||
| Costs incurred during the period remaining unpaid at period end for: | |||||||||||||||||
| Capital expenditures to maintain real estate facilities | $ | (15,260) | $ | (23,398) | $ | (10,359) | |||||||||||
| Construction or expansion of real estate facilities | (65,650) | (50,051) | (32,349) | ||||||||||||||
| Real estate acquired in exchange for noncontrolling interests | (19,865) | (68,170) | — | ||||||||||||||
| Real estate acquired in exchange for consideration payable | — | — | (3,799) | ||||||||||||||
| Preferred shares called for redemption and reclassified to liabilities | — | — | 300,000 | ||||||||||||||
See accompanying notes.
F-9
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
1.Description of the Business
Public Storage (referred to herein as “the Company,” “we,” “us,” or “our”), a Maryland real estate investment trust that has elected to be taxed as a real estate investment trust (“REIT”), was organized in 1980. Our principal business activities include the ownership and operation of self-storage facilities that offer storage spaces for lease, generally on a month-to-month basis, for personal and business use, ancillary activities such as tenant reinsurance, merchandise sales, and third party management, as well as the acquisition and development of additional self-storage space.
At December 31, 2022, we had direct and indirect equity interests in 2,869 self-storage facilities (with approximately 204.2 million net rentable square feet) located in 40 states in the United States (“U.S.”) operating under the Public Storage® name, and 1.2 million net rentable square feet of commercial and retail space.
At December 31, 2022, we owned a 35% common equity interest in Shurgard Self Storage Limited (“Shurgard”), a public company traded on the Euronext Brussels under the “SHUR” symbol, which owned 266 self-storage facilities (with approximately 15 million net rentable square feet) located in seven Western European countries, all operating under the Shurgard® name.
On July 20, 2022, in connection with the closing of the merger of PS Business Parks, Inc. (“PSB”) with affiliates of Blackstone Real Estate (“Blackstone”), we completed the sale of our 41% common equity interest in PSB in its entirety. Prior to the merger transaction, PSB was a REIT traded on the New York Stock Exchange under the “PSB” symbol, which owned commercial properties, primarily multi-tenant industrial, flex, and office space. Refer to Note 4. Investments in Unconsolidated Real Estate Entities for transaction information and our accounting treatment of the sale.
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”).
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.).
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, 2022. 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.
F-10
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
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.
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.
F-11
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
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.
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 it is more likely than not that the fair value of the related reporting unit is less than the carrying amount. When we conclude that it is not more likely than not that the fair value of the reporting unit is less than the aggregate carrying amount, no impairment charge is recorded and no further analysis is performed. 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 it is more likely than not that the asset is impaired. When we conclude that it is not more likely than not that the asset is 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.
F-12
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
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 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, 2022, 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 1.070 U.S. Dollars per Euro at December 31, 2022 (1.134 at December 31, 2021), and average exchange rates of 1.054, 1.183 and 1.141 for the years ended December 31, 2022, 2021, and 2020, 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, 2022, 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”) with no market conditions based on the closing market price of the Company’s common shares 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 and RSUs with market conditions at the grant
F-13
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
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. For stock options, variables also include actual and projected stock option exercise behaviors. For restricted share units and stock options with performance conditions, 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.
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). For awards with performance conditions, 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.
F-14
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
3.Real Estate Facilities
Activity in real estate facilities during 2022, 2021, and 2020 is as follows:
| For the Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| (Amounts in thousands) | |||||||||||||||||
| Operating facilities, at cost: | |||||||||||||||||
| Beginning balance | $ | 22,807,833 | $ | 17,372,627 | $ | 16,289,146 | |||||||||||
| Capital expenditures to maintain real estate facilities | 452,316 | 284,200 | 163,834 | ||||||||||||||
| Acquisitions | 733,442 | 4,940,413 | 781,219 | ||||||||||||||
| Dispositions | (1,704) | (7,408) | (303) | ||||||||||||||
| Developed or expanded facilities opened for operation | 227,239 | 218,001 | 138,731 | ||||||||||||||
| Ending balance | 24,219,126 | 22,807,833 | 17,372,627 | ||||||||||||||
| Accumulated depreciation: | |||||||||||||||||
| Beginning balance | (7,773,308) | (7,152,135) | (6,623,475) | ||||||||||||||
| Depreciation expense | (781,931) | (625,968) | (528,660) | ||||||||||||||
| Dispositions | 1,084 | 4,795 | — | ||||||||||||||
| Ending balance | (8,554,155) | (7,773,308) | (7,152,135) | ||||||||||||||
| Construction in process: | |||||||||||||||||
| Beginning balance | 272,471 | 188,079 | 141,934 | ||||||||||||||
| Costs incurred to develop and expand real estate facilities | 336,948 | 302,393 | 188,102 | ||||||||||||||
| Write-off of cancelled projects and transfer to other assets | (9,188) | — | (3,226) | ||||||||||||||
| Developed or expanded facilities opened for operation | (227,239) | (218,001) | (138,731) | ||||||||||||||
| Ending balance | 372,992 | 272,471 | 188,079 | ||||||||||||||
| Total real estate facilities at December 31, | $ | 16,037,963 | $ | 15,306,996 | $ | 10,408,571 |
During 2022, we acquired 74 self-storage facilities (4.7 million net rentable square feet of storage space), for a total cost of $730.5 million, consisting of $710.6 million in cash and $19.9 million in partnership units in one of our subsidiaries. Approximately $24.1 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing $227.2 million during 2022, adding 1.4 million net rentable square feet of self-storage space. Construction in process at December 31, 2022 consisted of projects to develop new self-storage facilities and expand existing self-storage facilities. During 2022, we wrote off $7.0 million of accumulated development costs for cancelled development and redevelopment projects in construction in process as general and administrative expense. We also transferred $2.2 million of land cost related to a cancelled development project to other assets at December 31, 2022.
Additionally, on July 8, 2022, we acquired from PSB the commercial interests in five properties at three sites jointly occupied with certain of our self-storage facilities located in Maryland and Virginia, for $47.3 million. We recognized $27.0 million of real estate assets and $0.7 million of intangibles for the properties acquired, representing the cost of these commercial properties that we did not have interest in through our equity investment in PSB. We recognized the remaining $19.6 million as an increase to our basis in our equity investment in PSB, which represents the elimination of our portion of the gain recorded by PSB.
During 2022, we sold portions of real estate facilities in connection with eminent domain proceedings for $1.5 million in cash proceeds and recorded a related gain on sale of real estate of approximately $1.5 million.
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 of $5.0 billion in cash and $68.2 million in partnership units in one of our subsidiaries. Approximately $174.9 million of the total cost was allocated to intangible assets. We completed
F-15
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
development and redevelopment activities costing $218.0 million during 2021, adding 1.6 million net rentable square feet of self-storage space. 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 that were cancelled.
At December 31, 2022, the adjusted basis of real estate facilities for U.S. federal tax purposes was approximately $16.5 billion (unaudited).
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):
| Investments in Unconsolidated Real Estate Entities at December 31, | Equity in Earnings of Unconsolidated Real Estate for the Year Ended December 31, | ||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2020 | |||||||||||||||||||||||||
| PSB | $ | — | $ | 515,312 | $ | 80,596 | $ | 207,722 | $ | 64,835 | |||||||||||||||||||
| Shurgard | 275,752 | 313,451 | 26,385 | 24,371 | 15,662 | ||||||||||||||||||||||||
| Total | $ | 275,752 | $ | 828,763 | $ | 106,981 | $ | 232,093 | $ | 80,497 |
The following tables represent summarized financial information for PSB and Shurgard in aggregate derived from their respective reported financial statements prepared under US GAAP before our basis difference adjustments for the years ended December 31, 2022, 2021, and 2020 (amounts in thousands). Due to the complete sale of our equity investment in PSB in July 2022, the summarized financial information for 2022 includes PSB's financial activities through June 30, 2022, which represents the most practical date of such reported information prior to the transaction.
F-16
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
| Year Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Revenues | $ | 572,192 | $ | 790,461 | $ | 721,393 | ||||||||||||||
| Costs of operations | 193,868 | 263,398 | 242,992 | |||||||||||||||||
| Operating income | 220,948 | 333,624 | 290,901 | |||||||||||||||||
| Gain on sale of real estate | 128,743 | 359,904 | 27,234 | |||||||||||||||||
| Net Income | 299,226 | 639,062 | 275,680 |
| At December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Real estate assets | $ | 1,391,806 | $ | 3,437,115 | |||||||
| Other assets | 289,420 | 481,403 | |||||||||
| Total assets | $ | 1,681,226 | $ | 3,918,518 | |||||||
| Debt | $ | 860,977 | $ | 943,276 | |||||||
| Other liabilities | 224,701 | 298,787 | |||||||||
| Noncontrolling interests | 2,659 | 262,243 | |||||||||
| Shareholders' equity | 592,889 | 2,414,212 | |||||||||
| Total liabilities and equity | $ | 1,681,226 | $ | 3,918,518 |
Investment in PSB
Prior to the sale of our equity investment in PSB in its entirety on July 20, 2022, we owned 7,158,354 shares of PSB’s common stock and 7,305,355 limited partnership units in an operating partnership controlled by PSB, representing a 41% common equity interest in PSB.
On April 24, 2022, PSB entered into an Agreement and Plan of Merger whereby affiliates of Blackstone agreed to acquire all outstanding shares of PSB’s common stock for $187.50 per share in cash. On July 20, 2022, PSB announced that it completed the merger transaction with Blackstone. Each share of PSB common stock and each common unit of partnership interest we held in PSB were converted into the right to receive the merger consideration of $187.50 per share or unit, including a $5.25 closing cash dividend per share or unit, and a $0.22 prorated quarterly cash dividend per share or unit, for a total of $187.72 per share or unit. At the close of the merger transaction, we received a total of $2.7 billion of cash proceeds and recognized a gain of $2.1 billion, which was classified within gain on sale of equity investment in PS Business Parks, Inc. in the Consolidated Statement of Income.
We classified $2.6 billion of the proceeds from the merger consideration, or $182.25 per share or unit within cash flows from investing activities in the Consolidated Statements of Cash Flows for 2022. During 2022, 2021 and 2020, we received cash distributions from PSB totaling $109.5 million (including the aforementioned $5.25 closing cash dividend per share or unit and the $0.22 prorated quarterly cash dividend per share or unit from the merger transaction), $127.3 million and $60.7 million, respectively, which were classified within cash flows from operating activities in the Consolidated Statements of Cash Flows.
Investment in Shurgard
Throughout all periods presented, we effectively owned, directly and indirectly 31,268,459 Shurgard common shares, representing a 35% equity interest in Shurgard.
Based upon the closing price at December 31, 2022 (€42.85 per share of Shurgard common stock, at 1.070 exchange rate of U.S. Dollars to the Euro), the shares we owned had a market value of approximately $1.4 billion.
F-17
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Our equity in earnings of Shurgard comprised our equity share of Shurgard’s net income, less amortization of the Shurgard Basis Differential (defined below). During 2022, 2021 and 2020, we received $3.5 million, $3.5 million and $3.1 million of trademark license fees that Shurgard pays to us for the use of the Shurgard® trademark, respectively. We eliminated $1.2 million, $1.2 million, and $1.1 million of intra-entity profits and losses for 2022, 2021 and 2020, respectively, representing our equity share of the trademark license fees. We classify the remaining license fees we receive from Shurgard as interest and other income on our income statement.
During 2022, 2021, and 2020, we received cash dividends from Shurgard totaling $37.8 million, $41.5 million and $34.9 million, respectively. Approximately $13.7 million, $19.5 million and $24.7 million of total cash distributions from Shurgard during the year ended December 31, 2022, 2021 and 2020, respectively, represented distributions in excess of cumulative equity in earnings from Shurgard, which was classified within cash flows from investing activities in the Consolidated Statements of Cash Flows.
At December 31, 2022, our investment in Shurgard’s real estate assets exceeded our pro-rata share of the underlying amounts on Shurgard’s balance sheet by approximately $67.8 million ($74.7 million at December 31, 2021). This differential (the “Shurgard Basis Differential”) includes our basis adjustments in Shurgard’s real estate assets net of related deferred income taxes. The Shurgard Basis Differential is being amortized as a reduction to equity in earnings of the Unconsolidated Real Estate Entities. Such amortization totaled approximately $6.9 million, $8.4 million and $5.8 million during 2022, 2021, and 2020, respectively.
Shurgard is a publicly held entity trading on Euronext Brussels under the symbol “SHUR”.
5.Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following (amounts in thousands):
| At December 31, 2022 | At December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Gross Book Value | Accumulated Amortization | Net Book Value | Gross Book Value | Accumulated Amortization | Net Book Value | ||||||||||||||||||||||||||||||
| Goodwill | $ | 165,843 | $ | — | $ | 165,843 | $ | 165,843 | $ | — | $ | 165,843 | |||||||||||||||||||||||
| Shurgard® Trade Name | 18,824 | — | 18,824 | 18,824 | — | 18,824 | |||||||||||||||||||||||||||||
| Finite-lived intangible assets, subject to amortization | 201,668 | (153,818) | 47,850 | 198,180 | (79,953) | 118,227 | |||||||||||||||||||||||||||||
| Total goodwill and other intangible assets | $ | 386,335 | $ | (153,818) | $ | 232,517 | $ | 382,847 | $ | (79,953) | $ | 302,894 |
Finite-lived intangible assets consist primarily of acquired customers in place. Amortization expense related to intangible assets subject to amortization was $95.2 million, $76.6 million and $16.1 million in 2022, 2021, and 2020, respectively. During 2022, 2021, and 2020, intangibles increased $24.8 million, $174.9 million, and $14.9 million, respectively, in connection with the acquisition of real estate facilities (Note 3).
The remaining amortization expense will be recognized over a weighted average life of approximately 1.3 years. The estimated future amortization expense for our finite-lived intangible assets at December 31, 2022 is as follows (amounts in thousands):
| Year | Amount | |||||||
| 2023 | $ | 36,852 | ||||||
| 2024 | 5,746 | |||||||
| Thereafter | 5,252 | |||||||
| Total | $ | 47,850 |
F-18
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
6.Credit Facility
We have a revolving credit agreement (the “Credit Facility”) with a $500 million borrowing limit that matures on April 19, 2024. Amounts drawn on the Credit Facility bear annual interest at rates ranging from LIBOR plus 0.7% to LIBOR plus 1.350% depending upon the ratio of our Total Indebtedness to Gross Asset Value (as defined in the Credit Facility) (LIBOR plus 0.75% at December 31, 2022). We are also required to pay a quarterly facility fee ranging from 0.07% per annum to 0.25% per annum depending upon the ratio of our Total Indebtedness to our Gross Asset Value (0.10% per annum at December 31, 2022). At December 31, 2022 and February 21, 2023, we had no outstanding borrowings under this Credit Facility. We had undrawn standby letters of credit, which reduce our borrowing capacity, totaling $18.6 million at December 31, 2022 ($21.2 million at December 31, 2021). The Credit Facility has various customary restrictive covenants with which we were in compliance at December 31, 2022.
7.Notes Payable
Our notes payable are reflected net of issuance costs (including original issue discounts), which are amortized as interest expense on the effective interest method over the term of each respective note. Our notes payable at December 31, 2022 and 2021 are set forth in the tables below:
| Amounts at December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Coupon Rate | Effective Rate | Principal | Unamortized Costs | Book Value | Fair Value | ||||||||||||||||||||||||||||||
| ($ amounts in thousands) | |||||||||||||||||||||||||||||||||||
| U.S. Dollar Denominated Unsecured Debt | |||||||||||||||||||||||||||||||||||
| Notes due April 23, 2024 | SOFR+0.47% | 2.831% | $ | 700,000 | $ | (925) | $ | 699,075 | $ | 691,309 | |||||||||||||||||||||||||
| Notes due February 15, 2026 | 0.875% | 1.030% | 500,000 | (2,322) | 497,678 | 441,849 | |||||||||||||||||||||||||||||
| Notes due November 9, 2026 | 1.500% | 1.640% | 650,000 | (3,357) | 646,643 | 578,899 | |||||||||||||||||||||||||||||
| Notes due September 15, 2027 | 3.094% | 3.218% | 500,000 | (2,492) | 497,508 | 466,029 | |||||||||||||||||||||||||||||
| Notes due May 1, 2028 | 1.850% | 1.962% | 650,000 | (3,599) | 646,401 | 558,197 | |||||||||||||||||||||||||||||
| Notes due November 9, 2028 | 1.950% | 2.044% | 550,000 | (2,818) | 547,182 | 468,509 | |||||||||||||||||||||||||||||
| Notes due May 1, 2029 | 3.385% | 3.459% | 500,000 | (1,947) | 498,053 | 456,855 | |||||||||||||||||||||||||||||
| Notes due May 1, 2031 | 2.300% | 2.419% | 650,000 | (5,697) | 644,303 | 530,390 | |||||||||||||||||||||||||||||
| Notes due November 9, 2031 | 2.250% | 2.322% | 550,000 | (3,134) | 546,866 | 443,514 | |||||||||||||||||||||||||||||
| 5,250,000 | (26,291) | 5,223,709 | 4,635,551 | ||||||||||||||||||||||||||||||||
| Euro Denominated Unsecured Debt | |||||||||||||||||||||||||||||||||||
| Notes due April 12, 2024 | 1.540% | 1.540% | 107,035 | — | 107,035 | 104,344 | |||||||||||||||||||||||||||||
| Notes due November 3, 2025 | 2.175% | 2.175% | 259,039 | — | 259,039 | 246,119 | |||||||||||||||||||||||||||||
| Notes due September 9, 2030 | 0.500% | 0.640% | 749,245 | (8,611) | 740,634 | 566,204 | |||||||||||||||||||||||||||||
| Notes due January 24, 2032 | 0.875% | 0.978% | 535,175 | (4,858) | 530,317 | 396,297 | |||||||||||||||||||||||||||||
| 1,650,494 | (13,469) | 1,637,025 | 1,312,964 | ||||||||||||||||||||||||||||||||
| Mortgage Debt, secured by 5 real estate facilities with a net book value of $17.0 million | 3.410% | 3.410% | 10,092 | — | 10,092 | 9,568 | |||||||||||||||||||||||||||||
| $ | 6,910,586 | $ | (39,760) | $ | 6,870,826 | $ | 5,958,083 |
F-19
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
| Amounts at | |||||||||||
| December 31, 2021 | |||||||||||
| Book Value | Fair Value | ||||||||||
| ($ amounts in thousands) | |||||||||||
| U.S. Dollar Denominated Unsecured Debt | |||||||||||
| Notes due September 15, 2022 | $ | 499,637 | $ | 506,362 | |||||||
| Notes due April 23, 2024 | 698,372 | 700,314 | |||||||||
| Notes due February 15, 2026 | 496,939 | 488,141 | |||||||||
| Notes due November 9, 2026 | 645,773 | 649,996 | |||||||||
| Notes due September 15, 2027 | 496,980 | 535,206 | |||||||||
| Notes due May 1, 2028 | 645,724 | 649,221 | |||||||||
| Notes due November 9, 2028 | 546,701 | 548,241 | |||||||||
| Notes due May 1, 2029 | 497,743 | 545,580 | |||||||||
| Notes due May 1, 2031 | 643,617 | 656,546 | |||||||||
| Notes due November 9, 2031 | 546,512 | 551,932 | |||||||||
| 5,717,998 | 5,831,539 | ||||||||||
| Euro Denominated Unsecured Debt | |||||||||||
| Notes due April 12, 2024 | 113,431 | 117,526 | |||||||||
| Notes due November 3, 2025 | 274,518 | 295,256 | |||||||||
| Notes due September 9, 2030 | 784,287 | 769,561 | |||||||||
| Notes due January 24, 2032 | 561,761 | 551,842 | |||||||||
| 1,733,997 | 1,734,185 | ||||||||||
| Mortgage Debt | 23,284 | 24,208 | |||||||||
| $ | 7,475,279 | $ | 7,589,932 |
U.S. Dollar Denominated Unsecured Notes
On August 15, 2022, the Company redeemed its 2.370% Senior Notes due September 15, 2022, with an aggregate principal amount of $500.0 million.
On January 19, 2021, we completed a public offering of $500 million aggregate principal amount of senior notes bearing interest at an annual rate of 0.875% and maturing on February 15, 2026. Interest on the senior notes is payable semi-annually, commencing on August 15, 2021. In connection with the offering, we incurred $3.8 million in costs.
On April 23, 2021, we completed a public offering of $700 million, $650 million, and $650 million aggregate principal amount of senior notes bearing interest at an annual rate of the Compounded Secured Overnight Financing Rate (“SOFR”) plus 0.47% (reset quarterly and at 4.36% as of December 31, 2022), 1.850%, and 2.300%, respectively, and maturing on April 23, 2024, May 1, 2028, and May 1, 2031, respectively. Interest on the 2024 notes is payable quarterly, commencing on July 23, 2021. Interest on the 2028 notes and 2031 notes is payable semi-annually, commencing on November 1, 2021. In connection with the offering, we incurred a total of $13.7 million in costs.
On November 9, 2021, we completed a public offering of $650 million, $550 million, and $550 million aggregate principal amount of senior notes bearing interest at an annual rate of 1.500%, 1.950%, and 2.250%, respectively, and maturing on November 9, 2026, November 9, 2028, and November 9, 2031, respectively. Interest on the senior notes is payable semi-annually, commencing on May 9, 2022. In connection with the offering, we incurred a total of $11.3 million in costs.
F-20
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
The U.S. Dollar denominated unsecured notes (the “U.S. Dollar Denominated Unsecured Notes”) have various financial covenants, with which we were in compliance at December 31, 2022. Included in these covenants are (a) a maximum Debt to Total Assets of 65% (approximately 14% at December 31, 2022) and (b) a minimum ratio of Adjusted EBITDA to Interest Expense of 1.5x (approximately 25x for the twelve months ended December 31, 2022) as well as covenants limiting the amount we can encumber our properties with mortgage debt.
Euro Denominated Unsecured Notes
Our Euro denominated unsecured notes (the “Euro Notes”) consist of four tranches: (i) €242.0 million issued to institutional investors on November 3, 2015, (ii) €100.0 million issued to institutional investors on April 12, 2016, (iii) €500.0 million issued in a public offering on January 24, 2020, and (iv) €700.0 million issued in a public offering on September 9, 2021. Interest is payable semi-annually on the notes issued November 3, 2015 and April 12, 2016, and annually on the notes issued January 24, 2020 and September 9, 2021.The Euro Notes have financial covenants similar to those of the U.S. Dollar Denominated Unsecured Notes.
We reflect changes in the U.S. Dollar equivalent of the amount payable including the associated interest, as a result of changes in foreign exchange rates as “Foreign currency exchange gain (loss)” on our income statement (gains of $99.2 million for 2022, as compared to gains of $111.8 million for 2021 and losses of $98.0 million for 2020).
Mortgage Notes
We assumed our non-recourse mortgage debt in connection with property acquisitions, and we recorded such debt at fair value with any premium or discount to the stated note balance amortized using the effective interest method.
At December 31, 2022, the related contractual interest rates of our mortgage notes are fixed, ranging between 3.2% and 7.1%, and mature between November 1, 2023 and July 1, 2030.
At December 31, 2022, approximate principal maturities of our Notes Payable are as follows (amounts in thousands):
| Unsecured Debt | Mortgage Debt | Total | |||||||||||||||
| 2023 | $ | — | $ | 8,270 | $ | 8,270 | |||||||||||
| 2024 | 807,035 | 124 | 807,159 | ||||||||||||||
| 2025 | 259,039 | 131 | 259,170 | ||||||||||||||
| 2026 | 1,150,000 | 138 | 1,150,138 | ||||||||||||||
| 2027 | 500,000 | 140 | 500,140 | ||||||||||||||
| Thereafter | 4,184,420 | 1,289 | 4,185,709 | ||||||||||||||
| $ | 6,900,494 | $ | 10,092 | $ | 6,910,586 | ||||||||||||
| Weighted average effective rate | 2.0% | 3.4% | 2.0% |
Cash paid for interest totaled $133.8 million, $77.7 million, and $52.7 million for 2022, 2021, and 2020, respectively. Interest capitalized as real estate totaled $6.0 million, $3.5 million and $3.4 million for 2022, 2021, and 2020, respectively.
8.Noncontrolling Interests
There are noncontrolling interests related to several subsidiaries we consolidate of which we do not own 100% of the equity. At December 31, 2022, certain of these subsidiaries have issued 499,966 partnership units to third-parties that are convertible on a one-for-one basis (subject to certain limitations) into common shares of the Company at the request of the unitholder. These include a total of 54,137 partnership units of $19.9 million issued to third-parties in connection with our acquisition of self-storage properties in 2022.
F-21
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
At March 31, 2022, there were 254,833 partnership units of $83.8 million classified as redeemable noncontrolling interests outside of total equity in our consolidated balance sheets, because the unitholders of these partnership units had the right to require redemption of their partnership units in cash if common shares of the Company were not publicly listed. In the second quarter of 2022, the related partnership agreements were amended with such cash redemption feature removed from these partnership units. We therefore reclassified $83.8 million from redeemable noncontrolling interests to noncontrolling interests in total equity during the three months ended June 30, 2022.
9.Shareholders’ Equity
Preferred Shares
At December 31, 2022 and 2021, we had the following series of Cumulative Preferred Shares (“Preferred Shares”) outstanding:
| At December 31, 2022 | At December 31, 2021 | |||||||||||||||||||||||||||||||||||||
| Series | Earliest Redemption Date | Dividend Rate | Shares Outstanding | Liquidation Preference | Shares Outstanding | Liquidation Preference | ||||||||||||||||||||||||||||||||
| (Dollar amounts in thousands) | ||||||||||||||||||||||||||||||||||||||
| Series F | 6/2/2022 | 5.150 | % | 11,200 | $ | 280,000 | 11,200 | $ | 280,000 | |||||||||||||||||||||||||||||
| Series G | 8/9/2022 | 5.050 | % | 12,000 | 300,000 | 12,000 | 300,000 | |||||||||||||||||||||||||||||||
| Series H | 3/11/2024 | 5.600 | % | 11,400 | 285,000 | 11,400 | 285,000 | |||||||||||||||||||||||||||||||
| Series I | 9/12/2024 | 4.875 | % | 12,650 | 316,250 | 12,650 | 316,250 | |||||||||||||||||||||||||||||||
| Series J | 11/15/2024 | 4.700 | % | 10,350 | 258,750 | 10,350 | 258,750 | |||||||||||||||||||||||||||||||
| Series K | 12/20/2024 | 4.750 | % | 9,200 | 230,000 | 9,200 | 230,000 | |||||||||||||||||||||||||||||||
| Series L | 6/17/2025 | 4.625 | % | 22,600 | 565,000 | 22,600 | 565,000 | |||||||||||||||||||||||||||||||
| Series M | 8/14/2025 | 4.125 | % | 9,200 | 230,000 | 9,200 | 230,000 | |||||||||||||||||||||||||||||||
| Series N | 10/6/2025 | 3.875 | % | 11,300 | 282,500 | 11,300 | 282,500 | |||||||||||||||||||||||||||||||
| Series O | 11/17/2025 | 3.900 | % | 6,800 | 170,000 | 6,800 | 170,000 | |||||||||||||||||||||||||||||||
| Series P | 6/16/2026 | 4.000 | % | 24,150 | 603,750 | 24,150 | 603,750 | |||||||||||||||||||||||||||||||
| Series Q | 8/17/2026 | 3.950 | % | 5,750 | 143,750 | 5,750 | 143,750 | |||||||||||||||||||||||||||||||
| Series R | 11/19/2026 | 4.000 | % | 17,400 | 435,000 | 17,400 | 435,000 | |||||||||||||||||||||||||||||||
| Series S | 1/13/2027 | 4.100 | % | 10,000 | 250,000 | — | — | |||||||||||||||||||||||||||||||
| Total Preferred Shares | 174,000 | $ | 4,350,000 | 164,000 | $ | 4,100,000 |
The holders of our Preferred Shares have general preference rights with respect to liquidation, quarterly distributions, and any accumulated unpaid distributions. Except as noted below, holders of the Preferred Shares do not have voting rights. In the event of a cumulative arrearage equal to six quarterly dividends, holders of all outstanding series of preferred shares (voting as a single class without regard to series) will have the right to elect two additional members to serve on our Board of Trustees (our “Board”) until the arrearage has been cured. At December 31, 2022, there were no dividends in arrears. The affirmative vote of at least 66.67% of the outstanding shares of a series of Preferred Shares is required for any material and adverse amendment to the terms of such series. The affirmative vote of at least 66.67% of the outstanding shares of all of our Preferred Shares, voting as a single class, is required to issue shares ranking senior to our Preferred Shares.
Except under certain conditions relating to the Company’s qualification as a REIT, the Preferred Shares are not redeemable prior to the dates indicated on the table above. On or after the respective dates, each of the series of Preferred Shares is redeemable at our option, in whole or in part, at $25.00 per depositary share, plus accrued and unpaid dividends. Holders of the Preferred Shares cannot require us to redeem such shares.
F-22
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Upon issuance of our Preferred Shares, we classify the liquidation value as preferred equity on our consolidated balance sheet with any issuance costs recorded as a reduction to Paid-in capital.
During 2022, 2021, and 2020, we issued the following series of Preferred Shares at an issuance price of $25.00 per depository share with each depository share representing 0.001 of a share of Preferred Share (amounts in thousands):
| Year | Series | Shares | Gross Proceeds | Issuance Costs | ||||||||||||||||||||||
| 2022 | S | 10,000 | $ | 250,000 | $ | 7,168 | ||||||||||||||||||||
| 2021 | P, Q and R | 47,300 | 1,182,500 | 35,045 | ||||||||||||||||||||||
| 2020 | L, M, N and O | 49,900 | 1,247,500 | 39,294 |
During 2021 and 2020, we redeemed the following series of Preferred Shares at par (none in 2022) (amounts in thousands):
| Year | Series | Aggregate Redemption Amount | Allocation of Income to Preferred Shares Holders in Connection with Redemption | |||||||||||||||||
| 2021 | C, D and E | $ | 875,000 | $ | 28,914 | |||||||||||||||
| 2020 (a) | V, W, X and B | 1,520,000 | 48,265 |
(a)On December 14, 2020, we called for redemption of, and on January 20, 2021, we redeemed Series B Preferred Shares. The liquidation value (at par) was reclassified as a liability as of December 31, 2020 and we recorded allocation of income to the holders of our Preferred Shares in 2020 in connection with this redemption.
Common Shares
During 2022, 2021, and 2020, activity with respect to the issuance of our common shares was as follows (dollar amounts in thousands):
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||
| Employee stock-based compensation and exercise of stock options (Note 11) | 283,190 | $ | 35,405 | 552,713 | $ | 95,860 | 163,127 | $ | 12,664 |
Our Board previously authorized the repurchase from time to time of up to 35.0 million of our common shares on the open market or in privately negotiated transactions. Through December 31, 2022, we repurchased approximately 23.7 million shares pursuant to this authorization; none of which were repurchased during the three years ended December 31, 2022.
The unaudited characterization of dividends for U.S. federal corporate income tax purposes is made based upon earnings and profits of the Company, as defined by the Code. Common share dividends paid, including amounts paid to our restricted share unitholders, totaled $3.714 billion ($21.15 per share), $1.402 billion ($8.00 per share), and $1.399 billion ($8.00 per share) for the years ended December 31, 2022, 2021, and 2020, respectively. Included in common share dividends paid during 2022 is $2.3 billion of a special cash dividend (“Special Dividend”) of $13.15 per common share paid on August 4, 2022 in connection with the sale of our equity investment in PSB on July 20, 2022. Preferred share dividends totaled $194.4 million, $186.6 million and $207.1 million for the years ended December 31, 2022, 2021, and 2020, respectively.
For the tax year ended December 31, 2022, distributions for the common shares and all the various series of preferred shares were classified as follows:
F-23
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
| 2022 (unaudited) | |||||||||||||||||||||||||||||
| 1st Quarter | 2nd Quarter | 8/4/2022 Special | 3rd Quarter | 4th Quarter | |||||||||||||||||||||||||
| Ordinary Dividends | 29.61 | % | 29.61 | % | 39.66 | % | — | % | 100.00 | % | |||||||||||||||||||
| Capital Gain Distributions | 70.39 | % | 70.39 | % | 60.34 | % | 100.00 | % | 0.00 | % | |||||||||||||||||||
| Total | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % |
The ordinary income dividends distributed for the tax year ended December 31, 2022 are not qualified dividends under the Internal Revenue Code; however, they are subject to the 20% deduction under IRS Section 199A.
10.Related Party Transactions
At December 31, 2022, Tamara Hughes Gustavson, a current member of our Board, held less than a 0.1% equity interest in, and is a manager of, a limited liability company that owns 65 self-storage facilities in Canada. Two of Ms. Gustavson’s adult children owned the remaining equity interest in the limited liability company. These facilities operate under the Public Storage® tradename, which we license to the owners of these facilities for use in Canada on a royalty-free, non-exclusive basis. We have no ownership interest in these facilities and we do not own or operate any facilities in Canada. If we chose to acquire or develop our own facilities in Canada, we would have to share the use of the Public Storage® name in Canada. We have a right of first refusal, subject to limitations, to acquire the stock or assets of the corporation engaged in the operation of these facilities if their owners agree to sell them. Our subsidiaries reinsure risks relating to loss of goods stored by customers in these facilities, and have received premium payments of approximately $2.2 million, $2.1 million and $1.6 million for 2022, 2021, and 2020, respectively.
On July 8, 2022, we acquired from PSB the commercial interests in five properties at three sites jointly occupied with certain of our self-storage facilities located in Maryland and Virginia, for $47.3 million. We recognized $27.0 million of real estate assets and $0.7 million of intangibles for the properties acquired, representing the cost of these commercial properties that we did not have interest in through our equity investment in PSB. We recognized the remaining $19.6 million as an increase in our basis in our equity investment in PSB, which represents the elimination of our portion of the gain recorded by PSB.
11.Share-Based Compensation
Under various share-based compensation plans and under terms established or modified by our Board or a committee thereof, we grant equity awards to trustees, officers, and key employees, including non-qualified options to purchase the Company’s common shares, RSUs, deferred share units (“DSUs”), and unrestricted common shares issued in lieu of trustee compensation.
On April 26, 2021, the Company’s Shareholders approved the 2021 Equity and Performance-Based Incentive Compensation Plan (“2021 Plan”), which authorized an additional three million shares available for future issuance of equity-based awards. As of December 31, 2022, there were a total of 1,724,352 shares reserved for granting of future options and stock awards under the 2021 Plan.
We recorded share-based compensation expense associated with our equity awards in the various expense categories in the Consolidated Statements of Income as set forth in the following table. In addition, $4.1 million and $3.9 million share-based compensation cost was capitalized as real estate facilities for the year ended December 31, 2022 and 2021, respectively (none in 2020).
F-24
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
| For Years Ended December 31, | |||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||
| (Amounts in thousands) | |||||||||||||||||||||||||||||
| Self-storage cost of operations | $ | 17,950 | $ | 20,544 | $ | 14,904 | |||||||||||||||||||||||
| Ancillary cost of operations | 888 | 1,561 | — | ||||||||||||||||||||||||||
| General and administrative | 37,865 | 37,760 | 18,586 | ||||||||||||||||||||||||||
| Total | $ | 56,703 | $ | 59,865 | $ | 33,490 |
Included in share-based compensation is $14.9 million, $15.9 million and $5.7 million for the years ended December 31, 2022, 2021, and 2020, respectively, of retirement acceleration as discussed in Note 2.
Stock Options
We have service-based and performance-based stock options outstanding. Performance-based stock options outstanding vest upon meeting certain performance conditions or market conditions. Stock options generally vest over 3 to 5 years, expire 10 years after the grant date, and have an exercise price equal to the closing trading price of our common shares on the grant date. New shares are issued for options exercised. Employees cannot require the Company to settle their award in cash.
For the years ended December 31, 2022, 2021, and 2020, we incurred share-based compensation cost for outstanding stock options of $19.9 million, $25.1 million and $7.6 million, respectively.
During 2022, we granted 65,000 stock options in connection with non-management trustee compensation. We also granted 77,683 stock options, of which vesting is dependent upon meeting certain market conditions over the three-year period from January 1, 2022 through December 31, 2024, with continued service-based vesting through the first quarter of 2027. These stock options require relative achievement of the Company’s total shareholder return as compared to the weighted average total shareholder return of specified peer groups and can result in grantees earning up to 200% of the target options originally granted.
During 2021, 245,000 stock options were awarded where vesting is dependent upon meeting certain performance targets over the three-year period from January 1, 2021 through December 31, 2023, which are considered performance conditions, with continued service-based vesting through the first quarter of 2026. These awards contain a relative Total Shareholder Return modifier that will adjust the payout based on relative performance as compared to the market. As of December 31, 2022, these performance targets were expected to be met at 125% achievement, an increase from 100% as of December 31, 2021.
During 2020, 770,000 stock options were awarded where vesting is dependent upon meeting certain performance targets over the three-year period from January 1, 2020 through December 31, 2022, which are considered performance conditions, with continued service-based vesting through the first quarter of 2025. These performance targets were met at 125% achievement at December 31, 2022.
The stock options outstanding at December 31, 2022 have an aggregate intrinsic value (the excess, if any, of each option’s market value over the exercise price) of approximately $209.8 million and remaining average contractual lives of approximately five years. Total compensation cost related to nonvested stock options that has not yet been recognized is $21.2 million and is expected to be recognized as compensation cost over approximately three years on average. Exercisable stock options have an aggregate intrinsic value of approximately $128.9 million at December 31, 2022 and remaining average contractual lives of approximately three years.
Additional information with respect to stock options during 2022, 2021, and 2020 is as follows:
F-25
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
| Service-Based | Performance-Based | Total | |||||||||||||||||||||||||||||||||
| Number of Options | Weighted Average Exercise Price per Share | Number of Options | Weighted Average Exercise Price per Share | Number of Options | Weighted Average Exercise Price per Share | ||||||||||||||||||||||||||||||
| Options outstanding January 1, 2020 | 2,339,667 | $ | 204.53 | — | $ | — | 2,339,667 | $ | 204.53 | ||||||||||||||||||||||||||
| Granted | 70,000 | 200.61 | 770,000 | 228.94 | 840,000 | 226.58 | |||||||||||||||||||||||||||||
| Exercised | (71,500) | (175.16) | — | — | (71,500) | (175.16) | |||||||||||||||||||||||||||||
| Cancelled | (107,000) | (220.33) | (40,000) | (228.94) | (147,000) | (222.67) | |||||||||||||||||||||||||||||
| Options outstanding December 31, 2020 | 2,231,167 | $ | 204.60 | 730,000 | $ | 228.94 | 2,961,167 | $ | 210.59 | ||||||||||||||||||||||||||
| Granted (a) | 140,000 | 248.54 | 420,000 | 229.53 | 560,000 | 234.29 | |||||||||||||||||||||||||||||
| Exercised | (471,216) | (203.30) | — | — | (471,216) | (203.30) | |||||||||||||||||||||||||||||
| Cancelled | — | — | (10,000) | (228.94) | (10,000) | (228.94) | |||||||||||||||||||||||||||||
| Options outstanding December 31, 2021 | 1,899,951 | $ | 208.16 | 1,140,000 | $ | 229.16 | 3,039,951 | $ | 216.04 | ||||||||||||||||||||||||||
| Granted (b) | 65,000 | 398.97 | 138,933 | 299.88 | 203,933 | 331.46 | |||||||||||||||||||||||||||||
| Special dividend adjustment (c) | 62,512 | N/A | 41,836 | N/A | 104,348 | N/A | |||||||||||||||||||||||||||||
| Exercised | (173,422) | (189.95) | (10,327) | (221.68) | (183,749) | (191.74) | |||||||||||||||||||||||||||||
| Cancelled | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Options outstanding December 31, 2022 (d) | 1,854,041 | $ | 209.53 | 1,310,442 | $ | 229.39 | 3,164,483 | $ | 217.75 | ||||||||||||||||||||||||||
| Options exercisable at December 31, 2022 (d) | 1,617,555 | $ | 200.87 | 10,327 | $ | 221.68 | 1,627,882 | $ | 201.00 |
| 2022 | 2021 | 2020 | |||||||||||||||
| Aggregate exercise date intrinsic value of options exercised during the year (in 000's) | $ | 27,210 | $ | 44,613 | $ | 3,433 | |||||||||||
| Average assumptions used in valuing options with the Black-Scholes method: | |||||||||||||||||
| Expected life of options in years | 6 | 5 | 5 | ||||||||||||||
| Risk-free interest rate | 2.9% | 0.8% | 0.4% | ||||||||||||||
| Expected volatility, based upon historical volatility | 22.9% | 24.1% | 21.6% | ||||||||||||||
| Expected dividend yield | 2.0% | 2.9% | 3.8% | ||||||||||||||
| Average assumptions used in valuing options with market conditions with the Monte-Carlo simulation method: | |||||||||||||||||
| Expected life of options in years | 7 | 5 | |||||||||||||||
| Risk-free interest rate | 1.8% | 0.9% | |||||||||||||||
| Expected volatility, based upon historical volatility | 22.6% | 26.5% | |||||||||||||||
| Expected dividend yield | 2.3% | 2.9% | |||||||||||||||
| Average estimated value of options granted during the year | $ | 87.57 | $ | 62.66 | $ | 17.79 |
(a) Amount granted for performance-based stock options includes performance adjustments above target for options granted in 2020.
(b) Amount granted for performance-based stock options includes performance adjustments above target for options granted in 2021.
(c) On August 4, 2022, we paid a Special Dividend of $13.15 per common share to shareholders of record as of August 1, 2022. Stock options that were outstanding at the time of the Special Dividend were adjusted pursuant to the anti-dilution provisions of the Company’s applicable equity and performance-based incentive compensation plans that provide for equitable adjustments in the event of an extraordinary cash dividend. The anti-dilution adjustments
F-26
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
proportionately increased the number of outstanding stock options and reduced the exercise prices of outstanding stock options by a conversion rate of 1.03275, resulting in an increase of 104,348 stock options outstanding. The adjustments did not result in incremental share-based compensation expense.
(d) The weighted average exercise price of options outstanding and options exercisable at December 31, 2022 reflect the adjusted exercise price post the anti-dilution adjustment on August 3, 2022.
Restricted Share Units
We have service-based and performance-based RSUs outstanding, which generally vest over 5 to 8 years from the grant date. Performance-based RSUs outstanding vest upon meeting certain performance conditions or market conditions. The grantee receives dividends for each outstanding RSU equal to the per-share dividends received by our common shareholders. We expense any dividends previously paid upon forfeiture of the related RSU. Upon vesting, the grantee receives new common shares equal to the number of vested RSUs, less common shares withheld to satisfy the grantee’s statutory tax liabilities arising from the vesting.
The fair value of our RSUs is determined based upon the applicable closing trading price of our common shares.
For the years ended December 31, 2022, 2021, and 2020, we incurred share-based compensation cost for RSUs of $39.9 million, $37.6 million, and $25.1 million, respectively.
During 2022, 21,985 RSUs were awarded where vesting is dependent upon meeting certain market conditions over a three-year period from January 1, 2022 through December 31, 2024, with continued service-based vesting through the first quarter of 2027. The amount of these RSUs that are earned and vested, if any, will be based, in addition to continued employment requirements, on the Company's relative total shareholder return over the three-year period as compared to the weighted average total shareholder return of the specified peer groups and can result in grantees earning up to 200% of the target RSUs originally granted.
During 2021, 37,000 RSUs were awarded where vesting is dependent upon meeting certain performance targets for 2021, which are considered performance conditions, with continued service-based vesting through the first quarter of 2026. As of December 31, 2021, these targets were met at 125% achievement.
Remaining compensation cost related to RSUs outstanding at December 31, 2022 totals approximately $74.3 million and is expected to be recognized over the next two years on average. The following tables set forth relevant information with respect to restricted shares (dollar amounts in thousands):
F-27
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
| Service-Based | Performance-Based | Total | |||||||||||||||||||||||||||||||||
| Number of Restricted Share Units | Weighted-Average Grant-Date Fair Value | Number of Restricted Share Units | Weighted-Average Grant-Date Fair Value | Number of Restricted Share Units | Weighted-Average Grant-Date Fair Value | ||||||||||||||||||||||||||||||
| Restricted share units outstanding January 1, 2020 | 619,150 | $ | 213.29 | — | $ | — | 619,150 | $ | 213.29 | ||||||||||||||||||||||||||
| Granted | 110,755 | 222.27 | — | — | 110,755 | 222.27 | |||||||||||||||||||||||||||||
| Vested | (140,089) | (200.88) | — | — | (140,089) | (200.88) | |||||||||||||||||||||||||||||
| Forfeited | (37,028) | (215.08) | — | — | (37,028) | (215.08) | |||||||||||||||||||||||||||||
| Restricted share units outstanding December 31, 2020 | 552,788 | $ | 218.11 | — | $ | — | 552,788 | $ | 218.11 | ||||||||||||||||||||||||||
| Granted (a) | 143,068 | 336.06 | 46,250 | 275.12 | 189,318 | 321.17 | |||||||||||||||||||||||||||||
| Vested | (138,420) | (216.63) | — | — | (138,420) | (216.63) | |||||||||||||||||||||||||||||
| Forfeited | (32,864) | (221.32) | — | — | (32,864) | (221.32) | |||||||||||||||||||||||||||||
| Restricted share units outstanding December 31, 2021 | 524,572 | $ | 249.90 | 46,250 | $ | 275.12 | 570,822 | $ | 251.95 | ||||||||||||||||||||||||||
| Granted | 51,575 | 293.43 | 21,985 | 465.11 | 73,560 | 344.74 | |||||||||||||||||||||||||||||
| Vested | (146,138) | (240.71) | — | — | (146,138) | (240.71) | |||||||||||||||||||||||||||||
| Forfeited | (22,197) | (256.50) | — | — | (22,197) | (256.50) | |||||||||||||||||||||||||||||
| Restricted share units outstanding December 31, 2022 | 407,812 | $ | 258.34 | 68,235 | $ | 336.33 | 476,047 | $ | 269.52 |
| 2022 | 2021 | 2020 | |||||||||||||||
| Amounts for the year (in 000's, except number of shares): | |||||||||||||||||
| Fair value of vested shares on vesting date | $ | 47,244 | $ | 37,430 | $ | 31,076 | |||||||||||
| Cash paid for taxes upon vesting in lieu of issuing common shares | $ | 16,827 | $ | 13,069 | $ | 10,518 | |||||||||||
| Common shares issued upon vesting | 99,009 | 81,325 | 91,627 | ||||||||||||||
| Average assumptions used in valuing restricted share units with market conditions with the Monte-Carlo simulation method: | |||||||||||||||||
| Time from the valuation date to the end of the performance period | 3 | ||||||||||||||||
| Risk-free interest rate | 1.6% | ||||||||||||||||
| Expected volatility, based upon historical volatility | 26.5% | ||||||||||||||||
| Expected dividend yield | 2.3% | ||||||||||||||||
| Average estimated value of restricted share units granted during the year | $ | 465.11 |
(a)Amount includes adjustments above target for performance-based RSUs granted in fiscal year 2021 based on achievement of performance criteria.
Trustee Deferral Program
Non-management trustees may elect to receive all or a portion of their cash retainers in cash, unrestricted common shares, or fully-vested DSUs to be settled at a specified future date. Shares of unrestricted stock and/or DSUs will be granted to the non-management trustee on the last day of each calendar quarter based on the cash retainer earned for that quarter and converted into a number of shares or units based on the applicable closing price of our common shares on such date. During 2022, we granted 2,425 DSUs and 432 unrestricted common shares.
F-28
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
- Net Income per Common Share
We allocate net income to (i) noncontrolling interests based upon their contractual rights in the respective subsidiaries or for participating noncontrolling interests based upon their participation in both distributed and undistributed earnings of the Company, (ii) preferred shareholders, for distributions paid or payable, (iii) preferred shareholders, to the extent redemption cost exceeds the related original net issuance proceeds (a “preferred share redemption charge”), and (iv) RSUs, for non-forfeitable dividends paid and adjusted for participation rights in undistributed earnings of the Company.
We calculate basic and diluted net income per common share based upon net income allocable to common shareholders, divided by (i) weighted average common shares for basic net income per common share, and (ii) weighted average common shares adjusted for the impact of dilutive stock options outstanding for diluted net income per common share. Potentially dilutive stock options representing 147,344 common shares were excluded from the computation of diluted earnings per share for the year ended December 31, 2022, because their effect would have been antidilutive.
The following table reconciles the numerators and denominators of the basic and diluted net income per common shares computation for the year ended December 31, 2022, 2021, and 2020, respectively (in thousands, except per share amounts):
| For the Years Ended December 31, | |||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||
| Numerator for basic and dilutive net income per common share – net income allocable to common shareholders | $ | 4,142,288 | $ | 1,732,444 | $ | 1,098,335 | |||||||||||||||||||||||
| Denominator for basic net income per share - weighted average common shares outstanding | 175,257 | 174,858 | 174,494 | ||||||||||||||||||||||||||
| Net effect of dilutive stock options - based on treasury stock method | 1,023 | 710 | 148 | ||||||||||||||||||||||||||
| Denominator for dilutive net income per share - weighted average common shares outstanding | 176,280 | 175,568 | 174,642 | ||||||||||||||||||||||||||
| Net income per common share: | |||||||||||||||||||||||||||||
| Basic | $ | 23.64 | $ | 9.91 | $ | 6.29 | |||||||||||||||||||||||
| Dilutive | $ | 23.50 | $ | 9.87 | $ | 6.29 |
F-29
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
13.Segment Information
Our operating segments reflect the significant components of our operations where discrete financial information is evaluated separately by our chief operating decision maker.
Self-Storage Operations
The Self-Storage Operations reportable segment reflects the aggregated rental operations from the self-storage facilities we own from (i) Same Store Facilities, (ii) Acquired Facilities, (iii) Developed and Expanded Facilities, and (iv) Other Non-Same Store Facilities. The presentation in the table below sets forth the Net Operating Income (“NOI”) of this reportable segment, as well as the related depreciation expense. For all periods presented, substantially all of our real estate facilities, goodwill and other intangible assets, other assets, and accrued and other liabilities are associated with the Self-Storage Operations reportable segment.
Ancillary Operations
The Ancillary Operations reflects the combined operations of our tenant reinsurance, merchandise sales, and third party property management operating segments.
Presentation of Segment Information
The following table reconciles NOI and net income attributable to our reportable segment to our consolidated net income:
| For the Years Ended December 31, | |||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||
| (amounts in thousands) | |||||||||||||||||||||||||||||
| Self-Storage Operations Reportable Segment | |||||||||||||||||||||||||||||
| Revenue | $ | 3,946,028 | $ | 3,203,566 | $ | 2,721,630 | |||||||||||||||||||||||
| Cost of operations | (980,209) | (852,030) | (807,543) | ||||||||||||||||||||||||||
| Net operating income | 2,965,819 | 2,351,536 | 1,914,087 | ||||||||||||||||||||||||||
| Depreciation and amortization | (888,146) | (713,428) | (553,257) | ||||||||||||||||||||||||||
| Net income | 2,077,673 | 1,638,108 | 1,360,830 | ||||||||||||||||||||||||||
| Ancillary Operations | |||||||||||||||||||||||||||||
| Revenue | 236,135 | 212,258 | 193,438 | ||||||||||||||||||||||||||
| Cost of operations | (72,698) | (68,568) | (59,919) | ||||||||||||||||||||||||||
| Net operating income | 163,437 | 143,690 | 133,519 | ||||||||||||||||||||||||||
| Total net income allocated to segments | 2,241,110 | 1,781,798 | 1,494,349 | ||||||||||||||||||||||||||
| Other items not allocated to segments: | |||||||||||||||||||||||||||||
| General and administrative | (114,742) | (101,254) | (83,199) | ||||||||||||||||||||||||||
| Interest and other income | 40,567 | 12,306 | 22,323 | ||||||||||||||||||||||||||
| Interest expense | (136,319) | (90,774) | (56,283) | ||||||||||||||||||||||||||
| Equity in earnings of unconsolidated real estate entities | 106,981 | 232,093 | 80,497 | ||||||||||||||||||||||||||
| Foreign currency exchange gain (loss) | 98,314 | 111,787 | (97,953) | ||||||||||||||||||||||||||
| Gain on sale of real estate | 1,503 | 13,683 | 1,493 | ||||||||||||||||||||||||||
| Gain on sale of equity investment in PS Business Parks, Inc. | 2,128,860 | — | — | ||||||||||||||||||||||||||
| Net income | $ | 4,366,274 | $ | 1,959,639 | $ | 1,361,227 |
F-30
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
- Commitments and Contingencies
Contingent Losses
We are a party to various legal proceedings and subject to various claims and complaints; however, we believe that the likelihood of these contingencies resulting in a material loss to the Company, either individually or in the aggregate, is remote.
Insurance and Loss Exposure
We carry property, earthquake, general liability, employee medical insurance, and workers compensation coverage through internationally recognized insurance carriers, subject to deductibles. Our deductible for general liability is $2.0 million per occurrence. Our annual deductible for property loss is $25.0 million per occurrence. This deductible decreases to $5.0 million once we reach $35.0 million in aggregate losses for occurrences that exceed $5.0 million. Insurance carriers’ aggregate limits on these policies of $75.0 million for property losses and $102.0 million for general liability losses are higher than estimates of maximum probable losses that could occur from individual catastrophic events determined in recent engineering and actuarial studies; however, in case of multiple catastrophic events, these limits could be exceeded.
We reinsure a program that provides insurance to our customers from an independent third-party insurer. This program covers customer claims for losses to goods stored at our facilities as a result of specific named perils (earthquakes are not covered by this program), up to a maximum limit of $5,000 per storage unit. We reinsure all risks in this program, but purchase insurance to cover this exposure for a limit of $15.0 million for losses in excess of $5.0 million per occurrence. We are subject to licensing requirements and regulations in all states. Customers participate in the program at their option. At December 31, 2022, there were approximately 1.2 million certificates held by our self-storage customers, representing aggregate coverage of approximately $5.6 billion.
Commitments
We have construction commitments representing future expected payments for construction under contract totaling $263.5 million at December 31, 2022. We expect to pay approximately $229.8 million in 2023 and $33.7 million in 2024 for these construction commitments.
We have future contractual payments on land, equipment and office space under various lease commitments totaling $63.4 million at December 31, 2022. We expect to pay approximately $3.1 million in each of 2023 and 2024, $3.0 million in each of 2025 and 2026, $2.1 million in 2027 and $49.1 million thereafter for these commitments.
- Subsequent Events
Subsequent to December 31, 2022, we acquired or were under contract to acquire eight self-storage facilities across five states with 0.5 million net rentable square feet, for $70.5 million.
On February 4, 2023, our Board of Trustees declared a 50% increase in its regular common quarterly dividend from $2.00 to $3.00 per share, payable on March 30, 2023 to shareholders of record as of March 15, 2023. The distribution equates to an annualized increase to the Company’s regular common dividend from $8.00 to $12.00 per share.
F-31
PUBLIC STORAGE
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
(Amounts in thousands, except number of properties)
| Initial Cost | Gross Carrying Amount At December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Description | No. of Facilities | Net Rentable Square Feet | 2022 Encum- brances | Land | Buildings & Improvements | Costs Subsequent to Acquisition | Land | Buildings | Total | Accumulated Depreciation | |||||||||||||||||||||||||||||||||||||||||||||||||
| Self-storage facilities by market: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Los Angeles | 226 | 16,652 | 359 | 543,650 | 981,256 | 471,088 | 542,073 | 1,453,921 | 1,995,994 | 928,465 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dallas/Ft. Worth | 193 | 17,274 | — | 328,518 | 1,889,830 | 214,515 | 329,979 | 2,102,884 | 2,432,863 | 421,762 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Houston | 145 | 12,265 | — | 239,385 | 647,576 | 258,080 | 238,706 | 906,335 | 1,145,041 | 381,723 | |||||||||||||||||||||||||||||||||||||||||||||||||
| San Francisco | 141 | 9,197 | — | 245,623 | 557,398 | 314,857 | 258,373 | 859,505 | 1,117,878 | 557,875 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Chicago | 137 | 8,865 | — | 147,606 | 440,494 | 144,497 | 150,443 | 582,154 | 732,597 | 427,557 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Washington DC | 118 | 8,341 | — | 420,884 | 1,319,147 | 199,354 | 436,704 | 1,502,681 | 1,939,385 | 435,221 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Atlanta | 112 | 7,550 | 1,591 | 143,799 | 420,664 | 101,272 | 144,161 | 521,574 | 665,735 | 319,016 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Seattle/Tacoma | 100 | 6,980 | — | 211,959 | 584,089 | 161,112 | 212,568 | 744,592 | 957,160 | 410,728 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Miami | 99 | 7,460 | — | 252,244 | 560,224 | 172,704 | 254,137 | 731,035 | 985,172 | 397,084 | |||||||||||||||||||||||||||||||||||||||||||||||||
| New York | 98 | 7,278 | — | 281,499 | 617,448 | 268,202 | 287,836 | 879,313 | 1,167,149 | 536,545 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Orlando/Daytona | 98 | 5,781 | — | 157,808 | 408,287 | 70,883 | 163,289 | 473,689 | 636,978 | 191,858 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Denver | 70 | 5,291 | 8,142 | 120,117 | 323,262 | 106,286 | 120,838 | 428,827 | 549,665 | 187,978 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Minneapolis/St. Paul | 65 | 5,218 | — | 123,460 | 300,698 | 126,906 | 127,014 | 424,050 | 551,064 | 166,687 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Philadelphia | 62 | 4,041 | — | 58,824 | 226,733 | 85,150 | 57,845 | 312,862 | 370,707 | 187,147 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Charlotte | 61 | 4,689 | — | 89,309 | 238,236 | 85,982 | 97,172 | 316,355 | 413,527 | 158,819 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Tampa | 57 | 3,985 | — | 93,109 | 213,546 | 85,926 | 96,422 | 296,159 | 392,581 | 155,070 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Detroit | 48 | 3,595 | — | 67,465 | 225,061 | 61,379 | 68,871 | 285,034 | 353,905 | 142,253 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Portland | 49 | 2,865 | — | 60,975 | 218,076 | 51,935 | 61,633 | 269,353 | 330,986 | 124,847 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Baltimore | 50 | 3,851 | — | 136,598 | 775,086 | 42,754 | 136,722 | 817,716 | 954,438 | 131,757 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Phoenix | 50 | 3,499 | — | 99,453 | 304,379 | 45,259 | 99,444 | 349,647 | 449,091 | 139,434 | |||||||||||||||||||||||||||||||||||||||||||||||||
| West Palm Beach | 46 | 3,833 | — | 156,788 | 221,479 | 114,853 | 157,496 | 335,624 | 493,120 | 161,302 | |||||||||||||||||||||||||||||||||||||||||||||||||
| San Antonio | 40 | 2,827 | — | 54,753 | 224,313 | 31,712 | 54,711 | 256,067 | 310,778 | 84,489 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Austin | 37 | 2,942 | — | 69,205 | 188,500 | 49,021 | 71,227 | 235,499 | 306,726 | 109,453 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Raleigh | 38 | 2,732 | — | 89,212 | 212,776 | 42,985 | 90,201 | 254,772 | 344,973 | 83,693 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Norfolk | 36 | 2,208 | — | 47,728 | 128,986 | 30,103 | 46,843 | 159,974 | 206,817 | 84,167 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Sacramento | 35 | 2,054 | — | 26,429 | 80,391 | 42,815 | 26,913 | 122,722 | 149,635 | 90,534 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Indianapolis | 31 | 2,040 | — | 40,905 | 109,447 | 24,061 | 41,905 | 132,508 | 174,413 | 57,787 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Kansas City | 30 | 1,972 | — | 19,603 | 106,102 | 37,676 | 19,803 | 143,578 | 163,381 | 70,531 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Boston | 28 | 1,962 | — | 80,843 | 209,495 | 39,655 | 81,409 | 248,584 | 329,993 | 124,302 | |||||||||||||||||||||||||||||||||||||||||||||||||
| St. Louis | 28 | 1,749 | — | 23,539 | 89,341 | 35,063 | 23,395 | 124,548 | 147,943 | 72,260 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Columbus | 27 | 2,015 | — | 44,983 | 92,001 | 29,817 | 45,090 | 121,711 | 166,801 | 57,187 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Columbia | 27 | 1,620 | — | 27,177 | 83,532 | 23,724 | 27,936 | 106,497 | 134,433 | 47,839 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Oklahoma City | 36 | 2,695 | — | 58,426 | 197,991 | 19,338 | 58,426 | 217,329 | 275,755 | 38,708 | |||||||||||||||||||||||||||||||||||||||||||||||||
| San Diego | 24 | 2,183 | — | 89,782 | 162,043 | 52,943 | 92,292 | 212,476 | 304,768 | 111,712 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Las Vegas | 25 | 1,649 | — | 28,016 | 113,889 | 22,270 | 27,264 | 136,911 | 164,175 | 58,605 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cincinnati | 21 | 1,241 | — | 19,385 | 67,782 | 24,688 | 19,303 | 92,552 | 111,855 | 38,121 |
F-32
PUBLIC STORAGE
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
(Amounts in thousands, except number of properties)
| Initial Cost | Gross Carrying Amount At December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Description | No. of Facilities | Net Rentable Square Feet | 2022 Encum- brances | Land | Buildings & Improvements | Costs Subsequent to Acquisition | Land | Buildings | Total | Accumulated Depreciation | |||||||||||||||||||||||||||||||||||||||||||||||||
| Nashville/Bowling Green | 19 | 1,221 | — | 25,374 | 57,494 | 32,496 | 25,372 | 89,992 | 115,364 | 37,098 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Colorado Springs | 16 | 1,118 | — | 12,320 | 60,393 | 23,467 | 12,317 | 83,863 | 96,180 | 35,592 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Milwaukee | 15 | 964 | — | 13,189 | 32,071 | 10,806 | 13,158 | 42,908 | 56,066 | 37,262 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Louisville | 15 | 913 | — | 23,563 | 46,108 | 8,936 | 23,562 | 55,045 | 78,607 | 21,323 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Jacksonville | 15 | 922 | — | 14,454 | 47,415 | 13,294 | 14,503 | 60,660 | 75,163 | 38,156 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Birmingham | 15 | 606 | — | 6,316 | 25,567 | 15,119 | 6,204 | 40,798 | 47,002 | 30,303 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Richmond | 15 | 768 | — | 20,979 | 52,239 | 6,712 | 20,784 | 59,146 | 79,930 | 24,763 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Greensboro | 14 | 845 | — | 13,413 | 35,326 | 15,088 | 15,502 | 48,325 | 63,827 | 31,488 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Charleston | 14 | 978 | — | 16,947 | 56,793 | 23,215 | 17,923 | 79,032 | 96,955 | 33,383 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Fort Myers/Naples | 15 | 1,148 | — | 32,185 | 95,517 | 8,105 | 32,420 | 103,387 | 135,807 | 26,587 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Chattanooga | 13 | 846 | — | 10,030 | 45,578 | 8,613 | 9,832 | 54,389 | 64,221 | 19,596 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Savannah | 12 | 700 | — | 33,094 | 42,465 | 5,698 | 31,766 | 49,491 | 81,257 | 23,012 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Greensville/Spartanburg/Asheville | 14 | 842 | — | 10,815 | 50,364 | 11,111 | 11,744 | 60,546 | 72,290 | 25,378 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Honolulu | 11 | 807 | — | 54,184 | 106,299 | 21,266 | 55,101 | 126,648 | 181,749 | 78,924 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Hartford/New Haven | 11 | 693 | — | 6,778 | 19,959 | 22,898 | 8,443 | 41,192 | 49,635 | 35,980 | |||||||||||||||||||||||||||||||||||||||||||||||||
| New Orleans | 11 | 772 | — | 13,372 | 59,382 | 9,197 | 13,540 | 68,411 | 81,951 | 31,527 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Salt Lake City | 12 | 758 | — | 18,606 | 37,739 | 6,242 | 18,255 | 44,332 | 62,587 | 17,354 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Memphis | 11 | 645 | — | 19,581 | 29,852 | 11,269 | 20,934 | 39,768 | 60,702 | 25,156 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Mobile | 15 | 759 | — | 18,688 | 45,137 | 6,859 | 18,515 | 52,169 | 70,684 | 17,238 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Omaha | 11 | 940 | — | 17,965 | 69,085 | 4,785 | 17,965 | 73,870 | 91,835 | 10,254 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Buffalo/Rochester | 9 | 462 | — | 6,785 | 17,954 | 4,328 | 6,783 | 22,284 | 29,067 | 16,267 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cleveland/Akron | 10 | 631 | — | 5,916 | 30,775 | 6,213 | 6,309 | 36,595 | 42,904 | 14,890 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Augusta | 9 | 503 | — | 9,397 | 24,669 | 4,817 | 9,397 | 29,486 | 38,883 | 9,188 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Reno | 7 | 559 | — | 5,487 | 18,704 | 5,353 | 5,487 | 24,057 | 29,544 | 14,450 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Tucson | 7 | 439 | — | 9,403 | 25,491 | 8,779 | 9,884 | 33,789 | 43,673 | 23,192 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Wichita | 7 | 433 | — | 2,017 | 6,691 | 7,767 | 2,130 | 14,345 | 16,475 | 12,642 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Monterey/Salinas | 7 | 329 | — | 8,465 | 24,151 | 7,729 | 8,455 | 31,890 | 40,345 | 24,998 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Boise | 6 | 545 | — | 13,412 | 55,496 | 1,211 | 13,412 | 56,707 | 70,119 | 3,802 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Evansville | 5 | 326 | — | 2,340 | 14,316 | 1,567 | 2,312 | 15,911 | 18,223 | 5,593 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dayton | 5 | 284 | — | 1,074 | 8,975 | 4,981 | 1,073 | 13,957 | 15,030 | 8,290 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Huntsville/Decatur | 5 | 298 | — | 9,161 | 13,481 | 3,561 | 9,108 | 17,095 | 26,203 | 7,163 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Fort Wayne | 4 | 271 | — | 3,487 | 11,003 | 3,610 | 3,487 | 14,613 | 18,100 | 6,611 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Roanoke | 4 | 223 | — | 5,093 | 18,091 | 1,080 | 5,093 | 19,171 | 24,264 | 4,645 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Palm Springs | 3 | 242 | — | 8,309 | 18,065 | 2,979 | 8,309 | 21,044 | 29,353 | 13,108 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Providence | 3 | 155 | — | 995 | 11,206 | 3,191 | 995 | 14,397 | 15,392 | 7,928 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shreveport | 2 | 150 | — | 817 | 3,030 | 3,056 | 741 | 6,162 | 6,903 | 5,088 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Springfield/Holyoke | 2 | 144 | — | 1,428 | 3,380 | 1,999 | 1,427 | 5,380 | 6,807 | 5,243 |
F-33
PUBLIC STORAGE
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
(Amounts in thousands, except number of properties)
| Initial Cost | Gross Carrying Amount At December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Description | No. of Facilities | Net Rentable Square Feet | 2022 Encum- brances | Land | Buildings & Improvements | Costs Subsequent to Acquisition | Land | Buildings | Total | Accumulated Depreciation | |||||||||||||||||||||||||||||||||||||||||||||||||
| Rochester | 2 | 99 | — | 1,047 | 2,246 | 2,483 | 980 | 4,796 | 5,776 | 4,354 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Santa Barbara | 2 | 98 | — | 5,733 | 9,106 | 1,133 | 5,733 | 10,239 | 15,972 | 6,674 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Topeka | 2 | 94 | — | 225 | 1,419 | 2,136 | 225 | 3,555 | 3,780 | 3,279 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Lansing | 2 | 88 | — | 556 | 2,882 | 996 | 556 | 3,878 | 4,434 | 2,791 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Flint | 1 | 56 | — | 543 | 3,068 | 275 | 542 | 3,344 | 3,886 | 2,252 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Joplin | 1 | 56 | — | 264 | 904 | 1,046 | 264 | 1,950 | 2,214 | 1,708 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Syracuse | 1 | 55 | — | 545 | 1,279 | 906 | 545 | 2,185 | 2,730 | 2,097 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Modesto/Fresno/Stockton | 1 | 33 | — | 44 | 206 | 1,344 | 193 | 1,401 | 1,594 | 1,060 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and non-operating real estate | — | 13,194 | 26,143 | 78,824 | 13,349 | 104,812 | 118,161 | 53,952 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,869 | 204,217 | $ | 10,092 | $ | 5,196,649 | $ | 14,907,072 | $ | 4,115,405 | $ | 5,273,073 | $ | 18,946,053 | $ | 24,219,126 | $ | 8,554,155 |
Note: Buildings and improvements are depreciated on a straight-line basis over estimated useful lives ranging generally between 5 to 25 years. In addition, disclosures of the number and square footage of our facilities are unaudited.
F-34
Previous: Item 14. Principal Accountant Fees and Services