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 2024 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 changes in macroeconomic conditions, 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, 2023 filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2024 and in our other filings with the SEC. These include changes in demand for our facilities, changes in macroeconomic conditions, changes in national self-storage facility development activity, 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 public health emergencies, 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 high interest rates, inflation, unfavorable foreign currency rate fluctuations, or 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, 2024, 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, 2023.

Overview

During the three months ended March 31, 2024, revenues generated by our Same Store Facilities (as defined below) increased by 0.1% ($0.6 million), as compared to the same period in 2023, while Same Store cost of operations increased by 4.8% ($10.9 million). Demand and operating trends softened in the second half of 2022 continuing through 2023 and the first quarter of 2024, and we expect these trends to continue and stabilize in the second half of 2024.

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 2022, we acquired a total of 238 facilities with 16.8 million net rentable square feet for $3.4 billion. Additionally, within our non-same store portfolio, our Newly Developed and Expanded Facilities (as defined below) include a total of 123 self-storage facilities with 14.3 million net rentable square feet. For development and expansions completed by March 31, 2024, we incurred a total cost of $1.3 billion. During the three months ended March 31, 2024, combined net operating income generated by our Acquired Facilities (as defined below) and Newly Developed and Expanded Facilities increased 82.7% ($32.5 million), as compared to the same period in 2023.

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 expect 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 and centralized management costs 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 and (ii) upgrade the configuration and layout of the offices and other customer zones to improve the customer experience. We expect to complete the program in 2024. We spent approximately $25 million on the program in the three months ended March 31, 2024 and expect to spend approximately $150 million over 2024 on this effort. We have also embarked on a solar program under which we plan to install solar panels on over 1,000 of our self-storage facilities. We have completed the installations on 519 facilities through March 31, 2024. We spent approximately $13 million on the program in the three months ended March 31, 2024 and expect to spend $100 million over 2024 on this effort.

On April 11, 2024, PSOC issued €150 million of senior notes to institutional investors, bearing interest at a fixed rate of 4.080% and maturing on April 11, 2039. The senior notes are guaranteed by Public Storage. We received $162.6 million of net proceeds from the issuance after converting the Euros to U.S. Dollars. On April 11, 2024, we repaid PSOC’s €100 million 1.540% senior notes due April 12, 2024 to the same institutional investors for $108.4 million.

On April 16, 2024, PSOC completed a public offering of $1.0 billion aggregate principal amount of senior notes, including $700 million aggregate principal amount of floating rate senior notes bearing interest at a rate of Compounded SOFR + 0.70% (reset quarterly) maturing on April 16, 2027 and $300 million aggregate principal amount of senior notes bearing interest at a fixed annual rate of 5.350% maturing on August 1, 2053. The 2053 notes constitute a further issuance of, and form a single series with, our outstanding 5.350% senior notes due 2053 issued on July 26, 2023 in the aggregate principal amount of $600 million. These senior notes are guaranteed by Public Storage. We received $988.5 million of net proceeds from the offering. On April 23, 2024, we repaid our outstanding $700 million aggregate principal amount of floating rate senior notes at maturity.

Results of Operations

Operating Results for the Three Months Ended March 31, 2024 and 2023

For the three months ended March 31, 2024, net income allocable to our common shareholders was $459.2 million or $2.60 per diluted common share, compared to $467.6 million or $2.65 per diluted common share for the same period in 2023, representing a decrease of $8.4 million or $0.05 per diluted common share. The decrease is due primarily to (i) a $63.6 million increase in depreciation and amortization expense and (ii) a $31.7 million increase in interest expense, partially offset by (iii) a $64.4 million increase in foreign currency exchange gains primarily associated with our Euro denominated notes payable and (iv) a $25.1 million increase in self-storage net operating income.

The $25.1 million increase in self-storage net operating income in the three months ended March 31, 2024 as compared to the same period in 2023 is a result of a $35.4 million increase attributable to our non-same store facilities, partially offset by a $10.3 million decrease attributable to our Same Store Facilities. Revenues for the Same Store Facilities increased 0.1% or $0.6 million in the three months ended March 31, 2024 as compared to the same period in 2023, due primarily to a 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 4.8% or $10.9 million in the three months ended March 31, 2024 as compared to the same period in 2023, due primarily to increased property tax expense and marketing expense. The increase in net operating income of $35.4 million for the non-same store facilities is due primarily to the impact of facilities acquired in 2023 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 real estate-related 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, 2024, FFO was $4.24 per diluted common share as compared to $3.94 per diluted common share for the same period in 2023, representing an increase of 7.6%, or $0.30 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 loss contingency resolutions, due diligence costs incurred in pursuit of strategic transactions, unrealized gain on private equity investments, and amortization of acquired non real estate-related intangibles. 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,
																					2024						2023						Percentage Change
																					(Amounts in thousands, except per share data)
Reconciliation of Net Income to FFO and Core FFO:
Net income allocable to common shareholders																					$	459,209					$	467,588					(1.8)		%
Eliminate items excluded from FFO:
Real estate-related depreciation and amortization																					282,203						219,787
Real estate-related depreciation from unconsolidated real estate investments																					9,756						8,529
Real estate-related depreciation allocated to noncontrolling interests and restricted share unitholders and unvested LTIP unitholders																					(1,835)						(1,473)
Gains on sale of real estate investments, including our equity share from investments																					(871)						—
FFO allocable to common shares																					$	748,462					$	694,431					7.8		%
Eliminate the impact of items excluded from Core FFO, including our equity share from investments:
Foreign currency exchange (gain) loss																					(37,543)						26,860
Other items																					51						(2,133)
Core FFO allocable to common shares																					$	710,970					$	719,158					(1.1)		%
Reconciliation of Diluted Earnings per Share to FFO per Share and Core FFO per Share:
Diluted earnings per share																					$	2.60					$	2.65					(1.9)		%
Eliminate amounts per share excluded from FFO:
Real estate-related depreciation and amortization																					1.65						1.29
Gains on sale of real estate investments, including our equity share from investments																					(0.01)						—
FFO per share																					$	4.24					$	3.94					7.6		%
Eliminate the per share impact of items excluded from Core FFO, including our equity share from investments:
Foreign currency exchange (gain) loss																					(0.21)						0.15
Other items																					—						(0.01)
Core FFO per share																					$	4.03					$	4.08					(1.2)		%
Diluted weighted average common shares																					176,350						176,228

Analysis of Net Income — Self-Storage Operations

Our self-storage operations are analyzed in four groups: (i) the 2,507 facilities that we have owned and operated on a stabilized basis since January 1, 2022 (the “Same Store Facilities”), (ii) 238 facilities we acquired since January 1, 2022 (the “Acquired Facilities”), (iii) 123 facilities that have been newly developed or expanded, or that will commence expansion by December 31, 2024 (the “Newly Developed and Expanded Facilities”), and (iv) 177 other facilities, which are otherwise not stabilized with respect to occupancies or rental rates since January 1, 2022 (the “Other Non-same Store Facilities”). See Note 13 to our March 31, 2024 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,
																					2024						2023						Percentage Change
																					(Dollar amounts and square footage in thousands)
Revenues:
Same Store Facilities																					$	913,085					$	912,513					0.1		%
Acquired Facilities																					58,453						11,981						387.9		%
Newly Developed and Expanded Facilities																					52,866						48,635						8.7		%
Other Non-Same Store Facilities																					61,641						59,055						4.4		%
																					1,086,045						1,032,184						5.2		%
Cost of operations:
Same Store Facilities																					235,673						224,792						4.8		%
Acquired Facilities																					21,282						5,753						269.9		%
Newly Developed and Expanded Facilities																					18,249						15,571						17.2		%
Other Non-Same Store Facilities																					22,210						22,499						(1.3)		%
																					297,414						268,615						10.7		%
Net operating income (a):
Same Store Facilities																					677,412						687,721						(1.5)		%
Acquired Facilities																					37,171						6,228						496.8		%
Newly Developed and Expanded Facilities																					34,617						33,064						4.7		%
Other Non-Same Store Facilities																					39,431						36,556						7.9		%
Total net operating income																					788,631						763,569						3.3		%
Depreciation and amortization expense:
Same Store Facilities																					165,057						157,396						4.9		%
Acquired Facilities																					63,033						11,745						436.7		%
Newly Developed and Expanded Facilities																					14,784						11,562						27.9		%
Other Non-Same Store Facilities																					42,329						40,947						3.4		%
Total depreciation and amortization expense																					285,203						221,650						28.7		%
Net income (loss):
Same Store Facilities																					512,355						530,325						(3.4)		%
Acquired Facilities																					(25,862)						(5,517)						368.8		%
Newly Developed and Expanded Facilities																					19,833						21,502						(7.8)		%
Other Non-Same Store Facilities																					(2,898)						(4,391)						(34.0)		%
Total net income																					$	503,428					$	541,919					(7.1)		%
Number of facilities at period end:
Same Store Facilities																					2,507						2,507						—		%
Acquired Facilities																					238						79						201.3		%
Newly Developed and Expanded Facilities																					123						114						7.9		%
Other Non-Same Store Facilities																					177						177						—		%
																					3,045						2,877						5.8		%
Net rentable square footage at period end:
Same Store Facilities																					169,959						169,959						—		%
Acquired Facilities																					16,807						5,038						233.6		%
Newly Developed and Expanded Facilities																					14,318						12,468						14.8		%
Other Non-Same Store Facilities																					17,316						17,412						(0.6)		%
																					218,400						204,877						6.6		%

(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, 2024 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, 2022. Our Same Store Facilities increased from 2,339 facilities at December 31, 2023 to 2,507 at March 31, 2024. The composition of our Same Store Facilities allows us more effectively to evaluate the ongoing performance of our self-storage portfolio in 2022, 2023, and 2024 and exclude the impact of fill-up of unstabilized facilities, which can significantly affect operating trends. We believe investors and analysts use Same Store Facilities 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 2,507 facilities (170.0 million net rentable square feet) that represent approximately 78% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at March 31, 2024. 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 (2,507 facilities)

									Three Months Ended March 31,
																					2024						2023						Change (e)
																					(Dollar amounts in thousands, except for per square foot data)
Revenues (a):
Rental income																					$	881,619					$	881,838					—%
Late charges and administrative fees																					31,466						30,675						2.6%
Total revenues																					913,085						912,513						0.1%
Direct cost of operations (a):
Property taxes																					90,847						84,606						7.4%
On-site property manager payroll																					35,472						35,067						1.2%
Repairs and maintenance																					19,924						19,092						4.4%
Utilities																					13,034						13,792						(5.5)%
Marketing																					23,666						16,855						40.4%
Other direct property costs																					25,003						25,007						—%
Total direct cost of operations																					207,946						194,419						7.0%
Direct net operating income (b)																					705,139						718,094						(1.8)%
Indirect cost of operations (a):
Supervisory payroll																					(9,453)						(9,985)						(5.3)%
Centralized management costs																					(15,598)						(17,008)						(8.3)%
Share-based compensation																					(2,676)						(3,380)						(20.8)%
Net operating income																					677,412						687,721						(1.5)%
Depreciation and amortization expense																					(165,057)						(157,396)						4.9%
Net income																					$	512,355					$	530,325					(3.4)%
Gross margin (before indirect costs, depreciation and amortization expense)																					77.2%						78.7%						(1.5)%
Gross margin (before depreciation and amortization expense)																					74.2%						75.4%						(1.2)%
Weighted average for the period:
Square foot occupancy																					92.1%						92.9%						(0.8)%
Realized annual rental income per (c):
Occupied square foot																					$	22.53					$	22.35					0.8%
Available square foot																					$	20.76					$	20.76					—%
At March 31:
Square foot occupancy																					91.9%						92.5%						(0.6)%
Annual contract rent per occupied square foot (d)																					$	22.59					$	22.66					(0.3)%

(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.

(e)Represents the absolute nominal change with respect to gross margin and square foot occupancy, and the percentage change with respect to all other items.

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 0.1% in the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to a 0.8% increase in realized annual rent per occupied square foot, partially offset by a 0.8% decrease in average occupancy.

The increase in realized annual rent per occupied square foot in the three months ended March 31, 2024 as compared to the same period in 2023 was due to cumulative rate increases to existing long-term tenants over the past twelve months, partially offset by a decrease in average rates per square foot charged to new tenants moving in over the same period. The growth rate in realized annual rent per occupied square foot has decelerated since the second half of 2022 from lower move-in rates and increased promotion discounts offered in order to replace tenants that vacate. At March 31, 2024, annual contract rent per occupied square foot was 0.3% lower as compared to March 31, 2023.

Occupancy levels have gradually declined since the second half of 2022 and are returning to 2019 levels, which were not impacted by COVID-19 pandemic, as customer demand softened. The weighted average square foot occupancy for our Same Store Facilities was 92.1% in the three months ended March 31, 2024, representing a decrease of 0.8%, as compared to the same period in 2023. During the three months ended March 31, 2024, we lowered move-in rental rates and increased advertising spending to stimulate move-in activity at our facilities. As a result, move-in volumes net of move-out volumes were higher in the three months ended March 31, 2024 as compared to the same period in 2023.

Move-out activities from our tenants were lower in the three months ended March 31, 2024 as compared to the same period in 2023. Average length of stay of our tenants remained at similar high levels in the three months ended March 31, 2024 as compared to the same period in 2023, which supported our revenue growth by contributing to the number of tenants eligible for rental rate increases.

Selected Key Move-in and Move-Out 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, 2024 and 2023. 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,
																					2024						2023						Change
																					(Amounts in thousands, except for per square foot amounts)
Tenants moving in during the period:
Average annual contract rent per square foot																					$	13.23					$	15.81					(16.3)%
Square footage																					29,644						29,892						(0.8)%
Contract rents gained from move-ins																					$	98,048					$	118,148					(17.0)%
Promotional discounts given																					$	13,488					$	17,791					(24.2)%
Tenants moving out during the period:
Average annual contract rent per square foot																					$	20.78					$	21.02					(1.1)%
Square footage																					28,572						29,021						(1.5)%
Contract rents lost from move-outs																					$	148,432					$	152,505					(2.7)%

Demand was weaker in the first quarter of 2024 compared to the same period in 2023 impacted by the lower home-moving activities due to limited housing market transaction volumes. 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.

Industry-wide demand from new customers for storage space at March 31, 2024 is below the level at March 31, 2023. We will mitigate the lower industry-wide demand from new customers for storage space by continuing to support new customer move-ins with increased marketing expense, lower rental rates to new customers, and increased promotional discounting. We expect industry-wide demand from new customers to stabilize during the year. We also anticipate fewer completions of new self-storage facilities nationally, reducing the competitive impact of new supply on customer acquisition. As a result of stabilizing new customer demand during the year, stable existing customer behavior, and lower impact from new competitive supply, we anticipate same store revenues in 2024 will be similar to those earned in 2023.

Late Charges and Administrative Fees

Late charges and administrative fees increased 2.6% for the three months ended March 31, 2024, as compared to the same period in 2023 as a result of higher late charges collected on delinquent accounts driven by more delinquent accounts.

Analysis of Same Store Cost of Operations

Cost of operations (excluding depreciation and amortization) increased 4.8% in the three months ended March 31, 2024, as compared to the same period in 2023, due primarily to increased property tax expense and marketing expense.

Property tax expense increased 7.4% in the three months ended March 31, 2024, as compared to the same period in 2023, as a result of higher assessed values. We expect property tax expense to grow 5% in 2024 due primarily to higher assessed values.

Marketing expense includes Internet advertising we utilize through our online paid search programs, television 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 40.4% in the three months ended March 31, 2024, as compared to the same period in 2023, by utilizing a higher volume of online paid search programs to attract new tenants. We plan to continue to use internet advertising and other advertising channels to support move-in volumes in the remainder of 2024.

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, 2024						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
			2024			2023			Change (a)			2024			2023			Change (a)			2024			2023			Change (a)
Los Angeles			218			15.9			$	35.66		$	34.92		2.1		%	95.3		%	95.8		%	(0.5)		%	$	33.98		$	33.46		1.6		%
San Francisco			130			8.1			31.88			31.93			(0.2)		%	94.8		%	94.2		%	0.6		%	30.22			30.07			0.5		%
New York			91			6.7			31.90			31.72			0.6		%	93.7		%	92.8		%	0.9		%	29.88			29.45			1.5		%
Washington DC			109			7.3			26.62			26.31			1.2		%	91.6		%	90.7		%	0.9		%	24.39			23.85			2.3		%
Miami			87			6.3			29.60			29.63			(0.1)		%	93.8		%	93.6		%	0.2		%	27.76			27.72			0.1		%
Dallas-Ft. Worth			130			9.7			18.28			17.78			2.8		%	89.5		%	92.2		%	(2.7)		%	16.36			16.38			(0.1)		%
Seattle-Tacoma			92			6.3			25.12			25.66			(2.1)		%	92.8		%	92.3		%	0.5		%	23.31			23.68			(1.6)		%
Houston			117			9.2			16.89			16.44			2.7		%	90.8		%	91.6		%	(0.8)		%	15.34			15.07			1.8		%
Atlanta			107			7.1			17.91			17.94			(0.2)		%	87.2		%	90.9		%	(3.7)		%	15.61			16.30			(4.2)		%
Chicago			131			8.3			20.37			20.09			1.4		%	92.0		%	91.4		%	0.6		%	18.74			18.36			2.1		%
Orlando-Daytona			69			4.4			19.05			19.42			(1.9)		%	91.4		%	94.9		%	(3.5)		%	17.40			18.42			(5.5)		%
West Palm Beach			41			3.1			25.97			26.25			(1.1)		%	92.8		%	93.6		%	(0.8)		%	24.11			24.57			(1.9)		%
Philadelphia			57			3.6			21.21			21.51			(1.4)		%	92.1		%	92.3		%	(0.2)		%	19.53			19.85			(1.6)		%
Charlotte			55			4.2			16.09			15.93			1.0		%	90.8		%	93.0		%	(2.2)		%	14.61			14.81			(1.4)		%
Baltimore			38			2.8			23.55			23.56			—		%	90.8		%	90.7		%	0.1		%	21.39			21.36			0.1		%
All other markets			1,035			67.0			18.41			18.34			0.4		%	92.0		%	92.9		%	(0.9)		%	16.94			17.04			(0.6)		%
Totals			2,507			170.0			$	22.53		$	22.35		0.8		%	92.1		%	92.9		%	(0.8)		%	$	20.76		$	20.76		—		%

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

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)
			2024			2023			Change			2024			2023			Change			2024			2023			Change			2024			2023			Change
Los Angeles			$	138,217		$	135,996		1.6		%	$	19,641		$	18,216		7.8		%	$	2,856		$	2,917		(2.1)		%	$	115,720		$	114,863		0.7		%
San Francisco			62,185			61,779			0.7		%	11,153			9,930			12.3		%	1,397			1,624			(14.0)		%	49,635			50,225			(1.2)		%
New York			51,475			50,565			1.8		%	13,890			13,150			5.6		%	1,123			1,321			(15.0)		%	36,462			36,094			1.0		%
Washington DC			45,969			44,950			2.3		%	9,489			9,343			1.6		%	1,295			1,313			(1.4)		%	35,185			34,294			2.6		%
Miami			45,208			45,122			0.2		%	9,078			7,976			13.8		%	986			1,087			(9.3)		%	35,144			36,059			(2.5)		%
Dallas-Ft. Worth			41,555			41,635			(0.2)		%	10,125			10,206			(0.8)		%	1,202			1,458			(17.6)		%	30,228			29,971			0.9		%
Seattle-Tacoma			37,773			38,366			(1.5)		%	8,199			7,183			14.1		%	1,000			1,062			(5.8)		%	28,574			30,121			(5.1)		%
Houston			36,953			36,278			1.9		%	10,349			10,115			2.3		%	1,247			1,323			(5.7)		%	25,357			24,840			2.1		%
Atlanta			29,161			30,373			(4.0)		%	6,370			6,467			(1.5)		%	1,171			1,279			(8.4)		%	21,620			22,627			(4.5)		%
Chicago			40,195			39,386			2.1		%	19,597			16,674			17.5		%	1,391			1,439			(3.3)		%	19,207			21,273			(9.7)		%
Orlando-Daytona			19,904			21,047			(5.4)		%	4,289			4,071			5.4		%	785			860			(8.7)		%	14,830			16,116			(8.0)		%
West Palm Beach			19,132			19,500			(1.9)		%	4,644			4,175			11.2		%	547			563			(2.8)		%	13,941			14,762			(5.6)		%
Philadelphia			18,587			18,878			(1.5)		%	4,557			4,328			5.3		%	596			702			(15.1)		%	13,434			13,848			(3.0)		%
Charlotte			15,905			16,098			(1.2)		%	3,212			3,009			6.7		%	543			631			(13.9)		%	12,150			12,458			(2.5)		%
Baltimore			15,878			15,828			0.3		%	3,515			2,960			18.8		%	432			435			(0.7)		%	11,931			12,433			(4.0)		%
All other markets			294,988			296,712			(0.6)		%	69,838			66,616			4.8		%	11,156			12,359			(9.7)		%	213,994			217,737			(1.7)		%
Totals			$	913,085		$	912,513		0.1		%	$	207,946		$	194,419		7.0		%	$	27,727		$	30,373		(8.7)		%	$	677,412		$	687,721		(1.5)		%

Acquired Facilities

The Acquired Facilities represent 238 facilities that we acquired in 2022, 2023, and 2024. 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,
																					2024						2023						Change (a)
																					($ amounts in thousands, except for per square foot amounts)
Revenues (b):
2022 Acquisitions																					$	13,303					$	11,601					$	1,702
2023 Acquisitions																					45,150						380						44,770
Total revenues																					58,453						11,981						46,472
Cost of operations (b):
2022 Acquisitions																					5,240						5,582						(342)
2023 Acquisitions																					16,042						171						15,871
Total cost of operations																					21,282						5,753						15,529
Net operating income:
2022 Acquisitions																					8,063						6,019						2,044
2023 Acquisitions																					29,108						209						28,899
Net operating income																					37,171						6,228						30,943
Depreciation and amortization expense																					(63,033)						(11,745)						(51,288)
Net loss																					$	(25,862)					$	(5,517)					$	(20,345)
At March 31:
Square foot occupancy:
2022 Acquisitions																					82.8%						82.3%						0.5%
2023 Acquisitions																					83.9%						82.2%						1.7%
																					83.6%						82.3%						1.3%
Annual contract rent per occupied square foot:
2022 Acquisitions																					$	13.33					$	12.02					10.9%
2023 Acquisitions																					17.26						11.33						52.3%
																					$	16.16					$	11.97					35.0%
Number of facilities:
2022 Acquisitions																					74						74						—
2023 Acquisitions																					164						5						159
																					238						79						159
Net rentable square feet (in thousands):
2022 Acquisitions																					4,740						4,726						14
2023 Acquisitions																					12,067						312						11,755
																					16,807						5,038						11,769

ACQUIRED FACILITIES (Continued)

			As of March 31, 2024
Costs to acquire (in thousands):
2022 Acquisitions			$	730,957
2023 Acquisitions			2,674,840
			$	3,405,797

(a)Represents the percentage change with respect to 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.

We have been active in acquiring facilities in recent years. Since the beginning of 2022, we acquired a total of 238 facilities with 16.8 million net rentable square feet for $3.4 billion. During the three months ended March 31, 2024, these facilities contributed net operating income of $37.2 million.

During 2023, we acquired BREIT Simply Storage LLC, a self-storage company that owns and operates 127 self-storage facilities (9.4 million square feet) and manages 25 self-storage facilities (1.8 million square feet) for third parties, for a purchase price of $2.2 billion in cash. Included in the Acquisition results in the table above are the Simply portfolio self-storage revenues of $37.8 million, NOI of $24.9 million (including Direct NOI of $26.2 million), and average square footage occupancy of 86.3% for the three months ended March 31, 2024.

We remain active in seeking to acquire additional self-storage facilities. Future acquisition volume is likely to be impacted by increasing cost of capital requirements and overall macro-economic uncertainties. Subsequent to March 31, 2024, we acquired or were under contract to acquire four self-storage facilities across four states with 0.3 million net rentable square feet, for $34.6 million.

Newly Developed and Expanded Facilities

The Newly Developed and Expanded Facilities include 40 facilities that were developed on new sites since January 1, 2019, and 83 facilities expanded to increase their net rentable square footage. Of these expansions, 64 were completed before 2023, 10 were completed in 2023 or 2024, and nine are currently in process at March 31, 2024. The following table summarizes operating data with respect to the Newly Developed and Expanded Facilities:

NEWLY DEVELOPED AND EXPANDED FACILITIES
									Three Months Ended March 31,
																					2024						2023						Change (a)
																					($ amounts in thousands, except for per square foot amounts)
Revenues (b):
Developed in 2019																					$	4,411					$	4,375					$	36
Developed in 2020																					1,848						1,901						(53)
Developed in 2021																					2,834						2,609						225
Developed in 2022																					2,267						1,086						1,181
Developed in 2023																					906						25						881
Developed in 2024																					2						—						2
Expansions completed before 2023																					28,466						27,887						579
Expansions completed in 2023 or 2024																					8,515						6,343						2,172
Expansions in process																					3,617						4,409						(792)
Total revenues																					52,866						48,635						4,231
Cost of operations (b):
Developed in 2019																					1,537						1,507						30
Developed in 2020																					434						424						10
Developed in 2021																					922						917						5
Developed in 2022																					1,128						983						145
Developed in 2023																					1,070						229						841
Developed in 2024																					13						—						13
Expansions completed before 2023																					8,709						8,488						221
Expansions completed in 2023 or 2024																					3,525						2,015						1,510
Expansions in process																					911						1,008						(97)
Total cost of operations																					18,249						15,571						2,678
Net operating income (loss):
Developed in 2019																					2,874						2,868						6
Developed in 2020																					1,414						1,477						(63)
Developed in 2021																					1,912						1,692						220
Developed in 2022																					1,139						103						1,036
Developed in 2023																					(164)						(204)						40
Developed in 2024																					(11)						—						(11)
Expansions completed before 2023																					19,757						19,399						358
Expansions completed in 2023 or 2024																					4,990						4,328						662
Expansions in process																					2,706						3,401						(695)
Net operating income																					34,617						33,064						1,553
Depreciation and amortization expense																					(14,784)						(11,562)						(3,222)
Net income																					$	19,833					$	21,502					$	(1,669)

NEWLY DEVELOPED AND EXPANDED FACILITIES (Continued)
																					As of March 31,
																					2024						2023						Change (a)
																					($ amounts in thousands, except for per square foot amounts)
Square foot occupancy:
Developed in 2019																					84.4%						87.3%						(2.9)%
Developed in 2020																					89.7%						93.1%						(3.4)%
Developed in 2021																					80.4%						83.6%						(3.2)%
Developed in 2022																					79.5%						59.1%						20.4%
Developed in 2023																					42.3%						19.4%						22.9%
Developed in 2024																					12.2%						—%						—%
Expansions completed before 2023																					85.3%						85.3%						—%
Expansions completed in 2023 or 2024																					49.2%						81.5%						(32.3)%
Expansions in process																					79.5%						87.5%						(8.0)%
																					78.0%						83.1%						(5.1)%
Annual contract rent per occupied square foot:
Developed in 2019																					$	18.79					$	18.34					2.5%
Developed in 2020																					22.78						22.31						2.1%
Developed in 2021																					20.34						18.23						11.6%
Developed in 2022																					16.82						13.73						22.5%
Developed in 2023																					9.62						8.70						10.6%
Developed in 2024																					12.00						—						—%
Expansions completed before 2023																					18.30						17.93						2.1%
Expansions completed in 2023 or 2024																					20.23						24.43						(17.2)%
Expansions in process																					24.06						26.49						(9.2)%
																					$	18.54					$	18.65					(0.6)%
Number of facilities:
Developed in 2019																					11						11						—
Developed in 2020																					3						3						—
Developed in 2021																					6						6						—
Developed in 2022																					8						8						—
Developed in 2023																					11						3						8
Developed in 2024																					1						—						1
Expansions completed before 2023																					64						64						—
Expansions completed in 2023 or 2024																					10						10						—
Expansions in process																					9						9						—
																					123						114						9
Net rentable square feet (in thousands):
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																					1,098						268						830
Developed in 2024																					49						—						49
Expansions completed before 2023																					8,489						8,361						128
Expansions completed in 2023 or 2024																					1,211						373						838
Expansions in process																					755						750						5
																					14,318						12,468						1,850

			As of March 31, 2024
Costs to develop (in thousands):
Developed in 2019			$	150,387
Developed in 2020			42,063
Developed in 2021			115,632
Developed in 2022			100,089
Developed in 2023			193,766
Developed in 2024			10,640
Expansions completed before 2023 (c)			543,636
Expansions completed in 2023 or 2024 (c)			175,535
			$	1,331,748

(a)Represents the percentage change with respect to 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)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.

Our Newly Developed and Expanded Facilities includes a total of 123 self-storage facilities of 14.3 million net rentable square feet. For development and expansions completed by March 31, 2024, we incurred a total cost of $1.3 billion. During the three months ended March 31, 2024, Newly Developed and Expanded Facilities contributed net operating income of $34.6 million.

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, the related construction and development overhead expenses included in general and administrative expense, and the net operating loss from newly developed facilities undergoing fill-up.

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, 2024. We incurred a total of $719.2 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 6.2 million net rentable square feet of new storage space.

At March 31, 2024, we had 21 additional facilities in development, which will have a total of 2.2 million net rentable square feet of storage space and have an aggregate development cost totaling approximately $432.9 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, 2024, and together with additional future expansion activities primarily related to our Same Store Facilities at March 31, 2024, we expect to add a total of 1.5 million net rentable square feet of storage space by expanding existing self-storage facilities for an aggregate direct development cost of $350.1 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, 2022, 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 17.3 million net rentable square feet at March 31, 2024. During the three months ended March 31, 2024 and 2023, the average occupancy for these facilities totaled 79.7% and 80.6%, respectively, and the realized rent per occupied square foot totaled $17.08 and $16.05, respectively.

Depreciation and amortization expense

Depreciation and amortization expense for Self-Storage Operations increased $63.6 million in the three months ended March 31, 2024, as compared to the same period in 2023, due to newly acquired facilities of $2.7 billion in 2023. We expect continued increases in depreciation expense in the remainder of 2024 as a result of elevated levels of capital expenditures and new facilities that are acquired, developed or expanded over 2024.

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,
																					2024						2023						Change
																					(Amounts in thousands)
Revenues:
Tenant reinsurance premiums																					$	54,116					$	49,298					$	4,818
Merchandise																					6,586						6,820						(234)
Third party property management																					10,473						5,930						4,543
Total revenues																					71,175						62,048						9,127
Cost of operations:
Tenant reinsurance																					11,698						9,572						2,126
Merchandise																					5,045						4,213						832
Third party property management																					10,326						5,891						4,435
Total cost of operations																					27,069						19,676						7,393
Net operating income:
Tenant reinsurance																					42,418						39,726						2,692
Merchandise																					1,541						2,607						(1,066)
Third party property management																					147						39						108
Total net operating income																					$	44,106					$	42,372					$	1,734

Tenant reinsurance operations: Tenant reinsurance premium revenue increased $4.8 million or 9.8% in the three months ended March 31, 2024 over the same period in 2023, 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, as well as the increase of average premiums charged per customer at our same store facilities. Tenant reinsurance premium revenue generated from tenants at our Same-Store Facilities were $41.6 million and $40.2 million in the three months ended March 31, 2024 and 2023, respectively, representing a 3.5% increase.

We expect future growth will come primarily from customers of newly acquired and developed facilities and the increase of tenant insurance participation at our Same Store 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. Tenant reinsurance cost of operations increased $2.1 million for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to increased claim expenses related to burglary events and increased access fees we paid to the third-party owners of properties we manage driven by the growth of our third-party property management program.

Third-party property management: At March 31, 2024, in our third-party property management program, we managed 235 facilities for unrelated third parties, and were under contract to manage 132 additional facilities including 119 facilities that are currently under construction. During the three months ended March 31, 2024, we added 46 facilities to the program and had three properties exit the program. 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 Shurgard using the equity method and record our pro-rata share of the net income of these entities. For the three months ended March 31, 2024 and 2023, we recognized equity in earnings of Shurgard of $6.1 million and $6.0 million, respectively. Included in our equity earnings from Shurgard were $9.8 million and $8.5 million of our share of depreciation and amortization expense for the three months ended March 31, 2024 and 2023, respectively.

For purposes of recording our equity in earnings from Shurgard, the Euro was translated at exchange rates of approximately 1.079 U.S. Dollars per Euro at March 31, 2024 (1.104 at December 31, 2023), and average exchange rates of 1.086 and 1.073 for the three months ended March 31, 2024 and 2023, respectively.

Real estate acquisition and development expense: In the three months ended March 31, 2024 and 2023, we incurred a total of $3.7 million and $5.5 million, respectively, of internal and external expenses related to our acquisition and development of real estate facilities. These amounts are net of $4.4 million and $4.5 million in the three months ended March 31, 2024 and 2023, respectively, in development costs that were capitalized to newly developed and redeveloped self-storage facilities. During the three months ended March 31, 2024 and 2023, we wrote off a total of $0.4 million and $2.5 million, respectively, of accumulated development costs related to cancelled development and redevelopment projects as well as due diligence costs incurred in pursuit of strategic transactions.

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

									Three Months Ended March 31,
																					2024						2023						Change
																					(Amounts in thousands)
Share-based compensation expense																					$	6,038					$	5,280					$	758
Corporate management costs																					8,139						6,979						1,160
Other costs																					7,159						4,699						2,460
Total																					$	21,336					$	16,958					$	4,378

General and administrative expense increased $4.4 million in the three months ended March 31, 2024 as compared to the same period in 2023 due primarily to (i) an increase in other costs driven by higher spending in IT applications and software development and (ii) an increase in corporate management costs driven by higher payroll costs.

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

									Three Months Ended March 31,
																					2024						2023						Change
																					(Amounts in thousands)
Interest earned on cash balances																					$	8,640					$	11,859					$	(3,219)
Commercial operations																					2,239						2,383						(144)
Unrealized gain on private equity investments																					1,103						2,218						(1,115)
Other																					1,984						2,174						(190)
Total																					$	13,966					$	18,634					$	(4,668)

Interest earned on cash balances decreased $3.2 million in the three months ended March 31, 2024 as compared to the same period in 2023, due primarily to lower average cash balances partially offset by higher interest rates earned.

Interest expense: For the three months ended March 31, 2024 and 2023, we incurred $70.1 million and $37.8 million, respectively, of interest on our outstanding notes payable. In determining interest expense, these amounts were offset by capitalized interest of $2.4 million and $1.7 million during the three months ended March 31, 2024 and 2023, respectively, associated with our development activities. The increase of interest expense in the three months ended March 31, 2024 as compared to the same period in 2023 is due to the issuance of $2.2 billion of notes payable in July 2023 and the increase of Compounded SOFR on our $700.0 million variable rate unsecured notes issued in April 2021. At March 31, 2024, we had $9.1 billion of notes payable outstanding, with a weighted average interest rate of approximately 3.1%.

Foreign currency exchange gain (loss): For the three months ended March 31, 2024 and 2023, we recorded foreign currency gains of $37.5 million and losses of $26.9 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 1.079 U.S. Dollars per Euro at March 31, 2024, 1.104 at December 31, 2023, 1.088 at March 31, 2023, and 1.070 at December 31, 2022. 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.

Gain on sale of real estate: In the three months ended March 31, 2024, we sold a land parcel for $2.4 million in cash and recorded gains on sale of real estate of $0.9 million (none in the three months ended March 31, 2023).

Income tax expense: We operate as a REIT for U.S. federal income tax purposes. As a REIT, we are generally not subject to U.S. federal income taxes on our taxable income distributed to stockholders. For the three months ended March 31, 2024 and 2023, we recorded income tax expense totaling $1.5 million and $3.1 million, respectively, related to our taxable REIT subsidiaries and in the state and local jurisdictions in which we operate. The year-over-year changes of income tax expense in the first quarter of 2024 were primarily driven by changes in state income tax, due to fluctuations of taxable income in certain states where there are differences between federal and state tax laws.

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 was approximately $700 million in 2021, $1 billion in 2022 and $480 million for 2023 after a 50% increase in annual dividend in 2023. 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 $450 million for 2024.

Capital needs in excess of retained cash flow are met with: (i) medium and long-term debt, (ii) preferred equity, (iii) limited partnership interests, and (iv) 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.

On June 12, 2023, we amended our revolving line of credit, increasing the borrowing limit from $500 million to $1.5 billion. We increased the size of the revolving line of credit and its associated lender base given our increased levels of debt maturities in coming years and to serve as temporary “bridge” financing until we are able to raise longer term capital. As of March 31, 2024, there were no borrowings outstanding on the revolving line of credit; however, we do have approximately $14.6 million of outstanding letters of credit, which limits our borrowing capacity to $1,485.4 million as of April 30, 2024. Our line of credit matures on June 12, 2027.

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 deteriorate 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) $271.6 million of cash as of March 31, 2024, (ii) approximately $340 million of net cash proceeds we will retain from the issuance of unsecured senior notes in April 2024 after repayment of $808 million of our unsecured notes due in April 2024, and (iii) approximately $450 million of expected retained operating cash flow over the next twelve months. Additionally, we have $1,485.4 million available borrowing capacity on our revolving line of credit, which can be used as temporary “bridge” financing until we are able to raise longer term capital. 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) $393.7 million of remaining spending on our current development pipeline, which will be incurred primarily in the next 18 to 24 months and (ii) $34.6 million in property acquisitions currently under contract. 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, debt, and limited partnership interests, 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, 2024, the principal outstanding on our debt totaled approximately $9.1 billion, consisting of $7.5 billion of U.S. Dollar denominated unsecured notes payable, $1.7 billion of Euro-denominated unsecured notes payable, and $1.8 million of mortgage notes payable. Approximate principal maturities and interest payments (including $46.4 million in estimated interest on our $1.1 billion variable rate unsecured notes based on rates in effect at March 31, 2024) are as follows (amounts in thousands):

			Principal						Interest						Total
Remainder of 2024			$	808,018					$	172,073					$	980,091
2025			661,336						222,314						883,650
2026			1,150,138						196,395						1,346,533
2027			500,146						184,450						684,596
2028			1,200,129						162,960						1,363,089
Thereafter			4,796,323						1,103,285						5,899,608
			$	9,116,090					$	2,041,477					$	11,157,567

On April 11, 2024, PSOC issued €150 million of senior notes to institutional investors, bearing interest at a fixed rate of 4.080% and maturing on April 11, 2039. The senior notes are guaranteed by Public Storage. We received $162.6 million of net proceeds from the issuance after converting the Euros to U.S. Dollars. On April 11, 2024, we repaid PSOC’s €100 million 1.540% senior notes due April 12, 2024 to the same institutional investors for $108.4 million.

On April 16, 2024, PSOC completed a public offering of $1.0 billion aggregate principal amount of senior notes, including $700 million aggregate principal amount of floating rate senior notes bearing interest at a rate of Compounded SOFR + 0.70% (reset quarterly) maturing on April 16, 2027 and $300 million aggregate principal amount of senior notes bearing interest at a fixed annual rate of 5.350% maturing on August 1, 2053. The 2053 notes constitute a further issuance of, and form a single series with, our outstanding 5.350% senior notes due 2053 issued on July 26, 2023 in the aggregate principal amount of $600 million. These senior notes are guaranteed by Public Storage. We received $988.5 million of net proceeds from the offering. On April 23, 2024, we repaid our outstanding $700 million aggregate principal amount of floating rate senior notes at maturity.

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.

We spent $66 million of capital expenditures to maintain real estate facilities in the first three months of 2024 and expect to spend approximately $180 million in 2024. 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 Property of Tomorrow 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 $25 million in the first three months of 2024 and expect to spend $150 million in 2024 on this effort. In addition, we have spent $13 million on the installation of solar panels in the first three months of 2024 and we expect to spend $120 million in 2024.

The capital spent to install solar panels and LED lights will reduce electric utility usage resulting in lower property operating costs.

Requirement to Pay Distributions: For all periods presented herein, we have elected to be treated as a REIT, as defined in the Internal Revenue 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.

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, 2024 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, 2024, we acquired or were under contract to acquire four self-storage facilities for a total purchase price of $34.6 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, 2024, we had development and expansion projects at a total cost of approximately $783.0 million. Costs incurred through March 31, 2024 were $389.3 million, with the remaining cost to complete of $393.7 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 April 30, 2024, we have three 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), 5.050% Series G Preferred Shares ($300.0 million), and 5.600% Series H Preferred Shares ($285.0 million). See Note 9 to our March 31, 2024 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 the three months ended March 31, 2024, we did not repurchase any of our common shares. From the inception of the repurchase program through April 30, 2024, we have repurchased a total of 23,721,916 common shares at an aggregate cost of approximately $679.1 million. We have no current plans to repurchase shares; however future levels of common share repurchases will be dependent upon our available capital, investment alternatives and the trading price of our common shares.