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 September 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 October 27, 2022:

Common Shares of beneficial interest, $0.10 par value per share – 175,638,388 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			10-23
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			24-51
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			52
Item 4.			Controls and Procedures			52
PART II			OTHER INFORMATION (Items 3, 4 and 5 are not applicable)
Item 1.			Legal Proceedings			53
Item 1A.			Risk Factors			53
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			53
Item 6.			Exhibits			53

PUBLIC STORAGE

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

			September 30, 2022						December 31, 2021
			(Unaudited)
ASSETS
Cash and equivalents			$	883,787					$	734,599
Real estate facilities, at cost:
Land			5,240,841						5,134,060
Buildings			18,535,053						17,673,773
			23,775,894						22,807,833
Accumulated depreciation			(8,346,598)						(7,773,308)
			15,429,296						15,034,525
Construction in process			406,354						272,471
			15,835,650						15,306,996
Investments in unconsolidated real estate entities			252,648						828,763
Goodwill and other intangible assets, net			239,811						302,894
Other assets			239,024						207,656
Total assets			$	17,450,920					$	17,380,908
LIABILITIES AND EQUITY
Notes payable			$	6,740,451					$	7,475,279
Accrued and other liabilities			589,712						482,091
Total liabilities			7,330,163						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, 175,336,452 shares issued and outstanding (175,134,455 shares at December 31, 2021)			17,534						17,513
Paid-in capital			5,878,739						5,821,667
Accumulated deficit			(122,631)						(550,416)
Accumulated other comprehensive loss			(96,470)						(53,587)
Total Public Storage shareholders’ equity			10,027,172						9,335,177
Noncontrolling interests			93,585						20,112
Total equity			10,120,757						9,355,289
Total liabilities, redeemable noncontrolling interests and equity			$	17,450,920					$	17,380,908

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share amounts)

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Revenues:
Self-storage facilities			$	1,027,374					$	840,510					$	2,917,675					$	2,333,850
Ancillary operations			60,757						54,421						175,946						157,658
			1,088,131						894,931						3,093,621						2,491,508
Expenses:
Self-storage cost of operations			255,470						216,999						738,953						631,699
Ancillary cost of operations			21,572						19,735						54,297						52,044
Depreciation and amortization			220,772						188,552						661,608						508,139
General and administrative			29,501						31,682						81,401						78,996
Interest expense			34,113						23,736						100,178						60,980
			561,428						480,704						1,636,437						1,331,858
Other increases to net income:
Interest and other income			12,736						3,356						26,394						9,321
Equity in earnings of unconsolidated real estate entities			8,180						32,860						100,129						81,382
Foreign currency exchange gain			100,170						40,906						237,270						73,584
Gain on sale of real estate			1,503						279						1,503						13,683
Gain on sale of equity investment in PS Business Parks, Inc.			2,128,860						—						2,128,860						—
Net income			2,778,152						491,628						3,951,340						1,337,620
Allocation to noncontrolling interests			(9,158)						(1,537)						(14,553)						(4,067)
Net income allocable to Public Storage shareholders			2,768,994						490,091						3,936,787						1,333,553
Allocation of net income to:
Preferred shareholders			(48,678)						(46,237)						(145,716)						(138,500)
Preferred shareholders - redemptions			—						—						—						(16,989)
Restricted share units			(8,155)						(1,527)						(11,405)						(3,678)
Net income allocable to common shareholders			$	2,712,161					$	442,327					$	3,779,666					$	1,174,386
Net income per common share:
Basic			$	15.47					$	2.53					$	21.57					$	6.72
Diluted			$	15.38					$	2.52					$	21.44					$	6.70
Basic weighted average common shares outstanding			175,283						174,926						175,227						174,787
Diluted weighted average common shares outstanding			176,328						175,806						176,325						175,398

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Net income			$	2,778,152					$	491,628					$	3,951,340					$	1,337,620
Foreign currency exchange loss on investment in Shurgard			(17,253)						(6,898)						(42,883)						(9,579)
Total comprehensive income			2,760,899						484,730						3,908,457						1,328,041
Allocation to noncontrolling interests			(9,158)						(1,537)						(14,553)						(4,067)
Comprehensive income allocable to Public Storage shareholders			$	2,751,741					$	483,193					$	3,893,904					$	1,323,974

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Three Months Ended September 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 June 30, 2022			$	4,350,000					$	17,524					$	5,848,632					$	(182,213)					$	(79,217)					$	9,954,726					$	93,622					$	10,048,348					$	—
Issuance of common shares in connection with share-based compensation (97,189 shares)			—						10						16,445						—						—						16,455						—						16,455						—
Taxes withheld upon net share settlement of restricted share units			—						—						(779)						—						—						(779)						—						(779)						—
Share-based compensation expense			—						—						14,441						—						—						14,441						—						14,441						—
Contributions by noncontrolling interests			—						—						—						—						—						—						561						561						—
Net income			—						—						—						2,778,152						—						2,778,152						—						2,778,152						—
Net income allocated to noncontrolling interests			—						—						—						(9,158)						—						(9,158)						9,158						—						—
Distributions to:
Preferred shareholders (Note 9)			—						—						—						(48,678)						—						(48,678)						—						(48,678)						—
Noncontrolling interests			—						—						—						—						—						—						(9,756)						(9,756)						—
Common shareholders and restricted share unitholders ($15.15 per share) (Note 9)			—						—						—						(2,660,734)						—						(2,660,734)						—						(2,660,734)						—
Other comprehensive loss			—						—						—						—						(17,253)						(17,253)						—						(17,253)						—
Balances at September 30, 2022			$	4,350,000					$	17,534					$	5,878,739					$	(122,631)					$	(96,470)					$	10,027,172					$	93,585					$	10,120,757					$	—

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Three Months Ended September 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 June 30, 2021			$	3,871,250					$	17,486					$	5,764,672					$	(863,742)					$	(46,082)					$	8,743,584					$	19,519					$	8,763,103					$	—
Issuance of 5,750 preferred shares			143,750						—						(4,777)						—						—						138,973						—						138,973						—
Issuance of common shares in connection with share-based compensation (183,823 shares)			—						19						33,795						—						—						33,814						—						33,814						—
Share-based compensation expense, net of cash paid in lieu of common shares			—						—						15,253						—						—						15,253						—						15,253						—
Contributions by noncontrolling interests			—						—						—						—						—						—						594						594						—
Net income			—						—						—						491,628						—						491,628						—						491,628						—
Net income allocated to noncontrolling interests			—						—						—						(1,537)						—						(1,537)						1,537						—						—
Distributions to:
Preferred shareholders			—						—						—						(46,237)						—						(46,237)						—						(46,237)						—
Noncontrolling interests			—						—						—						—						—						—						(1,706)						(1,706)						—
Common shareholders and restricted share unitholders ($2.00 per share)			—						—						—						(351,226)						—						(351,226)						—						(351,226)						—
Other comprehensive loss			—						—						—						—						(6,898)						(6,898)						—						(6,898)						—
Balances at September 30, 2021			$	4,015,000					$	17,505					$	5,808,943					$	(771,114)					$	(52,980)					$	9,017,354					$	19,944					$	9,037,298					$	—

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Nine Months Ended September 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 (201,997 shares) (Note 11)			—						21						27,994						—						—						28,015						—						28,015						—
Taxes withheld upon net share settlement of restricted share units (Note 11)			—						—						(12,989)						—						—						(12,989)						—						(12,989)						—
Share-based compensation expense (Note 11)			—						—						49,235						—						—						49,235						—						49,235						—
Contributions by noncontrolling interests			—						—						—						—						—						—						6,698						6,698						15,426
Reclassification from redeemable noncontrolling interests to noncontrolling interests																																							83,826						83,826						(83,826)
Net income			—						—						—						3,951,340						—						3,951,340						—						3,951,340						—
Net income allocated to noncontrolling interests			—						—						—						(14,553)						—						(14,553)						13,893						(660)						660
Distributions to:
Preferred shareholders (Note 9)			—						—						—						(145,716)						—						(145,716)						—						(145,716)						—
Noncontrolling interests			—						—						—						—						—						—						(30,944)						(30,944)						(509)
Common shareholders and restricted share unitholders ($19.15 per share) (Note 9)			—						—						—						(3,363,286)						—						(3,363,286)						—						(3,363,286)						—
Other comprehensive loss			—						—						—						—						(42,883)						(42,883)						—						(42,883)						—
Balances at September 30, 2022			$	4,350,000					$	17,534					$	5,878,739					$	(122,631)					$	(96,470)					$	10,027,172					$	93,585					$	10,120,757					$	—

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Nine Months Ended September 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 29,900 preferred shares			747,500						—						(22,189)						—						—						725,311						—						725,311						—
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 (466,518 shares)			—						47						81,365						—						—						81,412						—						81,412						—
Share-based compensation expense, net of cash paid in lieu of common shares			—						—						42,698						—						—						42,698						—						42,698						—
Acquisition of noncontrolling interests			—						—						(32)						—						—						(32)						(1)						(33)						—
Contributions by noncontrolling interests			—						—						—						—						—						—						2,359						2,359						—
Net income			—						—						—						1,337,620						—						1,337,620						—						1,337,620						—
Net income allocated to noncontrolling interests			—						—						—						(4,067)						—						(4,067)						4,067						—						—
Distributions to:
Preferred shareholders			—						—						—						(138,500)						—						(138,500)						—						(138,500)						—
Noncontrolling interests			—						—						—						—						—						—						(4,513)						(4,513)						—
Common shareholders and restricted share unitholders ($6.00 per share)			—						—						—						(1,051,376)						—						(1,051,376)						—						(1,051,376)						—
Other comprehensive loss			—						—						—						—						(9,579)						(9,579)						—						(9,579)						—
Balances at September 30, 2021			$	4,015,000					$	17,505					$	5,808,943					$	(771,114)					$	(52,980)					$	9,017,354					$	19,944					$	9,037,298					$	—

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

			For the Nine Months Ended September 30,
			2022						2021
Cash flows from operating activities:
Net income			$	3,951,340					$	1,337,620
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)
Depreciation and amortization			661,608						508,139
Equity in earnings of unconsolidated real estate entities			(100,129)						(81,382)
Distributions from cumulative equity in earnings of unconsolidated real estate entities			134,460						59,251
Unrealized foreign currency exchange gain			(236,698)						(73,584)
Share-based compensation expense			44,597						47,647
Other			55,975						30,712
Total adjustments			(1,570,550)						477,100
Net cash flows from operating activities			2,380,790						1,814,720
Cash flows from investing activities:
Capital expenditures to maintain real estate facilities			(337,896)						(169,103)
Development and expansion of real estate facilities			(231,483)						(201,527)
Acquisition of real estate facilities and intangible assets			(529,357)						(2,845,284)
Distributions in excess of cumulative equity in earnings from unconsolidated real estate entities			13,670						8,765
Proceeds from sale of real estate investments			1,543						16,070
Proceeds from sale of equity investment in PS Business Parks, Inc.			2,636,011						—
Net cash flows from (used in) investing activities			1,552,488						(3,191,079)
Cash flows from financing activities:
Repayments on notes payable			(502,270)						(1,585)
Issuance of notes payable, net of issuance costs			—						3,300,160
Issuance of preferred shares			242,832						725,311
Issuance of common shares in connection with share-based compensation			27,913						81,412
Redemption of preferred shares			—						(825,000)
Taxes paid upon net share settlement of restricted share units			(12,989)						(10,438)
Acquisition of noncontrolling interests			—						(33)
Contributions by noncontrolling interests			1,659						2,359
Distributions paid to preferred shareholders, common shareholders and restricted share unitholders			(3,508,581)						(1,189,876)
Distributions paid to noncontrolling interests			(31,453)						(4,513)
Net cash flows (used in) from financing activities			(3,782,889)						2,077,797
Net cash flows from operating, investing, and financing activities			150,389						701,438
Net effect of foreign exchange impact on cash and equivalents, including restricted cash			—						313
Increase in cash and equivalents, including restricted cash			$	150,389					$	701,751

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

			For the Nine Months Ended September 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			$	883,787					$	958,247
Restricted cash included in other assets			27,892						26,104
			$	911,679					$	984,351
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			$	(14,254)					$	(18,243)
Construction or expansion of real estate facilities			(71,006)						(39,305)
Real estate acquired in exchange for noncontrolling interests			(19,865)						—

See accompanying notes.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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 September 30, 2022, we had direct and indirect equity interests in 2,836 self-storage facilities (with approximately 202.2 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 September 30, 2022, we owned a 35% common equity interest in Shurgard Self Storage SA (“Shurgard”), a public company traded on the Euronext Brussels under the “SHUR” symbol, which owned 259 self-storage facilities (with approximately 14 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 PS Business Parks, Inc.’s (“PSB”) merger transaction 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

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 nine months ended September 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

September 30, 2022

(Unaudited)

3.Real Estate Facilities

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

			Nine Months Ended September 30, 2022
			(Amounts in thousands)
Operating facilities, at cost:
Beginning balance			$	22,807,833
Capital expenditures to maintain real estate facilities			329,253
Acquisitions			514,541
Dispositions			(1,704)
Developed or expanded facilities opened for operation			125,971
Ending balance			23,775,894
Accumulated depreciation:
Beginning balance			(7,773,308)
Depreciation expense			(574,374)
Dispositions			1,084
Ending balance			(8,346,598)
Construction in process:
Beginning balance			272,471
Costs incurred to develop and expand real estate facilities			259,854
Developed or expanded facilities opened for operation			(125,971)
Ending balance			406,354
Total real estate facilities at September 30, 2022			$	15,835,650

During the nine months ended September 30, 2022, we acquired 44 self-storage facilities (3.2 million net rentable square feet of storage space), for a total cost of $501.9 million, consisting of $482.0 million in cash and $19.9 million in partnership units in our subsidiary. Approximately $14.4 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing $126.0 million during the nine months ended September 30, 2022, adding 0.9 million net rentable square feet of self-storage space. Construction in process at September 30, 2022 consisted of projects to develop new self-storage facilities and expand existing self-storage facilities.

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 the nine months ended September 30, 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.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

4.Investments in Unconsolidated Real Estate Entities

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

			Investments in Unconsolidated Real Estate Entities at
			September 30, 2022						December 31, 2021
PSB			$	—					$	515,312
Shurgard			252,648						313,451
Total			$	252,648					$	828,763

			Equity in Earnings of Unconsolidated Real Estate Entities for the
			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
PSB			$	3,586					$	27,110					$	80,596					$	62,494
Shurgard			4,594						5,750						19,533						18,888
Total			$	8,180					$	32,860					$	100,129					$	81,382

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 the proceeds from the merger consideration of $2.6 billion or $182.25 per share or unit within cash flows from investing activities in the Consolidated Statements of Cash Flows for the nine months ended September 30, 2022. During the nine months ended September 30, 2022 and 2021, we received cash distributions from PSB totaling $109.5 million and $45.6 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 September 30, 2022 (€41.60 per share of Shurgard common stock, at 0.980 exchange rate of U.S. Dollars to the Euro), the shares we owned had a market value of approximately $1.3 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). For each of the nine months ended September 30, 2022 and 2021, we received $2.6 million of trademark license fees that Shurgard pays to us for the use of the Shurgard® trademark. We eliminated $0.9 million of intra-entity profits and losses for each of the nine months ended September 30, 2022 and

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

2021, 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 the nine months ended September 30, 2022 and 2021, we received cash dividends from Shurgard totaling $37.8 million and $21.5 million, respectively. Approximately $13.7 million and $8.8 million of total cash distributions from Shurgard during the nine months ended September 30, 2022 and 2021, 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 September 30, 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 $65.7 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 $9.0 million and $7.3 million during the nine months ended September 30, 2022 and 2021, 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 September 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			196,617						(141,473)						55,144						198,180						(79,953)						118,227
Total goodwill and other intangible assets			$	381,284					$	(141,473)					$	239,811					$	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 $20.0 million and $78.2 million for the three and nine months ended September 30, 2022, respectively, and $23.3 million and $49.0 million for the same periods in 2021. During the nine months ended September 30, 2022, intangibles increased $15.1 million in connection with the acquisition of real estate facilities. (Note 3).

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

Year						Amount
Remainder of 2022						$	15,830
2023						30,074
Thereafter						9,240
Total						$	55,144

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

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 September 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 September 30, 2022). At September 30, 2022 and November 1, 2022, 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 September 30, 2022 ($21.2 million at December 31, 2021). The Credit Facility has various customary restrictive covenants, with which we were in compliance at September 30, 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 September 30, 2022 and December 31, 2021 are set forth in the tables below:

															Amounts at September 30, 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%						1.766%						$	700,000					$	(1,101)					$	698,899					$	685,550
Notes due February 15, 2026			0.875%						1.030%						500,000						(2,507)						497,493						436,666
Notes due November 9, 2026			1.500%						1.640%						650,000						(3,574)						646,426						573,097
Notes due September 15, 2027			3.094%						3.218%						500,000						(2,624)						497,376						459,630
Notes due May 1, 2028			1.850%						1.962%						650,000						(3,768)						646,232						543,338
Notes due November 9, 2028			1.950%						2.044%						550,000						(2,939)						547,061						459,260
Notes due May 1, 2029			3.385%						3.459%						500,000						(2,024)						497,976						450,179
Notes due May 1, 2031			2.300%						2.419%						650,000						(5,869)						644,131						517,641
Notes due November 9, 2031			2.250%						2.322%						550,000						(3,224)						546,776						430,706
															5,250,000						(27,630)						5,222,370						4,556,067
Euro Denominated Unsecured Debt
Notes due April 12, 2024			1.540%						1.540%						97,984						—						97,984						94,290
Notes due November 3, 2025			2.175%						2.175%						237,135						—						237,135						227,663
Notes due September 9, 2030			0.500%						0.640%						685,890						(8,890)						677,000						513,593
Notes due January 24, 2032			0.875%						0.978%						489,921						(4,992)						484,929						354,996
															1,510,930						(13,882)						1,497,048						1,190,542
Mortgage Debt, secured by 10 real estate facilities with a net book value of $57.5 million			3.811%						3.811%						21,033						—						21,033						20,703
															$	6,781,963					$	(41,512)					$	6,740,451					$	5,767,312

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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

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.

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 September 30, 2022. Included in these covenants are (a) a maximum Debt to Total Assets of 65% (approximately 14% at September 30, 2022) and (b) a minimum ratio of Adjusted EBITDA to Interest Expense of 1.5x (approximately 25x for the twelve months ended September 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” on our income statement (gains of $100.9 million and $239.2 million for the three and nine months ended September 30, 2022, respectively, as compared to gains of $40.9 million and $73.6 million for the three and nine months ended September 30, 2021, respectively).

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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 September 30, 2022, the related contractual interest rates of our mortgage notes are fixed, ranging between 3.2% and 7.1%, and mature between February 1, 2023 and July 1, 2030.

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

			Unsecured Debt						Mortgage Debt						Total
Remainder of 2022			$	—					$	212					$	212
2023			—						19,219						19,219
2024			797,984						124						798,108
2025			237,135						131						237,266
2026			1,150,000						138						1,150,138
Thereafter			4,575,811						1,209						4,577,020
			$	6,760,930					$	21,033					$	6,781,963
Weighted average effective rate			1.9%						3.8%						1.9%

Cash paid for interest totaled $87.6 million and $49.8 million for the nine months ended September 30, 2022 and 2021, respectively. Interest capitalized as real estate totaled $4.2 million and $2.6 million for the nine months ended September 30, 2022 and 2021, 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 September 30, 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 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 nine months ended September 30, 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.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

9.Shareholders’ Equity

Preferred Shares

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

																		At September 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 September 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

September 30, 2022

(Unaudited)

Dividends

Common share dividends paid, including amounts paid to our restricted share unitholders, totaled $2.7 billion ($15.15 per share) and $351.2 million ($2.00 per share) for the three months ended September 30, 2022 and 2021, respectively, and $3.4 billion ($19.15 per share) and $1.05 billion ($6.00 per share) for the nine months ended September 30, 2022 and 2021, respectively. Included in common share dividends paid for the three and nine months ended September 30, 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 paid totaled $48.7 million and $46.2 million for the three months ended September 30, 2022 and 2021, respectively, and $145.7 million and $138.5 million for the nine months ended September 30, 2022 and 2021, respectively.

10.Related Party Transactions

At September 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 $1.7 million and $1.5 million for the nine months ended September 30, 2022 and 2021, 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, restricted share 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, $0.4 million and $2.4 million share-based compensation cost was capitalized as real estate facilities for the three and nine months ended September 30, 2022, respectively, as compared to $0.8 million and $3.1 million for the same periods of 2021, respectively.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
			(Amounts in thousands)
Self-storage cost of operations			$	4,203					$	4,506					$	13,740					$	16,272
Ancillary cost of operations			203						342						690						1,122
General and administrative			9,335						9,747						30,167						30,291
Total			$	13,741					$	14,595					$	44,597					$	47,685

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Included in share-based compensation is $2.9 million and $12.4 million during the three and nine months ended September 30, 2022, respectively, as compared to $4.8 million and $15.8 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 September 30, 2022, there was $96.8 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of three years.

Stock Options

We have service-based, 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.

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 equity and performance-based incentive compensation plans that provide for equitable adjustments in the event of an extraordinary cash dividend. The anti-dilution adjustments 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.

During the nine months ended September 30, 2022, 142,683 stock options were granted, 146,608 options were exercised, and no options were forfeited. In addition, we expect an incremental 61,250 stock options to be issued based on the estimated achievement of performance targets on our multi-year performance-based stock options granted during the nine months ended September 30, 2021. A total of 3,201,624 stock options were outstanding at September 30, 2022 (3,039,951 at December 31, 2021).

During the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2022, we incurred share-based compensation cost for outstanding stock options of $4.2 million and $15.8 million, respectively, as compared to $5.5 million and $20.5 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 nine months ended September 30, 2022, 27,943 RSUs were granted, 18,487 RSUs were forfeited and 76,818 RSUs vested. The vesting resulted in the issuance of 55,079 common shares. A total of 503,460 RSUs were outstanding at September 30, 2022 (570,822 at December 31, 2021).

Included in the RSUs granted during the nine months ended September 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. 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

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

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.

Also included in the RSUs granted during the nine months ended September 30, 2022 are 5,958 service-based RSUs.

For the three and nine months ended September 30, 2022, we incurred share-based compensation cost for RSUs of $9.7 million and $30.6 million, respectively, as compared to $9.6 million and $29.4 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 nine months ended September 30, 2022, we granted 1,742 DSUs and 310 shares of unrestricted common stock.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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) 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 shares of common stock were excluded from the computation of diluted earnings per share for the three and nine months ended September 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 nine months ended September 30, 2022 and 2021, respectively (in thousands, except per share amounts):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Numerator for basic and dilutive net income per common share – net income allocable to common shareholders			$	2,712,161					$	442,327					$	3,779,666					$	1,174,386
Denominator for basic net income per share - weighted average common shares outstanding			175,283						174,926						175,227						174,787
Net effect of dilutive stock options - based on treasury stock method			1,045						880						1,098						611
Denominator for dilutive net income per share - weighted average common shares outstanding			176,328						175,806						176,325						175,398
Net income per common share:
Basic			$	15.47					$	2.53					$	21.57					$	6.72
Dilutive			$	15.38					$	2.52					$	21.44					$	6.70

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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 September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
			(amounts in thousands)
Self-Storage Operations Reportable Segment
Revenue			$	1,027,374					$	840,510					$	2,917,675					$	2,333,850
Cost of operations			(255,470)						(216,999)						(738,953)						(631,699)
Net operating income			771,904						623,511						2,178,722						1,702,151
Depreciation and amortization			(220,772)						(188,552)						(661,608)						(508,139)
Net income			551,132						434,959						1,517,114						1,194,012
Ancillary Operations
Revenue			60,757						54,421						175,946						157,658
Cost of operations			(21,572)						(19,735)						(54,297)						(52,044)
Net operating income			39,185						34,686						121,649						105,614
Total net income allocated to segments			590,317						469,645						1,638,763						1,299,626
Other items not allocated to segments:
General and administrative			(29,501)						(31,682)						(81,401)						(78,996)
Interest and other income			12,736						3,356						26,394						9,321
Interest expense			(34,113)						(23,736)						(100,178)						(60,980)
Equity in earnings of unconsolidated real estate entities			8,180						32,860						100,129						81,382
Foreign currency exchange gain			100,170						40,906						237,270						73,584
Gain on sale of real estate			1,503						279						1,503						13,683
Gain on sale of equity investment in PS Business Parks, Inc.			2,128,860						—						2,128,860						—
Net income			$	2,778,152					$	491,628					$	3,951,340					$	1,337,620

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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 all states. Customers participate in the program at their option. At September 30, 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 $265.7 million at September 30, 2022. We expect to pay approximately $71.4 million in the remainder of 2022, $185.8 million in 2023 and $8.5 million in 2024 for these construction commitments.

We have future contractual payments on land, equipment and office space under various lease commitments totaling $64.1 million at September 30, 2022. We expect to pay approximately $0.7 million in the remainder of 2022, $3.1 million in each of 2023 and 2024, $3.0 million in each of 2025 and 2026 and $51.2 million thereafter for these commitments.

15. Subsequent Events

Subsequent to September 30, 2022, we acquired or were under contract to acquire 33 self-storage facilities across six states with 1.7 million net rentable square feet, for $262.6 million.