Cover and table of contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2022

or

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

For the transition period from ____________ to ____________.

Commission File Number: 001-33519

Public Storage

(Exact name of registrant as specified in its charter)

Maryland						95-3551121
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)
701 Western Avenue, Glendale, California						91201-2349
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (818) 244-8080.

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

Securities registered pursuant to Section 12b of the Act:

Title of Class						Trading Symbol						Name of each exchange on which registered
Common Shares, $0.10 par value						PSA						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.150% Cum Pref Share, Series F, $0.01 par value						PSAPrF						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.050% Cum Pref Share, Series G, $0.01 par value						PSAPrG						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.600% Cum Pref Share, Series H, $0.01 par value						PSAPrH						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.875% Cum Pref Share, Series I, $0.01 par value						PSAPrI						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.700% Cum Pref Share, Series J, $0.01 par value						PSAPrJ						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.750% Cum Pref Share, Series K, $0.01 par value						PSAPrK						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.625% Cum Pref Share, Series L, $0.01 par value						PSAPrL						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.125% Cum Pref Share, Series M, $0.01 par value						PSAPrM						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 3.875% Cum Pref Share, Series N, $0.01 par value						PSAPrN						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 3.900% Cum Pref Share, Series O, $0.01 par value						PSAPrO						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.000% Cum Pref Share, Series P, $0.01 par value						PSAPrP						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 3.950% Cum Pref Share, Series Q, $0.01 par value						PSAPrQ						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.000% Cum Pref Share, Series R, $0.01 par value						PSAPrR						New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.100% Cum Pref Share, Series S, $0.01 par value						PSAPrS						New York Stock Exchange
0.875% Senior Notes due 2032						PSA32						New York Stock Exchange
0.500% Senior Notes due 2030						PSA30						New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

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

Large accelerated filer			Accelerated filer			Non-accelerated filer			Smaller reporting company			Emerging growth company
☒			☐			☐			☐			☐

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

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

☐ Yes ☒ No

Indicate the number of the registrant’s outstanding common shares of beneficial interest, as of August 1, 2022:

Common Shares of beneficial interest, $0.10 par value per share – 175,541,870 shares

PUBLIC STORAGE

INDEX

PART I			FINANCIAL INFORMATION			Pages
Item 1.			Consolidated Financial Statements (Unaudited)
			Consolidated Balance Sheets			1
			Consolidated Statements of Income			2
			Consolidated Statements of Comprehensive Income			3
			Consolidated Statements of Equity and Redeemable Noncontrolling Interests			4-7
			Consolidated Statements of Cash Flows			8-9
			Condensed Notes to Consolidated Financial Statements			10-22
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			23-49
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			50
Item 4.			Controls and Procedures			50
PART II			OTHER INFORMATION (Items 3, 4 and 5 are not applicable)
Item 1.			Legal Proceedings			51
Item 1A.			Risk Factors			51
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			51
Item 6.			Exhibits			51

PUBLIC STORAGE

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

			June 30, 2022						December 31, 2021
			(Unaudited)
ASSETS
Cash and equivalents			$	1,013,886					$	734,599
Real estate facilities, at cost:
Land			5,175,744						5,134,060
Buildings			18,139,804						17,673,773
			23,315,548						22,807,833
Accumulated depreciation			(8,150,113)						(7,773,308)
			15,165,435						15,034,525
Construction in process			380,060						272,471
			15,545,495						15,306,996
Investments in unconsolidated real estate entities			845,894						828,763
Goodwill and other intangible assets, net			249,744						302,894
Other assets			207,832						207,656
Total assets			$	17,862,851					$	17,380,908
LIABILITIES AND EQUITY
Notes payable			$	7,340,904					$	7,475,279
Accrued and other liabilities			473,599						482,091
Total liabilities			7,814,503						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, 175,239,263 shares issued and outstanding (175,134,455 shares at December 31, 2021)			17,524						17,513
Paid-in capital			5,848,632						5,821,667
Accumulated deficit			(182,213)						(550,416)
Accumulated other comprehensive loss			(79,217)						(53,587)
Total Public Storage shareholders’ equity			9,954,726						9,335,177
Noncontrolling interests			93,622						20,112
Total equity			10,048,348						9,355,289
Total liabilities, redeemable noncontrolling interests and equity			$	17,862,851					$	17,380,908

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share amounts)

(Unaudited)

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Revenues:
Self-storage facilities			$	973,286					$	776,993					$	1,890,301					$	1,493,340
Ancillary operations			58,759						52,322						115,189						103,237
			1,032,045						829,315						2,005,490						1,596,577
Expenses:
Self-storage cost of operations			237,989						202,595						483,483						414,700
Ancillary cost of operations			17,210						15,991						32,725						32,309
Depreciation and amortization			218,708						172,728						440,836						319,587
General and administrative			28,831						27,740						51,900						47,314
Interest expense			32,941						21,994						66,065						37,244
			535,679						441,048						1,075,009						851,154
Other increases (decreases) to net income:
Interest and other income			10,279						3,113						13,658						5,965
Equity in earnings of unconsolidated real estate entities			48,525						29,066						91,949						48,522
Foreign currency exchange gain (loss)			101,723						(12,707)						137,100						32,678
Gain on sale of real estate			—						3,991						—						13,404
Net income			656,893						411,730						1,173,188						845,992
Allocation to noncontrolling interests			(3,043)						(1,304)						(5,395)						(2,530)
Net income allocable to Public Storage shareholders			653,850						410,426						1,167,793						843,462
Allocation of net income to:
Preferred shareholders			(48,673)						(46,183)						(97,038)						(92,263)
Preferred shareholders - redemptions			—						(16,989)						—						(16,989)
Restricted share units			(1,796)						(1,005)						(3,250)						(2,151)
Net income allocable to common shareholders			$	603,381					$	346,249					$	1,067,505					$	732,059
Net income per common share:
Basic			$	3.44					$	1.98					$	6.09					$	4.19
Diluted			$	3.42					$	1.97					$	6.05					$	4.18
Basic weighted average common shares outstanding			175,229						174,824						175,200						174,718
Diluted weighted average common shares outstanding			176,312						175,547						176,325						175,194

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Net income			$	656,893					$	411,730					$	1,173,188					$	845,992
Foreign currency exchange (loss) gain on investment in Shurgard			(18,835)						3,259						(25,630)						(2,681)
Total comprehensive income			638,058						414,989						1,147,558						843,311
Allocation to noncontrolling interests			(3,043)						(1,304)						(5,395)						(2,530)
Comprehensive income allocable to Public Storage shareholders			$	635,015					$	413,685					$	1,142,163					$	840,781

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Three Months Ended June 30, 2022

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

(Unaudited)

			Cumulative Preferred Shares						Common Shares						Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Public Storage Shareholders' Equity						Noncontrolling Interests						Total Equity						Redeemable Noncontrolling Interests
Balances at March 31, 2022			$	4,350,000					$	17,521					$	5,827,674					$	(436,101)					$	(60,382)					$	9,698,712					$	20,549					$	9,719,261					$	83,826
Issuance of common shares in connection with share-based compensation (26,824 shares)			—						3						3,450						—						—						3,453						—						3,453						—
Taxes withheld upon net share settlement of restricted share units			—						—						(1,636)						—						—						(1,636)						—						(1,636)						—
Share-based compensation expense			—						—						19,144						—						—						19,144						—						19,144						—
Contributions by noncontrolling interests			—						—						—						—						—						—						5,346						5,346						—
Reclassification from redeemable noncontrolling interests to noncontrolling interests			—						—						—						—						—						—						83,826						83,826						(83,826)
Net income			—						—						—						656,893						—						656,893						—						656,893						—
Net income allocated to noncontrolling interests			—						—						—						(3,043)						—						(3,043)						3,043						—						—
Distributions to:
Preferred shareholders (Note 9)			—						—						—						(48,673)						—						(48,673)						—						(48,673)						—
Noncontrolling interests			—						—						—						—						—						—						(19,142)						(19,142)						—
Common shareholders and restricted share unitholders ($2.00 per share) (Note 9)			—						—						—						(351,289)						—						(351,289)						—						(351,289)						—
Other comprehensive loss			—						—						—						—						(18,835)						(18,835)						—						(18,835)						—
Balances at June 30, 2022			$	4,350,000					$	17,524					$	5,848,632					$	(182,213)					$	(79,217)					$	9,954,726					$	93,622					$	10,048,348					$	—

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Three Months Ended June 30, 2021

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

(Unaudited)

			Cumulative Preferred Shares						Common Shares						Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Public Storage Shareholders' Equity						Noncontrolling Interests						Total Equity						Redeemable Noncontrolling Interests
Balances at March 31, 2021			$	3,792,500					$	17,465					$	5,715,254					$	(877,931)					$	(49,341)					$	8,597,947					$	19,368					$	8,617,315					$	—
Issuance of 24,150 preferred shares			603,750						—						(17,412)						—						—						586,338						—						586,338						—
Redemption and shares called for redemption of 21,000 preferred shares			(525,000)						—						—						—						—						(525,000)						—						(525,000)						—
Issuance of common shares in connection with share-based compensation (213,433 shares)			—						21						42,874						—						—						42,895						—						42,895						—
Share-based compensation expense, net of cash paid in lieu of common shares			—						—						23,956						—						—						23,956						—						23,956						—
Contributions by noncontrolling interests			—						—						—						—						—						—						385						385						—
Net income			—						—						—						411,730						—						411,730						—						411,730						—
Net income allocated to noncontrolling interests			—						—						—						(1,304)						—						(1,304)						1,304						—						—
Distributions to:
Preferred shareholders			—						—						—						(46,183)						—						(46,183)						—						(46,183)						—
Noncontrolling interests			—						—						—						—						—						—						(1,538)						(1,538)						—
Common shareholders and restricted share unitholders ($2.00 per share)			—						—						—						(350,054)						—						(350,054)						—						(350,054)						—
Other comprehensive income			—						—						—						—						3,259						3,259						—						3,259						—
Balances at June 30, 2021			$	3,871,250					$	17,486					$	5,764,672					$	(863,742)					$	(46,082)					$	8,743,584					$	19,519					$	8,763,103					$	—

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Six Months Ended June 30, 2022

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

(Unaudited)

			Cumulative Preferred Shares						Common Shares						Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Public Storage Shareholders' Equity						Noncontrolling Interests						Total Equity						Redeemable Noncontrolling Interests
Balances at December 31, 2021			$	4,100,000					$	17,513					$	5,821,667					$	(550,416)					$	(53,587)					$	9,335,177					$	20,112					$	9,355,289					$	68,249
Issuance of 10,000 preferred shares (Note 9)			250,000						—						(7,168)						—						—						242,832						—						242,832						—
Issuance of common shares in connection with share-based compensation (104,808 shares) (Note 11)			—						11						11,549						—						—						11,560						—						11,560						—
Taxes withheld upon net share settlement of restricted share units (Note 11)			—						—						(12,210)						—						—						(12,210)						—						(12,210)						—
Share-based compensation expense (Note 11)			—						—						34,794						—						—						34,794						—						34,794						—
Contributions by noncontrolling interests			—						—						—						—						—						—						6,137						6,137						15,426
Reclassification from redeemable noncontrolling interests to noncontrolling interests																																							83,826						83,826						(83,826)
Net income			—						—						—						1,173,188						—						1,173,188						—						1,173,188						—
Net income allocated to noncontrolling interests			—						—						—						(5,395)						—						(5,395)						4,735						(660)						660
Distributions to:
Preferred shareholders (Note 9)			—						—						—						(97,038)						—						(97,038)						—						(97,038)						—
Noncontrolling interests			—						—						—						—						—						—						(21,188)						(21,188)						(509)
Common shareholders and restricted share unitholders ($4.00 per share) (Note 9)			—						—						—						(702,552)						—						(702,552)						—						(702,552)						—
Other comprehensive loss			—						—						—						—						(25,630)						(25,630)						—						(25,630)						—
Balances at June 30, 2022			$	4,350,000					$	17,524					$	5,848,632					$	(182,213)					$	(79,217)					$	9,954,726					$	93,622					$	10,048,348					$	—

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Six Months Ended June 30, 2021

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

(Unaudited)

			Cumulative Preferred Shares						Common Shares						Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Public Storage Shareholders' Equity						Noncontrolling Interests						Total Equity						Redeemable Noncontrolling Interests
Balances at December 31, 2020			$	3,792,500					$	17,458					$	5,707,101					$	(914,791)					$	(43,401)					$	8,558,867					$	18,032					$	8,576,899					$	—
Issuance of 24,150 preferred shares			603,750						—						(17,412)						—						—						586,338						—						586,338						—
Redemption and shares called for redemption of 21,000 preferred shares			(525,000)						—						—						—						—						(525,000)						—						(525,000)						—
Issuance of common shares in connection with share-based compensation (282,695 shares)			—						28						47,570						—						—						47,598						—						47,598						—
Share-based compensation expense, net of cash paid in lieu of common shares			—						—						27,445						—						—						27,445						—						27,445						—
Acquisition of noncontrolling interests			—						—						(32)						—						—						(32)						(1)						(33)						—
Contributions by noncontrolling interests			—						—						—						—						—						—						1,765						1,765						—
Net income			—						—						—						845,992						—						845,992						—						845,992						—
Net income allocated to noncontrolling interests			—						—						—						(2,530)						—						(2,530)						2,530						—						—
Distributions to:
Preferred shareholders			—						—						—						(92,263)						—						(92,263)						—						(92,263)						—
Noncontrolling interests			—						—						—						—						—						—						(2,807)						(2,807)						—
Common shareholders and restricted share unitholders ($4.00 per share)			—						—						—						(700,150)						—						(700,150)						—						(700,150)						—
Other comprehensive loss			—						—						—						—						(2,681)						(2,681)						—						(2,681)						—
Balances at June 30, 2021			$	3,871,250					$	17,486					$	5,764,672					$	(863,742)					$	(46,082)					$	8,743,584					$	19,519					$	8,763,103					$	—

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

			For the Six Months Ended June 30,
			2022						2021
Cash flows from operating activities:
Net income			$	1,173,188					$	845,992
Adjustments to reconcile net income to net cash flows from operating activities:
Gain on sale of real estate			—						(13,404)
Depreciation and amortization			440,836						319,587
Equity in earnings of unconsolidated real estate entities			(91,949)						(48,522)
Distributions from cumulative equity in earnings of unconsolidated real estate entities			46,593						43,747
Unrealized foreign currency exchange gain			(136,818)						(32,678)
Share-based compensation expense			30,856						32,672
Other			(8,933)						(16,939)
Total adjustments			280,585						284,463
Net cash flows from operating activities			1,453,773						1,130,455
Cash flows from investing activities:
Capital expenditures to maintain real estate facilities			(212,473)						(90,644)
Development and expansion of real estate facilities			(156,463)						(135,180)
Acquisition of real estate facilities and intangible assets			(231,417)						(2,518,358)
Distributions in excess of cumulative equity in earnings from unconsolidated real estate entities			4,537						8,765
Proceeds from sale of real estate investments			—						15,713
Net cash flows used in investing activities			(595,816)						(2,719,704)
Cash flows from financing activities:
Repayments on notes payable			(472)						(1,053)
Issuance of notes payable, net of issuance costs			—						2,482,529
Issuance of preferred shares			242,832						586,338
Issuance of common shares in connection with share-based compensation			11,492						47,598
Redemption of preferred shares			—						(500,000)
Taxes paid upon net share settlement of restricted share units			(12,210)						(9,013)
Acquisition of noncontrolling interests			—						(33)
Contributions by noncontrolling interests			1,698						1,765
Distributions paid to preferred shareholders, common shareholders and restricted share unitholders			(799,502)						(792,413)
Distributions paid to noncontrolling interests			(21,697)						(2,807)
Net cash flows (used in) from financing activities			(577,859)						1,812,911
Net cash flows from operating, investing, and financing activities			280,098						223,662
Net effect of foreign exchange impact on cash and equivalents, including restricted cash			—						173
Increase in cash and equivalents, including restricted cash			$	280,098					$	223,835

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

			For the Six Months Ended June 30,
			2022						2021
Cash and equivalents, including restricted cash at beginning of the period:
Cash and equivalents			$	734,599					$	257,560
Restricted cash included in other assets			26,691						25,040
			$	761,290					$	282,600
Cash and equivalents, including restricted cash at end of the period:
Cash and equivalents			$	1,013,886					$	480,810
Restricted cash included in other assets			27,502						25,625
			$	1,041,388					$	506,435
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			$	(15,796)					$	(13,728)
Construction or expansion of real estate facilities			(48,682)						(41,345)
Real estate acquired in exchange for noncontrolling interests			(19,865)						—
Preferred shares called for redemption and reclassified to liabilities			—						325,000

See accompanying notes.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

1.Description of the Business

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

At June 30, 2022, we had direct and indirect equity interests in 2,807 self-storage facilities (with approximately 200.1 million net rentable square feet) located in 39 states in the United States (“U.S.”) operating under the Public Storage® name, and 0.9 million net rentable square feet of commercial and retail space.

At June 30, 2022, we owned a 35% common equity interest in Shurgard Self Storage SA (“Shurgard”), a public company traded on Euronext Brussels under the “SHUR” symbol, which owned 256 self-storage facilities (with approximately 14 million net rentable square feet) located in seven Western European countries, all operating under the Shurgard® name. We also owned a 41% common equity interest in PS Business Parks, Inc. (“PSB”), a REIT traded on the New York Stock Exchange under the “PSB” symbol, which owned 27 million net rentable square feet of commercial properties, primarily multi-tenant industrial, flex, and office space, located in six states.

Refer to Note 15. Subsequent Events for information regarding PSB’s closed merger transaction with affiliates of Blackstone Real Estate ("Blackstone") on July 20, 2022, which resulted in the sale of our 41% common equity interest in PSB in its entirety.

2.Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

We have prepared the accompanying interim consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Accounting Standards Codification of the Financial Accounting Standards Board (“FASB”), and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”). In our opinion, the interim consolidated financial statements presented herein reflect all adjustments, primarily of a normal recurring nature, that are necessary to present fairly the interim consolidated financial statements. Because they do not include all of the disclosures required by GAAP for complete annual financial statements, these interim consolidated financial statements should be read together with the audited Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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

Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Summary of Significant Accounting Policies

There have been no significant changes to the Company's significant accounting policies described in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements included in Item 8 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

3.Real Estate Facilities

Activity in real estate facilities during the six months ended June 30, 2022 is as follows:

			Six Months Ended June 30, 2022
			(Amounts in thousands)
Operating facilities, at cost:
Beginning balance			$	22,807,833
Capital expenditures to maintain real estate facilities			205,558
Acquisitions			246,274
Dispositions			(383)
Developed or expanded facilities opened for operation			56,266
Ending balance			23,315,548
Accumulated depreciation:
Beginning balance			(7,773,308)
Depreciation expense			(376,986)
Dispositions			181
Ending balance			(8,150,113)
Construction in process:
Beginning balance			272,471
Costs incurred to develop and expand real estate facilities			163,855
Developed or expanded facilities opened for operation			(56,266)
Ending balance			380,060
Total real estate facilities at June 30, 2022			$	15,545,495

During the six months ended June 30, 2022, we acquired 20 self-storage facilities (1.5 million net rentable square feet of storage space), for a total cost of $251.3 million, consisting $231.4 million in cash and $19.9 million in partnership units in our subsidiary. Approximately $5.0 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing $56.3 million during the six months ended June 30, 2022, adding 0.4 million net rentable square feet of self-storage space. Construction in process at June 30, 2022 consists of projects to develop new self-storage facilities and expand existing self-storage facilities.

4.Investments in Unconsolidated Real Estate Entities

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

			Investments in Unconsolidated Real Estate Entities at
			June 30, 2022						December 31, 2021
PSB			$	563,041					$	515,312
Shurgard			282,853						313,451
Total			$	845,894					$	828,763

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

			Equity in Earnings of Unconsolidated Real Estate Entities for the
			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
PSB			$	40,124					$	20,908					$	77,010					$	35,384
Shurgard			8,401						8,158						14,939						13,138
Total			$	48,525					$	29,066					$	91,949					$	48,522

Investment in PSB

Throughout all periods presented, 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 as of June 30, 2022 (41% as of December 31, 2021). The limited partnership units were convertible at our option, subject to certain conditions, on a one-for-one basis into PSB common stock.

Based upon the closing price at June 30, 2022 ($187.15 per share of PSB common stock), the shares and units we owned had a market value of approximately $2.7 billion. During each of the six months ended June 30, 2022 and 2021, we received cash distributions from PSB totaling $30.4 million.

As of June 30, 2022, PSB was a publicly held entity traded on the New York Stock Exchange under the symbol “PSB”.

Refer to Note 15. Subsequent Events for information regarding PSB’s closed merger transaction with Blackstone on July 20, 2022, which resulted in the sale of our 41% common equity interest in PSB in its entirety.

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 June 30, 2022 (€44.45 per share of Shurgard common stock, at 1.045 exchange rate of US Dollars to the Euro), the shares we owned had a market value of approximately $1.5 billion.

Our equity in earnings of Shurgard comprised our equity share of Shurgard’s net income, less amortization of the Shurgard Basis Differential (defined below). We eliminated $0.6 million of intra-entity profits and losses for each of the six months ended June 30, 2022 and 2021, representing our equity share of the trademark license fees that Shurgard pays to us for the use of the Shurgard® trademark. We classify the remaining license fees we receive from Shurgard as interest and other income on our income statement. During the six months ended June 30, 2022 and 2021, we received cash dividends from Shurgard totaling $20.1 million and $21.5 million, respectively.

At June 30, 2022, our investment in Shurgard’s real estate assets included in investment in unconsolidated real estate entities exceeds our pro-rata share of the underlying amounts on Shurgard’s balance sheet by approximately $70.6 million ($74.7 million at December 31, 2021). This differential (the “Shurgard Basis Differential”) includes our cost basis adjustment in Shurgard’s real estate assets net of related deferred income taxes. The real estate assets basis differential is being amortized as a reduction to equity in earnings of the Unconsolidated Real Estate Entities. Such amortization totaled approximately $4.1 million and $4.4 million during the six months ended June 30, 2022 and 2021, respectively.

Shurgard is a publicly held entity trading on Euronext Brussels under the symbol “SHUR”.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

5.Goodwill and Other Intangible Assets

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

			At June 30, 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			195,114						(130,037)						65,077						198,180						(79,953)						118,227
Total goodwill and other intangible assets			$	379,781					$	(130,037)					$	249,744					$	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 $24.3 million and $58.2 million for the three and six months ended June 30, 2022, respectively, and $19.6 million and $25.7 million in the same periods in 2021. During the six months ended June 30, 2022, intangibles increased $5.0 million, in connection with the acquisition of self-storage facilities (Note 3).

The estimated future amortization expense for our finite-lived intangible assets at June 30, 2022 is as follows (amounts in thousands):

Year						Amount
Remainder of 2022						$	31,787
2023						25,857
Thereafter						7,433
Total						$	65,077

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 June 30, 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 June 30, 2022). At June 30, 2022 and August 4, 2022, we had no outstanding borrowings under this Credit Facility. We had undrawn standby letters of credit, which reduce our borrowing capacity, totaling $18.5 million at June 30, 2022 ($21.2 million at December 31, 2021). The Credit Facility has various customary restrictive covenants, with which we were in compliance at June 30, 2022.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

7.Notes Payable

Our notes payable are reflected net of issuance costs (including original issue discounts), which are amortized as interest expense on the effective interest method over the term of each respective note. Our notes payable at June 30, 2022 and December 31, 2021 are set forth in the tables below:

															Amounts at June 30, 2022
			Coupon Rate						Effective Rate						Principal						Unamortized Costs						Book Value						Fair Value
															($ amounts in thousands)
U.S. Dollar Denominated Unsecured Debt
Notes due September 15, 2022			2.370%						2.483%						$	500,000					$	(99)					$	499,901					$	499,889
Notes due April 23, 2024			SOFR+0.47%						0.679%						700,000						(1,276)						698,724						677,948
Notes due February 15, 2026			0.875%						1.030%						500,000						(2,692)						497,308						446,501
Notes due November 9, 2026			1.500%						1.640%						650,000						(3,792)						646,208						586,313
Notes due September 15, 2027			3.094%						3.218%						500,000						(2,756)						497,244						473,901
Notes due May 1, 2028			1.850%						1.962%						650,000						(3,938)						646,062						563,957
Notes due November 9, 2028			1.950%						2.044%						550,000						(3,059)						546,941						475,398
Notes due May 1, 2029			3.385%						3.459%						500,000						(2,102)						497,898						464,411
Notes due May 1, 2031			2.300%						2.419%						650,000						(6,040)						643,960						546,666
Notes due November 9, 2031			2.250%						2.322%						550,000						(3,309)						546,691						455,568
															5,750,000						(29,063)						5,720,937						5,190,552
Euro Denominated Unsecured Debt
Notes due April 12, 2024			1.540%						1.540%						104,503						—						104,503						102,948
Notes due November 3, 2025			2.175%						2.175%						252,911						—						252,911						249,888
Notes due September 9, 2030			0.500%						0.640%						731,521						(9,169)						722,352						574,244
Notes due January 24, 2032			0.875%						0.978%						522,515						(5,126)						517,389						407,562
															1,611,450						(14,295)						1,597,155						1,334,642
Mortgage Debt, secured by 11 real estate facilities with a net book value of $65.3 million			3.876%						3.895%						22,812						—						22,812						23,066
															$	7,384,262					$	(43,358)					$	7,340,904					$	6,548,260

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

			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

The U.S. Dollar Denominated Unsecured Notes have various financial covenants, with which we were in compliance at June 30, 2022. Included in these covenants are (a) a maximum Debt to Total Assets of 65% (approximately 15% at June 30, 2022) and (b) a minimum ratio of Adjusted EBITDA to Interest Expense of 1.5x (approximately 26x for the twelve months ended June 30, 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. 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 $102.9 million and $138.2 million for the three and six months ended June 30, 2022, respectively, as compared to losses of $12.7 million and gains of $32.7 million for the three and six months ended June 30, 2021, respectively).

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

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 June 30, 2022, the related contractual interest rates of our mortgage notes are fixed, ranging between 3.2% and 7.1%, and mature between November 1, 2022 and July 1, 2030.

At June 30, 2022, approximate principal maturities of our Notes Payable are as follows (amounts in thousands):

			Unsecured Debt						Mortgage Debt						Total
Remainder of 2022			$	500,000					$	2,011					$	502,011
2023			—						19,219						19,219
2024			804,503						124						804,627
2025			252,911						131						253,042
2026			1,150,000						138						1,150,138
Thereafter			4,654,036						1,189						4,655,225
			$	7,361,450					$	22,812					$	7,384,262
Weighted average effective rate			1.8%						3.9%						1.9%

Cash paid for interest totaled $66.0 million and $32.3 million for the six months ended June 30, 2022 and 2021, respectively. Interest capitalized as real estate totaled $2.6 million and $1.7 million for the six months ended June 30, 2022 and 2021, respectively.

8.Noncontrolling Interests

We have noncontrolling interests related to several subsidiaries we consolidate of which we do not own 100% of the equity. At June 30, 2022, certain of these subsidiaries have issued 498,107 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 option 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 the six months ended June 30, 2022.

At March 31, 2022, we had 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.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

9.Shareholders’ Equity

Preferred Shares

At June 30, 2022 and December 31, 2021, we had the following series of Cumulative Preferred Shares (“Preferred Shares”) outstanding:

																		At June 30, 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 June 30, 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.

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.

On January 13, 2022, we issued 10.0 million depositary shares, each representing 0.001 of a share of our 4.100% Series S Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $250.0 million in gross proceeds, and we incurred $7.2 million in issuance costs.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

Dividends

Common share dividends paid, including amounts paid to our restricted share unitholders, totaled $351.3 million ($2.00 per share) and $350.1 million ($2.00 per share) for the three months ended June 30, 2022 and 2021, respectively, and $702.5 million ($4.00 per share) and $700.2 million ($4.00 per share) for the six months ended June 30, 2022 and 2021, respectively. Preferred share dividends paid totaled $48.7 million and $46.2 million for the three months ended June 30, 2022 and 2021, respectively, and $97.0 million and $92.3 million for the six months ended June 30, 2022 and 2021, respectively.

10.Related Party Transactions

At June 30, 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 $1.1 million and $1.0 million for the six months ended June 30, 2022 and 2021, respectively.

11.Share-Based Compensation

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

We recorded share-based compensation expense associated with our equity awards in the various expense categories in the Consolidated Statements of Income as set forth in the following table. In addition, $1.1 million and $2.1 million share-based compensation cost was capitalized as real estate facilities for the three and six months ended June 30, 2022, respectively, as compared to $1.1 million and $2.2 million for the same periods of 2021, respectively.

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(Amounts in thousands)
Self-storage cost of operations			$	4,673					$	5,401					$	9,537					$	11,766
Ancillary cost of operations			221						393						487						779
General and administrative			12,034						12,864						20,832						20,544
Total			$	16,928					$	18,658					$	30,856					$	33,089

Included in share-based compensation is $5.3 million and $9.5 million during the three and six months ended June 30, 2022, respectively, as compared to $7.2 million and $11.0 million for the same periods in 2021, of retirement acceleration as discussed in Note 2 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

As of June 30, 2022, there was $111.3 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of three years.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

Stock Options

We have service-based, performance-based and market-based stock options outstanding, which 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.

During the six months ended June 30, 2022, 142,683 stock options were granted, 54,466 options were exercised, and no options were forfeited. In addition, we expect an incremental 61,250 stock options to be paid out based on the estimated achievement of performance targets on our multi-year performance-based stock options granted during the six months ended June 30, 2021. A total of 3,189,418 stock options were outstanding at June 30, 2022 (3,039,951 at December 31, 2021).

During the six months ended June 30, 2022, we granted 65,000 stock options in connection with non-management trustee compensation. For the remaining 77,683 stock options granted during the six months ended June 30, 2022, 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.

For the three and six months ended June 30, 2022, we incurred share-based compensation cost for outstanding stock options of $7.7 million and $11.6 million, respectively, as compared to $10.6 million and $15.0 million for the same periods in 2021.

Restricted Share Units

We have service-based, performance-based and market-based RSUs outstanding, which generally vest over 5 to 8 years from the grant date. Upon vesting, the grantee receives new common shares equal to the number of vested RSUs, less common shares withheld to satisfy the grantee’s statutory tax liabilities arising from the vesting. During the six months ended June 30, 2022, 26,579 RSUs were granted, 13,552 RSUs were forfeited and 69,515 RSUs vested. The vesting resulted in the issuance of 50,147 common shares. A total of 514,334 RSUs were outstanding at June 30, 2022 (570,822 at December 31, 2021).

Included in the RSUs granted during the six months ended June 30, 2022 are 21,985 RSUs 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. These RSUs require relative achievement of the Company’s total shareholder return 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.

Also included in the RSUs granted during the six months ended June 30, 2022 are 4,594 service-based RSUs.

For the three and six months ended June 30, 2022, we incurred share-based compensation cost for RSUs of $10.1 million and $20.9 million, respectively, as compared to $8.8 million and $19.8 million for the same periods in 2021.

Trustee Deferral Program

Non-management trustees may elect to receive all or a portion of their cash retainers in cash, shares of unrestricted common stock, 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 the six months ended June 30, 2022, we granted 1,095 DSUs and 195 shares of unrestricted common stock.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

12. Net Income per Common Share

We allocate net income to (i) noncontrolling interests based upon their contractual rights in the respective subsidiaries or for participating noncontrolling interests based upon their participation in both distributed and undistributed earnings of the Company, (ii) preferred shareholders, for distributions paid or payable, (iii) preferred shareholders, to the extent redemption cost exceeds the related original net issuance proceeds (an “preferred share redemption charge”), and (iv) restricted share units, 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 142,683 shares of common stock were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 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 three and six months ended June 30, 2022 and 2021, respectively (in thousands, except per share amounts):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Numerator for basic and dilutive net income per common share – net income allocable to common shareholders			$	603,381					$	346,249					$	1,067,505					$	732,059
Denominator for basic net income per share - weighted average common shares outstanding			175,229						174,824						175,200						174,718
Net effect of dilutive stock options - based on treasury stock method			1,083						723						1,125						476
Denominator for dilutive net income per share - weighted average common shares outstanding			176,312						175,547						176,325						175,194
Net income per common share:
Basic			$	3.44					$	1.98					$	6.09					$	4.19
Dilutive			$	3.42					$	1.97					$	6.05					$	4.18

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

13.Segment Information

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

Self-Storage Operations

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

Ancillary Operations

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

Presentation of Segment Information

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

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(amounts in thousands)
Self-Storage Operations Reportable Segment
Revenue			$	973,286					$	776,993					$	1,890,301					$	1,493,340
Cost of operations			(237,989)						(202,595)						(483,483)						(414,700)
Net operating income			735,297						574,398						1,406,818						1,078,640
Depreciation and amortization			(218,708)						(172,728)						(440,836)						(319,587)
Net income			516,589						401,670						965,982						759,053
Ancillary Operations
Revenue			58,759						52,322						115,189						103,237
Cost of operations			(17,210)						(15,991)						(32,725)						(32,309)
Net operating income			41,549						36,331						82,464						70,928
Total net income allocated to segments			558,138						438,001						1,048,446						829,981
Other items not allocated to segments:
General and administrative			(28,831)						(27,740)						(51,900)						(47,314)
Interest and other income			10,279						3,113						13,658						5,965
Interest expense			(32,941)						(21,994)						(66,065)						(37,244)
Equity in earnings of unconsolidated real estate entities			48,525						29,066						91,949						48,522
Foreign currency exchange gain (loss)			101,723						(12,707)						137,100						32,678
Gain on sale of real estate			—						3,991						—						13,404
Net income			$	656,893					$	411,730					$	1,173,188					$	845,992

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

14. Commitments and Contingencies

Contingent Losses

We are a party to various legal proceedings and subject to various claims and complaints; however, we believe that the likelihood of these contingencies resulting in a material loss to the Company, either individually or in the aggregate, is remote.

Insurance and Loss Exposure

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

We reinsure a program that provides insurance to our customers from an independent third-party insurer. This program covers customer claims for losses to goods stored at our facilities as a result of specific named perils (earthquakes are not covered by this program), up to a maximum limit of $5,000 per storage unit. We reinsure all risks in this program, but purchase insurance to cover this exposure for a limit of $15.0 million for losses in excess of $5.0 million per occurrence. We are subject to licensing requirements and regulations in several states. Customers participate in the program at their option. At June 30, 2022, there were approximately 1.2 million certificates held by our self-storage customers, representing aggregate coverage of approximately $5.5 billion.

Commitments

We have construction commitments representing future expected payments for construction under contract totaling $267.5 million at June 30, 2022. We expect to pay approximately $155.7 million in the remainder of 2022, $106.1 million in 2023 and $5.7 million in 2024 for these construction commitments.

We have future contractual payments on land, equipment and office space under various lease commitments totaling $64.9 million at June 30, 2022. We expect to pay approximately $1.4 million in the remainder of 2022, $3.1 million in each of 2023, 2024 and 2025, $3.0 million in 2026 and $51.2 million thereafter for these commitments.

15. Subsequent Events

Subsequent to June 30, 2022, we acquired or were under contract to acquire 24 self-storage facilities across ten states with 1.7 million net rentable square feet, for $257.4 million. Additionally, on July 8, 2022, we acquired the commercial interests of PSB at three sites, totaling five properties, jointly occupied with our self-storage facilities located in Maryland and Virginia, for $47.0 million.

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 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 $2.1 billion gain on the sale of our equity investment in PSB in the Consolidated Statement of Income for the third quarter of 2022.

In connection with the sale of our equity investment in PSB, on July 22, 2022, our Board of Trustees declared a special cash dividend of $13.15 per common share. The special dividend is payable on August 4, 2022 to shareholders of record as of August 1, 2022.

On July 26, 2022, the Company called for redemption on August 15, 2022 its 2.370% Senior Notes, with an aggregate outstanding principal amount of $500.0 million, due September 15, 2022.