Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include statements relating to our 2023 outlook and all underlying assumptions, our expected acquisition, disposition, development, and redevelopment activity, supply and demand for our self-storage facilities, information relating to operating trends in our markets, expectations regarding operating expenses, including property tax changes, expectations regarding the impacts from inflation and a potential future recession, our strategic priorities, expectations with respect to financing activities, rental rates, cap rates, and yields, leasing expectations, our credit ratings, and all other statements other than statements of historical fact. Such statements are based on management’s beliefs and assumptions made based on information currently available to management and may be identified by the use of the words “outlook,” “guidance,” “expects,” “believes,” “anticipates,” “should,” “estimates,” and similar expressions.

These forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results and performance to be materially different from those expressed or implied in the forward-looking statements. Factors and risks that may impact future results and performance include, but are not limited to those factors and risks described in Part 1, Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on February 21, 2023 and in our other filings with the SEC. These include changes in demand for our facilities, impacts of natural disasters, adverse changes in laws and regulations including governing property tax, evictions, rental rates, minimum wage levels, and insurance, adverse economic effects from the COVID-19 Pandemic, international military conflicts, or similar events impacting public health and/or economic activity, increases in the costs of our primary customer acquisition channels, adverse impacts to us and our customers from inflation, unfavorable foreign currency rate fluctuations, changes in federal or state tax laws related to the taxation of REITs, security breaches, including ransomware, or a failure of our networks, systems, or technology.

These forward-looking statements speak only as of the date of this report or as of the dates indicated in the statements. All of our forward-looking statements, including those in this report, are qualified in their entirety by this cautionary statement. We expressly disclaim any obligation to update publicly or otherwise revise any forward-looking statements, whether because of new information, new estimates, or other factors, events or circumstances after the date of these forward-looking statements, except when expressly required by law. Given these risks and uncertainties, you should not rely on any forward-looking statements in this report, or which management may make orally or in writing from time to time, neither as predictions of future events nor guarantees of future performance.

Critical Accounting Estimates

The preparation of consolidated financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) requires us to make judgments, assumptions, and estimates that affect the amounts reported. On an ongoing basis, we evaluate our estimates and assumptions. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenues, and expenses that are not readily apparent from other sources.

During the three months ended March 31, 2023, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

Overview

Our self-storage operations generate most of our net income, and our earnings growth is impacted by the levels of growth within our Same Store Facilities (as defined below) as well as within our Acquired Facilities and Newly Developed and Expanded Facilities (both as defined below). Accordingly, a significant portion of management’s time is devoted to maximizing cash flows from our existing self-storage facility portfolio.

During the three months ended March 31, 2023, revenues generated by our Same Store Facilities increased by 9.8% ($75.5 million), as compared to the same period in 2022, while Same Store cost of operations increased by 5.6% ($11.0 million). Demand and operating trends softened in the second half of 2022 continuing through the first quarter of 2023 and returned to historical seasonal patterns as compared to what we experienced in 2020 and 2021. We expect these trends to lead to moderating levels of income growth through 2023.

In addition to managing our existing facilities for organic growth, we have grown and plan to continue to grow through the acquisition and development of new facilities and expansion of our existing self-storage facilities. Since the beginning of 2021, we acquired a total of 311 facilities with 27.0 million net rentable square feet for $5.9 billion. In our non-same store portfolio, we also have developed and expanded self-storage facilities of 15.6 million net rentable square feet for a total cost of $1.3 billion. During the three months ended March 31, 2023, net operating income generated by our Acquired Facilities and Newly Developed and Expanded Facilities increased 31.7% ($25.3 million), as compared to the same period in 2022.

We have experienced recent inflationary impacts on our cost of operations including labor, utilities, and repairs and maintenance, and costs of development and expansion activities, and we may continue to experience such impacts in the future. We have implemented various initiatives to manage the adverse impacts, such as enhancements in operational processes and investments in technology to reduce payroll hours, achievement of economies of scale from recent acquisitions with supervisory payroll allocated over a broader number of self-storage facilities, and investments in solar power and LED lights to lower utility usage.

In order to enhance the competitive position of certain of our facilities relative to local competitors (including newly developed facilities), we have embarked on our multi-year Property of Tomorrow program to (i) rebrand our properties with more pronounced, attractive, and clearly identifiable color schemes and signage, (ii) enhance the energy efficiency of our properties, and (iii) upgrade the configuration and layout of the offices and other customer zones to improve the customer experience. We expect to complete the program in 2025. We spent approximately $32 million on the program in the three months ended March 31, 2023 and expect to spend approximately $160 million over 2023 on this effort.

Results of Operations

Operating Results for the Three Months Ended March 31, 2023 and 2022

For the three months ended March 31, 2023, net income allocable to our common shareholders was $467.6 million or $2.65 per diluted common share, compared to $464.1 million or $2.63 per diluted common share for the same period in 2022, representing an increase of $3.5 million or $0.02 per diluted common share. The increase is due primarily to (i) a $92.0 million increase in self-storage net operating income and (ii) a $15.3 million increase in interest and other income, partially offset by (iii) a $62.2 million increase in foreign currency exchange losses primarily associated with our Euro denominated notes payable and (iv) a $37.4 million decrease in equity in earnings of unconsolidated real estate entities due to our sale of PSB in July 2022.

The $92.0 million increase in self-storage net operating income in the three months ended March 31, 2023 as compared to the same period in 2022 is a result of a $64.4 million increase attributable to our Same Store Facilities and a $27.6 million increase attributable to our non-same store facilities. Revenues for the Same Store Facilities increased 9.8% or $75.5 million in the three months ended March 31, 2023 as compared to the same period in 2022, due primarily to higher realized annual rent per occupied square foot, partially offset by a decline in occupancy. Cost of operations for the Same Store Facilities increased by 5.6% or $11.0 million in the three months ended March 31, 2023 as compared to the same period in 2022, due primarily to increased property tax expense, repairs and maintenance expenses, marketing expense, and other direct property costs. The increase in net operating income of $27.6 million for the non-same store facilities is due primarily to the impact of facilities acquired in 2021 and 2022 and the fill-up of recently developed and expanded facilities.

Funds from Operations and Core Funds from Operations

Funds from Operations (“FFO”) and FFO per share are non-GAAP measures defined by Nareit. We believe that FFO and FFO per share are useful to REIT investors and analysts in measuring our performance because Nareit’s definition of FFO excludes items included in net income that do not relate to or are not indicative of our operating and financial performance. FFO represents net income before depreciation and amortization, which is excluded because it is based upon historical costs and assumes that building values diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. FFO also excludes gains or losses on sale of real estate assets and real estate impairment charges, which are also based upon historical costs and are impacted by historical depreciation. FFO and FFO per share are not a substitute for net income or earnings per share. FFO is not a substitute for net cash flow in evaluating our liquidity or ability to pay dividends, because it excludes investing and financing activities presented on our consolidated statements of cash flows. In addition, other REITs may compute these measures differently, so comparisons among REITs may not be helpful.

For the three months ended March 31, 2023, FFO was $3.94 per diluted common share as compared to $3.83 per diluted common share for the same period in 2022, representing an increase of 2.9%, or $0.11 per diluted common share.

We also present “Core FFO” and “Core FFO per share” non-GAAP measures that represent FFO and FFO per share excluding the impact of (i) foreign currency exchange gains and losses, (ii) charges related to the redemption of preferred securities, and (iii) certain other non-cash and/or nonrecurring income or expense items primarily representing, with respect to the periods presented below, the impact of contingency resolution, due diligence costs incurred in pursuit of strategic transactions, unrealized gain on private equity investments, and our equity share of severance of a senior executive from our equity investees. We review Core FFO and Core FFO per share to evaluate our ongoing operating performance and we believe they are used by investors and REIT analysts in a similar manner. However, Core FFO and Core FFO per share are not substitutes for net income and net income per share. Because other REITs may not compute Core FFO or Core FFO per share in the same manner as we do, may not use the same terminology or may not present such measures, Core FFO and Core FFO per share may not be comparable among REITs.

The following table reconciles net income to FFO and Core FFO and reconciles diluted earnings per share to FFO per share and Core FFO per share:

									Three Months Ended March 31,
																					2023						2022						Percentage Change
																					(Amounts in thousands, except per share data)
Reconciliation of Net Income to FFO and Core FFO:
Net income allocable to common shareholders																					$	467,588					$	464,124					0.7		%
Eliminate items excluded from FFO:
Depreciation and amortization																					219,787						220,795
Depreciation from unconsolidated real estate investments																					8,529						18,037
Depreciation allocated to noncontrolling interests and restricted share unitholders																					(1,473)						(1,657)
Gains on sale of real estate investments, including our equity share from investments																					—						(25,095)
FFO allocable to common shares																					$	694,431					$	676,204					2.7		%
Eliminate the impact of items excluded from Core FFO, including our equity share from investments:
Foreign currency exchange loss (gain)																					26,860						(35,377)
Other items																					(2,133)						2,547
Core FFO allocable to common shares																					$	719,158					$	643,374					11.8		%
Reconciliation of Diluted Earnings per Share to FFO per Share and Core FFO per Share:
Diluted earnings per share																					$	2.65					$	2.63					0.8		%
Eliminate amounts per share excluded from FFO:
Depreciation and amortization																					1.29						1.35
Gains on sale of real estate investments, including our equity share from investments																					—						(0.15)
FFO per share																					$	3.94					$	3.83					2.9		%
Eliminate the per share impact of items excluded from Core FFO, including our equity share from investments:
Foreign currency exchange loss (gain)																					0.15						(0.20)
Other items																					(0.01)						0.02
Core FFO per share																					$	4.08					$	3.65					11.8		%
Diluted weighted average common shares																					176,228						176,336

Analysis of Net Income - Self-Storage Operations

Our self-storage operations are analyzed in four groups: (i) the 2,348 facilities that we have owned and operated on a stabilized basis since January 1, 2021 (the “Same Store Facilities”), (ii) 311 facilities we acquired since January 1, 2021 (the “Acquired Facilities”), (iii) 136 facilities that have been newly developed or expanded, or that will commence expansion by December 31, 2023 (the “Newly Developed and Expanded Facilities”), and (iv) 82 other facilities, which are otherwise not stabilized with respect to occupancies or rental rates since January 1, 2021 (the “Other Non-same Store Facilities”). See Note 13 to our March 31, 2023 consolidated financial statements “Segment Information,” for a reconciliation of the amounts in the tables below to our total net income.

Self-Storage Operations
Summary									Three Months Ended March 31,
																					2023						2022						Percentage Change
																					(Dollar amounts and square footage in thousands)
Revenues:
Same Store Facilities																					$	848,724					$	773,260					9.8		%
Acquired Facilities																					95,222						69,303						37.4		%
Newly Developed and Expanded Facilities																					62,031						51,084						21.4		%
Other Non-Same Store Facilities																					26,207						23,368						12.1		%
																					1,032,184						917,015						12.6		%
Cost of operations:
Same Store Facilities																					207,219						196,176						5.6		%
Acquired Facilities																					32,879						24,217						35.8		%
Newly Developed and Expanded Facilities																					19,353						16,450						17.6		%
Other Non-Same Store Facilities																					9,164						8,651						5.9		%
																					268,615						245,494						9.4		%
Net operating income (a):
Same Store Facilities																					641,505						577,084						11.2		%
Acquired Facilities																					62,343						45,086						38.3		%
Newly Developed and Expanded Facilities																					42,678						34,634						23.2		%
Other Non-Same Store Facilities																					17,043						14,717						15.8		%
Total net operating income																					763,569						671,521						13.7		%
Depreciation and amortization expense:
Same Store Facilities																					126,794						120,891						4.9		%
Acquired Facilities																					67,249						77,139						(12.8)		%
Newly Developed and Expanded Facilities																					14,401						12,310						17.0		%
Other Non-Same Store Facilities																					13,206						11,788						12.0		%
Total depreciation and amortization expense																					221,650						222,128						(0.2)		%
Net income (loss):
Same Store Facilities																					514,711						456,193						12.8		%
Acquired Facilities																					(4,906)						(32,053)						(84.7)		%
Newly Developed and Expanded Facilities																					28,277						22,324						26.7		%
Other Non-Same Store Facilities																					3,837						2,929						31.0		%
Total net income																					$	541,919					$	449,393					20.6		%
Number of facilities at period end:
Same Store Facilities																					2,348						2,348						—		%
Acquired Facilities																					311						242						28.5		%
Newly Developed and Expanded Facilities																					136						125						8.8		%
Other Non-Same Store Facilities																					82						82						—		%
																					2,877						2,797						2.9		%
Net rentable square footage at period end:
Same Store Facilities																					155,453						155,453						—		%
Acquired Facilities																					27,047						22,611						19.6		%
Newly Developed and Expanded Facilities																					15,584						14,263						9.3		%
Other Non-Same Store Facilities																					6,793						6,791						—		%
																					204,877						199,118						2.9		%

(a)Net operating income or “NOI” is a non-GAAP financial measure that excludes the impact of depreciation and amortization expense, which is based upon historical real estate costs and assumes that building values diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. We utilize NOI in determining current property values, evaluating property performance, and evaluating property operating trends. We believe that investors and analysts utilize NOI in a similar manner. NOI is not a substitute for net income, operating cash flow, or other related financial measures, in evaluating our operating results. See Note 13 to our March 31, 2023 consolidated financial statements for a reconciliation of NOI to our total net income for all periods presented.

Same Store Facilities

The Same Store Facilities consist of facilities we have owned and operated on a stabilized level of occupancy, revenues, and cost of operations since January 1, 2021. Our Same Store Facilities increased from 2,276 facilities at December 31, 2022 to 2,348 at March 31, 2023. The composition of our Same Store Facilities allows us more effectively to evaluate the ongoing performance of our self-storage portfolio in 2021, 2022, and 2023 and exclude the impact of fill-up of unstabilized facilities, which can significantly affect operating trends. We believe investors and analysts use Same Store information in a similar manner. However, because other REITs may not compute Same Store Facilities in the same manner as we do, may not use the same terminology or may not present such a measure, Same Store Facilities may not be comparable among REITs.

The following table summarizes the historical operating results (for all periods presented) of these 2,348 facilities (155.5 million net rentable square feet) that represent approximately 76% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at March 31, 2023. It includes various measures and detail that we do not include in the analysis of the developed, acquired, and other non-same store facilities, due to the relative magnitude and importance of the Same Store Facilities relative to our other self-storage facilities.

Selected Operating Data for the Same Store Facilities (2,348 facilities)

									Three Months Ended March 31,
																					2023						2022						Percentage Change
																					(Dollar amounts in thousands, except for per square foot data)
Revenues (a):
Rental income																					$	820,442					$	748,560					9.6%
Late charges and administrative fees																					28,282						24,700						14.5%
Total revenues																					848,724						773,260						9.8%
Direct cost of operations (a):
Property taxes																					76,871						73,237						5.0%
On-site property manager payroll																					32,592						31,804						2.5%
Repairs and maintenance																					18,052						15,940						13.2%
Utilities																					12,583						11,967						5.1%
Marketing																					15,580						11,740						32.7%
Other direct property costs																					23,258						20,762						12.0%
Total direct cost of operations																					178,936						165,450						8.2%
Direct net operating income (b)																					669,788						607,810						10.2%
Indirect cost of operations (a):
Supervisory payroll																					(9,215)						(9,940)						(7.3)%
Centralized management costs																					(15,923)						(16,790)						(5.2)%
Share-based compensation																					(3,145)						(3,996)						(21.3)%
Net operating income																					641,505						577,084						11.2%
Depreciation and amortization expense																					(126,794)						(120,891)						4.9%
Net income																					$	514,711					$	456,193					12.8%
Gross margin (before indirect costs, depreciation and amortization expense)																					78.9%						78.6%						0.4%
Gross margin (before depreciation and amortization expense)																					75.6%						74.6%						1.3%
Weighted average for the period:
Square foot occupancy																					93.2%						95.5%						(2.4)%
Realized annual rental income per (c):
Occupied square foot																					$	22.65					$	20.16					12.4%
Available square foot																					$	21.10					$	19.25					9.6%
At March 31:
Square foot occupancy																					92.8%						95.0%						(2.3)%
Annual contract rent per occupied square foot (d)																					$	22.94					$	20.71					10.8%

(a)Revenues and cost of operations do not include tenant reinsurance and merchandise sale revenues and expenses generated at the facilities. See “Ancillary Operations” below for more information.

(b)Direct net operating income (“Direct NOI”), a subtotal within NOI, is a non-GAAP financial measure that excludes the impact of supervisory payroll, centralized management costs, and share-based compensation in addition to depreciation and amortization expense. We utilize direct net operating income in evaluating property performance and in evaluating property operating trends as compared to our competitors.

(c)Realized annual rent per occupied square foot is computed by dividing rental income, before late charges and administrative fees, by the weighted average occupied square feet for the period. Realized annual rent per available square foot (“REVPAF”) is computed by dividing rental income, before late charges and administrative fees, by the total available net rentable square feet for the period. These measures exclude late charges and administrative fees in order to provide a better measure of our ongoing level of revenue. Late charges are dependent upon the level of delinquency, and administrative fees are dependent upon the level of move-ins. In addition, the rates charged for late charges and administrative fees can vary independently from rental rates. These measures take into consideration promotional discounts, which reduce rental income.

(d)Annual contract rent represents the agreed upon monthly rate that is paid by our tenants in place at the time of measurement. Contract rates are initially set in the lease agreement upon move-in, and we adjust them from time to time with notice. Contract rent excludes other fees that are charged on a per-item basis, such as late charges and administrative fees, does not reflect the impact of promotional discounts, and does not reflect the impact of rents that are written off as uncollectible.

Analysis of Same Store Revenue

We believe a balanced occupancy and rate strategy maximizes our revenues over time. We regularly adjust rental rates and promotional discounts offered (generally, “$1.00 rent for the first month”), as well as our marketing efforts to maximize revenue from new tenants to replace tenants that vacate.

We typically increase rental rates to our long-term tenants (generally, those who have been with us for at least a year) every six to twelve months. As a result, the number of long-term tenants we have in our facilities is an important factor in our revenue growth. The level of rate increases to long-term tenants is based upon evaluating the additional revenue from the increase against the negative impact of incremental move-outs, by considering customers’ in-place rent and prevailing market rents, among other factors.

Revenues generated by our Same Store Facilities increased 9.8% in the three months ended March 31, 2023, as compared to the same period in 2022, due primarily to (i) a 12.4% increase in realized annual rent per occupied square foot, partially offset by (ii) a 2.4% decrease in average occupancy.

The increase in realized annual rent per occupied square foot in the three months ended March 31, 2023 as compared to the same period in 2022 was due to rate increases to existing long-term tenants, partially offset by a 7.5% decrease in average rates per square foot charged to new tenants moving in who replaced tenants moving out with higher rental rates during the three months ended March 31, 2023 as compared to the same period in 2022. The growth rate in realized annual rent per occupied square foot has decelerated since the second half of 2022 as a result of increases in moving-out activity that drove us to lower move-in rates and increase promotion discounts to replace tenants that vacate. At March 31, 2023, annual contract rent per occupied square foot was 10.8% higher as compared to March 31, 2022.

We experienced high occupancy levels throughout the three months ended March 31, 2023 with a weighted average square foot occupancy of 93.2%, representing a decrease of 2.4% as compared to the same period in 2022. Occupancy levels, although strong, have gradually declined since the second half of 2022 as move-out activity increased and customer demand softened. We lowered move-in rental rates and increased promotional activity and advertising spending to increase move-in activity at our facilities, which led to a year-over year 12.5% increase in move-in volumes that more than offset the year-over year 11.5% increase in move-out volumes for the three months ended March 31, 2023. Although the move-in volumes net of move-out volumes were higher in the three months ended March 31, 2023 as compared to the same period in 2022, at March 31, 2023, the average square foot occupancy was 92.8% as compared to 95.0% at March 31, 2022, due primarily to lower occupancy levels at December 31, 2022 of 92.3% as compared to December 31, 2021 of 94.7%.

Move-out volumes were partially impacted by rental rate increases to our existing tenants in the three months ended March 31, 2023 as compared to the same period in 2022. However, move-out activity from tenants not receiving increases was also higher in the three months ended March 31, 2023 as compared to the same period in 2022, returning to pre-2020 levels. Average length of stay of our tenants slightly increased in the three months ended March 31, 2023 as compared to the same period in 2022, which supported our revenue growth by contributing to the number of tenants eligible for rental rate increases.

Demand historically has been higher in the summer months than in the winter months and, as a result, rental rates charged to new tenants have typically been higher in the summer months than in the winter months. More typical seasonal patterns of demand with lower demand in the winter months returned in 2022. Demand fluctuates due to various local and regional factors, including the overall economy. Demand for our facilities is also impacted by new supply of self-storage space and alternatives to self-storage.

We expect weaker industry-wide demand in the remainder of 2023 as compared to 2022 driven by a weaker macroeconomic outlook and more limited moving activities, with move-out activities and occupancy levels returning to pre-2020 levels. To mitigate the negative impact of macroeconomic challenges, we will continue to support demand levels to our self-storage facilities with increased marketing expense, lowering rental rates to new customers, and increased promotional discounting. As a result, we expect revenue growth to decline significantly in the remainder of 2023 as compared to high levels of growth in 2022 and 2021. With a wide range of potential macroeconomic pathways for the remainder of 2023, the range of potential revenue growth rates is wide including the potential for year-over-year declines in revenue in the second half of 2023.

Late Charges and Administrative Fees

Late charges and administrative fees increased 14.5% in the three months ended March 31, 2023 as compared to the same period in 2022, due to (i) higher late charges collected on delinquent accounts driven by more delinquent accounts and to a lesser extent (ii) higher administrative fees resulting from higher move-in volumes.

Selected Key Statistical Data

The following table sets forth average annual contract rent per square foot and total square footage for tenants moving in and moving out during the three months ended March 31, 2023 and 2022. It also includes promotional discounts, which vary based upon the move-in contractual rates, move-in volume, and percentage of tenants moving in who receive the discount.

									Three Months Ended March 31,
																					2023						2022						Change
																					(Amounts in thousands, except for per square foot amounts)
Tenants moving in during the period:
Average annual contract rent per square foot																					$	15.89					$	17.17					(7.5)%
Square footage																					27,437						24,390						12.5%
Contract rents gained from move-ins																					$	108,993					$	104,694					4.1%
Promotional discounts given																					$	15,800					$	11,199					41.1%
Tenants moving out during the period:
Average annual contract rent per square foot																					$	21.13					$	19.35					9.2%
Square footage																					26,652						23,907						11.5%
Contract rents lost from move-outs																					$	140,789					$	115,650					21.7%

Analysis of Same Store Cost of Operations

Cost of operations (excluding depreciation and amortization) increased 5.6% in the three months ended March 31, 2023 as compared to the same period in 2022 due primarily to increased property tax expense, repairs and maintenance expense, marketing expense, and other direct property costs.

Property tax expense increased 5.0% in the three months ended March 31, 2023 as compared to the same period in 2022, as a result of higher assessed values. We expect property tax expense to grow 5.2% in 2023 due primarily to higher assessed values.

On-site property manager payroll expense increased 2.5% in the three months ended March 31, 2023 as compared to the same period in 2022, due primarily to increases in wage rates as a result of competitive labor conditions experienced in most geographical markets. We expect an inflationary increase in on-site property manager payroll expense in 2023 driven by increased wage rates, partially offset by expected reduction in labor hours driven by revisions in operational processes.

Repairs and maintenance expense increased 13.2% in the three months ended March 31, 2023 as compared to the same period in 2022. Repairs and maintenance expense levels are dependent upon many factors such as (i) damage and equipment malfunctions, (ii) short-term local supply and demand factors for material and labor, and (iii) weather conditions, which can impact costs such as snow removal, roof repairs, and HVAC maintenance and repairs. We expect a moderate year-over-year increase in repairs and maintenance expense in the remainder of 2023.

Marketing expense includes Internet advertising and the operating costs of our telephone reservation center. Internet advertising expense, comprising keyword search fees assessed on a “per click” basis, varies based upon demand for self-storage space, the quantity of people inquiring about self-storage through online search, occupancy levels, the number and aggressiveness of bidding competitors, and other factors. These factors are volatile; accordingly, Internet advertising can increase or decrease significantly in the short-term. We increased marketing expense by 32.7% in the three months ended March 31, 2023 as compared to the same period in 2022, by utilizing a higher volume of online paid search programs to attract new tenants.

Other direct property costs include administrative expenses specific to each self-storage facility, such as property loss, telephone and data communication lines, business license costs, bank charges related to processing the facilities’ cash receipts, tenant mailings, credit card fees, eviction costs, and the cost of operating each property’s rental office. These costs increased 12.0% in the three months ended March 31, 2023 as compared to the same period in 2022. These increases were due primarily to an increase in credit card fees as a result of year-over-year increases in revenues, and to a lesser extent, a long-term trend of more customers paying with credit cards rather than cash, checks, or other methods of payment with lower transaction costs. We expect a moderate increase in other direct property costs in the remainder of 2023 primarily driven by an increase in credit card fees.

Analysis of Market Trends

The following tables set forth selected market trends in our Same Store Facilities:

Same Store Facilities Operating Trends by Market

			As of March 31, 2023						Three Months Ended March 31,
			Number of Facilities			Square Feet (millions)			Realized Rent per Occupied Square Foot									Average Occupancy									Realized Rent per Available Square Foot
			2023			2022			Change			2023			2022			Change			2023			2022			Change
Los Angeles			215			15.6			$	35.00		$	29.31		19.4		%	95.9		%	97.7		%	(1.8)		%	$	33.56		$	28.64		17.2		%
San Francisco			130			8.0			32.14			29.75			8.0		%	94.2		%	96.0		%	(1.9)		%	30.28			28.55			6.1		%
New York			92			6.7			31.80			28.82			10.3		%	92.8		%	95.2		%	(2.5)		%	29.52			27.45			7.5		%
Miami			88			6.3			29.62			25.81			14.8		%	93.6		%	96.9		%	(3.4)		%	27.72			25.02			10.8		%
Seattle-Tacoma			89			6.0			25.92			23.54			10.1		%	92.4		%	94.8		%	(2.5)		%	23.95			22.32			7.3		%
Washington DC			90			5.5			26.14			24.13			8.3		%	91.8		%	94.0		%	(2.3)		%	23.99			22.69			5.7		%
Dallas-Ft. Worth			111			7.6			18.13			16.03			13.1		%	92.9		%	95.0		%	(2.2)		%	16.84			15.22			10.6		%
Atlanta			103			6.8			18.11			16.14			12.2		%	90.9		%	94.9		%	(4.2)		%	16.46			15.31			7.5		%
Chicago			130			8.2			20.11			18.00			11.7		%	91.5		%	94.6		%	(3.3)		%	18.39			17.02			8.0		%
Houston			101			7.5			16.74			14.74			13.6		%	92.0		%	94.0		%	(2.1)		%	15.40			13.85			11.2		%
Orlando-Daytona			69			4.4			19.42			16.50			17.7		%	94.9		%	96.2		%	(1.4)		%	18.42			15.87			16.1		%
Philadelphia			56			3.5			21.57			19.82			8.8		%	92.4		%	96.0		%	(3.7)		%	19.94			19.03			4.8		%
West Palm Beach			39			2.8			26.13			23.29			12.2		%	93.9		%	97.1		%	(3.3)		%	24.53			22.60			8.5		%
Tampa			53			3.5			19.86			17.61			12.8		%	93.1		%	95.8		%	(2.8)		%	18.49			16.87			9.6		%
Charlotte			52			3.9			15.89			13.89			14.4		%	93.2		%	95.5		%	(2.4)		%	14.81			13.26			11.7		%
All other markets			930			59.2			18.49			16.74			10.5		%	93.2		%	95.3		%	(2.2)		%	17.22			15.95			8.0		%
Totals			2,348			155.5			$	22.65		$	20.16		12.4		%	93.2		%	95.5		%	(2.4)		%	$	21.10		$	19.25		9.6		%

Same Store Facilities Operating Trends by Market (Continued)

			Three Months Ended March 31,
			Revenues ($000's)									Direct Expenses ($000's)									Indirect Expenses ($000's)									Net Operating Income ($000's)
			2023			2022			Change			2023			2022			Change			2023			2022			Change			2023			2022			Change
Los Angeles			$	133,611		$	113,948		17.3		%	$	17,685		$	16,098		9.9		%	$	2,849		$	3,702		(23.0)		%	$	113,077		$	94,148		20.1		%
San Francisco			61,638			58,078			6.1		%	9,862			8,983			9.8		%	1,634			1,753			(6.8)		%	50,142			47,342			5.9		%
New York			51,173			47,642			7.4		%	13,385			12,700			5.4		%	1,338			1,435			(6.8)		%	36,450			33,507			8.8		%
Miami			44,947			40,378			11.3		%	7,920			7,458			6.2		%	1,092			1,134			(3.7)		%	35,935			31,786			13.1		%
Seattle-Tacoma			37,048			34,565			7.2		%	6,894			6,293			9.6		%	1,021			1,065			(4.1)		%	29,133			27,207			7.1		%
Washington DC			34,294			32,377			5.9		%	7,259			7,217			0.6		%	1,043			1,039			0.4		%	25,992			24,121			7.8		%
Dallas-Ft. Worth			33,443			30,141			11.0		%	7,832			7,073			10.7		%	1,200			1,237			(3.0)		%	24,411			21,831			11.8		%
Atlanta			29,368			27,245			7.8		%	6,154			5,190			18.6		%	1,223			1,283			(4.7)		%	21,991			20,772			5.9		%
Chicago			39,039			36,008			8.4		%	16,385			15,070			8.7		%	1,426			1,596			(10.7)		%	21,228			19,342			9.8		%
Houston			30,051			26,957			11.5		%	8,228			7,565			8.8		%	1,110			1,211			(8.3)		%	20,713			18,181			13.9		%
Orlando-Daytona			21,047			18,158			15.9		%	4,071			3,645			11.7		%	860			905			(5.0)		%	16,116			13,608			18.4		%
Philadelphia			18,371			17,500			5.0		%	4,100			4,183			(2.0)		%	686			690			(0.6)		%	13,585			12,627			7.6		%
West Palm Beach			17,706			16,298			8.6		%	3,807			3,277			16.2		%	529			515			2.7		%	13,370			12,506			6.9		%
Tampa			16,883			15,372			9.8		%	3,603			3,265			10.4		%	625			648			(3.5)		%	12,655			11,459			10.4		%
Charlotte			15,222			13,595			12.0		%	2,771			2,458			12.7		%	597			635			(6.0)		%	11,854			10,502			12.9		%
All other markets			264,883			244,998			8.1		%	58,980			54,975			7.3		%	11,050			11,878			(7.0)		%	194,853			178,145			9.4		%
Totals			$	848,724		$	773,260		9.8		%	$	178,936		$	165,450		8.2		%	$	28,283		$	30,726		(8.0)		%	$	641,505		$	577,084		11.2		%

Acquired Facilities

The Acquired Facilities represent 311 facilities that we acquired in 2021, 2022, and 2023. As a result of the stabilization process and timing of when these facilities were acquired, year-over-year changes can be significant. The following table summarizes operating data with respect to the Acquired Facilities:

ACQUIRED FACILITIES									Three Months Ended March 31,
																					2023						2022						Change (a)
																					($ amounts in thousands, except for per square foot amounts)
Revenues (b):
2021 Acquisitions																					$	83,241					$	68,825					$	14,416
2022 Acquisitions																					11,601						478						11,123
2023 Acquisitions																					380						—						380
Total revenues																					95,222						69,303						25,919
Cost of operations (b):
2021 Acquisitions																					27,126						23,898						3,228
2022 Acquisitions																					5,582						319						5,263
2023 Acquisitions																					171						—						171
Total cost of operations																					32,879						24,217						8,662
Net operating income:
2021 Acquisitions																					56,115						44,927						11,188
2022 Acquisitions																					6,019						159						5,860
2023 Acquisitions																					209						—						209
Net operating income																					62,343						45,086						17,257
Depreciation and amortization expense																					(67,249)						(77,139)						9,890
Net loss																					$	(4,906)					$	(32,053)					$	27,147
At March 31:
Square foot occupancy:
2021 Acquisitions																					83.1%						82.3%						1.0%
2022 Acquisitions																					82.3%						43.5%						89.2%
2023 Acquisitions																					82.2%						—%						—%
																					82.9%						81.0%						2.3%
Annual contract rent per occupied square foot:
2021 Acquisitions																					$	17.84					$	15.87					12.4%
2022 Acquisitions																					12.02						12.80						(6.1)%
2023 Acquisitions																					11.33						—						—%
																					$	16.76					$	15.82					5.9%
Number of facilities:
2021 Acquisitions																					232						232						—
2022 Acquisitions																					74						10						64
2023 Acquisitions																					5						—						5
																					311						242						69
Net rentable square feet (in thousands) (c):
2021 Acquisitions (d)																					22,009						21,830						179
2022 Acquisitions																					4,726						781						3,945
2023 Acquisitions																					312						—						312
																					27,047						22,611						4,436

ACQUIRED FACILITIES (Continued)

			As of March 31, 2023
Costs to acquire (in thousands):
2021 Acquisitions (d)			$	5,115,276
2022 Acquisitions			730,480
2023 Acquisitions			46,795
			$	5,892,551

(a)Represents the percentage change with respect to square foot occupancy and annual contract rent per occupied square foot, and the absolute nominal change with respect to all other items.

(b)Revenues and cost of operations do not include tenant reinsurance and merchandise sale revenues and expenses generated at the facilities. See “Ancillary Operations” below for more information.

(c)The Acquired Facilities have an aggregate of approximately 27.0 million net rentable square feet, including 10.9 million in Texas, 3.9 million in Maryland, 1.6 million in Florida, 1.2 million in Virginia, 1.0 million in Oklahoma, 0.9 million in North Carolina, 0.7 million in Idaho, 0.6 million in each of Arizona, Colorado, and South Carolina, 0.5 million in Nebraska, 0.4 million in each of Georgia, Indiana, and Oregon, 0.3 million in each of California, Minnesota, Nevada, Ohio, Tennessee, and Washington, and 1.5 million in other states.

(d)We have completed the expansion projects on facilities acquired in 2021 for $26.7 million, adding 179,000 net rentable square feet of storage space as of March 31, 2023.

We have been active in acquiring facilities in recent years. Since the beginning of 2021, we acquired a total of 311 facilities with 27.0 million net rentable square feet for $5.9 billion. During the three months ended March 31, 2023, these facilities contributed net operating income of $62.3 million, consistent with our original underwritten expectations.

During 2021, we acquired the ezStorage portfolio, consisting of 48 properties (4.1 million net rentable square feet) for acquisition cost of $1.8 billion. As of March 31, 2023, we have completed the expansion projects on four properties of this portfolio for $26.3 million, adding 169,000 net rentable square feet of storage space. Included in the Acquisition results in the table above are ezStorage portfolio revenues of $25.6 million, NOI of $20.0 million (including Direct NOI of $20.5 million), and average square footage occupancy of 85.7% for the three months ended March 31, 2023.

During 2021, we acquired the All Storage portfolio, consisting of 56 properties (7.5 million net rentable square feet) for $1.5 billion. Included in the Acquisition results in the table above are All Storage portfolio revenues of $21.4 million, NOI of $13.3 million (including Direct NOI of $14.2 million), and average square footage occupancy of 78.5% for the three months ended March 31, 2023.

We remain active in seeking to acquire additional self-storage facilities. Subsequent to March 31, 2023, we acquired or were under contract to acquire 12 self-storage facilities across three states with 0.9 million net rentable square feet, for $139.0 million. Future acquisition volume is likely to be impacted by increasing cost of capital requirements and overall macro-economic uncertainties.

Developed and Expanded Facilities

The developed and expanded facilities include 49 facilities that were developed on new sites since January 1, 2018, and 87 facilities expanded to increase their net rentable square footage. Of these expansions, 61 were completed before 2022, 13 were completed in 2022 or 2023, and 13 are currently in process at March 31, 2023. The following table summarizes operating data with respect to the Developed and Expanded Facilities:

DEVELOPED AND EXPANDED FACILITIES
									Three Months Ended March 31,
																					2023						2022						Change (a)
																					($ amounts in thousands, except for per square foot amounts)
Revenues (b):
Developed in 2018																					$	9,780					$	8,293					$	1,487
Developed in 2019																					4,375						3,626						749
Developed in 2020																					1,901						1,482						419
Developed in 2021																					2,609						1,429						1,180
Developed in 2022																					1,086						—						1,086
Developed in 2023																					25						—						25
Expansions completed before 2022																					33,744						28,348						5,396
Expansions completed in 2022 or 2023																					4,614						3,111						1,503
Expansions in process																					3,897						4,795						(898)
Total revenues																					62,031						51,084						10,947
Cost of operations (b):
Developed in 2018																					2,833						2,555						278
Developed in 2019																					1,507						1,368						139
Developed in 2020																					424						428						(4)
Developed in 2021																					917						855						62
Developed in 2022																					983						—						983
Developed in 2023																					229						—						229
Expansions completed before 2022																					10,094						9,385						709
Expansions completed in 2022 or 2023																					1,521						847						674
Expansions in process																					845						1,012						(167)
Total cost of operations																					19,353						16,450						2,903
Net operating income (loss):
Developed in 2018																					6,947						5,738						1,209
Developed in 2019																					2,868						2,258						610
Developed in 2020																					1,477						1,054						423
Developed in 2021																					1,692						574						1,118
Developed in 2022																					103						—						103
Developed in 2023																					(204)						—						(204)
Expansions completed before 2022																					23,650						18,963						4,687
Expansions completed in 2022 or 2023																					3,093						2,264						829
Expansions in process																					3,052						3,783						(731)
Net operating income																					42,678						34,634						8,044
Depreciation and amortization expense																					(14,401)						(12,310)						(2,091)
Net income																					$	28,277					$	22,324					$	5,953

DEVELOPED AND EXPANDED FACILITIES (Continued)
																					As of March 31,
																					2023						2022						Change (a)
																					($ amounts in thousands, except for per square foot amounts)
Square foot occupancy:
Developed in 2018																					88.0%						88.6%						(0.7)%
Developed in 2019																					87.3%						88.4%						(1.2)%
Developed in 2020																					93.1%						92.0%						1.2%
Developed in 2021																					83.6%						67.4%						24.0%
Developed in 2022																					59.1%						—%						—%
Developed in 2023																					19.4%						—%						—%
Expansions completed before 2022																					87.4%						87.4%						—%
Expansions completed in 2022 or 2023																					76.1%						80.9%						(5.9)%
Expansions in process																					80.0%						88.2%						(9.3)%
																					83.9%						86.4%						(2.9)%
Annual contract rent per occupied square foot:
Developed in 2018																					$	20.79					$	18.06					15.1%
Developed in 2019																					18.34						15.54						18.0%
Developed in 2020																					22.31						19.08						16.9%
Developed in 2021																					18.23						15.28						19.3%
Developed in 2022																					13.73						—						—%
Developed in 2023																					8.70						—						—%
Expansions completed before 2022																					17.97						15.80						13.7%
Expansions completed in 2022 or 2023																					17.42						17.88						(2.6)%
Expansions in process																					27.55						25.85						6.6%
																					$	18.34					$	16.36					12.1%
Number of facilities:
Developed in 2018																					18						18						—
Developed in 2019																					11						11						—
Developed in 2020																					3						3						—
Developed in 2021																					6						6						—
Developed in 2022																					8						—						8
Developed in 2023																					3						—						3
Expansions completed before 2022																					61						61						—
Expansions completed in 2022 or 2023																					13						13						—
Expansions in process																					13						13						—
																					136						125						11
Net rentable square feet (in thousands) (c):
Developed in 2018																					2,069						2,069						—
Developed in 2019																					1,057						1,057						—
Developed in 2020																					347						347						—
Developed in 2021																					681						681						—
Developed in 2022																					631						—						631
Developed in 2023																					268						—						268
Expansions completed before 2022																					8,381						8,410						(29)
Expansions completed in 2022 or 2023																					1,435						875						560
Expansions in process																					715						824						(109)
																					15,584						14,263						1,321

			As of March 31, 2023
Costs to develop (in thousands):
Developed in 2018			$	262,187
Developed in 2019			150,387
Developed in 2020			42,063
Developed in 2021			115,632
Developed in 2022			100,089
Developed in 2023			46,679
Expansions completed before 2022 (d)			506,594
Expansions completed in 2022 or 2023 (d)			119,048
			$	1,342,679

(a)Represents the percentage change with respect to square foot occupancy and annual contract rent per occupied square foot, and the absolute nominal change with respect to all other items.

(b)Revenues and cost of operations do not include tenant reinsurance and merchandise sales generated at the facilities. See “Ancillary Operations” below for more information.

(c)The facilities included above have an aggregate of approximately 15.6 million net rentable square feet at March 31, 2023, including 3.7 million in Texas, 3.0 million in Florida, 2.1 million in California, 1.4 million in each of Colorado and Minnesota, 0.8 million in North Carolina, 0.7 million in Michigan, 0.4 million in Missouri, 0.3 million in each of New Jersey, South Carolina, Virginia, and Washington, and 0.9 million in other states.

(d)These amounts only include the direct cost incurred to expand and renovate these facilities, and do not include (i) the original cost to develop or acquire the facility or (ii) the lost revenue on space demolished during the construction and fill-up period.

It typically takes at least three to four years for a newly developed or expanded self-storage facility to stabilize with respect to revenues. Physical occupancy can be achieved as early as two to three years following completion of the development or expansion through offering lower rental rates during fill-up. As a result, even after achieving high occupancy, there can still be a period of elevated revenue growth as the tenant base matures and higher rental rates are achieved.

We believe that our development and redevelopment activities generate favorable risk-adjusted returns over the long run. However, in the short run, our earnings are diluted during the construction and stabilization period due to the cost of capital to fund the development cost, as well as the related construction and development overhead expenses included in general and administrative expense.

We typically underwrite new developments to stabilize at approximately an 8.0% NOI yield on cost. Our developed facilities have thus far leased up as expected and are at various stages of their revenue stabilization periods. The actual annualized yields that we may achieve on these facilities upon stabilization will depend on many factors, including local and current market conditions in the vicinity of each property and the level of new and existing supply.

The facilities under “expansions completed” represent those facilities where the expansions have been completed at March 31, 2023. We incurred a total of $625.6 million in direct cost to expand these facilities, demolished a total of 1.1 million net rentable square feet of storage space, and built a total of 6.1 million net rentable square feet of new storage space.

At March 31, 2023, we had 25 additional facilities in development, which will have a total of 2.4 million net rentable square feet of storage space and have an aggregate development cost totaling approximately $537.8 million. We expect these facilities to open over the next 18 to 24 months.

The facilities under “expansion in process” represent those facilities where construction is in process at March 31, 2023, and together with additional future expansion activities primarily related to our Same Store Facilities at March 31, 2023, we expect to add a total of 2.4 million net rentable square feet of storage space by expanding existing self-storage facilities for an aggregate direct development cost of $488.2 million.

Other Non-Same Store Facilities

The “Other Non-Same Store Facilities” represent facilities which, while not newly acquired, developed, or expanded, are not fully stabilized since January 1, 2021, including facilities undergoing fill-up as well as facilities damaged in casualty events such as hurricanes, floods, and fires.

The Other Non-Same Store Facilities have an aggregate of 6.8 million net rentable square feet, including 1.2 million in Texas, 0.5 million in Pennsylvania, 0.4 million in each of California, Illinois, Michigan, Ohio, and Washington, 0.3 million in each of Arizona, Florida, and South Carolina, 0.2 million in each of Alabama, Colorado, Georgia, Minnesota, Missouri, and Virginia, and 1.0 million in other states.

During the three months ended March 31, 2023 and 2022, the average occupancy for these facilities totaled 86.2% and 89.1%, respectively, and the realized rent per occupied square foot totaled $17.83 and $15.24, respectively.

Depreciation and amortization expense

Depreciation and amortization expense for Self-Storage Operations decreased $0.5 million in the three months ended March 31, 2023, as compared to the same period in 2022, due to a decline in amortization of intangible assets related to our 2021 and 2022 acquisitions.

Ancillary Operations

Ancillary revenues and expenses include amounts associated with the reinsurance of policies against losses to goods stored by tenants in our self-storage facilities, sale of merchandise at our self-storage facilities, and management of property owned by unrelated third parties. The following table sets forth our ancillary operations:

									Three Months Ended March 31,
																					2023						2022						Change
																					(Amounts in thousands)
Revenues:
Tenant reinsurance premiums																					$	49,298					$	45,195					$	4,103
Merchandise																					6,820						6,871						(51)
Third party property management																					5,930						4,364						1,566
Total revenues																					62,048						56,430						5,618
Cost of operations:
Tenant reinsurance																					9,572						7,277						2,295
Merchandise																					4,213						3,904						309
Third party property management																					5,891						4,334						1,557
Total cost of operations																					19,676						15,515						4,161
Net operating income:
Tenant reinsurance																					39,726						37,918						1,808
Merchandise																					2,607						2,967						(360)
Third party property management																					39						30						9
Total net operating income																					$	42,372					$	40,915					$	1,457

Tenant reinsurance operations: Tenant reinsurance premium revenue increased $4.1 million or 9.1% in the three months ended March 31, 2023 over the same period in 2022, as a result of an increase in our tenant base with respect to acquired, newly developed, and expanded facilities and the third party properties we manage. Tenant reinsurance premium revenue generated from tenants at our Same-Store Facilities were $37.1 million and $35.8 million in the three months ended March 31, 2023 and 2022, respectively, representing a 3.6% increase.

We expect future growth will come primarily from customers of newly acquired and developed facilities, as well as additional tenants at our existing unstabilized self-storage facilities.

Cost of operations primarily includes claims paid as well as claims adjustment expenses. Claims expenses vary based upon the number of insured tenants and the volume of events that drive covered customer losses, such as burglary, as well as catastrophic weather events affecting multiple properties such as hurricanes and floods.

Merchandise sales: Sales of locks, boxes, and packing supplies at our self-storage facilities are primarily impacted by the level of move-ins and other customer traffic at our self-storage facilities. We do not expect any significant changes in revenues or profitability from our merchandise sales in the remainder of 2023.

Third-party property management: At March 31, 2023, in our third-party property management program, we managed 116 facilities for unrelated third parties, and were under contract to manage 77 additional facilities including 71 facilities that are currently under construction. During the three months ended March 31, 2023, we added seven facilities to the program and had six properties exit the program due to sales to other buyers. While we expect this business to increase in scope and size, we do not expect any significant changes in overall profitability of this business in the near term as we seek new properties to manage and are in the earlier stages of fill-up for newly managed properties.

Analysis of items not allocated to segments

Equity in earnings of unconsolidated real estate entities

We account for the equity investments in PSB (prior to the sale of our investment in PSB) and Shurgard using the equity method and record our pro-rata share of the net income of these entities. The following table, and the discussion below, sets forth our equity in earnings of unconsolidated real estate entities:

									Three Months Ended March 31,
																					2023						2022						Change
																					(Amounts in thousands)
Equity in earnings:
PSB																					$	—					$	36,886					$	(36,886)
Shurgard																					5,995						6,538						(543)
Total equity in earnings																					$	5,995					$	43,424					$	(37,429)

Investment in PSB: On July 20, 2022, in connection with the closing of the merger of PSB with Blackstone, we completed the sale of our 41% common equity interest in PSB in its entirety. 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 during the third quarter of 2022.

Since the sale of PSB in July 2022, we no longer recognize equity in earnings from PSB. Included in our equity earnings from PSB for the three months ended March 31, 2022 is our equity share of gains on sale of real estate totaling $23.6 million. Our equity share of earnings from PSB contributed $25.5 million to Core FFO in the three months ended March 31, 2022.

Investment in Shurgard: For purposes of recording our equity in earnings from Shurgard, the Euro was translated at exchange rates of approximately 1.088 U.S. Dollars per Euro at March 31, 2023 (1.070 at December 31, 2022), and average exchange rates of 1.073 and 1.122 for the three months ended March 31, 2023 and 2022, respectively. Included in our equity in earnings from Shurgard were $8.5 million and $8.3 million of our share of depreciation and amortization expense for the three months ended March 31, 2023 and 2022, respectively.

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

									Three Months Ended March 31,
																					2023						2022						Change
																					(Amounts in thousands)
Share-based compensation expense																					$	5,604					$	8,798					$	(3,194)
Development and acquisition costs																					5,157						2,840						2,317
Federal and State tax expense and related compliance costs																					3,316						2,734						582
Legal costs																					581						240						341
Corporate management costs																					6,737						5,846						891
Other costs																					4,149						2,611						1,538
Total																					$	25,544					$	23,069					$	2,475

Interest and other income: The following table sets forth our interest and other income:

									Three Months Ended March 31,
																					2023						2022						Change
																					(Amounts in thousands)
Interest earned on cash balances																					$	11,859					$	136					$	11,723
Commercial operations																					2,383						2,082						301
Unrealized gain on private equity investments																					2,218						—						2,218
Other																					2,174						1,161						1,013
Total																					$	18,634					$	3,379					$	15,255

Interest expense: For the three months ended March 31, 2023 and 2022, we incurred $37.8 million and $34.3 million, respectively, of interest on our outstanding notes payable. In determining interest expense, these amounts were offset by capitalized interest of $1.7 million and $1.2 million during the three months ended March 31, 2023 and 2022, respectively, associated with our development activities. The increase of interest expense in the three months ended March 31, 2023 as compared to the same period in 2022 is due to the increase of Compounded Secured Overnight Financing Rate (“SOFR”) on our $700.0 million variable rate unsecured notes, partially offset by the interest savings on the $500.0 million unsecured notes redeemed in August 2022. At March 31, 2023, we had $6.9 billion of notes payable outstanding, with a weighted average interest rate of approximately 2.2%.

Foreign Currency Exchange (Loss) Gain: For the three months ended March 31, 2023 and 2022, we recorded foreign currency losses of $26.9 million and gains of $35.4 million, respectively, representing primarily the changes in the U.S. Dollar equivalent of our Euro-denominated unsecured notes due to fluctuations in exchange rates. The Euro was translated at exchange rates of approximately 1.088 U.S. Dollars per Euro at March 31, 2023, 1.070 at December 31, 2022, 1.111 at March 31, 2022, and 1.134 at December 31, 2021. Future gains and losses on foreign currency will be dependent upon changes in the relative value of the Euro to the U.S. Dollar and the level of Euro-denominated notes payable outstanding.

Liquidity and Capital Resources

Overview and our Sources of Capital

While operating as a REIT allows us to minimize the payment of U.S. federal corporate income tax expense, we are required to distribute at least 90% of our taxable income to our shareholders. Notwithstanding this requirement, our annual operating retained cash flow increased from $200 million to $300 million per year in recent years to approximately $700 million in 2021 and $1 billion in 2022. Retained operating cash flow represents our expected cash flow provided by operating activities (including property operating costs and interest payments described below), less shareholder distributions and capital expenditures. We expect retained cash flow of approximately $400 million for 2023.

Capital needs in excess of retained cash flow are met with: (i) medium and long-term debt, (ii) preferred equity, and (iii) common equity. We select among these sources of capital based upon relative cost, availability, the desire for leverage, and considering potential constraints caused by certain features of capital sources, such as debt covenants. We view our line of credit, as well as any short-term bank loans, as bridge financing.

Because raising capital is important to our growth, we endeavor to maintain a strong financial profile characterized by strong credit metrics, including low leverage relative to our total capitalization and operating cash flows. We are one of the highest rated REITs, as rated by major rating agencies Moody’s and Standard & Poor’s. Our senior notes payable have an “A” credit rating by Standard & Poor’s and “A2” by Moody’s. Our credit ratings on each of our series of preferred shares are “A3” by Moody’s and “BBB+” by Standard & Poor’s. Our credit profile enables us to effectively access both the public and private capital markets to raise capital.

We have a $500.0 million revolving line of credit that we are able to use as temporary “bridge” financing until we are able to raise longer term capital. As of March 31, 2023 and May 3, 2023, there were no borrowings outstanding on the revolving line of credit; however, we do have approximately $19.4 million of outstanding letters of credit, which limits our borrowing capacity to $480.6 million as of May 3, 2023. Our line of credit matures on April 19, 2024.

We believe that we have significant financial flexibility to adapt to changing conditions and opportunities, and we have significant access to sources of capital including debt and preferred equity. While the costs of financing have increased recently, based on our strong credit profile and our substantial current liquidity relative to our capital requirements noted below, we would not expect any potential capital market dislocations to have a material impact upon our expected capital and growth plans over the next 12 months. However, if capital market conditions deteriorated significantly for a long period of time, our access to or cost of debt and preferred equity capital could be negatively impacted and potentially affect future investment activities.

Our current and expected capital resources include: (i) $695.4 million of cash as of March 31, 2023 and (ii) approximately $400.0 million of expected retained operating cash flow over the next twelve months. We believe that our cash provided by our operating activities will continue to be sufficient to enable us to meet our ongoing cash requirements for interest payments on debt, maintenance capital expenditures, and distributions to our shareholders for the foreseeable future.

As described below, our current committed cash requirements consist of (i) $139.0 million in property acquisitions currently under contract, (ii) $648.6 million of remaining spending on our current development pipeline, which will be incurred primarily in the next 18 to 24 months, and (iii) $8.2 million in scheduled principal repayments on our mortgage notes in the next twelve months. We have no principal payments on unsecured notes until April 2024. Our cash requirements may increase over the next year as we add projects to our development pipeline and acquire additional properties. Additional potential cash requirements could result from various activities including the redemption of outstanding preferred securities, repurchases of common stock, or merger and acquisition activities, as and to the extent we determine to engage in such activities.

Over the long term, to the extent that our cash requirements exceed our capital resources, we believe we have a variety of possibilities to raise additional capital including issuing common or preferred securities, issuing debt, or entering into joint venture arrangements to acquire or develop facilities.

Cash Requirements

The following summarizes our expected material cash requirements, which comprise (i) contractually obligated expenditures, including payments of principal and interest, (ii) other essential expenditures, including property operating expenses, maintenance capital expenditures and dividends paid in accordance with REIT distribution requirements, and (iii) opportunistic expenditures, including acquisitions and developments and repurchases of our securities. We expect to satisfy these cash requirements through operating cash flow and opportunistic debt and equity financings.

Required Debt Repayments: As of March 31, 2023, the principal outstanding on our debt totaled approximately $6.9 billion, consisting of $10.0 million of secured notes payable, $1.7 billion of Euro-denominated unsecured notes payable and $5.3 billion of U.S. Dollar denominated unsecured notes payable. Approximate principal maturities and interest payments (including $44.5 million estimated interests on $700 million variable rate unsecured notes) are as follows (amounts in thousands):

			Principal						Interest						Total
Remainder of 2023			$	8,141					$	111,444					$	119,585
2024			808,903						128,998						937,901
2025			263,390						108,578						371,968
2026			1,150,138						101,402						1,251,540
2027			500,140						87,639						587,779
Thereafter			4,206,633						163,867						4,370,500
			$	6,937,345					$	701,928					$	7,639,273

Capital Expenditure Requirements: Capital expenditures include general maintenance, major repairs, or replacements to elements of our facilities to keep our facilities in good operating condition and maintain their visual appeal. Capital expenditures do not include costs relating to the development of new facilities or redevelopment of existing facilities to increase their available rentable square footage.

Capital expenditures totaled $93.7 million in the first three months of 2023 and are expected to approximate $450 million in 2023. In addition to standard capital repairs of building elements reaching the end of their useful lives, our capital expenditures in recent years have included incremental expenditures to enhance the competitive position of certain of our facilities relative to local competitors pursuant to a multi-year program. Such investments include development of more pronounced, attractive, and clearly identifiable color schemes and signage and upgrades to the configuration and layout of the offices and other customer zones to improve the customer experience. We spent approximately $32 million in the first three months of 2023 and expect to spend $160 million in 2023 on this effort. In addition, we have made investments in LED lighting and the installation of solar panels, which approximated $9 million for the three months ended March 31, 2023 and we expect to spend $132 million in 2023.

We believe that these incremental investments improve customer satisfaction, the attractiveness and competitiveness of our facilities to new and existing customers and, in the case of LED lighting and solar panels, reduce operating costs.

Requirement to Pay Distributions: For all periods presented herein, we have elected to be treated as a REIT, as defined in the Code. For each taxable year in which we qualify for taxation as a REIT, we will not be subject to U.S. federal corporate income tax on our “REIT taxable income” (generally, taxable income subject to specified adjustments, including a deduction for dividends paid and excluding our net capital gain) that is distributed to our shareholders. We believe we have met these requirements in all periods presented herein, and we expect to continue to qualify as a REIT.

On May 2, 2023, our Board declared a regular common quarterly dividend of $3.00 per common share totaling approximately $526 million, which will be paid at the end of June 2023. This represented a 50% increase in the $2.00 per common share quarterly dividend paid during 2022. Our consistent, long-term dividend policy has been to distribute our taxable income. Future quarterly distributions with respect to the common shares will continue to be determined based upon our REIT distribution requirements after taking into consideration distributions to the preferred shareholders and will be funded with cash flows from operating activities.

The annual distribution requirement with respect to our preferred shares outstanding at March 31, 2023 is approximately $194.7 million per year.

Real Estate Investment Activities: We continue to seek to acquire additional self-storage facilities from third parties. Subsequent to March 31, 2023, we acquired or were under contract to acquire 12 self-storage facilities for a total purchase price of $139.0 million.

We are actively seeking to acquire additional facilities. However, future acquisition volume will depend upon whether additional owners will be motivated to market their facilities, which will in turn depend upon factors such as economic conditions and the level of seller confidence.

As of March 31, 2023, we had development and expansion projects at a total cost of approximately $1.0 billion. Costs incurred through March 31, 2023 were $377.3 million, with the remaining cost to complete of $648.6 million expected to be incurred primarily in the next 18 to 24 months. Some of these projects are subject to contingencies such as entitlement approval. We expect to continue to seek to add projects to maintain and increase our robust pipeline. Our ability to do so continues to be challenged by various constraints such as difficulty in finding projects that meet our risk-adjusted yield expectations and challenges in obtaining building permits for self-storage facilities in certain municipalities.

Property Operating Expenses: The direct and indirect cost of our operations impose significant cash requirements. Direct operating costs include property taxes, on-site property manager payroll, repairs and maintenance, utilities, and marketing. Indirect operating costs include supervisory payroll and centralized management costs. The cash requirements from these operating costs will vary year to year based on, among other things, changes in the size of our portfolio and changes in property tax rates and assessed values, wage rates, and marketing costs in our markets.

Redemption of Preferred Securities: Historically, we have taken advantage of refinancing higher coupon preferred securities with lower coupon preferred securities. In the future, we may also elect to finance the redemption of preferred securities with proceeds from the issuance of debt. As of May 3, 2023, we have two series of preferred securities that are eligible for redemption, at our option and with 30 days’ notice: our 5.150% Series F Preferred Shares ($280.0 million) and our 5.050% Series G Preferred Shares ($300.0 million). See Note 9 to our March 31, 2023 consolidated financial statements for the redemption dates of all of our series of preferred shares. Redemption of such preferred shares will depend upon many factors, including the rate at which we could issue replacement preferred securities. None of our preferred securities are redeemable at the option of the holders.

Repurchases of Common Shares: Our Board has authorized management to repurchase up to 35,000,000 of our common shares on the open market or in privately negotiated transactions. During three months ended March 31, 2023, we did not repurchase any of our common shares. From the inception of the repurchase program through May 3, 2023, we have repurchased a total of 23,721,916 common shares at an aggregate cost of approximately $679.1 million. Future levels of common share repurchases will be dependent upon our available capital, investment alternatives and the trading price of our common shares.