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, 2023

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						93-2834996
(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
Guarantee of 0.875% Senior Notes due 2032 issued by Public Storage Operating Company						PSA/32						New York Stock Exchange
Guarantee of 0.500% Senior Notes due 2030 issued by Public Storage Operating Company						PSA/30						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 23, 2023:

Common Shares of beneficial interest, $0.10 par value per share – 175,836,162 shares

EXPLANATORY NOTE

On August 14, 2023, the registrant completed a corporate reorganization into a holding company structure commonly referred to as an umbrella partnership real estate investment trust, or UPREIT (the “Reorganization”). The Reorganization is described more fully below. For purposes of this Explanatory Note, we refer to the following entities:

• “Old PSA” is a Maryland real estate investment trust currently known as Public Storage Operating Company (“PSOC”). Prior to August 14, 2023, Old PSA was known as Public Storage.

• “New PSA” is a newly-formed Maryland real estate investment trust currently known as Public Storage. It was organized as the parent holding company in connection with the Reorganization.

• “PSOP GP” is PSOP GP, LLC, a newly-formed Delaware limited liability company organized as the general partner of PSA OP in connection with the Reorganization. This entity is wholly-owned by New PSA.

• “PSA OP” is Public Storage OP, L.P., a newly-formed Delaware limited partnership organized as the operating partnership in connection with the Reorganization. This entity is currently wholly-owned by PSOP GP, its general partner, and New PSA, its limited partner, and it wholly owns Old PSA.

Prior to August 14, 2023, the business of the registrant was conducted through Old PSA. As a result of the Reorganization, Old PSA became an indirectly wholly owned subsidiary of New PSA. Old PSA is wholly-owned by PSA OP. New PSA currently owns all the limited partnership interest of PSA OP and all the membership interest of PSA OP’s general partner, PSOP GP. In connection with the Reorganization, (i) each outstanding common share and depository receipt underlying preferred share of Old PSA was converted into one equivalent common share or depository receipt underlying preferred share of New PSA with identical rights and terms, and such securities continued to trade on the NYSE under the same ticker symbol, (ii) Old PSA’s name was changed to “Public Storage Operating Company” and New PSA inherited the name “Public Storage”, and (iii) New PSA became the successor filer to Old PSA for Securities and Exchange Commission (“SEC”) reporting purposes. The consolidated assets and liabilities of New PSA immediately following the Reorganization are identical to the consolidated assets and liabilities of Old PSA immediately prior to the Reorganization, and the officers and trustees of New PSA immediately following the Reorganization are identical to the officers and trustees of Old PSA immediately prior to the Reorganization. All material indebtedness of Old PSA immediately prior to the Reorganization remained indebtedness of Old PSA after the Merger. New PSA has provided a full and unconditional guarantee of Old PSA’s obligations under its unsecured notes, its credit facility, and certain other indebtedness. For additional information on the Reorganization, please see our Current Reports on Form 8-K filed on August 2, 2023 and August 14, 2023.

Throughout this Quarterly Report, unless the context requires otherwise:

• the “Company,” “we,” “us” and “our” refer to:

◦for the period prior to August 14, 2023 (the period preceding the Reorganization), Old PSA and its business and operations conducted through its directly or indirectly owned subsidiaries;

◦for the period on or after August 14, 2023 (the period from and following the Reorganization), New PSA and its business and operations conducted through its directly or indirectly owned subsidiaries, including Old PSA; and

◦in statements regarding qualification as a real estate investment trust (“REIT”), such terms refer solely to Old PSA or New PSA, as applicable.

• References to “shares” and “shareholders” refer to the shares and shareholders of Old PSA prior to August 14, 2023 and of New PSA on or after August 14, 2023.

PUBLIC STORAGE

INDEX

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

PUBLIC STORAGE

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

			September 30, 2023						December 31, 2022
			(Unaudited)
ASSETS
Cash and equivalents			$	629,773					$	775,253
Real estate facilities, at cost:
Land			5,575,643						5,273,073
Buildings			21,421,031						18,946,053
			26,996,674						24,219,126
Accumulated depreciation			(9,188,151)						(8,554,155)
			17,808,523						15,664,971
Construction in process			457,064						372,992
			18,265,587						16,037,963
Investments in unconsolidated real estate entities			278,131						275,752
Goodwill and other intangible assets, net			414,291						232,517
Other assets			287,967						230,822
Total assets			$	19,875,749					$	17,552,307
LIABILITIES AND EQUITY
Notes payable			$	9,029,622					$	6,870,826
Accrued and other liabilities			644,236						514,680
Total liabilities			9,673,858						7,385,506
Commitments and contingencies (Note 15)
Equity:
Public Storage shareholders’ equity:
Preferred Shares, $0.01 par value, 100,000,000 shares authorized, 174,000 shares issued (in series) and outstanding, (174,000 shares at December 31, 2022) at liquidation preference			4,350,000						4,350,000
Common Shares, $0.10 par value, 650,000,000 shares authorized, 175,501,315 shares issued and outstanding (175,265,668 shares at December 31, 2022)			17,550						17,527
Paid-in capital			5,951,794						5,896,423
Accumulated deficit			(130,581)						(110,231)
Accumulated other comprehensive loss			(81,104)						(80,317)
Total Public Storage shareholders’ equity			10,107,659						10,073,402
Noncontrolling interests			94,232						93,399
Total equity			10,201,891						10,166,801
Total liabilities and equity			$	19,875,749					$	17,552,307

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,
			2023						2022						2023						2022
Revenues:
Self-storage facilities			$	1,078,721					$	1,027,374					$	3,167,025					$	2,917,675
Ancillary operations			65,099						60,757						190,797						175,946
			1,143,820						1,088,131						3,357,822						3,093,621
Expenses:
Self-storage cost of operations			267,785						255,470						794,078						738,953
Ancillary cost of operations			21,159						21,572						63,037						54,297
Depreciation and amortization			238,748						220,772						682,531						661,608
General and administrative			28,625						29,501						79,603						81,401
Interest expense			58,350						34,113						132,530						100,178
			614,667						561,428						1,751,779						1,636,437
Other increases to net income:
Interest and other income			32,295						12,736						69,381						26,394
Equity in earnings of unconsolidated real estate entities			7,227						8,180						22,787						100,129
Foreign currency exchange gain			47,880						100,170						19,924						237,270
Gain on sale of real estate			88						1,503						88						1,503
Gain on sale of equity investment in PS Business Parks, Inc.			—						2,128,860						—						2,128,860
Net income			616,643						2,778,152						1,718,223						3,951,340
Allocation to noncontrolling interests			(3,345)						(9,158)						(9,188)						(14,553)
Net income allocable to Public Storage shareholders			613,298						2,768,994						1,709,035						3,936,787
Allocation of net income to:
Preferred shareholders			(48,678)						(48,678)						(146,029)						(145,716)
Restricted share units			(1,383)						(8,155)						(3,922)						(11,405)
Net income allocable to common shareholders			$	563,237					$	2,712,161					$	1,559,084					$	3,779,666
Net income per common share:
Basic			$	3.21					$	15.47					$	8.89					$	21.57
Diluted			$	3.20					$	15.38					$	8.85					$	21.44
Basic weighted average common shares outstanding			175,499						175,283						175,451						175,227
Diluted weighted average common shares outstanding			176,150						176,328						176,170						176,325

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Net income			$	616,643					$	2,778,152					$	1,718,223					$	3,951,340
Foreign currency translation loss on investment in Shurgard			(5,958)						(17,253)						(787)						(42,883)
Total comprehensive income			610,685						2,760,899						1,717,436						3,908,457
Allocation to noncontrolling interests			(3,345)						(9,158)						(9,188)						(14,553)
Comprehensive income allocable to Public Storage shareholders			$	607,340					$	2,751,741					$	1,708,248					$	3,893,904

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Three Months Ended September 30, 2023

(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
Balances at June 30, 2023			$	4,350,000					$	17,549					$	5,940,945					$	(167,404)					$	(75,146)					$	10,065,944					$	92,627					$	10,158,571
Issuance of common shares in connection with share-based compensation (8,429 shares)			—						1						1,105						—						—						1,106						—						1,106
Taxes withheld upon net share settlement of restricted share units			—						—						(644)						—						—						(644)						—						(644)
Share-based compensation expense			—						—						10,388						—						—						10,388						—						10,388
Contributions by noncontrolling interests			—						—						—						—						—						—						1,908						1,908
Net income			—						—						—						616,643						—						616,643						—						616,643
Net income allocated to noncontrolling interests			—						—						—						(3,345)						—						(3,345)						3,345						—
Distributions to:
Preferred shareholders (Note 10)			—						—						—						(48,678)						—						(48,678)						—						(48,678)
Noncontrolling interests			—						—						—						—						—						—						(3,648)						(3,648)
Common shareholders and restricted share unitholders ($3.00 per share) (Note 10)			—						—						—						(527,797)						—						(527,797)						—						(527,797)
Other comprehensive loss			—						—						—						—						(5,958)						(5,958)						—						(5,958)
Balances at September 30, 2023			$	4,350,000					$	17,550					$	5,951,794					$	(130,581)					$	(81,104)					$	10,107,659					$	94,232					$	10,201,891

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			—						—						—						(48,678)						—						(48,678)						—						(48,678)						—
Noncontrolling interests			—						—						—						—						—						—						(9,756)						(9,756)						—
Common shareholders and restricted share unitholders ($15.15 per share)			—						—						—						(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

Nine Months Ended September 30, 2023

(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
Balances at December 31, 2022			$	4,350,000					$	17,527					$	5,896,423					$	(110,231)					$	(80,317)					$	10,073,402					$	93,399					$	10,166,801
Issuance of common shares in connection with share-based compensation (235,647 shares) (Note 12)			—						23						31,267						—						—						31,290						—						31,290
Taxes withheld upon net share settlement of restricted share units (Note 12)			—						—						(10,040)						—						—						(10,040)						—						(10,040)
Share-based compensation cost (Note 12)			—						—						34,144						—						—						34,144						—						34,144
Contributions by noncontrolling interests			—						—						—						—						—						—						2,641						2,641
Net income			—						—						—						1,718,223						—						1,718,223						—						1,718,223
Net income allocated to noncontrolling interests			—						—						—						(9,188)						—						(9,188)						9,188						—
Distributions to:
Preferred shareholders (Note 10)			—						—						—						(146,029)						—						(146,029)						—						(146,029)
Noncontrolling interests			—						—						—						—						—						—						(10,996)						(10,996)
Common shareholders and restricted share unitholders ($9.00 per share) (Note 10)			—						—						—						(1,583,356)						—						(1,583,356)						—						(1,583,356)
Other comprehensive loss			—						—						—						—						(787)						(787)						—						(787)
Balances at September 30, 2023			$	4,350,000					$	17,550					$	5,951,794					$	(130,581)					$	(81,104)					$	10,107,659					$	94,232					$	10,201,891

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			250,000						—						(7,168)						—						—						242,832						—						242,832						—
Issuance of common shares in connection with share-based compensation (201,997 shares)			—						21						27,994						—						—						28,015						—						28,015						—
Taxes withheld upon net settlement of restricted share units			—						—						(12,989)						—						—						(12,989)						—						(12,989)						—
Share-based compensation cost			—						—						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			—						—						—						(145,716)						—						(145,716)						—						(145,716)						—
Noncontrolling interests			—						—						—						—						—						—						(30,944)						(30,944)						(509)
Common shareholders and restricted share unitholders ($19.15 per share)			—						—						—						(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 CASH FLOWS

(Amounts in thousands)

(Unaudited)

			For the Nine Months Ended September 30,
			2023						2022
Cash flows from operating activities:
Net income			$	1,718,223					$	3,951,340
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			(88)						(1,503)
Depreciation and amortization			682,531						661,608
Equity in earnings of unconsolidated real estate entities			(22,787)						(100,129)
Distributions from cumulative equity in earnings of unconsolidated real estate entities			17,663						134,460
Unrealized foreign currency exchange gain			(19,937)						(236,698)
Share-based compensation expense			31,309						44,597
Other non-cash adjustments			10,205						6,213
Changes in operating assets and liabilities, excluding the impact of acquisitions:
Other assets			(40,719)						(41,123)
Accrued and other liabilities			78,564						90,885
Net cash flows from operating activities			2,454,964						2,380,790
Cash flows from investing activities:
Capital expenditures to maintain real estate facilities			(157,967)						(163,702)
Capital expenditures for property enhancements			(119,360)						(137,550)
Capital expenditures for energy efficiencies (LED lighting, solar)			(45,772)						(36,644)
Development and expansion of real estate facilities			(248,977)						(231,483)
Acquisition of real estate facilities and intangible assets			(301,324)						(529,357)
Acquisition of BREIT Simply Storage LLC, net of cash acquired			(2,178,151)						—
Distributions in excess of cumulative equity in earnings from unconsolidated real estate entities			3,165						13,670
Proceeds from sale of real estate investments			101						1,543
Proceeds from sale of equity investment in PS Business Parks, Inc.			—						2,636,011
Net cash flows (used in) from investing activities			(3,048,285)						1,552,488
Cash flows from financing activities:
Issuance costs on amendment of credit facility			(8,377)						—
Repayments of notes payable			(8,229)						(502,270)
Issuance of notes payable, net of issuance costs			2,181,273						—
Issuance of preferred shares			—						242,832
Issuance of common shares in connection with share-based compensation			31,099						27,913
Taxes paid upon net share settlement of restricted share units			(10,040)						(12,989)
Contributions by noncontrolling interests			2,641						1,659
Distributions paid to preferred shareholders, common shareholders and restricted share unitholders			(1,728,852)						(3,508,581)
Distributions paid to noncontrolling interests			(10,996)						(31,453)
Net cash flows from (used) in financing activities			448,519						(3,782,889)
Net (decrease) increase in cash and equivalents, including restricted cash			$	(144,802)					$	150,389

See accompanying notes.

PUBLIC STORAGE

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

			For the Nine Months Ended September 30,
			2023						2022
Cash and equivalents, including restricted cash at beginning of the period:
Cash and equivalents			$	775,253					$	734,599
Restricted cash included in other assets			29,904						26,691
			$	805,157					$	761,290
Cash and equivalents, including restricted cash at end of the period:
Cash and equivalents			$	629,773					$	883,787
Restricted cash included in other assets			30,582						27,892
			$	660,355					$	911,679
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			$	(10,405)					$	(6,429)
Capital expenditures for property enhancements			(4,637)						(6,829)
Capital expenditures for energy efficiencies (LED lighting, solar)			(574)						(996)
Construction or expansion of real estate facilities			(66,788)						(71,006)
Real estate acquired in exchange for noncontrolling interests			—						(19,865)

See accompanying notes.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

1.Description of the Business

Public Storage (referred to herein as “the Company,” “we,” “us,” or “our”) is a Maryland real estate investment trust (“REIT”) engaged in 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.

As described in greater detail in the Explanatory Note to this Quarterly Report on Form 10-Q, on August 14, 2023, the Company completed a reorganization in which its interest in its facilities is now held through an operating partnership, Public Storage OP, L.P. (“PSA OP”) and its subsidiaries including Public Storage Operating Company (“PSOC”), formerly known as Public Storage. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT. The reorganization was accounted for as a transaction between entities under common control and there was no change in the Company’s total assets, liabilities or results of operations. Subsequent to the reorganization, the primary assets of the parent entity, Public Storage, are general partner and limited partner interests in PSA OP, which holds all of the Company’s assets through its ownership of all of the membership interests in PSOC. As a limited partnership, PSA OP is a variable interest entity and is consolidated by the Company as its primary beneficiary. As of September 30, 2023, the Company owned all of the limited partnership interests of PSA OP.

At September 30, 2023, we owned equity interests in 3,028 self-storage facilities (with approximately 216.5 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, 2023, we owned a 35% common equity interest in Shurgard Self Storage Limited (“Shurgard”), a public company traded on the Euronext Brussels under the “SHUR” symbol, which owned 267 self-storage facilities (with approximately 15 million net rentable square feet) located in seven Western European countries, all operating under the Shurgard® name.

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, 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, 2022.

Certain amounts previously reported in our September 30, 2022 Statements of Cash Flows have been reclassified to conform to the September 30, 2023 presentation, with respect to the separate presentation of changes in operating assets and liabilities in the cash flows from operating activities section and major types of capital expenditures in the cash flows from investing activities section. The reclassifications did not affect the subtotals for cash flows from operating, investing or financing activities.

Disclosures of the number and square footage of facilities, as well as the number and coverage of tenant reinsurance policies (Note 15) 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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

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, 2022.

3.Simply Acquisition

On September 13, 2023, we acquired all the membership interests of BREIT Simply Storage LLC, a self-storage company that owns and operates 127 self-storage facilities (9.4 million net rentable square feet) and manages 25 self-storage facilities for third parties, for a purchase price of $2.2 billion in cash, including cash acquired of $6.0 million and direct transaction costs of $9.6 million (the “Simply Acquisition”).

We accounted for the Simply Acquisition as an asset acquisition because substantially all the fair value of the gross assets acquired is concentrated in the real estate assets and intangible assets associated with the self-storage facilities, which are determined to be similar in nature. As a result, the direct transaction costs of $9.6 million were capitalized to the basis of the acquired properties.

The total purchase price was allocated to the individual assets acquired and liabilities assumed based on their relative fair values. The total purchase price, including direct transaction costs, was allocated as follows (in thousands):

Cash			$	6,032
Real estate facilities:
Land			229,396
Buildings			1,762,752
Construction in process			2,922
Intangible assets:
Acquired customers in place			209,516
Non real estate-related contracts			4,750
Other assets			12,046
Accrued and other liabilities			(43,231)
Total purchase price, including direct transaction costs			$	2,184,183

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

4.Real Estate Facilities

Activity in real estate facilities during the nine months ended September 30, 2023 is as follows:

			Nine Months Ended September 30, 2023
			(Amounts in thousands)
Operating facilities, at cost:
Beginning balance			$	24,219,126
Capital expenditures to maintain real estate facilities			153,120
Capital expenditures for property enhancements			124,298
Capital expenditures for energy efficiencies (LED lighting, solar)			46,357
Acquisitions			2,284,590
Dispositions and other			(3,461)
Developed or expanded facilities opened for operation			172,644
Ending balance			26,996,674
Accumulated depreciation:
Beginning balance			(8,554,155)
Depreciation expense			(636,631)
Dispositions and other			2,635
Ending balance			(9,188,151)
Construction in process:
Beginning balance			372,992
Costs incurred to develop and expand real estate facilities			257,527
Acquisitions			2,922
Write-off of cancelled projects			(3,733)
Developed or expanded facilities opened for operation			(172,644)
Ending balance			457,064
Total real estate facilities at September 30, 2023			$	18,265,587

During the nine months ended September 30, 2023, in addition to the Simply Acquisition, we acquired 26 self-storage facilities (1.9 million net rentable square feet of storage space), for a total cost of $301.3 million in cash. Approximately $8.9 million of the total cost was allocated to intangible assets.

We completed development and redevelopment activities costing $172.6 million during the nine months ended September 30, 2023, adding 0.9 million net rentable square feet of self-storage space. Construction in process at September 30, 2023 consisted of projects to develop new self-storage facilities and expand existing self-storage facilities.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

5.Investments in Unconsolidated Real Estate Entities

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

			Equity in Earnings of Unconsolidated Real Estate Entities for the
			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Shurgard			$	7,227					$	4,594					$	22,787					$	19,533
PSB			—						3,586						—						80,596
Total			$	7,227					$	8,180					$	22,787					$	100,129

Investment in Shurgard

Our investment in Shurgard was $278.1 million and $275.8 million as of September 30, 2023 and December 31, 2022, respectively.

Throughout all periods presented, we effectively owned 31,268,459 Shurgard common shares, representing a 35% equity interest in Shurgard.

Based upon the closing price at September 30, 2023 (€37.50 per share of Shurgard common stock, at 1.057 exchange rate of U.S. Dollars to the Euro), the shares we owned had a market value of approximately $1.2 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). During the nine months ended September 30, 2023 and 2022, we received $2.8 million and $2.6 million of trademark license fees that Shurgard pays to us for the use of the Shurgard® trademark, respectively. We eliminated $1.0 million and $0.9 million of intra-entity profits and losses for the nine months ended September 30, 2023 and 2022, respectively, representing our equity share of the trademark license fees. We classify the remaining license fees we receive from Shurgard as interest and other income on our income statement.

During the nine months ended September 30, 2023 and 2022, we received cash dividend distributions from Shurgard totaling $19.8 million and $37.8 million, respectively. Approximately $3.2 million and $13.7 million of total cash distributions from Shurgard during the nine months ended September 30, 2023 and 2022, 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, 2023, our investment in Shurgard’s real estate assets exceeded our pro-rata share of the underlying amounts on Shurgard’s balance sheet by approximately $63.2 million ($67.8 million at December 31, 2022). 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 $4.6 million and $9.0 million during the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023 and 2022, we translated the book value of our investment in Shurgard from Euro to U.S. Dollars and recorded $0.8 million and $42.9 million other comprehensive loss during the nine months ended September 30, 2023 and 2022, respectively.

Investment in PSB

On July 20, 2022, in connection with the closing of the merger of PS Business Parks, Inc. (“PSB”) with affiliates of Blackstone Real Estate (“Blackstone”), we completed the sale of our 41% common equity interest in PSB in its entirety. 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.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

During the nine months ended September 30, 2022, we received cash distributions from PSB totaling $109.5 million, which were classified within cash flows from operating activities in the Consolidated Statements of Cash flows. Since the sale of PSB in July 2022, we no longer recognize equity in earnings or receive cash distributions from PSB.

6.Goodwill and Other Intangible Assets

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

			At September 30, 2023																		At December 31, 2022
			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			981,254						(751,630)						229,624						758,106						(710,256)						47,850
Total goodwill and other intangible assets			$	1,165,921					$	(751,630)					$	414,291					$	942,773					$	(710,256)					$	232,517

Finite-lived intangible assets consist primarily of acquired customers in place. Amortization expense related to intangible assets subject to amortization was $16.0 million and $41.4 million for the three and nine months ended September 30, 2023, respectively, and $20.0 million and $78.2 million for the same periods in 2022. During the nine months ended September 30, 2023, intangibles increased $223.1 million, in connection with the Simply Acquisition (Note 3) and the acquisition of real estate facilities (Note 4).

The estimated future amortization expense for our finite-lived intangible assets at September 30, 2023 is as follows (amounts in thousands):

Year						Amount
Remainder of 2023						$	39,491
2024						108,871
2025						56,693
2026						18,013
2027						2,687
Thereafter						3,869
Total						$	229,624

7.Credit Facility

On June 12, 2023, PSOC entered into an amended revolving credit agreement (the “Credit Facility”), which increases our borrowing limit from $500 million to $1.5 billion and extends the maturity date from April 19, 2024 to June 12, 2027. We have the option to further extend the maturity date by up to one additional year with additional extension fees up to 0.125% of the extended commitment amount. Amounts drawn on the Credit Facility bear annual interest at rates ranging from SOFR plus 0.65% to SOFR plus 1.40% depending upon our credit rating (SOFR plus 0.70% at September 30, 2023). We are also required to pay a quarterly facility fee ranging from 0.10% per annum to 0.30% per annum depending upon our credit rating (0.10% per annum at September 30, 2023). At September 30, 2023 and October 30, 2023, we had no outstanding borrowings under this Credit Facility. We had undrawn standby letters of credit, which reduce our borrowing capacity, totaling $14.6 million at September 30, 2023 ($18.6 million at December 31, 2022 under the previous credit facility). The Credit Facility has various customary restrictive covenants with which we were in compliance at September 30, 2023. We incurred a total of $8.4 million of issuance costs associated with the amended Credit Facility, which is classified as Other Assets on the Consolidated Balance Sheets and will be amortized as Interest Expense on the Consolidated Statement of Income through June 12, 2027.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

Public Storage has provided a full and unconditional guarantee of PSOC’s obligations under the Credit Facility.

8.Notes Payable

Our notes payable (all of which were issued by PSOC), 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, 2023 and December 31, 2022 are set forth in the tables below:

															Amounts at September 30, 2023																								Amounts at December 31, 2022
			Coupon Rate						Effective Rate						Principal						Unamortized Costs						Book Value						Fair Value						Book Value						Fair Value
															($ amounts in thousands)
U.S. Dollar Denominated Unsecured Debt
Notes due April 23, 2024			SOFR+0.47%						5.791%						$	700,000					$	(397)					$	699,603					$	699,950					$	699,075					$	691,309
Notes due July 25, 2025			SOFR+0.60%						5.932%						400,000						(1,481)						398,519						400,277						—						—
Notes due February 15, 2026			0.875%						1.030%						500,000						(1,766)						498,234						448,646						497,678						441,849
Notes due November 9, 2026			1.500%						1.640%						650,000						(2,704)						647,296						580,053						646,643						578,899
Notes due September 15, 2027			3.094%						3.218%						500,000						(2,096)						497,904						460,565						497,508						466,029
Notes due May 1, 2028			1.850%						1.962%						650,000						(3,091)						646,909						556,154						646,401						558,197
Notes due November 9, 2028			1.950%						2.044%						550,000						(2,457)						547,543						465,373						547,182						468,509
Notes due January 15, 2029			5.125%						5.260%						500,000						(3,093)						496,907						491,674						—						—
Notes due May 1, 2029			3.385%						3.459%						500,000						(1,714)						498,286						450,606						498,053						456,855
Notes due May 1, 2031			2.300%						2.419%						650,000						(5,183)						644,817						517,832						644,303						530,390
Notes due November 9, 2031			2.250%						2.322%						550,000						(2,872)						547,128						429,370						546,866						443,514
Notes due August 1, 2033			5.100%						5.207%						700,000						(5,697)						694,303						669,161						—						—
Notes due August 1, 2053			5.350%						5.442%						600,000						(8,050)						591,950						546,860						—						—
															7,450,000						(40,601)						7,409,399						6,716,521						5,223,709						4,635,551
Euro Denominated Unsecured Debt
Notes due April 12, 2024			1.540%						1.540%						105,744						—						105,744						103,939						107,035						104,344
Notes due November 3, 2025			2.175%						2.175%						255,915						—						255,915						244,650						259,039						246,119
Notes due September 9, 2030			0.500%						0.640%						740,208						(7,771)						732,437						566,585						740,634						566,204
Notes due January 24, 2032			0.875%						0.978%						528,720						(4,456)						524,264						396,406						530,317						396,297
															1,630,587						(12,227)						1,618,360						1,311,580						1,637,025						1,312,964
Mortgage Debt, secured by 2 real estate facilities with a net book value of $11.7 million			4.414%						4.414%						1,863						—						1,863						1,653						10,092						9,568
															$	9,082,450					$	(52,828)					$	9,029,622					$	8,029,754					$	6,870,826					$	5,958,083

Public Storage has provided a full and unconditional guarantee of PSOC’s obligations under each series of unsecured notes.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

U.S. Dollar Denominated Unsecured Notes

On July 26, 2023, we completed a public offering of $400 million, $500 million, $700 million, and $600 million aggregate principal amount of unsecured senior notes bearing interest at an annual rate of Compounded SOFR + 0.60% (reset quarterly), 5.125%, 5.100%, and 5.350%, respectively, and maturing on July 25, 2025, January 15, 2029, August 1, 2033, and August 1, 2053, respectively. Interest on the 2025 notes is payable quarterly, commencing on October 25, 2023. Interest on the 2029 notes is payable semi-annually, commencing on January 15, 2024. Interest on the 2033 notes and 2053 notes is payable semi-annually, commencing on February 1, 2024. In connection with the offering, we incurred a total of $18.7 million in costs.

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, 2023. Included in these covenants are (a) a maximum Debt to Total Assets of 65% (approximately 16% at September 30, 2023) and (b) a minimum ratio of Adjusted EBITDA to Interest Expense of 1.5x (approximately 21x for the twelve months ended September 30, 2023) 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 $48.2 million and $20.1 million for the three and nine months ended September 30, 2023, respectively, as compared to gains of $100.9 million and $239.2 million for the three and nine months ended September 30, 2022, respectively).

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, 2023, the related contractual interest rates of our mortgage notes are fixed, ranging between 3.9% and 7.1%, and mature between September 1, 2028 and July 1, 2030.

At September 30, 2023, approximate principal maturities of our Notes Payable are as follows (amounts in thousands):

			Unsecured Debt						Mortgage Debt						Total
Remainder of 2023			$	—					$	30					$	30
2024			805,744						124						805,868
2025			655,915						131						656,046
2026			1,150,000						138						1,150,138
2027			500,000						146						500,146
Thereafter			5,968,928						1,294						5,970,222
			$	9,080,587					$	1,863					$	9,082,450
Weighted average effective rate			3.1%						4.4%						3.1%

Cash paid for interest totaled $97.5 million and $87.6 million for the nine months ended September 30, 2023 and 2022, respectively. Interest capitalized as real estate totaled $6.8 million and $4.2 million for the nine months ended September 30, 2023 and 2022, respectively.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

9.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, 2023, certain of these subsidiaries have issued 499,966 partnership units to third-parties that are convertible on a one-for-one basis (subject to certain limitations) into common shares of the Company at the request of the unitholder.

10.Shareholders’ Equity

Preferred Shares

At September 30, 2023 and December 31, 2022, we had the following series of Cumulative Preferred Shares (“Preferred Shares”) outstanding:

																		At September 30, 2023												At December 31, 2022
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						10,000						250,000
Total Preferred Shares																		174,000						$	4,350,000					174,000						$	4,350,000

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, 2023, 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.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

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.

Dividends

On February 4, 2023, our Board declared a 50% increase in its regular common quarterly dividend from $2.00 to $3.00 per share. The distribution equates to an annualized increase to the Company’s regular common dividend from $8.00 to $12.00 per share.

Common share dividends paid, including amounts paid to our restricted share unitholders and deferred share unitholders, totaled $527.6 million ($3.00 per share) and $2.7 billion ($15.15 per share) for the three months ended September 30, 2023 and 2022, respectively, and $1.6 billion ($9.00 per share) and $3.4 billion ($19.15 per share) for the nine months ended September 30, 2023 and 2022, respectively. Preferred share dividends paid totaled $48.7 million for each of the three months ended September 30, 2023 and 2022, and $146.0 million and $145.7 million for the nine months ended September 30, 2023 and 2022, respectively.

11.Related Party Transactions

At September 30, 2023, 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 $1.6 million and $1.7 million for the nine months ended September 30, 2023 and 2022, respectively.

12.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 share units (“DSUs”), and unrestricted common shares 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, $0.5 million and $1.8 million share-based compensation cost was capitalized as real estate facilities for the three and nine months ended September 30, 2023, respectively, as compared to $0.4 million and $2.4 million for the same periods of 2022, respectively.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(Amounts in thousands)
Self-storage cost of operations			$	2,964					$	4,203					$	10,316					$	13,740
Ancillary cost of operations			320						203						960						690
General and administrative			6,231						9,335						20,033						30,167
Total			$	9,515					$	13,741					$	31,309					$	44,597

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

Included in share-based compensation is $0.5 million and $2.6 million during the three and nine months ended September 30, 2023, respectively, as compared to $2.9 million and $12.4 million for the same periods in 2022, respectively, in connection with 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, 2022.

As of September 30, 2023, there was $76.8 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 and performance-based stock options outstanding. Performance-based stock options outstanding vest upon meeting certain performance conditions or market conditions. Stock options generally vest over 3 to 5 years, expire 10 years after the grant date, and have an exercise price equal to the closing trading price of our common shares on the grant date. New shares are issued for options exercised. Employees cannot require the Company to settle their awards in cash.

During the nine months ended September 30, 2023, 177,168 stock options were granted, 178,511 options were exercised, and 45,315 options were forfeited. A total of 3,117,825 stock options were outstanding at September 30, 2023 (3,164,483 at December 31, 2022).

During the nine months ended September 30, 2023, we granted 60,000 stock options in connection with non-management trustee compensation. For the remaining 117,168 stock options granted during the nine months ended September 30, 2023, vesting is dependent upon meeting certain market conditions over the three-year period from March 15, 2023 through March 14, 2026, with continued service-based vesting through the first quarter of 2028. 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, 2023, we incurred share-based compensation cost for outstanding stock options of $3.6 million and $11.3 million, respectively, as compared to $4.2 million and $15.8 million for the same periods in 2022.

Restricted Share Units

We have service-based and performance-based RSUs outstanding, which generally vest over 5 to 8 years from the grant date. Performance-based RSUs outstanding vest upon meeting certain performance conditions or market conditions. 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, 2023, 42,452 RSUs were granted, 30,148 RSUs were forfeited and 77,400 RSUs vested. The vesting resulted in the issuance of 55,595 common shares. A total of 410,951 RSUs were outstanding at September 30, 2023 (476,047 at December 31, 2022).

Among the 42,452 RSUs granted during the nine months ended September 30, 2023, 37,211 RSUs were awarded where vesting is dependent upon meeting certain market conditions over a three-year period from March 15, 2023 through March 14, 2026, with continued service-based vesting through the first quarter of 2028. These RSUs 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 RSUs originally granted.

Also included in the RSUs granted during the nine months ended September 30, 2023 are 5,241 service-based RSUs.

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

For the three and nine months ended September 30, 2023, we incurred share-based compensation cost for RSUs of $6.3 million and $21.1 million, respectively, as compared to $9.7 million and $30.6 million for the same periods in 2022.

Trustee Deferral Program

Non-management trustees may elect to receive all or a portion of their cash retainers in cash, unrestricted common shares, or fully-vested DSUs to be settled at a specified future date. Unrestricted common shares 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, 2023, we granted 1,590 DSUs and 674 unrestricted common shares. During the nine months ended September 30, 2023, 867 previously granted DSUs were settled in common shares. A total of 10,274 DSUs were outstanding at September 30, 2023 (9,551 at December 31, 2022).

13.Net Income per Common Share

We allocate net income to (i) noncontrolling interests based upon their contractual rights in the respective subsidiaries or for participating noncontrolling interests based upon their participation in both distributed and undistributed earnings of the Company, (ii) preferred shareholders, for distributions paid or payable, (iii) preferred shareholders, to the extent redemption cost exceeds the related original net issuance proceeds (a “preferred share redemption charge”), and (iv) RSUs, for non-forfeitable dividends paid and adjusted for participation rights in undistributed earnings of the Company.

We calculate basic and diluted net income per common share based upon net income allocable to common shareholders, divided by (i) weighted average common shares for basic net income per common share, and (ii) weighted average common shares adjusted for the impact of dilutive stock options outstanding for diluted net income per common share. Stock options representing 317,062 common shares were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2023, as compared to 147,344 common shares for the same periods in 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, 2023 and 2022, respectively (in thousands, except per share amounts):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Numerator for basic and dilutive net income per common share – net income allocable to common shareholders			$	563,237					$	2,712,161					$	1,559,084					$	3,779,666
Denominator for basic net income per share - weighted average common shares outstanding			175,499						175,283						175,451						175,227
Net effect of dilutive stock options - based on treasury stock method			651						1,045						719						1,098
Denominator for dilutive net income per share - weighted average common shares outstanding			176,150						176,328						176,170						176,325
Net income per common share:
Basic			$	3.21					$	15.47					$	8.89					$	21.57
Dilutive			$	3.20					$	15.38					$	8.85					$	21.44

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

14.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,
			2023						2022						2023						2022
			(amounts in thousands)
Self-Storage Operations Reportable Segment
Revenue			$	1,078,721					$	1,027,374					$	3,167,025					$	2,917,675
Cost of operations			(267,785)						(255,470)						(794,078)						(738,953)
Net operating income			810,936						771,904						2,372,947						2,178,722
Depreciation and amortization			(238,748)						(220,772)						(682,531)						(661,608)
Net income			572,188						551,132						1,690,416						1,517,114
Ancillary Operations
Revenue			65,099						60,757						190,797						175,946
Cost of operations			(21,159)						(21,572)						(63,037)						(54,297)
Net operating income			43,940						39,185						127,760						121,649
Total net income allocated to segments			616,128						590,317						1,818,176						1,638,763
Other items not allocated to segments:
General and administrative			(28,625)						(29,501)						(79,603)						(81,401)
Interest and other income			32,295						12,736						69,381						26,394
Interest expense			(58,350)						(34,113)						(132,530)						(100,178)
Equity in earnings of unconsolidated real estate entities			7,227						8,180						22,787						100,129
Foreign currency exchange gain			47,880						100,170						19,924						237,270
Gain on sale of real estate			88						1,503						88						1,503
Gain on sale of equity investment in PS Business Parks, Inc.			—						2,128,860						—						2,128,860
Net income			$	616,643					$	2,778,152					$	1,718,223					$	3,951,340

PUBLIC STORAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

15.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, 2023, there were approximately 1.4 million certificates held by our self-storage customers, representing aggregate coverage of approximately $6.1 billion.

Commitments

We have construction commitments representing future expected payments for construction under contract totaling $199.8 million at September 30, 2023. We expect to pay approximately $42.3 million in the remainder of 2023, $152.1 million in 2024, and $5.4 million in 2025 for these construction commitments.

We have future contractual payments on land, equipment and office space under various lease commitments totaling $65.0 million at September 30, 2023. We expect to pay approximately $0.8 million in the remainder of 2023, $3.6 million in each of 2024, 2025 and 2026, $2.6 million in 2027, and $50.8 million thereafter for these commitments.

16.Subsequent Events

Subsequent to September 30, 2023, we acquired or were under contract to acquire eleven self-storage facilities across eight states with 0.8 million net rentable square feet, for $170.3 million.