UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June 30, 2020~~March 31, 2021

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

For the transition period from ____________ to ____________.

Commission File Number: 001-33519

Public Storage
‎(Exact name of registrant as specified in its charter)


Maryland	95-3551121
(State or other jurisdiction of ‎incorporation or organization)	(I.R.S. Employer Identification Number)

701 Western Avenue, Glendale, California	91201-2349
(Address of principal executive offices)	(Zip Code)

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

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

Securities registered pursuant to Section 12b of the Act:



Title of Class	Trading Symbol	Name of each exchange on which registered
Common Shares, $0.10 par value	PSA	New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a ~~5.200% Cum Pref Share, Series W, $0.01 par value~~	~~PSAPrW~~	~~New York Stock Exchange~~
~~Depositary Shares Each Representing 1/1,000 of a 5.200% Cum Pref Share, Series X, $0.01 par value~~	~~PSAPrX~~	~~New York Stock Exchange~~
~~Depositary Shares Each Representing 1/1,000 of a 5.400% Cum Pref Share, Series B, $0.01 par value~~	~~PSAPrB~~	~~New York Stock Exchange~~
~~Depositary Shares Each Representing 1/1,000 of a~~ 5.125% Cum Pref Share, Series C, $0.01 par value	PSAPrC	New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.950% Cum Pref Share, Series D, $0.01 par value	PSAPrD	New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 4.900% Cum Pref Share, Series E, $0.01 par value	PSAPrE	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
0.875% Senior Notes due 2032	PSA32	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.

[X] 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).

[X] 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

[X]

[ ]

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 [X] No

Indicate the number of the registrant’s outstanding common shares of beneficial interest, as of ~~August 3, 2020:~~April 26, 2021:

Common Shares of beneficial interest, $0.10 par value per share – ~~174,802,792~~174,978,140 shares

PUBLIC STORAGE

INDEX


PART I	FINANCIAL INFORMATION	Pages

Item 1.	Financial Statements (Unaudited)

	Balance Sheets at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020	1

	Statements of Income for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~	2

	Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ‎~~June 30, 2020~~March 31, 2021 and ~~2019~~2020	3

	Statements of Equity for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~	~~4-7~~4-5

	Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~	~~8-9~~6-7

	Condensed Notes to Financial Statements	~~10-28~~8-26

Item 2.	Management’s Discussion and Analysis of ‎Financial Condition and Results of Operations	~~29-63~~27-57

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6358

Item 4.	Controls and Procedures	6358

PART II	OTHER INFORMATION (Items 3, 4 and 5 are not applicable)

Item 1.	Legal Proceedings	6459

Item 1A.	Risk Factors	~~64-65~~59

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6559

Item 6.	Exhibits	6559

PUBLIC STORAGE

BALANCE SHEETS

(Amounts in thousands, except share data)


	June 30,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
ASSETS		(Unaudited)				(Unaudited)

Cash and equivalents	$	1,268,475	$	409,743	$	159,622	$	257,560
Real estate facilities, at cost:
Land		4,300,406		4,186,873		4,432,749		4,375,588
Buildings		12,397,440		12,102,273		13,211,931		12,997,039
		16,697,846		16,289,146		17,644,680		17,372,627
Accumulated depreciation		(6,881,358)		(6,623,475)		(7,286,332)		(7,152,135)
		9,816,488		9,665,671		10,358,348		10,220,492
Construction in process		153,382		141,934		201,316		188,079
		9,969,870		9,807,605		10,559,664		10,408,571

Investments in unconsolidated real estate entities		753,358		767,816		771,075		773,046
Goodwill and other intangible assets, net		206,922		205,936		205,061		204,654
Other assets		159,430		174,344		286,313		172,715
Total assets	$	12,358,055	$	11,365,444	$	11,981,735	$	11,816,546


LIABILITIES AND EQUITY

Notes payable	$	2,457,871	$	1,902,493	$	2,996,111	$	2,544,992
Preferred shares called for redemption (Note 8)		495,000		-		-		300,000
Accrued and other liabilities		394,986		383,284		368,309		394,655
Total liabilities		3,347,857		2,285,777		3,364,420		3,239,647

Commitments and contingencies (Note 12)

Equity:
Public Storage shareholders’ equity:
Preferred Shares, $0.01 par value, 100,000,000 shares authorized,
165,400 shares issued (in series) and outstanding, (162,600 at
December 31, 2019), at liquidation preference		4,135,000		4,065,000
151,700 shares issued (in series) and outstanding,
at liquidation preference						3,792,500		3,792,500
Common Shares, $0.10 par value, 650,000,000 shares authorized,
174,498,918 shares issued and outstanding (174,418,615 shares at
December 31, 2019)		17,450		17,442
174,651,004 shares issued and outstanding (174,581,742 shares at
December 31, 2020)						17,465		17,458
Paid-in capital		5,702,466		5,710,934		5,715,254		5,707,101
Accumulated deficit		(789,089)		(665,575)		(877,931)		(914,791)
Accumulated other comprehensive loss		(73,136)		(64,890)		(49,341)		(43,401)
Total Public Storage shareholders’ equity		8,992,691		9,062,911		8,597,947		8,558,867
Noncontrolling interests		17,507		16,756		19,368		18,032
Total equity		9,010,198		9,079,667		8,617,315		8,576,899
Total liabilities and equity	$	12,358,055	$	11,365,444	$	11,981,735	$	11,816,546

‎

See accompanying notes.

PUBLIC STORAGE

STATEMENTS OF INCOME

(Amounts in thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020

Revenues:
Self-storage facilities	$	664,542	$	669,339	$	1,338,743	$	1,319,747	$	716,347	$	674,201
Ancillary operations		44,743		41,611		86,624		80,241		50,915		44,843
		709,285		710,950		1,425,367		1,399,988		767,262		719,044

Expenses:
Self-storage cost of operations		213,825		196,083		421,750		389,739		212,105		211,096
Ancillary cost of operations		11,782		11,653		22,727		22,198		16,318		13,572
Depreciation and amortization		137,618		126,859		273,518		248,800		146,859		135,900
General and administrative		20,294		15,264		41,358		34,767		19,574		17,868
Interest expense		14,145		12,254		27,766		20,397		15,250		13,621
		397,664		362,113		787,119		715,901		410,106		392,057

Other increases to net income:
Interest and other income		5,831		8,582		12,310		15,547		2,852		6,119
Equity in earnings of unconsolidated real estate entities		17,655		18,914		41,623		36,586		19,456		23,968
Foreign currency exchange (loss) gain		(19,295)		(5,218)		(10,350)		2,573
Foreign currency exchange gain										45,385		8,945
Gain on sale of real estate		-		341		1,117		341		9,413		1,117
Net income		315,812		371,456		682,948		739,134		434,262		367,136
Allocation to noncontrolling interests		(889)		(1,400)		(1,869)		(2,557)		(1,226)		(980)
Net income allocable to Public Storage shareholders		314,923		370,056		681,079		736,577		433,036		366,156
Allocation of net income to:
Preferred shareholders - distributions		(52,952)		(53,525)		(104,957)		(108,537)
Preferred shareholders - redemptions (Note 8)		(15,069)		(8,861)		(15,069)		(17,394)
Preferred shareholders										(46,080)		(52,005)
Restricted share units		(783)		(1,259)		(1,800)		(2,492)		(1,146)		(1,017)
Net income allocable to common shareholders	$	246,119	$	306,411	$	559,253	$	608,154	$	385,810	$	313,134
Net income per common share:
Basic	$	1.41	$	1.76	$	3.21	$	3.49	$	2.21	$	1.80
Diluted	$	1.41	$	1.76	$	3.20	$	3.49	$	2.21	$	1.79

Basic weighted average common shares outstanding		174,493		174,253		174,470		174,215		174,611		174,446
Diluted weighted average common shares outstanding		174,575		174,542		174,596		174,459		174,840		174,616

‎

See accompanying notes.

PUBLIC STORAGE

STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020

Net income	$	315,812	$	371,456	$	682,948	$	739,134	$	434,262	$	367,136
Other comprehensive income (loss):
Aggregate foreign currency exchange loss		(14,426)		(6,796)		(18,596)		(916)
Adjust for aggregate foreign currency exchange
loss (gain) included in net income		19,295		5,218		10,350		(2,573)
Other comprehensive income (loss):		4,869		(1,578)		(8,246)		(3,489)
Foreign currency exchange loss on
investment in Shurgard										(5,940)		(13,115)
Total comprehensive income		320,681		369,878		674,702		735,645		428,322		354,021
Allocation to noncontrolling interests		(889)		(1,400)		(1,869)		(2,557)		(1,226)		(980)
Comprehensive income allocable to
Public Storage shareholders	$	319,792	$	368,478	$	672,833	$	733,088	$	427,096	$	353,041

See accompanying notes.

PUBLIC STORAGE

STATEMENT OF EQUITY

Three Months Ended ~~June 30, 2020~~March 31, 2021

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

(Unaudited)


																									Accumulated		Total
									Accumulated		Total						Cumulative								Other		Public Storage
	Cumulative								Other		Public Storage						Preferred		Common		Paid-in		Accumulated		Comprehensive		Shareholders’		Noncontrolling		Total
	Preferred		Common		Paid-in		Accumulated		Comprehensive		Shareholders’		Noncontrolling		Total		Shares		Shares		Capital		Deficit		Loss		Equity		Interests		Equity
	Shares		Shares		Capital		Deficit		Loss		Equity		Interests		Equity

Balances at March 31, 2020	$	4,065,000	$	17,448	$	5,709,861	$	(701,226)	$	(78,005)	$	9,013,078	$	17,130	$	9,030,208
Issuance of 22,600 preferred shares (Note 8)		565,000		-		(15,830)		-		-		549,170		-		549,170
Redemption of 19,800 preferred shares (Note 8)		(495,000)		-		-		-		-		(495,000)		-		(495,000)
Balances at December 31, 2020																	$	3,792,500	$	17,458	$	5,707,101	$	(914,791)	$	(43,401)	$	8,558,867	$	18,032	$	8,576,899
Issuance of common shares in connection with
share-based compensation (23,896 shares)		-		2		1,921		-		-		1,923		-		1,923
share-based compensation (69,262 shares) (Note 10)																		-		7		4,696		-		-		4,703		-		4,703
Share-based compensation expense, net of cash
paid in lieu of common shares		-		-		6,546		-		-		6,546		-		6,546
paid in lieu of common shares (Note 10)																		-		-		3,489		-		-		3,489		-		3,489
Acquisition of noncontrolling interests		-		-		(32)		-		-		(32)		(1)		(33)		-		-		(32)		-		-		(32)		(1)		(33)
Contributions by noncontrolling interests		-		-		-		-		-		-		867		867		-		-		-		-		-		-		1,380		1,380
Net income		-		-		-		315,812		-		315,812		-		315,812		-		-		-		434,262		-		434,262		-		434,262
Net income allocated to noncontrolling interests		-		-		-		(889)		-		(889)		889		-		-		-		-		(1,226)		-		(1,226)		1,226		-
Distributions to:
Preferred shareholders (Note 8)		-		-		-		(52,952)		-		(52,952)		-		(52,952)		-		-		-		(46,080)		-		(46,080)		-		(46,080)
Noncontrolling interests		-		-		-		-		-		-		(1,378)		(1,378)		-		-		-		-		-		-		(1,269)		(1,269)
Common shareholders and restricted share
unitholders ($2.00 per share)		-		-		-		(349,834)		-		(349,834)		-		(349,834)		-		-		-		(350,096)		-		(350,096)		-		(350,096)
Other comprehensive income (Note 2)		-		-		-		-		4,869		4,869		-		4,869
Balances at June 30, 2020	$	4,135,000	$	17,450	$	5,702,466	$	(789,089)	$	(73,136)	$	8,992,691	$	17,507	$	9,010,198
Other comprehensive loss (Note 2)																		-		-		-		-		(5,940)		(5,940)		-		(5,940)
Balances at March 31, 2021																	$	3,792,500	$	17,465	$	5,715,254	$	(877,931)	$	(49,341)	$	8,597,947	$	19,368	$	8,617,315

See accompanying notes.

PUBLIC STORAGE

STATEMENT OF EQUITY

Three Months Ended ~~June 30, 2019~~March 31, 2020

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

(Unaudited)


																									Accumulated		Total
									Accumulated		Total						Cumulative								Other		Public Storage
	Cumulative								Other		Public Storage						Preferred		Common		Paid-in		Accumulated		Comprehensive		Shareholders’		Noncontrolling		Total
	Preferred		Common		Paid-in		Accumulated		Comprehensive		Shareholders’		Noncontrolling		Total		Shares		Shares		Capital		Deficit		Loss		Equity		Interests		Equity
	Shares		Shares		Capital		Deficit		Loss		Equity		Interests		Equity

Balances at March 31, 2019	$	4,025,000	$	17,422	$	5,708,699	$	(615,329)	$	(65,971)	$	9,069,821	$	24,800	$	9,094,621
Redemption of 11,500 preferred shares (Note 8)		(287,500)		-		-		-		-		(287,500)		-		(287,500)
Balances at December 31, 2019																	$	4,065,000	$	17,442	$	5,710,934	$	(665,575)	$	(64,890)	$	9,062,911	$	16,756	$	9,079,667
Issuance of common shares in connection with
share-based compensation (79,231 shares)		-		7		15,790		-		-		15,797		-		15,797
Share-based compensation expense, net of cash
paid in lieu of common shares		-		-		5,456		-		-		5,456		-		5,456
share-based compensation (56,407 shares) (Note 10)																		-		6		1,757		-		-		1,763		-		1,763
Cash paid in lieu of common shares, net of
share-based compensation expense (Note 10)																		-		-		(2,830)		-		-		(2,830)		-		(2,830)
Contributions by noncontrolling interests		-		-		-		-		-		-		1,106		1,106		-		-		-		-		-		-		566		566
Net income		-		-		-		371,456		-		371,456		-		371,456		-		-		-		367,136		-		367,136		-		367,136
Net income allocated to noncontrolling interests		-		-		-		(1,400)		-		(1,400)		1,400		-		-		-		-		(980)		-		(980)		980		-
Distributions to:
Preferred shareholders (Note 8)		-		-		-		(53,525)		-		(53,525)		-		(53,525)
Distributions to equity holders:
Preferred shares (Note 8)																		-		-		-		(52,005)		-		(52,005)		-		(52,005)
Noncontrolling interests		-		-		-		-		-		-		(1,730)		(1,730)		-		-		-		-		-		-		(1,172)		(1,172)
Common shareholders and restricted share
unitholders ($2.00 per share)		-		-		-		(349,593)		-		(349,593)		-		(349,593)		-		-		-		(349,802)		-		(349,802)		-		(349,802)
Other comprehensive loss (Note 2)		-		-		-		-		(1,578)		(1,578)		-		(1,578)		-		-		-		-		(13,115)		(13,115)		-		(13,115)
Balances at June 30, 2019	$	3,737,500	$	17,429	$	5,729,945	$	(648,391)	$	(67,549)	$	8,768,934	$	25,576	$	8,794,510
Balances at March 31, 2020																	$	4,065,000	$	17,448	$	5,709,861	$	(701,226)	$	(78,005)	$	9,013,078	$	17,130	$	9,030,208

See accompanying notes.

~~PUBLIC STORAGE~~

~~STATEMENT OF EQUITY~~

~~Six Months Ended June 30, 2020~~

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

~~(Unaudited)~~

Accumulated
Total
Cumulative
Other
Public Storage
Preferred
Common
Paid-in
Accumulated
Comprehensive
Shareholders’
Noncontrolling
Total
Shares
Shares
Capital
Deficit
Loss
Equity
Interests
Equity
Balances at December 31, 2019
$
4,065,000
$
17,442
$
5,710,934
$
(665,575)
$
(64,890)
$
9,062,911
$
16,756
$
9,079,667
Issuance of 22,600 preferred shares (Note 8)
565,000
-
(15,830)
-
-
549,170
-
549,170
Redemption of 19,800 preferred shares (Note 8)
(495,000)
-
-
-
-
(495,000)
-
(495,000)
Issuance of common shares in connection with
share-based compensation (80,303 shares) (Note 10)
-
8
3,678
-
-
3,686
-
3,686
Share-based compensation expense, net of cash
paid in lieu of common shares (Note 10)
-
-
3,716
-
-
3,716
-
3,716
Acquisition of noncontrolling interests
-
-
(32)
-
-
(32)
(1)
(33)
Contributions by noncontrolling interests
-
-
-
-
-
-
1,433
1,433
Net income
-
-
-
682,948
-
682,948
-
682,948
Net income allocated to noncontrolling interests
-
-
-
(1,869)
-
(1,869)
1,869
-
Distributions to:
Preferred shareholders (Note 8)
-
-
-
(104,957)
-
(104,957)
-
(104,957)
Noncontrolling interests
-
-
-
-
-
-
(2,550)
(2,550)
Common shareholders and restricted share
unitholders ($4.00 per share)
-
-
-
(699,636)
-
(699,636)
-
(699,636)
Other comprehensive loss (Note 2)
-
-
-
-
(8,246)
(8,246)
-
(8,246)
Balances at June 30, 2020
$
4,135,000
$
17,450
$
5,702,466
$
(789,089)
$
(73,136)
$
8,992,691
$
17,507
$
9,010,198

~~See accompanying notes.~~

~~PUBLIC STORAGE~~

~~STATEMENT OF EQUITY~~

~~Six Months Ended June 30, 2019~~

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

~~(Unaudited)~~

Accumulated
Total
Cumulative
Other
Public Storage
Preferred
Common
Paid-in
Accumulated
Comprehensive
Shareholders’
Noncontrolling
Total
Shares
Shares
Capital
Deficit
Loss
Equity
Interests
Equity
Balances at December 31, 2018
$
4,025,000
$
17,413
$
5,718,485
$
(577,360)
$
(64,060)
$
9,119,478
$
25,250
$
9,144,728
Issuance of 11,400 preferred shares (Note 8)
285,000
-
(8,277)
-
-
276,723
-
276,723
Redemption of 22,900 preferred shares (Note 8)
(572,500)
-
-
-
-
(572,500)
-
(572,500)
Issuance of common shares in connection with
share-based compensation (163,642 shares)
-
16
17,374
-
-
17,390
-
17,390
Share-based compensation expense, net of cash
paid in lieu of common shares
-
-
2,363
-
-
2,363
-
2,363
Contributions by noncontrolling interests
-
-
-
-
-
-
1,302
1,302
Net income
-
-
-
739,134
-
739,134
-
739,134
Net income allocated to noncontrolling interests
-
-
-
(2,557)
-
(2,557)
2,557
-
Distributions to equity holders:
Preferred shares (Note 8)
-
-
-
(108,537)
-
(108,537)
-
(108,537)
Noncontrolling interests
-
-
-
-
-
-
(3,533)
(3,533)
Common shares and restricted share
unitholders ($4.00 per share)
-
-
-
(699,071)
-
(699,071)
-
(699,071)
Other comprehensive loss (Note 2)
-
-
-
-
(3,489)
(3,489)
-
(3,489)
Balances at June 30, 2019
$
3,737,500
$
17,429
$
5,729,945
$
(648,391)
$
(67,549)
$
8,768,934
$
25,576
$
8,794,510

~~See accompanying notes.~~

PUBLIC STORAGE

STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	For the Six Months Ended June 30,				For the Three Months Ended March 31,
	2020		2019		2021		2020
Cash flows from operating activities:
Net income	$	682,948	$	739,134	$	434,262	$	367,136
Adjustments to reconcile net income to net cash flows
from operating activities:
Gain on real estate investment sales		(1,117)		(341)		(9,413)		(1,117)
Depreciation and amortization		273,518		248,800		146,859		135,900
Equity in earnings of unconsolidated real estate entities		(41,623)		(36,586)		(19,456)		(23,968)
Distributions from cumulative equity in earnings of unconsolidated
real estate entities		37,032		38,562		15,487		15,443
Foreign currency exchange loss (gain)		10,350		(2,573)
Foreign currency exchange gain						(45,385)		(8,945)
Share-based compensation expense		12,801		12,374		14,407		5,677
Other		28,165		15,815		(27,599)		(27,176)
Total adjustments		319,126		276,051		74,900		95,814
Net cash flows from operating activities		1,002,074		1,015,185		509,162		462,950
Cash flows from investing activities:
Capital expenditures to maintain real estate facilities		(99,883)		(71,012)		(36,551)		(57,504)
Development and expansion of real estate facilities		(88,682)		(146,375)		(61,213)		(47,616)
Acquisition of real estate facilities and intangible assets	Acquisition of real estate facilities and intangible assets	(253,331)		(196,185)	Acquisition of real estate facilities and intangible assets	(203,108)		(186,183)
Distributions in excess of cumulative equity in earnings
from unconsolidated real estate entities		10,803		-
Repayment of note receivable		4,860		-
Real estate deposits and costs for pending acquisitions						(114,415)		-
Proceeds from sale of real estate investments		1,399		438		11,562		1,399
Net cash flows used in investing activities		(424,834)		(413,134)		(403,725)		(289,904)
Cash flows from financing activities:
Repayments on notes payable		(1,000)		(948)		(527)		(497)
Issuance of notes payable, net of issuance costs		545,151		496,900		496,235		545,151
Issuance of preferred shares		549,170		276,723
Issuance of common shares		3,686		17,390		4,703		1,763
Redemption of preferred shares		-		(572,500)		(300,000)		-
Cash paid upon vesting of restricted share units		(9,085)		(10,011)		(7,284)		(8,507)
Acquisition of noncontrolling interests		(33)		-		(33)		-
Contributions by noncontrolling interests		1,433		1,302		1,380		566
Distributions paid to preferred shareholders,
common shareholders and restricted share unitholders		(804,593)		(807,608)		(396,176)		(401,807)
Distributions paid to noncontrolling interests		(2,550)		(3,533)		(1,269)		(1,172)
Net cash flows from (used in) financing activities		282,179		(602,285)
Net cash flows from (used in) operating, investing, and financing activities		859,419		(234)
Net effect of foreign exchange translation		(28)		46
Increase (decrease) in cash and equivalents, including restricted cash	$	859,391	$	(188)
Net cash flows (used in) provided by financing activities						(202,971)		135,497
Net cash flows (used in) from operating, investing, and financing activities						(97,534)		308,543
Net effect of foreign exchange impact on cash and equivalents, including
restricted cash						178		31
(Decrease) increase in cash and equivalents, including restricted cash					$	(97,356)	$	308,574

‎

See accompanying notes.

PUBLIC STORAGE

STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



	For the Six Months Ended June 30,				For the Three Months Ended March 31,
	2020		2019		2021		2020

Cash and equivalents, including restricted cash at beginning of the period:
Cash and equivalents	$	409,743	$	361,218	$	257,560	$	409,743
Restricted cash included in other assets		23,811		22,801		25,040		23,811
	$	433,554	$	384,019	$	282,600	$	433,554

Cash and equivalents, including restricted cash at end of the period:
Cash and equivalents	$	1,268,475	$	360,331	$	159,622	$	718,427
Restricted cash included in other assets		24,470		23,500		25,622		23,701
	$	1,292,945	$	383,831	$	185,244	$	742,128

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	$	(12,363)	$	(12,635)	$	(9,018)	$	(14,018)
Construction or expansion of real estate facilities		(26,763)		(57,675)		(21,886)		(20,605)
Accrued and other liabilities		39,126		70,310		30,904		34,623

Real estate acquired in exchange for assumption of notes payable		-		(1,817)
Notes payable assumed in connection with acquisition of real estate		-		1,817

Preferred shares called for redemption and reclassified to liabilities		495,000		-
Preferred shares called for redemption and reclassified from equity		(495,000)		-

Other disclosures:

Foreign currency translation adjustment:
Investments in unconsolidated real estate entities	$	8,246	$	3,489
Notes payable		10,322		(2,527)
Accumulated other comprehensive loss		(18,596)		(916)

See accompanying notes.

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

~~June 30, 2020~~March 31, 2021

(Unaudited)

1.Description of the Business

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

At ~~June 30, 2020,~~March 31, 2021, we have direct and indirect equity interests in ~~2,500~~2,563 self-storage facilities (with approximately ~~171~~176.2 million net rentable square feet) located in 38 states in the United States (“U.S.”) operating under the “Public Storage” name, and 0.9 million net rentable square feet of commercial and retail space.

We own 31.3 million common shares (an approximate 35% interest) of Shurgard Self Storage SA (“Shurgard”) a public company traded on Euronext Brussels under the “SHUR” symbol, which owns ~~238~~243 self-storage facilities (with approximately 13 million net rentable square feet) located in 7 Western European countries, all operating under the “Shurgard” name. We also own an approximate 42% common equity interest in PS Business Parks, Inc. (“PSB”), a REIT traded on the New York Stock Exchange under the “PSB” symbol, which owns ~~27.5~~27.8 million net rentable square feet of commercial properties, primarily multi-tenant industrial, flex, and office space, located in 6 states.

Disclosures of the number and square footage of facilities, as well as the number and coverage of tenant reinsurance policies (Note 12) 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.).

2.Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

We have prepared the accompanying interim financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Accounting Standards Codification of the Financial Accounting Standards Board (“FASB”), and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”). In our opinion, the interim financial statements presented herein reflect all adjustments, primarily of a normal recurring nature, that are necessary to fairly present the interim financial statements. Because they do not include all of the disclosures required by GAAP for complete annual financial statements, these interim financial statements should be read together with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Certain amounts previously reported in our ~~June 30, 2019~~March 31, 2020 financial statements have been reclassified to conform to the ~~June 30,~~March 31, 2021 presentation, including revenues and cost operations from our third party management activities of $3.0 million and $2.6 million, respectively, for the three months ended March 31, 2020, ~~presentation.~~previously reported within interest and other income. This reclassification had no impact on our balance sheet, statements of comprehensive income, statements of equity, or cash flows as of and for the three months ended March 31, 2020.

Additionally, we corrected our prior period financial statement presentation of share-based compensation expense between general and administrative expense and self-storage cost of operations. As a result, we revised our statements of income for the three months ended March 31, 2020 with an increase in self-storage cost of operations of $3.2 million, and a corresponding decrease to general and administrative expenses.

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

This immaterial correction had no impact on our total expenses or net income. The correction also had no impact on our balance sheet, statements of comprehensive income, statements of equity, or cash flows as of and for the three months ended March 31, 2020.

Summary of Significant Accounting Policies

Consolidation and Equity Method of Accounting

We consider entities to be Variable Interest Entities (“VIEs”) when they have insufficient equity to finance their activities without additional subordinated financial support provided by other parties, or the equity holders as a group do not have a controlling financial interest. We consolidate VIEs when we have (i) the power to direct the activities most significantly impacting economic performance, and (ii) either the obligation to absorb losses or the right to receive benefits from the VIE. We have no involvement with any material VIEs. We consolidate all other entities when we control them through voting shares or contractual rights. The entities we

~~PUBLIC STORAGE~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~June 30, 2020~~

~~(Unaudited)~~

consolidate, for the period in which the reference applies, are referred to collectively as the “Subsidiaries,” and we eliminate intercompany transactions and balances.

We account for our investments in entities that we do not consolidate but have significant influence over using the equity method of accounting. These entities, for the periods in which the reference applies, are referred to collectively as the “Unconsolidated Real Estate Entities,” eliminating intra-entity profits and losses and amortizing any differences between the cost of our investment and the underlying equity in net assets against equity in earnings as if the Unconsolidated Real Estate Entity were a consolidated subsidiary.

Equity in earnings of unconsolidated real estate entities presented on our income statements represents our pro-rata share of the earnings of the Unconsolidated Real Estate Entities. The dividends we receive from the Unconsolidated Real Estate Entities are reflected on our statements of cash flows as “distributions from cumulative equity in earnings of unconsolidated real estate entities” to the extent of our cumulative equity in earnings, with any excess classified as “distributions in excess of cumulative equity in earnings from unconsolidated real estate entities.”

When we begin consolidating an entity, we reflect our preexisting equity interest at book value. All changes in consolidation status are reflected prospectively.

Collectively, at ~~June 30, 2020,~~March 31, 2021, the Company and the Subsidiaries own ~~2,500~~2,563 self-storage facilities and 4 commercial facilities in the U.S. At ~~June 30, 2020,~~March 31, 2021, the Unconsolidated Real Estate Entities are comprised of PSB and Shurgard.

Use of Estimates

The financial statements and accompanying notes reflect our estimates and assumptions. Actual results could differ from those estimates and assumptions.

Income Taxes

We have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended (the “Code”). AsFor each taxable year in which we qualify for taxation as a REIT, we dowill not ~~incur~~be subject to U.S. federal corporate income tax ~~if we distribute 100% of~~on our ~~REIT~~“REIT taxable income” (generally, taxable income ~~each year,~~subject to specified adjustments, including a deduction for dividends paid and ~~if we meet certain organizational and operational rules.~~excluding our net capital gain) that is distributed to our shareholders. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded 0no U.S. federal corporate income tax expense related to our REIT taxable income.

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

Our tenant reinsurance, merchandise and ~~tenant reinsurance~~third party management operations are subject to corporate income tax and such taxes are included in ancillary cost of operations. We also incur income and other taxes in certain states, which are included in general and administrative expense.

We recognize tax benefits of uncertain income tax positions that are subject to audit only if we believe it is more likely than not that the position would ultimately be sustained assuming the relevant taxing authorities had full knowledge of the relevant facts and circumstances of our positions. As of ~~June 30, 2020,~~March 31, 2021, we had 0 tax benefits that were not recognized.

Real Estate Facilities

Real estate facilities are recorded at cost. We capitalize all costs incurred to acquire, develop, construct, renovate and improve facilities, including interest and property taxes incurred during the construction period. The costs of demolition of existing facilities associated with a renovation are expensed as incurred. We

~~PUBLIC STORAGE~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~June 30, 2020~~

~~(Unaudited)~~

allocate the net acquisition cost of acquired real estate facilities to the underlying land, buildings, and identified intangible assets based upon their respective individual estimated fair values.

Costs associated with dispositions of real estate, as well as repairs and maintenance costs, are expensed as incurred. We depreciate buildings and improvements on a straight-line basis over estimated useful lives ranging generally between 5 to 25 years.

When we sell a full or partial interest in a real estate facility without retaining a controlling interest following sale, we recognize a gain or loss on sale as if 100% of the property was sold at fair value. If we retain a controlling interest following the sale, we record a noncontrolling interest for the book value of the partial interest sold, and recognize additional paid-in capital for the difference between the consideration received and the partial interest at book value.

Other Assets

Other assets primarily consist of rents receivable from our tenants (net of an allowance for uncollectible amounts), prepaid expenses, deposits on pending facilities (which as of March 31, 2021 included $100 million for the ezStorage portfolio, see Note 13), restricted cash and right-to-use assets. At December 31, 2019, other assets included a note receivable, which was amortized on the effective interest method with a book value of $2.9 million at the time it was repaid in June 2020 at its $4.9 million contractual note balance. The $2.0 million excess proceeds were recorded as interest and other income during the three and six months ended June 30, 2020.

Accrued and Other Liabilities

Accrued and other liabilities consist primarily of rents prepaid by our tenants, trade payables, property tax accruals, accrued payroll, accrued tenant reinsurance losses, lease liabilities, and contingent loss accruals when probable and estimable. We believe the fair value of our accrued and other liabilities approximates book value, due primarily to the short period until repayment. We disclose the nature of significant unaccrued losses that are reasonably possible of occurring and, if estimable, a range of exposure.

Cash Equivalents, Restricted Cash, Marketable Securities and Other Financial Instruments

Cash equivalents represent highly liquid financial instruments such as money market funds with daily liquidity or short-term commercial paper or treasury securities maturing within three months of acquisition. Cash and equivalents which are restricted from general corporate use are included in other assets. We believe that the book value of all such financial instruments for all periods presented approximates fair value, due to the short period to maturity.

‎

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

Fair Value

As used herein, the term “fair value” is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ~~Our~~Because our estimates of fair value involve considerable judgment, ~~and are not necessarily indicative~~including determination of the ~~amounts~~factors that ~~could~~market participants would consider in negotiating exchange values, such estimates may be limited in their ability to reflect what would actually be realized in ~~current~~an actual market ~~exchanges.~~exchange.

We estimate the fair value of our cash and equivalents, marketable securities, other assets, debt, and other liabilities by discounting the related future cash flows at a rate based upon quoted interest rates for securities that have similar characteristics such as credit quality and time to maturity. Such quoted interest rates are referred to generally as “Level 2” inputs.

We use significant judgment to estimate fair values of investments in real estate, goodwill, and other intangible assets. In estimating their values, we consider significant unobservable inputs such as market prices

~~PUBLIC STORAGE~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~June 30, 2020~~

~~(Unaudited)~~

of land, market capitalization rates, expected returns, earnings multiples, projected levels of earnings, costs of construction, and functional depreciation. These inputs are referred to generally as “Level 3” inputs.

Currency and Credit Risk

Financial instruments that are exposed to credit risk consist primarily of cash and equivalents, certain portions of other assets including rents receivable from our tenants (net of an allowance for uncollectible receivables based upon expected losses in the portfolio) and restricted cash. Cash equivalents we invest in are either money market funds with a rating of at least AAA by Standard & Poor’s, commercial paper that is rated A1 by Standard & Poor’s or deposits with highly rated commercial banks.

At ~~June 30, 2020,~~March 31, 2021, due primarily to our investment in Shurgard (Note 4) and our notes payable denominated in Euros (Note 6), our operating results and financial position are affected by fluctuations in currency exchange rates between the Euro, and to a lesser extent, other European currencies, against the U.S. Dollar.

Goodwill and Other Intangible Assets

Intangible assets are comprised of goodwill, the “Shurgard” trade name, and finite-lived assets.

Goodwill totaled ~~$174.6~~$165.8 million at ~~June 30, 2020 and~~March 31, 2021 ($174.6 million at December 31, ~~2019.~~2020). The “Shurgard” trade name, which is used by Shurgard pursuant to a fee-based licensing agreement, has a book value of $18.8 million at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. Goodwill and the “Shurgard” trade name have indefinite lives and are not amortized.

Our finite-lived assets are comprised primarily of (i) acquired customers in place amortized relative to the benefit of the customers in place, with such amortization reflected as depreciation and amortization expense on our income statement and (ii) property tax abatements amortized relative to the reduction in property tax paid, with such amortization reflected as self-storage cost of operations on our income statement. At ~~June 30, 2020,~~March 31, 2021, these intangibles had a net book value of ~~$13.5~~$20.5 million ($~~12.5~~11.3 million at December 31, ~~2019)~~2020). Accumulated amortization totaled ~~$31.3~~$25.7 million at ~~June 30, 2020~~March 31, 2021 ($~~27.5~~27.3 million at December 31, ~~2019)~~2020). A total of ~~$4.3~~$6.1 million and ~~$9.0~~$4.7 million in amortization expense was recorded in the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~respectively, and $4.5 million and $8.4 million in the same periods in 2019.~~respectively.

The estimated future amortization expense for our finite-lived intangible assets at ~~June 30, 2020~~March 31, 2021 is approximately ~~$4.6~~$10.5 million in the remainder of ~~2020, $2.8~~2021, $4.1 million in ~~2021~~2022 and ~~$6.1~~$5.9 million thereafter. During

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, intangibles increased ~~$10.0~~$6.5 million in connection with the acquisition of self-storage facilities (Note 3).

Evaluation of Asset Impairment

We evaluate our real estate and finite-lived intangible assets for impairment each quarter. If there are indicators of impairment and we determine that the asset is not recoverable from future undiscounted cash flows to be received through the asset’s remaining life (or, if earlier, the expected disposal date), we record an impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value or net proceeds from expected disposal.

We evaluate our investments in unconsolidated real estate entities for impairment on a quarterly basis. We record an impairment charge to the extent the carrying amount exceeds estimated fair value, when we believe any such shortfall is other than temporary.

~~PUBLIC STORAGE~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~June 30, 2020~~

~~(Unaudited)~~

We evaluate goodwill for impairment annually and whenever relevant events, circumstances and other related factors indicate that fair value of the related reporting unit may be less than the carrying amount. If we determine that the fair value of the reporting unit exceeds the aggregate carrying amount, no impairment charge is recorded. Otherwise, we record an impairment charge to the extent the carrying amount of the goodwill exceeds the amount that would be allocated to goodwill if the reporting unit were acquired for estimated fair value.

We evaluate other indefinite-lived intangible assets, such as the “Shurgard” trade name for impairment at least annually and whenever relevant events, circumstances and other related factors indicate that the fair value is less than the carrying amount. When we conclude that it is likely that the asset is not impaired, we do not record an impairment charge and no further analysis is performed. Otherwise, we record an impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value.

NaN impairments were recorded in any of our evaluations for any period presented herein.

Revenue and Expense Recognition

Revenues from self-storage facilities, which are primarily composed of rental income earned pursuant to month-to-month leases, as well as associated late charges and administrative fees, are recognized as earned. Promotional discounts reduce rental income over the promotional period, which is generally one month. Ancillary revenues and interest and other income are recognized when earned.

We accrue for property tax expense based upon actual amounts billed and, in some circumstances, estimates when bills or assessments have not been received from the taxing authorities. If these estimates are incorrect, the timing and amount of expense recognition could be incorrect. Cost of operations (including advertising expenditures), general and administrative expense, and interest expense are expensed as incurred.

Foreign Currency Exchange Translation

The local currency (primarily the Euro) is the functional currency for our interests in foreign operations. The related balance sheet amounts are translated into U.S. Dollars at the exchange rates at the respective financial statement date, while amounts on our statements of income are translated at the average exchange rates during the respective period. When financial instruments denominated in a currency other than the U.S. Dollar are expected to be settled in cash in the foreseeable future, the impact of changes in the U.S. Dollar equivalent are reflected in current earnings. The Euro was translated at exchange rates of approximately ~~1.123~~1.173 U.S. Dollars per Euro at ~~June 30, 2020 (1.122~~March 31, 2021 (1.226 at December 31, ~~2019)~~2020), and average exchange rates of ~~1.101~~1.205 and ~~1.124~~1.103 for the

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and average exchange rates of 1.102 and 1.130 for the six months ended June 30, 2020 and 2019,~~ respectively. Cumulative translation adjustments, to the extent not included in cumulative net income, are included in equity as a component of accumulated other comprehensive income (loss).

Comprehensive Income

Total comprehensive income represents net income, adjusted for changes in other comprehensive income (loss) for the applicable ~~period. The aggregate foreign currency exchange gains and losses reflected on our statements of comprehensive income~~period, which are comprised primarily of foreign currency exchange gains and losses on our investment in ~~Shurgard and our unsecured notes denominated in Euros.~~

~~Recent Accounting Pronouncements and Guidance~~

~~In November 2018, the FASB issued ASU 2018- 19,~~ ~~"Codification Improvements to Topic 326, Financial Instruments - Credit Losses,"~~ ~~which clarified that credit losses with respect to receivables~~ ~~arising from~~

~~PUBLIC STORAGE~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~June 30, 2020~~

~~(Unaudited)~~

operating leases are to be evaluated within the scope of the leasing standard (ASU 2016-02), rather than within the scope of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ~~We adopted this new standard on its effective date for us of January 1, 2020, which did not have a material impact on our consolidated financial statements.~~

~~COVID-19 Pandemic~~

~~During the six months ended June 30, 2020, the global economy was severely impacted by the COVID-19 pandemic (the “COVID Pandemic”), and continues to be severely impacted. W~~e are actively monitoring the impact of the COVID Pandemic, which has negatively impacted our business and results of operations during the six months ended June 30, 2020 and we anticipate will negatively impact our business and results of operations for the remainder of 2020 and likely beyond. The extent to which the COVID Pandemic will continue to impact our operations will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning the severity and duration of the COVID Pandemic and actions by government authorities to contain the COVID Pandemic or treat its impact, as well as resurgences of the virus, among other factors.

Shurgard.

Net Income per Common Share

Net income is allocated to (i) noncontrolling interests based upon their share of the net income of the Subsidiaries and (ii) preferred shareholders, to the extent redemption cost exceeds the related original net issuance proceeds (an “EITF D-42 allocation”), ~~and (iii)~~with the remaining net income is allocated to each of our equity securities based upon the dividends declared or accumulated during the period, combined with participation rights in undistributed earnings.

Basic and diluted net income per common share are each calculated based upon net income allocable to common shareholders presented on the face of our income statement, divided by (i) in the case of basic net income per common share, weighted average common shares, and (ii) in the case of diluted income per share, weighted average common shares adjusted for the impact, if dilutive, of stock options outstanding (Note 10). The following table reconciles from basic to diluted common shares outstanding (amounts in thousands):

Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
Weighted average common shares and equivalents
outstanding:
Basic weighted average common
shares outstanding
174,493
174,253
174,470
174,215
Net effect of dilutive stock options -
based on treasury stock method
82
289
126
244
Diluted weighted average common
shares outstanding
174,575
174,542
174,596
174,459


	Three Months Ended
	March 31,
	2021		2020

Weighted average common shares and equivalents
outstanding:
Basic weighted average common
shares outstanding		174,611		174,446
Net effect of dilutive stock options -
based on treasury stock method		229		170
Diluted weighted average common
shares outstanding		174,840		174,616

1513

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

~~June 30, 2020~~March 31, 2021

(Unaudited)

3.Real Estate Facilities

Activity in real estate facilities during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 is as follows:



	~~For the Six~~Three Months Ended
	~~June 30, 2020~~March 31, 2021
	(Amounts in thousands)
Operating facilities, at cost:
Beginning balance	$	~~16,289,146~~17,372,627
Capital expenditures to maintain real estate facilities		~~95,629~~35,793
Acquisitions		~~243,378~~196,626
Dispositions		~~(282)~~(5,760)
Developed or expanded facilities opened for operation		~~69,975~~45,394
Ending balance		~~16,697,846~~17,644,680
Accumulated depreciation:
Beginning balance		~~(6,623,475)~~(7,152,135)
Depreciation expense		~~(257,883)~~(137,808)
Dispositions		3,611
Ending balance		~~(6,881,358)~~(7,286,332)
Construction in process:
Beginning balance		~~141,934~~188,079
Costs incurred to develop and expand real estate facilities		~~84,649~~
~~Write-off of cancelled projects~~		~~(3,226)~~58,631
Developed or expanded facilities opened for operation		~~(69,975)~~(45,394)
Ending balance		~~153,382~~201,316
Total real estate facilities at ~~June 30, 2020~~March 31, 2021	$	~~9,969,870~~10,559,664

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we acquired 15 self-storage facilities ~~(1,167,000~~(1,087,000 net rentable square feet of storage space), for a total cost of ~~$253.3~~$203.1 million in cash. Approximately ~~$10.0~~$6.5 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing ~~$70.0~~$45.4 million during the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, adding ~~0.5~~0.2 million net rentable square feet of self-storage space. ~~Included in general and administrative expense in the three and six months ended June 30, 2020 is $3.2 million in development projects which were cancelled.~~ Construction in process at ~~June 30, 2020~~March 31, 2021 consists of projects to develop new self-storage facilities and expand existing self-storage facilities.

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, our accrual for unpaid construction costs decreased ~~$4.0~~$2.6 million (a ~~$16.6~~$2.5 million decrease for the same period in ~~2019)~~2020). During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, our accrual for capital expenditures to maintain real estate facilities decreased ~~$4.3~~$0.8 million (a ~~$1.5~~$0.6 million ~~increase~~decrease for the same period in ~~2019)~~2020).

During the three months ended March 31, 2021, we sold a real estate facility in connection with an eminent domain proceeding for $11.6 million in cash proceeds and recorded a related gain on sale of real estate of approximately $9.4 million.

‎

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

4.Investments in Unconsolidated Real Estate Entities

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

‎

~~PUBLIC STORAGE~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~June 30, 2020~~

~~(Unaudited)~~

Investments in Unconsolidated Real Estate
Entities at
June 30, 2020
December 31, 2019
PSB
$
432,466
$
427,875
Shurgard
320,892
339,941
Total
$
753,358
$
767,816


	Investments in Unconsolidated Real Estate
	Entities at
	March 31, 2021		December 31, 2020

PSB	$	431,252	$	431,963
Shurgard		339,823		341,083
Total	$	771,075	$	773,046

Equity in Earnings of Unconsolidated Real Estate Entities for the
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
PSB
$
13,228
$
14,864
$
34,965
$
28,584
Shurgard
4,427
4,050
6,658
8,002
Total
$
17,655
$
18,914
$
41,623
$
36,586


	Equity in Earnings of Unconsolidated Real Estate Entities for the
	Three Months Ended March 31,
	2021		2020

PSB	$	14,476	$	21,737
Shurgard		4,980		2,231
Total	$	19,456	$	23,968

Investment in PSB

Throughout all periods presented, we owned 7,158,354 shares of PSB’s common stock and 7,305,355 limited partnership units in an operating partnership controlled by PSB, representing an approximate 42% common equity interest. The limited partnership units are convertible at our option, subject to certain conditions, on a 1-for-one basis into PSB common stock.

Based upon the closing price at ~~June 30, 2020~~March 31, 2021 ($~~132.40)~~154.58) per share of PSB common ~~stock),~~stock, the shares and units we owned had a market value of approximately ~~$1.9~~$2.2 billion.

Our equity in earnings of PSB is comprised of our equity share of PSB’s net income, less amortization of the PSB Basis Differential (defined below).

During each of the ~~six~~three month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we received cash distributions from PSB totaling ~~$30.4~~$15.2 million.

At ~~June 30, 2020,~~March 31, 2021, our pro-rata investment in PSB’s real estate assets included in investment in unconsolidated real estate entities exceeds our pro-rata share of the underlying amounts on PSB’s balance sheet by approximately ~~$3.8~~$3.2 million ($~~4.2~~3.4 million at December 31, ~~2019)~~2020). This differential (the “PSB Basis Differential”) is being amortized as a reduction to equity in earnings of the Unconsolidated Real Estate Entities. Such amortization totaled approximately ~~$0.4 million and $0.4~~$0.2 million during each of the ~~six months~~three month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019, respectively.~~2020.

PSB is a publicly held entity traded on the New York Stock Exchange under the symbol “PSB”.

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

Investment in Shurgard

Throughout all periods presented, we effectively owned, directly and indirectly 31,268,459 Shurgard common shares, representing an approximate 35% equity interest in Shurgard.

Based upon the closing price at ~~June 30, 2020~~March 31, 2021 (€~~33.45~~38.85 per share of Shurgard common stock, at ~~1.123~~1.173 exchange rate of US Dollars to the Euro), the shares we owned had a market value of approximately ~~$1.2~~$1.4 billion.

~~PUBLIC STORAGE~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~June 30, 2020~~

~~(Unaudited)~~

Our equity in earnings of Shurgard is comprised of our equity share of Shurgard’s net income, plus ~~$0.5~~$0.3 million for each of the ~~six~~three month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ representing our equity share of the trademark license fees that Shurgard pays to us for the use of the “Shurgard” trademark. We classify the remaining license fees we receive from Shurgard as interest and other income on our income statement.

The dividends we receive from Shurgard, combined with our equity share of trademark license fees collected from Shurgard, are reflected on our statements of cash flows as “distributions from cumulative equity in earnings of unconsolidated real estate entities” to the extent of our cumulative equity in earnings, with any excess classified as “distributions in excess of cumulative equity in earnings from unconsolidated real estate entities.” Shurgard ~~paid €0.50 per share and €0.22 per share in~~did 0t pay any dividends to its shareholders during either of the ~~six months~~three month periods ended ~~June 30, 2020 and 2019, respectively, of which our share totaled $17.0 million and $7.7 million, respectively.~~March 31, 2021 or 2020.

Changes in foreign currency exchange rates decreased our investment in Shurgard by approximately ~~$8.2~~$5.9 million and ~~$3.5~~$13.1 million in the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

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

5.Credit Facility

We have a revolving credit agreement (the “Credit Facility”) with a $500 million borrowing limit, which matures on April 19, 2024. Amounts drawn on the Credit Facility bear annual interest at rates ranging from LIBOR plus 0.7% to LIBOR plus 1.350% depending upon the ratio of our Total Indebtedness to Gross Asset Value (as defined in the Credit Facility) (LIBOR plus 0.7% at ~~June 30, 2020)~~March 31, 2021). We are also required to pay a quarterly facility fee ranging from 0.07% per annum to 0.25% per annum depending upon the ratio of our Total Indebtedness to our Gross Asset Value (0.07% per annum at ~~June 30, 2020)~~March 31, 2021). At ~~June 30, 2020~~March 31, 2021 and ~~August 5, 2020,~~April 28, 2021, we had 0 outstanding borrowings under this Credit Facility. We had undrawn standby letters of credit, which reduce our borrowing capacity, totaling ~~$19.3~~$24.3 million at ~~June 30, 2020 ($15.9 million at~~March 31, 2021 and December 31, ~~2019).~~2020. The Credit Facility has various customary restrictive covenants, all of which we were in compliance with at ~~June 30, 2020.~~March 31, 2021.

6.Notes Payable

Our notes payable are reflected net of issuance costs (including original issue discounts), which are amortized as interest expense on the effective interest method over the term of each respective note. Our notes payable at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are set forth in the tables below:

‎

1816

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

~~June 30, 2020~~March 31, 2021

(Unaudited)


			Amounts at June 30, 2020										Amounts at March 31, 2021
	Coupon	Effective			Unamortized			Book		Fair	Coupon	Effective			Unamortized			Book		Fair
	Rate	Rate		Principal	Costs			Value		Value	Rate	Rate		Principal	Costs			Value		Value
			($ amounts in thousands)										($ amounts in thousands)
U.S. Dollar Denominated Unsecured Debt	U.S. Dollar Denominated Unsecured Debt										U.S. Dollar Denominated Unsecured Debt
Notes due September 15, 2022	2.370%	2.483%	$	500,000	$	(1,155)	$	498,845	$	518,935	2.370%	2.483%	$	500,000	$	(759)	$	499,241	$	513,985
Notes due February 15, 2026											0.875%	1.030%		500,000		(3,617)		496,383		486,291
Notes due September 15, 2027	3.094%	3.218%		500,000		(3,812)		496,188		561,525	3.094%	3.218%		500,000		(3,416)		496,584		542,441
Notes due May 1, 2029	3.385%	3.459%		500,000		(2,722)		497,278		581,763	3.385%	3.459%		500,000		(2,489)		497,511		546,753
				1,500,000		(7,689)		1,492,311		1,662,223				2,000,000		(10,281)		1,989,719		2,089,470

Euro Denominated Unsecured Debt	Euro Denominated Unsecured Debt										Euro Denominated Unsecured Debt
Notes due April 12, 2024	1.540%	1.540%		112,290		-		112,290		117,307	1.540%	1.540%		117,277		-		117,277		123,425
Notes due November 3, 2025	2.175%	2.175%		271,756		-		271,756		294,970	2.175%	2.175%		283,827		-		283,827		310,117
Notes due January 24, 2032	0.875%	0.978%		561,448		(6,199)		555,249		551,792	0.875%	0.978%		586,386		(5,796)		580,590		588,263
				945,494		(6,199)		939,295		964,069				987,490		(5,796)		981,694		1,021,805

Mortgage Debt, secured by 27	Mortgage Debt, secured by 27										Mortgage Debt, secured by 27
real estate facilities with a net
book value of $104.0 million	3.995%	3.972%		26,265		-		26,265		27,137
book value of $101.2 million											3.944%	3.933%		24,698		-		24,698		26,092

			$	2,471,759	$	(13,888)	$	2,457,871	$	2,653,429			$	3,012,188	$	(16,077)	$	2,996,111	$	3,137,367


		Amounts at					Amounts at
		December 31, 2019					December 31, 2020
			Book		Fair			Book		Fair
			Value		Value			Value		Value
		($ amounts in thousands)					($ amounts in thousands)
U.S. Dollar Denominated Unsecured Debt	U.S. Dollar Denominated Unsecured Debt					U.S. Dollar Denominated Unsecured Debt
Notes due September 15, 2022		$	498,581	$	505,639		$	499,109	$	517,419
Notes due September 15, 2027			495,924		520,694			496,452		560,833
Notes due May 1, 2029			497,124		531,911			497,433		574,833
			1,491,629		1,558,244			1,492,994		1,653,085

Euro Denominated Unsecured Debt	Euro Denominated Unsecured Debt					Euro Denominated Unsecured Debt
Notes due April 12, 2024			112,156		115,932			122,646		129,192
Notes due November 3, 2025			271,433		298,398			296,821		323,552
Notes due January 24, 2032			-		-			607,301		634,389
			383,589		414,330			1,026,768		1,087,133

Mortgage Debt	Mortgage Debt		27,275		28,506	Mortgage Debt		25,230		26,958

		$	1,902,493	$	2,001,080		$	2,544,992	$	2,767,176

1917

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

~~June 30, 2020~~March 31, 2021

(Unaudited)

U.S. Dollar Denominated Unsecured Notes

On ~~September 18, 2017,~~January 19, 2021, we ~~issued, in~~completed a public offering ~~2 tranches each totaling $500.0~~of $500 million aggregate principal amount of ~~U.S. Dollar denominated unsecured notes.~~senior notes bearing interest at an annual rate of 0.875% and maturing on February 15, 2026. Interest on the senior notes is payable semi-annually, commencing August 15, 2021. In connection with the offering, we incurred a total of ~~$7.9~~$3.8 million in costs. ~~Interest on such notes is payable semi-annually on March 15 and September 15 of each year.~~

On April 12, 2019, we completed a public offering of $500 million in aggregate principal amount of senior notes. In connection with the offering, we incurred a total of $3.1 million in costs. Interest on such notes is payable semi-annually on May 1 and November 1 of each year.

The notes issued on ~~April 12,~~January 19, 2021, along with notes previously issued in 2017 and 2019 ~~and on September 18, 2017~~ are referred to hereinafter as the “U.S. Dollar Denominated Notes.”

The U.S. Dollar Denominated Notes have various financial covenants, all of which we were in compliance with at ~~June 30, 2020.~~March 31, 2021. Included in these covenants are (a) a maximum Debt to Total Assets of 65% (approximately 8% at ~~June 30, 2020)~~March 31, 2021) and (b) a minimum ratio of Adjusted EBITDA to Interest Expense of 1.5x (approximately ~~40x~~38x for the twelve months ended ~~June 30, 2020)~~March 31, 2021) 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 3 tranches: (i) €242.0 million issued to institutional investors on November 3, 2015 for $264.3 million in net proceeds upon converting the Euros to U.S. Dollars, (ii) €100.0 million issued to institutional investors on April 12, 2016 for $113.6 million in net proceeds upon converting the Euros to U.S. Dollars, and (iii) €500.0 million issued in a public offering on January 24, 2020 for $545.2 million in net proceeds upon converting the Euros to U.S. Dollars. Interest is payable semi-annually on the notes issued November 3, 2015 and April 12, 2016, and annually on the notes issued January 24, 2020. The Euro Notes have financial covenants similar to those of the U.S. Dollar Notes.

We reflect changes in the U.S. Dollar equivalent of the amount payable, as a result of changes in foreign exchange rates as “foreign currency exchange ~~(loss)~~ gain” on our income statement ~~(losses of $19.3~~(gains $45.4 million and ~~$10.4~~$8.9 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~respectively, as compared to losses of $5.2 million and gains of $2.6 million for the three and six months ended June 30, 2019,~~ respectively).

Mortgage Notes

Our non-recourse mortgage debt was assumed in connection with property acquisitions, and recorded at fair value with any premium or discount to the stated note balance amortized using the effective interest method.

At ~~June 30, 2020,~~March 31, 2021, the related contractual interest rates are fixed, ranging between 3.2% and 7.1%, and mature between January 1, 2022 and July 1, 2030.

At ~~June 30, 2020~~March 31, 2021, approximate principal maturities of our Notes Payable are as follows (amounts in thousands):

‎

2018

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

~~June 30, 2020~~March 31, 2021

(Unaudited)


	Unsecured		Mortgage				Unsecured		Mortgage
	Debt		Debt		Total		Debt		Debt		Total


Remainder of 2020	$	-	$	1,019	$	1,019
2021		-		1,858		1,858
Remainder of 2021							$	-	$	1,321	$	1,321
2022		500,000		2,584		502,584		500,000		2,574		502,574
2023		-		19,219		19,219		-		19,219		19,219
2024		112,290		124		112,414		117,277		124		117,401
2025								283,827		131		283,958
Thereafter		1,833,204		1,461		1,834,665		2,086,386		1,329		2,087,715
	$	2,445,494	$	26,265	$	2,471,759	$	2,987,490	$	24,698	$	3,012,188
Weighted average effective rate		2.4%		4.0%		2.4%		2.2%		3.9%		2.2%

Cash paid for interest totaled ~~$26.4~~$19.4 million and ~~$21.8~~$14.1 million for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. Interest capitalized as real estate totaled ~~$1.7 million and $2.0~~$0.9 million for each of the ~~six months~~three month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019, respectively.~~2020.

7.Noncontrolling Interests

At ~~June 30, 2020,~~March 31, 2021, the noncontrolling interests represent (i) third-party equity interests in subsidiaries owning 2021 operating self-storage facilities and 67 self-storage facilities that are under construction and (ii) 231,978 partnership units held by third-parties in a subsidiary that are convertible on a 1-for-one basis (subject to certain limitations) into common shares of the Company at the option of the unitholder (collectively, the “Noncontrolling Interests”). At ~~June 30, 2020,~~March 31, 2021, the Noncontrolling Interests cannot require us to redeem their interests, other than pursuant to a liquidation of the subsidiary.

During the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we allocated a total of ~~$1.9~~$1.2 million and ~~$2.6~~$1.0 million, respectively, of income to these interests; and we paid ~~$2.6~~$1.3 million and ~~$3.5~~$1.2 million, respectively, in distributions to these interests.

During the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ Noncontrolling Interests contributed $1.4 million and ~~$1.3~~$0.6 million, respectively, to our subsidiaries.

8.Shareholders’ Equity

Preferred Shares

At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had the following series of Cumulative Preferred Shares (“Preferred Shares”) outstanding:

‎

2119

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

~~June 30, 2020~~March 31, 2021

(Unaudited)

At June 30, 2020
At December 31, 2019
Series
Earliest Redemption Date
Dividend Rate
Shares Outstanding
Liquidation Preference
Shares Outstanding
Liquidation Preference
(Dollar amounts in thousands)
Series V
9/20/2017
5.375%
-
$
-
19,800
$
495,000
Series W
1/16/2018
5.200%
20,000
500,000
20,000
500,000
Series X
3/13/2018
5.200%
9,000
225,000
9,000
225,000
Series B
1/20/2021
5.400%
12,000
300,000
12,000
300,000
Series C
5/17/2021
5.125%
8,000
200,000
8,000
200,000
Series D
7/20/2021
4.950%
13,000
325,000
13,000
325,000
Series E
10/14/2021
4.900%
14,000
350,000
14,000
350,000
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
-
-
Total Preferred Shares
165,400
$
4,135,000
162,600
$
4,065,000


Series	Earliest Redemption Date	Dividend Rate	Shares Outstanding	Liquidation Preference

			(Dollar amounts in thousands)
Series C	5/17/2021	5.125%	8,000	$	200,000
Series D	7/20/2021	4.950%	13,000		325,000
Series E	10/14/2021	4.900%	14,000		350,000
Series F	6/2/2022	5.150%	11,200		280,000
Series G	8/9/2022	5.050%	12,000		300,000
Series H	3/11/2024	5.600%	11,400		285,000
Series I	9/12/2024	4.875%	12,650		316,250
Series J	11/15/2024	4.700%	10,350		258,750
Series K	12/20/2024	4.750%	9,200		230,000
Series L	6/17/2025	4.625%	22,600		565,000
Series M	8/14/2025	4.125%	9,200		230,000
Series N	10/6/2025	3.875%	11,300		282,500
Series O	11/17/2025	3.900%	6,800		170,000
Total Preferred Shares			151,700	$	3,792,500

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 6 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 2 additional members to serve on our board of trustees (our “Board”) until the arrearage has been cured. At ~~June 30, 2020,~~March 31, 2021, there were 0 dividends in arrears. The affirmative vote of at least 66.67% of the outstanding shares of a series of Preferred Shares is required for any material and adverse amendment to the terms of such series. The affirmative vote of at least 66.67% of the outstanding shares of all of our Preferred Shares, voting as a single class, is required to issue shares ranking senior to our Preferred Shares.

Except under certain conditions relating to the Company’s qualification as a REIT, the Preferred Shares are not redeemable prior to the dates indicated on the table above. On or after the respective dates, each of the series of Preferred Shares is redeemable at our option, in whole or in part, at $25.00 per depositary share, plus accrued and unpaid dividends. Holders of the Preferred Shares cannot require us to redeem such shares.

Upon issuance of our Preferred Shares, we classify the liquidation value as preferred equity on our balance sheet with any issuance costs recorded as a reduction to Paid-in capital.

On March 11, 2019, we issued 11.4 million depositary shares, each representing 0.001 of a share of our 5.600% Series H Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $285.0 million in gross proceeds, and we incurred $8.3 million in issuance costs.

~~PUBLIC STORAGE~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~June 30, 2020~~

~~(Unaudited)~~

~~On March 28, 2019,~~January 20, 2021, we redeemed our ~~6.375%~~5.400% Series YB Preferred Shares, at par. We recorded ~~an $8.5~~a $9.9 million allocation of income from our common shareholders to the holders of our Preferred Shares in the ~~six months~~year ended ~~June 30, 2019 in connection with this redemption.~~

On June 27, 2019, we redeemed our 6.000% Series Z Preferred Shares, at par. We recorded an $8.9 million allocation of income from our common shareholders to the holders of our Preferred Shares in the three and six months ended June 30, 2019 in connection with this redemption.

On June 17, 2020, we issued 22.6 million depositary shares, each representing 0.001 of a share of our 4.625% Series L Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $565.0 million in gross proceeds, and we incurred $15.8 million in issuance costs.

In June 2020, we called for redemption of, and on July 10, 2020, we redeemed our 5.375% Series V Preferred Shares, at par. The liquidation value (at par) of $495.0 million was reclassified as a liability at June 30, 2020, and is not included in the table above. We recorded a $15.1 million allocation of income from our common shareholders to the holders of our Preferred Shares in the three and six months ended June 30,December 31, 2020 in connection with this redemption.

Dividends

Common share dividends, including amounts paid to our restricted share unitholders, totaled ~~$349.8~~$350.1 million ($2.00 per share) and ~~$349.6~~$349.8 million ($2.00 per share) for the three months ended ~~June 30,~~March 31, 2021

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

and 2020, ~~and 2019, respectively, and $699.6 million ($4.00 per share) and $699.1 million ($4.00 per share) for the six months ended June 30, 2020 and 2019,~~ respectively. Preferred share dividends totaled ~~$53.0~~$46.1 million and ~~$53.5~~$52.0 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $105.0 million and $108.5 million for the six months ended June 30, 2020 and 2019,~~ respectively.

9.Related Party Transactions

~~B. Wayne Hughes, our former Chairman, and his family, including his daughter~~At March 31, 2021, Tamara Hughes Gustavson, a current member of the Board and ~~his son B. Wayne Hughes, Jr., who are both members of our Board, collectively own approximately 14.1% of our common shares outstanding at June 30, 2020.~~

~~At June 30, 2020, Tamara Hughes Gustavson~~her adult children owned and controlled 6364 self-storage facilities in Canada. Ms. Gustavson’s direct ownership in these properties is less than 1.0%. 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 0 ownership interest in these facilities and we do 0tnot 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 approximately ~~$719,000~~$469,000 and ~~$696,000~~$349,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~Our right to continue receiving these premiums may be qualified.~~

10.Share-Based Compensation

Under various share-based compensation plans and under terms established or modified by our Board or a committee thereof, we grant non-qualified options to purchase the Company’s common shares, as well as restricted share units (“RSUs”), to trustees, officers, and key employees.

~~PUBLIC STORAGE~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~June 30, 2020~~

~~(Unaudited)~~

Stock options and RSUs are considered “granted” and “outstanding” as the terms are used herein, when (i) the Company and the recipient reach a mutual understanding of the key terms of the award, (ii) the award has been authorized, and (iii) the recipient is affected by changes in the market price of our ~~stock, and (iv) it is probable that any performance conditions will be met.~~stock.

We amortize the grant-date fair value of awards, including grants to nonemployee service providers, as compensation expense over the service period, which begins on the grant date and ends ~~generally~~ on the expected vesting date. For awards that are earned solely upon the passage of time and continued service, the entire cost of the award is amortized on a straight-line basis over the service period. For awards with performance conditions, the individual cost of each vesting is amortized separately over each individual service period (the “accelerated attribution” method).

Share-based compensation expense associated with stock options and RSUs was recorded in the following cost and expense categories in the Statement of Income:



		Three Months Ended March 31,
		2021		2020
		(Amounts in thousands)

Self-storage cost of operations	$	7,201	$	3,727
Ancillary cost of operations		500		-
General and administrative		7,642		2,880
Total	$	15,343	$	6,607

During the three months ended March 31, 2021, the Company depleted the available shares under the current plan resulting in $4.8 million of award expense classified as a liability as of March 31, 2021.

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

In July 2020, our share-based compensation plans were modified to allow immediate vesting upon retirement (“Retirement Acceleration”), and to extend the exercisability of outstanding stock options up to a year after retirement, for currently outstanding and future grants. Prior to the modification, unvested awards were forfeited, and outstanding vested stock options were cancelled, upon retirement. Employees are eligible for Retirement Acceleration if they meet certain conditions including length of service, age, notice of intent to retire, and facilitation of succession for their role.

This modification results in accelerating amortization of compensation expense for each grant by changing the end of the service period from the original vesting date to the date an employee is expected to be eligible for Retirement Acceleration, if earlier. As a result, the Company recorded $3.8 million in accelerated compensation expense during the three months ended March 31, 2021. NaN such compensation expense was recorded during the three months ended March 31, 2020.

The Codification previously stipulated that grants to nonemployee service providers (other than to trustees, where equity method treatment was permitted) were accounted for on the liability method, with expenses adjusted each period based upon changes in fair value. Recent changes in the Codification allows such grants to be accounted for on the equity award method, with compensation expense based upon grant date fair value. While we have no such grants to any such individuals for any periods presented, we will account for any future grants to nonemployee service providers based upon the equity award method.

In amortizing share-based compensation expense, we do not estimate future forfeitures in advance. Instead, we reverse previously amortized share-based compensation expense with respect to grants that are forfeited in the period the employee terminates employment.

See also “net income per common share” in Note 2 for further discussion regarding the impact of RSUs and stock options on our net income per common share and income allocated to common shareholders.

Stock Options

Stock options vest over 3 to 5 years, expire ~~ten~~10 years after the grant date, and the exercise price is equal to the closing trading price of our common shares on the grant date. Employees cannot require the Company to settle their award in cash. We use the Black-Scholes option valuation model to estimate the fair value of our stock options.

Outstanding stock option grants are included on a one-for-one basis in our diluted weighted average shares, to the extent dilutive, after applying the treasury stock method (based upon the average common share price during the period) to assumed exercise proceeds and measured but unrecognized compensation.

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, we recorded ~~$1.5~~share-based compensation expense for outstanding stock options of $4.4 million and ~~$2.4~~$0.9 million, ~~respectively, in compensation expense related to stock options, as compared to $1.4 million and $2.2 million~~respectively. The amount for the ~~same periods~~three months ended March 31, 2021 includes $0.8 million in ~~2019.~~connection with the Retirement Acceleration and $1.9 million of the amount classified as liability awards as of March 31, 2021 as discussed above.

During the ~~six~~three months ended ~~June 30, 2020, 55,000~~March 31, 2021, 500,000 stock options were ~~granted, 27,500~~awarded, 26,167 options were exercised and ~~24,000~~10,000 options were forfeited. A total of ~~2,343,167~~3,425,000 stock options were outstanding at ~~June 30, 2020, (2,339,667~~March 31, 2021, (2,961,167 at December 31, ~~2019)~~2020) and have an average exercise price of ~~$200.48.~~$213.20.

During the ~~six~~three months ended ~~June 30,~~March 31, 2021, we incurred share-based compensation expense of $0.3 million in connection with the initial 15,000 stock option awards issued to each of the 5 members that joined our Board in January 2021.

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

During the three months ended March 31, 2021, 245,000 stock options were awarded where vesting is dependent upon meeting certain performance targets with respect to 2021, 2022, and 2023. As of March 31, 2021, these targets are expected to be met at 100% achievement. These options are included in the awards during the three months ended March 31, 2021 and in options outstanding at March 31, 2021, and $0.3 million in related compensation expense was recorded during the three months ended March 31, 2021.

For the three months ended March 31, 2020, ~~740,000~~we recorded $0.9 million in compensation expense related to stock options. During the three months ended March 31, 2020, 770,000 stock options were awarded where vesting is dependent upon meeting certain performance targets with respect to 2020, 2021, and 2022. ~~Because~~As of March 31, 2021, these targets are ~~not~~ expected to be met ~~these options are excluded~~at 125% achievement, an increase from ~~grants during the six months ended June 30,~~100% as of December 31, 2020, and ~~from options outstanding at June 30, 2020. Compensation~~$1.9 million in related compensation expense ~~with respect to these 740,000 stock options represented a $0.2 million reduction for~~was recorded during the three months ended ~~June 30,~~March, 31, 2021. The change in the expected target achievement from 100% at December 31, 2020 ~~(NaN for~~to 125% at March 31, 2021 resulted in an additional award of 180,000 stock options. These options are included in the ~~six~~awards during the three months ended ~~June 30, 2020).~~

~~PUBLIC STORAGE~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~June 30, 2020~~

~~(Unaudited)~~

March 31, 2021 and in options outstanding at March 31, 2021.

Restricted Share Units

RSUs generally vest over 5 to 8 years from the grant date. The grantee receives dividends for each outstanding RSU equal to the per-share dividends received by our common shareholders. We expense any dividends previously paid upon forfeiture of the related RSU. Upon vesting, the grantee receives common shares equal to the number of vested RSUs, less common shares withheld in exchange for tax deposits made by the Company to satisfy the grantee’s statutory tax liabilities arising from the vesting.

The fair value of our RSUs is determined based upon the applicable closing trading price of our common shares.

During the ~~six~~three months ended ~~June 30, 2020, 15,910~~March 31, 2021, 34,200 RSUs were granted, ~~19,180~~7,590 RSUs were forfeited and ~~80,559~~62,486 RSUs vested. This vesting resulted in the issuance of ~~52,803~~43,095 common shares. In addition, tax deposits totaling ~~$9.1~~$7.3 million ($~~10.0~~8.5 million for the same period in ~~2019)~~2020) were made on behalf of employees in exchange for ~~27,756~~19,391 common shares withheld upon vesting. A total of ~~535,321~~516,912 RSUs were outstanding at ~~June 30, 2020 (619,150~~March 31, 2021 (552,788 at December 31, ~~2019)~~2020). During the three months ended March 31, 2021, 37,000 RSUs were awarded where vesting is dependent upon meeting certain performance targets for 2021. As of March 31, 2021, these targets are expected to be met at 100% achievement.

A total of ~~$5.5~~$12.2 million and ~~$11.2~~$5.7 million in RSU expense was recorded for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, respectively, which includes approximately ~~$0.1~~$1.2 million and $1.1 million, respectively, in employer taxes incurred upon ~~vesting, as compared to $4.3 million and $11.1 million~~vesting. The amount for the ~~same periods~~three months ended March 31, 2021 includes $3.0 million in ~~2019, which includes approximately $0.1~~connection with the Retirement Acceleration and $2.9 million ~~and $1.1 million, respectively, in employer taxes incurred upon vesting.~~of the amount to be classified as liability awards as of March 31, 2021 as discussed above.

11.Segment Information

Our reportable segments reflect the significant components of our operations where discrete financial information is evaluated separately by our chief operating decision maker (“CODM”). We organize our segments based primarily upon the nature of the underlying products and services, as well as the drivers of profitability growth. The net income for each reportable segment included in the ~~tables~~table below are in conformity with GAAP and our significant accounting policies as denoted in Note 2. The amounts not attributable to reportable segments are aggregated under “other items not allocated to segments.”

Following is a description of and basis for presentation for each of our reportable segments.

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

Self-Storage Operations

The Self-Storage Operations segment reflects the rental operations from all self-storage facilities we own. Our CODM reviews the net operating income (“NOI”) of this segment, which represents the related revenues less cost of operations (prior to depreciation expense), in assessing performance and making resource allocation decisions. The presentation in the tables below sets forth the NOI of this segment, as well as the depreciation expense for this segment, which while reviewed by our CODM and included in net income, is not considered by the CODM in assessing performance and decision making. 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 segment.

Ancillary Operations

The Ancillary Operations segment reflects the ~~sale~~operations of our tenant reinsurance, merchandise sales and ~~reinsurance of policies against losses to goods stored by our self-storage tenants, activities which are incidental to our primary self-storage rental~~

~~PUBLIC STORAGE~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~June 30, 2020~~

~~(Unaudited)~~

third party management activities. ~~Our CODM reviews the NOI of these operations in assessing performance and making resource allocation decisions.~~

Investment in PSB

This segment represents our approximate 42% equity interest in PSB, a publicly-traded REIT that owns, operates, acquires and develops commercial properties, primarily multi-tenant flex, office, and industrial space. PSB has a separate management team and board of directors that makes its financing, capital allocation, and other significant decisions. In making resource allocation decisions with respect to our investment in PSB, the CODM reviews PSB’s net income, which is detailed in PSB’s periodic filings with the SEC. The segment presentation in the tables below includes our equity earnings from PSB.

Investment in Shurgard

This segment represents our approximate 35% equity interest in Shurgard, a publicly held company which owns and operates self-storage facilities located in 7 countries in Western Europe. Shurgard has a separate management team and board of trustees that makes its financing, capital allocation, and other significant decisions. In making resource allocation decisions with respect to our investment in Shurgard, the CODM reviews Shurgard’s net income. The segment presentation below includes our equity earnings from Shurgard.

Presentation of Segment Information

The following table reconciles NOI (as applicable) and net income of each segment to our consolidated net income (amounts in thousands):

‎

2624

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

~~June 30, 2020~~March 31, 2021

(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
		2020		2019		2020		2019		2021		2020
		(amounts in thousands)								(amounts in thousands)
Self-Storage Segment
Revenue	$	664,542	$	669,339	$	1,338,743	$	1,319,747	$	716,347	$	674,201
Cost of operations		(213,825)		(196,083)		(421,750)		(389,739)		(212,105)		(211,096)
Net operating income		450,717		473,256		916,993		930,008		504,242		463,105
Depreciation and amortization		(137,618)		(126,859)		(273,518)		(248,800)		(146,859)		(135,900)
Net income		313,099		346,397		643,475		681,208		357,383		327,205

Ancillary Segment
Revenue		44,743		41,611		86,624		80,241		50,915		44,843
Cost of operations		(11,782)		(11,653)		(22,727)		(22,198)		(16,318)		(13,572)
Net operating income		32,961		29,958		63,897		58,043		34,597		31,271

Investment in PSB Segment (a) - Equity in earnings of unconsolidated entities		13,228		14,864		34,965		28,584		14,476		21,737

Investment in Shurgard Segment (a) - Equity in earnings of unconsolidated entities		4,427		4,050		6,658		8,002		4,980		2,231

Total net income allocated to segments		363,715		395,269		748,995		775,837		411,436		382,444

Other items not allocated to segments:
General and administrative		(20,294)		(15,264)		(41,358)		(34,767)		(19,574)		(17,868)
Interest and other income		5,831		8,582		12,310		15,547		2,852		6,119
Interest expense		(14,145)		(12,254)		(27,766)		(20,397)		(15,250)		(13,621)
Foreign currency exchange (loss) gain		(19,295)		(5,218)		(10,350)		2,573
Foreign currency exchange gain										45,385		8,945
Gain on sale of real estate		-		341		1,117		341		9,413		1,117
Net income	$	315,812	$	371,456	$	682,948	$	739,134	$	434,262	$	367,136

(a) See Note 4 for a reconciliation of these amounts to our total Equity in Earnings of Unconsolidated Real Estate Entities on our income statements.

12.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

2725

PUBLIC STORAGE

NOTES TO FINANCIAL STATEMENTS

~~June 30, 2020~~March 31, 2021

(Unaudited)

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

We reinsure a program that provides insurance to our customers from an independent third-party insurer. This program covers customer claims for losses to goods stored at our facilities as a result of specific named perils (earthquakes are not covered by this program), up to a maximum limit of $5,000 per storage unit. We reinsure all risks in this program, but purchase insurance to cover this exposure for a limit of $15.0 million for losses in excess of $5.0 million per occurrence. We are subject to licensing requirements and regulations in several states. Customers participate in the program at their option. At ~~June 30, 2020,~~March 31, 2021, there were approximately ~~998,000~~1,022,000 certificates held by our self-storage customers, representing aggregate coverage of approximately ~~$3.8~~$4.2 billion.

Construction Commitments

We have construction commitments representing future expected payments for construction under contract totaling ~~$78.2~~$111.0 million at ~~June 30, 2020.~~March 31, 2021. We expect to pay approximately ~~$38.2~~$90.2 million in the remainder of ~~2020, $39.1 million in~~ 2021 and ~~$0.9~~$20.8 million in 2022 for these construction commitments.

13.Subsequent Events

Subsequent to ~~June 30, 2020,~~March 31, 2021, we acquired or were under contract to acquire ~~(subject to customary closing conditions) 5~~87 self-storage facilities across 18 states with ~~268,000~~7.6 million net rentable square feet, for ~~$33.3 million.~~$2.3 billion, including the 48 properties (4.2 million net rentable square feet) currently owned and operated by ezStorage Corp. that we are under contract to purchase for an acquisition price of $1.8 billion. The acquisition, which is subject to the satisfaction of customary closing conditions, is currently expected to close in late April 2021.

On April 23, 2021, we completed a public offering of $700 million, $650 million and $650 million aggregate principal amount of senior notes bearing interest at an annual rate of the compounded Secured Overnight Financing Rate (“SOFR”) + 0.47% (reset quarterly), 1.85% and 2.30%, respectively, and maturing on April 23, 2024, May 1, 2028 and May 1, 2031, respectively.

2826

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

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 2021 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, 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. All statements in this document, other than statements of historical fact, are forward-looking statements which 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 described in Part 1, Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 filed with the Securities and Exchange Commission (the “SEC”) on February ~~25, 2020~~24, 2021 and in our other filings with the SEC including:

general risks associated with the ownership and operation of real estate, including changes in demand, risk related to development, expansion, and acquisition of self-storage facilities, potential liability for environmental contamination, natural disasters and adverse changes in laws and regulations governing property tax, real estate and zoning;

risks associated with downturns in the national and local economies in the markets in which we operate, including risks related to current economic conditions and the economic health of our customers;

risks associated with the COVID-19 Pandemic (the “COVID Pandemic”) or similar events, including but not limited to illness or death of our employees or customers, negative impacts to the economic environment and to self-storage customers which could reduce the demand for self-storage or reduce our ability to collect rent, and/or potential regulatory actions to (i) close our facilities if we were determined not to be an “essential business” or for other reasons, (ii) limit our ability to increase rent or otherwise limit the rent we can charge or (iii) limit our ability to collect rent or evict delinquent tenants;

the risk that there could be an out-migration of population from certain high-cost major markets, if it is determined that the ability to “work from home,” which has become more prominent during the COVID Pandemic, could allow certain workers to live in less expensive localities, which could negatively impact the occupancies and revenues of our properties in such major high-cost markets;

the risk that even though many initial restrictions due to the COVID Pandemic have eased, they could be reinstituted in ~~case of future waves of infection~~response to increases in infections or if additional pandemics occur;

the risk that we could experience a change in the move-out patterns of our long-term customers due to economic uncertainty and ~~the significant increase~~increases in unemployment resulting from the COVID ~~Pandemic. This~~Pandemic, which could lead to lower occupancies and rent “roll down” as long-term customers are replaced with new customers at lower rates;

the risk of negative impacts on the cost and availability of debt and equity capital as a result of the COVID Pandemic, which could have a material impact upon our capital and growth plans;

the impact of competition from new and existing self-storage and commercial facilities and other storage alternatives;

the risk that our existing self-storage facilities may be at a disadvantage in competing with newly developed facilities with more visual and customer appeal;

risks related to increased reliance on Google as a customer acquisition channel;

difficulties in our ability to successfully evaluate, finance, integrate into our existing operations, and manage properties that we acquire directly or through the acquisition of entities that own and operate self-storage ~~facilities;~~

facilities, or to consummate announced acquisitions in the expected timeframe or at all;

risks associated with international operations including, but not limited to, unfavorable foreign currency rate fluctuations, changes in tax laws, and local and global economic uncertainty that could adversely affect our earnings and cash flows;

risks related to our participation in joint ventures;

the impact of the legal and regulatory environment as well as national, state and local laws and regulations including, without limitation, those governing environmental issues, taxes, our tenant reinsurance business, and labor, including risks related to the impact of new laws and regulations;

risks of increased tax expense associated either with a possible failure by us to qualify as a real estate investment trust (“REIT”), or with challenges to the determination of taxable income for our taxable REIT subsidiaries;

risks due to ~~a November 2020 California~~ ballot ~~initiative (or~~initiatives or other ~~equivalent actions)~~actions that could remove the protections of Proposition 13 with respect to our real estate and result in substantial increases in our assessed values and property tax bills in California;

changes in United States (“U.S.”) federal or state tax laws related to the taxation of REITs and other corporations;

security breaches or a failure of our networks, systems or technology could adversely impact our operations or our business, customer and employee relationships or result in fraudulent payments;

risks associated with the self-insurance of certain business risks, including property and casualty insurance, employee health insurance and workers compensation liabilities;

difficulties in raising capital at a reasonable cost;

delays and cost overruns on our projects to develop new facilities or expand our existing facilities;

ongoing litigation and other legal and regulatory actions which may divert management’s time and attention, require us to pay damages and expenses or restrict the operation of our business; and

economic uncertainty due to the impact of war or terrorism.

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 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~~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 Policies and Estimates

~~Our~~The preparation of 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, 2021, there were no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~(“MD&A”) discusses our financial statements, which have been prepared~~contained in accordance with U.S. generally accepted accounting principles (“GAAP”), and are affected by our judgments, assumptions and estimates. The notes to our June 30, 2020 financial statements, primarily Note 2, summarize our significant accounting policies.

~~We believe the following are our critical accounting policies, because they have a material impact on the portrayal~~Part II, Item 7 of our ~~financial condition and results, and they require us to make judgments and estimates about matters that are inherently uncertain.~~

~~Income Tax Expense:~~ We have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, we do not incur federal income tax on our REIT taxable income that is fully distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we meet certain organizational and operational rules. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no federal income tax expense related to our REIT taxable income.

Our evaluation that we have met the REIT requirements could be incorrect, because compliance with the tax rules requires factual determinations, and circumstances we have not identified could result in noncompliance with the tax requirements in current or prior years. For any taxable year that we fail to qualify as a REIT and for which applicable statutory relief provisions did not apply, we would be taxed at the regular corporate rates on all of our taxable income for at least that year and the ensuing four years, we could be subject to penalties and interest, and our net income would be materially different from the amounts estimated in our financial statements.

In addition, certain of our consolidated corporate subsidiaries have elected to be treated as “taxable REIT subsidiaries” for federal income tax purposes, which are taxable as regular corporations and subject to certain limitations on intercompany transactions. If tax authorities determine that amounts paid by our taxable REIT subsidiaries to us are not reasonable compared to similar arrangements among unrelated parties, we could be subject to a 100% penalty tax on the excess payments. Such a penalty tax could have a material adverse impact on our net income.

~~Impairment of Long-Lived Assets:~~ The analysis of impairment of our long-lived assets involves identification of indicators of impairment, projections of future operating cash flows, and estimates of fair values, all of which require significant judgment and subjectivity. Others could come to materially different conclusions. In addition, we may not have identified all current facts and circumstances that may affect impairment. Any unidentified impairment loss, or change in conclusions, could have a material adverse impact on our net income.

~~Accrual for Uncertain and Contingent Liabilities:~~ We accrue for certain contingent and other liabilities that have significant uncertain elements, such as property taxes, workers compensation claims, tenant reinsurance claims, as well as other legal claims and disputes involving customers, employees, governmental agencies and other third parties. We estimate such liabilities based upon many factors such as assumptions of past and future trends and our evaluation of likely outcomes. However, the estimates of known liabilities could be incorrect or we may not be aware of all such liabilities, in which case our accrued liabilities and net income could be misstated.

~~Allocating Purchase Price for Acquired Real Estate Facilities:~~We estimate the fair values of land and buildings for purposes of allocating the aggregate purchase price of acquired properties. The related estimation processes involve significant judgment. We estimate the fair value of acquired buildings by determining the current cost to build new purpose-built self-storage facilities in the same location, and adjusting those costsForm 10-K for the actual age, quality, condition, amenities, and configuration of the buildings acquired. We estimate the fair value of acquired land by considering the most directly comparable recently transacted land sales (“Land Comps”) and adjusting the transacted values for differentials to the acquired land such as location quality, parcel size, and date of sale, in order to derive the estimated value of the underlying acquired land. These adjustments to the Land Comps require significant judgment, particularly when there is a low volume of Land Comps or the available Land Comps lack similarity to the acquired property in proximity, date of sale, or location quality. Others could come to materially different conclusions as to the estimated fair values, which would result in different depreciation and amortization expense, gains and losses on sale of real estate assets, as well as the level of land and buildings on our balance sheet.

‎

year ended December 31,

2020.

Overview

~~Impact~~During a significant portion of ~~COVID-19~~

~~During~~2020 and continuing into 2021, the ~~three months ended June 30, 2020, the COVID-19 pandemic (the “COVID Pandemic”)~~COVID Pandemic has resulted in cessation, ~~severe~~ curtailment, or impairment of business activities in most sectors of the economy in virtually all markets we operate in, due to governmental “stay at home” orders, risk mitigation procedures, closure of businesses not considered to be “essential,” as well as other direct and indirect impacts, including a rapid and dramatic increase in unemployment in the U.S. While initial government restrictions have been eased or removed in certain markets ~~such as a number of Northeastern markets, initial government restrictions were eased in response~~there remains an ongoing negative impact to ~~reductions in~~ the rate of new infections, other markets, such as Florida and Texas, have experienced significant increases in the rate of infections and consequent increases in government restrictions, and a number of markets, such as California and Washington, are experiencing resurgences in rates of infection and are re-imposing government restrictions. These restrictions as well as public concerns about the virus continue to negatively impact the economy, with unemployment continuing to be at high levels. It is also possible that stricter government restrictions, including stay at home orders, could be instituted or reinstituted in the event of future waves of infection or if additional pandemics occur. We cannot estimate the extent of the COVID Pandemic’s future negative impacts.economy.

Our self-storage facilities have ~~been classified as “essential” businesses under all applicable business closure orders and thus~~ remained open to all customer activity. Although our facilities remained open, the COVID Pandemic negatively impacted our operations in the three months ended June 30, 2020 due to curtailed rate increases on existing tenants, lower fee collections, a more challenging move-in environment and increased operating expenses, in particular property manager payroll expense.

We consider the safety of our employees and customers as our first priority, and have accordingly taken significant steps to ensure safety, ~~while keeping our services available to the public. These steps include~~including initiating our touchless ~~online~~eRental® leasing platform, developing the ability for customers to access our properties through our mobile app, as well as enforcing social distancing requirements in our property offices and grounds, and providing protective ~~equipment, including face coverings, gloves, and plastic barriers.~~equipment.

Our corporate offices as well as our call centers migrated to a “work from home” environment during the COVID Pandemic. We ~~believe that~~expect our ~~operating results have been impacted negatively by~~corporate employees to return to the ~~direct and indirect effects~~corporate office in 2021 assuming the risk of the COVID Pandemic asrecedes. However, we expect that our call centers will remain in a “work from home” environment due to certain favorable aspects of a distributed call center team.

The continuing impacts of the COVID Pandemic are described more fully ~~in “General Overview” below, as well as~~ throughout our MD&A which follows.

~~General Overview~~

Our self-storage operations generate most of our net income and ~~we believe that~~ our earnings growth is most impacted by the level of organic growth ~~in our existing self-storage portfolio, in particular, the growth in~~within our Same Store ~~facilities’ revenues.~~Facilities. Accordingly, a significant portion of management’s time is devoted to maximizing cash flows from our existing self-storage ~~facilities.~~facility portfolio.

Most of our facilities compete with other well-managed and well-located competitors within the local trade area, which is generally a three to five mile radius. In addition to local competition, we are subject to general economic conditions, particularly those that affect the spending habits of consumers and moving trends. We believe that our centralized information networks, our national telephone and online reservation system, the brand name “Public Storage,” and our economies of scale enable us to meet such challenges effectively.

InDuring the ~~last~~ three ~~years, there has been a marked increase in development of new self-storage facilities in many of~~months ended March 31, 2021, revenues generated by our Same Store Facilities increased 3.4% from the ~~markets where we operate,~~three months ended March 31, 2020. Although our revenue continued to be negatively impacted by the COVID Pandemic including restrictions on rate increases to tenants imposed by local government due to “States of Emergency”, our demand and operating trends continued to improve. For the ~~favorable economics~~three months ended March 31, 2021, same-store occupancy was 95.6%, an increase of developing new properties. These newly developed facilities compete with many of the facilities we own, negatively impacting our occupancies, rental rates, and rental growth. These newly developed facilities generally represent “fifth generation” facilities which often have a more fresh and vibrant appearance, more amenities such as climate control, more attractive office configurations, newer design elements, and a more imposing and attractive retail presence2.8% as compared to the ~~existing stock of self-storage facilities which were built over the last 50 years.~~

~~Our Same Store revenues declined 3.0% in the~~ three months ended ~~June 30,~~March 31, 2020, ~~as compared to the same period in 2019, due primarily to a 2.0% reduction in realized rent per foot and a 31.8% reduction in late fees and administrative charges.~~

The decline in realized rent per foot was attributable to a significant curtailment of our existing tenant rate increase program, and a 13.9% year-over-year reduction in rent per foot charged to new tenants moving in during the three months ended June 30, 2020. Our trends in realized rent per foot turned increasingly negative in the three months ended June 30, 2020, from a 0.9% year over year increase inwhile contract rent per occupied foot at March 31, 2021 was 1% higher as compared to March 31, 2020, ~~to a 3.1% year over year decline at June 30, 2020.~~suggesting continued revenue growth into 2021.

While we have noted certain encouraging signs that, if they persist, may suggest improved storage demand, we believe that it is likely that our Same Store revenues in the last half of 2020 will decrease on a year-over-year basis at a rate higher than the year-over-year decrease in the three months ended June 30, 2020. See “Analysis of Same Store Revenues – Outlook” for further information on our revenue expectations.

In addition to managing our existing facilities for organic growth, we have grown and plan ~~on growing~~to continue to grow through the acquisition and development of new facilities and expanding our existing self-storage facilities. Since the beginning of ~~2013 through June 30, 2020,~~2019, we acquired a total of ~~355~~121 facilities with ~~24.9~~9.3 million net rentable square feet ~~from third parties~~ for ~~approximately $3.3~~

$1.4 billion, and we opened newly developed and expanded self-storage space for a total cost of ~~$1.7 billion,~~$563.2 million, adding ~~approximately 15.7~~5.1 million net rentable square feet.

~~We continue~~

Additionally, subsequent to ~~seek~~March 31, 2021, we were under contract to acquire ~~additional self-storage facilities from third parties. During~~ the ~~three months ended June 30, 2020, third party acquisition volume slowed as third party sellers delayed the sale~~ezStorage portfolio consisting of ~~their~~48 properties due to economic uncertainty resulting from the COVID Pandemic. Seller inquiries have increased since June 30, 2020, with five properties under contract for an aggregate purchase price of $33.3 million, and negotiations under way on additional facilities. Volume later in 2020 could increase further if leveraged owners of recently developed facilities are forced to sell, the economy stabilizes and seller confidence returns, or additional owners are otherwise motivated to sell. There can be no assurance as to the level of future acquisitions of facilities.

~~At June 30, 2020, we had a development pipeline to develop ten new self-storage facilities and expand 29 existing self-storage facilities, which will add approximately 3.8~~(4.2 million net rentable square ~~feet at~~feet) for $1.8 billion. These properties are located in submarkets with strong demand drivers and high barriers for new property development across Washington DC, Virginia, and Maryland. Our development team will assume responsibility for one property that is under construction and expand eight additional properties, resulting in an expected 10% increase in square footage through 2023. The acquisition, which is subject to the satisfaction of customary closing conditions, is currently expected to close in late April 2021.

Our strong financial profile continues to enable an effective access to capital markets in order to support our growth and on April 23, 2021, we completed a ~~cost~~public offering of ~~$556.2 million. The COVID Pandemic could delay the estimated timing~~$700 million, $650 million and $650 million aggregate principal amount of ~~completion of our existing pipeline of development~~senior notes maturing on April 23, 2024, May 1, 2028 and expansion projects, because some jurisdictions may shut down or delay entitlement activities, and further “stay at home” orders, among other potential causes, could potentially delay construction activities. We continue to monitor our projects to ensure they still meet our risk-adjusted yield expectations. Given the impact of the COVID Pandemic on our operations, we determined to cease pursuit of several early stage development and expansion projects, and incurred $3.2 million in incremental general and administrative expense on the related cumulative costs incurred. See “self-storage operations – Developed Facilities” for further information on our development activities.May 1, 2031, respectively.

In order to enhance the competitive position of certain of our facilities relative to local competitors (including newly developed ~~“fifth generation”~~ facilities), we have ~~commenced~~embarked on a ~~comprehensive~~multi-year program to rebrand our properties, in order to develop more pronounced, attractive, and clearly identifiable color schemes and signage, as well as to upgrade the configuration and layout of the offices and other customer zones to improve the customer experience. ~~This program has initially been concentrated in properties located in a limited number of markets.~~ The ~~extent to which we continue this program in additional markets,~~timing and ~~the relative~~ scope of work, will depend in part upon the results of the initial implementation of the program. The cost of this program is included in “capital expenditures to maintain our real estate facilities” on our statements of cash flow, and the program will evolve as the work is ~~discussed more fully in “Liquidity~~executed and ~~Capital Resources – Capital Expenditure Requirements” below.~~we expect to spend approximately $120 million over 2021 on this effort.

As of June 30, 2020, we expect capital resources over the next year of approximately $1.9 billion, which exceeds our currently identified capital needs of approximately $931.1 million. Our expected capital resources include: (i) $1.3 billion of cash as of June 30, 2020, (ii) $480.7 million of available borrowing capacity on our revolving line of credit and (iii) approximately $150 million to $200 million of expected retained operating cash flow in the next year. Retained operating cash flow represents our expected cash flow provided by operating activities, less shareholder distributions and capital expenditures to maintain our real estate facilities.

Our currently identified capital needs consist primarily of $33.3 million in property acquisitions currently under contract, $495.0 million to redeem our Series V Preferred Shares on July 10, 2020 and $402.8 million of remaining spending on our current development pipeline, which will be incurred primarily in the next 18 to 24 months. We have no substantial principal payments on debt until 2022. We expect our capital needs to increase over the next year as we add projects to our development pipeline and acquire additional properties. Additional potential capital needs could result from various activities including the redemption of outstanding preferred securities, repurchases of common stock, or mergers and acquisition activities; however, there can be no assurance of any such activities transpiring in the near or longer term.

~~See~~ ~~Liquidity and Capital Resources~~ ~~for further information regarding our capital requirements and anticipated sources of capital to fund such requirements.~~

Results of Operations

Operating ~~Results~~results for the Three Months Ended ~~June 30,~~March 31, 2021 and 2020

For the three months ended ~~June 30, 2020,~~March 31, 2021, net income allocable to our common shareholders was ~~$246.1~~$385.8 million or ~~$1.41~~$2.21 per diluted common share, compared to ~~$306.4~~$313.1 million or ~~$1.76~~$1.79 per diluted common share in ~~2019~~2020 representing ~~a decrease~~an increase of ~~$60.3~~$72.7 million or ~~$0.35~~$0.42 per diluted common share. The ~~decrease~~increase is due primarily to (i) a ~~$22.5~~$41.1 million ~~decrease~~increase in self-storage net operating income (described below), (ii) a ~~$14.1~~$36.4 million ~~decrease~~increase due to the impact of foreign currency exchange ~~losses~~gains associated with our Euro denominated debt, ~~and~~partially offset by (iii) a ~~$10.8~~$11.0 million increase in depreciation and amortization expense.

The ~~$22.5~~$41.1 million ~~decrease~~increase in self-storage net operating income is a result of a ~~$30.2~~$29.3 million ~~decrease~~increase in our Same Store Facilities (as defined below), ~~offset by~~and a ~~$7.6~~$11.8 million increase in our non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities ~~decreased 3.0%~~increased 3.4% or ~~$18.7~~$21.1 million in the three months ended ~~June 30, 2020~~March 31, 2021 as compared to ~~2019,~~2020, due ~~primarily~~ to ~~lower~~higher realized annual rent per ~~occupied~~available square foot and ~~reduced late charges and administrative fees.~~weighted average square foot occupancy. Cost of operations for the Same Store Facilities ~~increased~~decreased by ~~6.7%~~4.3% or ~~$11.5~~$8.2 million in the three months ended ~~June 30, 2020~~March 31, 2021 as compared to ~~2019,~~2020, due primarily to a ~~20.7%~~change in property tax timing resulting in an 8.6% ($~~6.4~~6.2 million) ~~increase~~decrease in property expense, a 13.2% ($4.4 million) decrease in on-site property manager payroll, ~~and 36.9% ($4.6 million)~~partially offset by an increase in ~~marketing expenses.~~share-based compensation. The increase in net operating income of ~~$7.6~~$11.8 million for the non-Same Store Facilities is due primarily to the impact of facilities acquired in ~~2019~~2020 and ~~2020~~2021 and the fill-up of recently developed and expanded facilities.

~~Operating Results for the Six Months Ended June 30, 2020~~

For the six months ended June 30, 2020, net income allocable to our common shareholders was $559.3 million or $3.20 per diluted common share, compared to $608.2 million or $3.49 per diluted common share in 2019 representing a decrease of $48.9 million or $0.29 per diluted common share. The decrease is due primarily to (i) a $13.0 million decrease in self-storage net operating income (described below), (ii) a $12.9 million decrease due to the impact of foreign currency exchange gains and losses associated with our Euro denominated debt, and (iii) a $24.7 million increase in depreciation and amortization expense.

The $13.0 million decrease in self-storage net operating income is a result of a $29.9 million decrease in our Same Store Facilities (as defined below), offset by a $16.9 million increase in our non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities decreased 0.9% or $11.5 million in the six months ended June 30, 2020 as compared to 2019, due primarily to reduced late charges and administrative fees. Cost of operations for the Same Store Facilities increased by 5.3% or $18.4 million in the six months ended June 30, 2020 as compared to 2019, due primarily to a 46.1% ($9.9 million) increase in marketing expenses and a 12.0% ($7.4 million) increase in on-site property manager payroll expense. The increase in net operating income of $16.9 million for the non-Same Store Facilities is due primarily to the impact of facilities acquired in 2019 and 2020 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 the National Association of Real Estate Investment Trusts and are considered helpful measures of REIT performance by REITs and many REIT analysts. FFO represents ~~GAAP~~ net income before depreciation and amortization, which is excluded because it is based upon historical costs and assumes that building values diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. FFO also excludes gains or losses on sale of real estate assets and real estate impairment charges, which are also based upon historical costs and are impacted by historical depreciation. FFO and FFO per share are not a substitute for net income or earnings per share. FFO is not a substitute for ~~GAAP~~ net cash flow in evaluating our liquidity or ability to pay dividends, because it excludes investing and financing activities presented on our 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 ~~June 30, 2020,~~March 31, 2021, FFO was ~~$2.28~~$3.08 per diluted common share, as compared to ~~$2.57~~$2.61 per diluted common share for the same period in ~~2019,~~2020, representing ~~a decrease~~an increase of ~~11.3%~~18.0%, or ~~$0.29 per diluted common share.~~

~~For the six months ended June 30, 2020, FFO was $4.90 per diluted common share, as compared to $5.09 per diluted common share for the same period in 2019, representing a decrease of 3.7%, or $0.19~~$0.47 per diluted common share.

The following tables reconcile diluted earnings per share to FFO per share and set forth the computation of FFO per share:


										Three Months Ended
	Three Months Ended June 30,				Six Months Ended June 30,					March 31,
	2020		2019		2020		2019			2021		2020
	(Amounts in thousands, except per share data)								(Amounts in thousands, except per share data)
Reconciliation of Diluted Earnings per Share to
FFO per Share:

Diluted Earnings per Share	$	1.41	$	1.76	$	3.20	$	3.49		$	2.21	$	1.79
Eliminate amounts per share excluded from FFO:
Depreciation and amortization		0.87		0.82		1.75		1.61			0.93		0.87
Gains on sale of real estate investments,
including our equity share from
investments		-		(0.01)		(0.05)		(0.01)			(0.06)		(0.05)
FFO per share	$	2.28	$	2.57	$	4.90	$	5.09		$	3.08	$	2.61

Computation of FFO per Share:

Net income allocable to common shareholders	$	246,119	$	306,411	$	559,253	$	608,154		$	385,810	$	313,134
Eliminate items excluded from FFO:
Depreciation and amortization		136,821		126,859		271,958		248,800			145,869		135,137
Depreciation from unconsolidated
real estate investments		16,872		17,247		35,115		34,761			17,933		18,243
Depreciation allocated to noncontrolling
interests and restricted share unitholders		(938)		(1,088)		(1,899)		(2,286)			(971)		(961)
Gains on sale of real estate investments,
including our equity share from
investments and other		-		(992)		(9,241)		(992)
investments											(9,387)		(9,241)
FFO allocable to common shares	$	398,874	$	448,437	$	855,186	$	888,437		$	539,254	$	456,312
Diluted weighted average common shares		174,575		174,542		174,596		174,459			174,840		174,616
FFO per share	$	2.28	$	2.57	$	4.90	$	5.09		$	3.08	$	2.61

We also present “Core FFO per share,” a non-GAAP measure that represents FFO per share excluding the impact of (i) foreign currency exchange gains and losses, (ii) EITF D-42 charges related to the redemption of preferred securities, and (iii) certain other significant non-cash and/or nonrecurring income or expense items ~~primarily representing, with respect to the periods presented below, the impact of~~such as loss contingency accruals, casualties, transactional due diligence, ~~costs incurred in strategic transactions,~~ and ~~contingency resolutions.~~advisory costs. We review Core FFO per share to evaluate our ongoing operating performance and we believe it is used by investors and REIT analysts in a similar manner. However, Core FFO per share is not a substitute for net income per share. Because other REITs may not compute Core FFO per share in the same manner as we do, may not use the same terminology or may not present such a measure, Core FFO per share may not be comparable among REITs.

‎

The following table reconciles FFO per share to Core FFO per share:


													Three Months Ended
		Three Months Ended June 30,					Six Months Ended June 30,						March 31,
						Percentage					Percentage						Percentage
		2020		2019		Change	2020		2019		Change		2021		2020		Change

FFO per share	FFO per share	$	2.28	$	2.57	(11.3)%	$	4.90	$	5.09	(3.7)%	FFO per share	$	3.08	$	2.61	18.0%
Eliminate the per share impact of items	Eliminate the per share impact of items											Eliminate the per share impact of items
excluded from Core FFO, including	excluded from Core FFO, including											excluded from Core FFO, including
our equity share from investments:	our equity share from investments:											our equity share from investments:
Foreign currency exchange loss (gain)			0.11		0.03			0.06		(0.01)
Application of EITF D-42			0.09		0.05			0.09		0.10
Foreign currency exchange gain												Foreign currency exchange gain		(0.26)		(0.05)
Other items	Other items		(0.02)		(0.01)			(0.01)		-		Other items		-		0.02
Core FFO per share	Core FFO per share	$	2.46	$	2.64	(6.8)%	$	5.04	$	5.18	(2.7)%	Core FFO per share	$	2.82	$	2.58	9.3%

Analysis of Net Income by Reportable Segment

The following discussion and analysis is presented and organized in accordance with Note 11 to our ~~June 30, 2020~~March 31, 2021 financial statements, “Segment Information.” Accordingly, refer to the table presented in Note 11 in order to reconcile such amounts to our total net income and for further information on our reportable segments.

Self-Storage Operations

Our self-storage operations are analyzed in four groups: (i) the ~~2,224~~2,278 facilities that we have owned and operated on a stabilized basis since January 1, ~~2018~~2019 (the “Same Store Facilities”), (ii) 84121 facilities we acquired after December 31, ~~2017~~2018 (the “Acquired facilities”), (iii) ~~147~~136 facilities that have been newly developed or expanded, or that ~~we expect to commence~~had commenced expansion by December 31, ~~2020~~2021 (the “Newly developed and expanded facilities”) and (iv) 4528 other facilities, which are otherwise not stabilized with respect to occupancies or rental rates since January 1, ~~2018~~2019 (the “Other non-same store facilities”). See Note 11 to our ~~June 30, 2020~~March 31, 2021 financial statements “Segment Information,” for a reconciliation of the amounts in the tables below to our total net income.

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Self-Storage Operations
Summary	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
					Percentage					Percentage					Percentage
	2020		2019		Change	2020		2019		Change	2021		2020		Change
	(Dollar amounts and square footage in thousands)										(Dollar amounts and square footage in thousands)
Revenues:
Same Store facilities	$	597,350	$	616,055	(3.0)%	$	1,206,885	$	1,218,352	(0.9)%	$	647,817	$	626,691	3.4%
Acquired facilities		13,603		6,440	111.2%		25,472		10,361	145.8%		20,169		7,743	160.5%
Newly developed and expanded facilities		43,203		36,174	19.4%		85,488		69,889	22.3%		42,939		34,701	23.7%
Other non-same store facilities		10,386		10,670	(2.7)%		20,898		21,145	(1.2)%		5,422		5,066	7.0%
		664,542		669,339	(0.7)%		1,338,743		1,319,747	1.4%		716,347		674,201	6.3%
Cost of operations:
Cost of operations (a):
Same Store facilities		183,359		171,881	6.7%		363,640		345,205	5.3%		181,012		189,189	(4.3)%
Acquired facilities		6,918		2,857	142.1%		12,430		4,971	150.1%		10,707		3,706	188.9%
Newly developed and expanded facilities		19,309		17,583	9.8%		37,657		32,029	17.6%		18,138		16,092	12.7%
Other non-same store facilities		4,239		3,762	12.7%		8,023		7,534	6.5%		2,248		2,109	6.6%
		213,825		196,083	9.0%		421,750		389,739	8.2%		212,105		211,096	0.5%
Net operating income (a):
Net operating income (b):
Same Store facilities		413,991		444,174	(6.8)%		843,245		873,147	(3.4)%		466,805		437,502	6.7%
Acquired facilities		6,685		3,583	86.6%		13,042		5,390	142.0%		9,462		4,037	134.4%
Newly developed and expanded facilities		23,894		18,591	28.5%		47,831		37,860	26.3%		24,801		18,609	33.3%
Other non-same store facilities		6,147		6,908	(11.0)%		12,875		13,611	(5.4)%		3,174		2,957	7.3%
Total net operating income		450,717		473,256	(4.8)%		916,993		930,008	(1.4)%		504,242		463,105	8.9%

Depreciation and amortization expense:
Same Store facilities		(105,801)		(101,587)	4.1%		(210,169)		(201,941)	4.1%		(109,407)		(110,317)	(0.8)%
Acquired facilities		(9,808)		(5,899)	66.3%		(19,330)		(9,591)	101.5%		(13,755)		(7,318)	88.0%
Newly developed and expanded facilities		(15,131)		(13,560)	11.6%		(30,240)		(25,516)	18.5%		(16,335)		(13,168)	24.1%
Other non-same store facilities		(6,878)		(5,813)	18.3%		(13,779)		(11,752)	17.2%		(7,362)		(5,097)	44.4%
Total depreciation and
amortization expense		(137,618)		(126,859)	8.5%		(273,518)		(248,800)	9.9%		(146,859)		(135,900)	8.1%

Net income (loss):
Same Store facilities		308,190		342,587	(10.0)%		633,076		671,206	(5.7)%		357,398		327,185	9.2%
Acquired facilities		(3,123)		(2,316)	34.8%		(6,288)		(4,201)	49.7%		(4,293)		(3,281)	30.8%
Newly developed and expanded facilities		8,763		5,031	74.2%		17,591		12,344	42.5%		8,466		5,441	55.6%
Other non-same store facilities		(731)		1,095	(166.8)%		(904)		1,859	(148.6)%		(4,188)		(2,140)	95.7%
Total net income	$	313,099	$	346,397	(9.6)%	$	643,475	$	681,208	(5.5)%	$	357,383	$	327,205	9.2%

Number of facilities at period end:
Same Store facilities							2,224		2,224	-		2,278		2,278	-
Acquired facilities							84		47	78.7%		121		53	128.3%
Newly developed and expanded facilities							147		140	5.0%		136		132	3.0%
Other non-same store facilities							45		45	0.0%		28		29	(3.4)%
							2,500		2,456	1.8%		2,563		2,492	2.8%
Net rentable square footage at period end:	Net rentable square footage at period end:
Same Store facilities							143,890		143,890	-		148,909		148,909	-
Acquired facilities							5,950		3,057	94.6%		9,316		3,893	139.3%
Newly developed and expanded facilities							17,162		15,482	10.9%		16,068		14,973	7.3%
Other non-same store facilities							3,601		3,578	0.6%		1,872		1,998	(6.3)%
							170,603		166,007	2.8%		176,165		169,773	3.8%

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(a)We revised our prior period financial statements to correct the presentation of share-based compensation expense between general and administrative expense and self-storage cost of operations. As a result, we revised our statements of income for the three months ended March 31, 2020 with an increase in self-storage cost of operations of $3.2 million, and a corresponding decrease to general and administrative expenses. This immaterial correction had no impact on our total expenses or net income. The correction also had no impact on our balance sheet, statements of comprehensive income, statements of equity, or cash flows as of and for the three months ended March 31, 2020.

(b)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 in evaluating property operating trends. Direct net operating income (a subtotal within NOI) is also a non-GAAP financial measure that excludes the impact of supervisory payroll, centralized management costs and stock 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. We believe that investors and analysts utilize NOI and direct net operating income in a similar manner. ~~NOI is~~These measures are not a substitute for net income, operating cash flow, or other related ~~GAAP~~ financial measures, in evaluating our operating results. See Note 11 to our ~~June 30, 2020~~March 31, 2021 financial statements for a reconciliation of NOI to our total net income for all periods presented.

Net operating income from our self-storage operations has ~~decreased 4.8% and 1.4%~~increased 8.9% in the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021, as compared to the same ~~periods~~period in ~~2019.~~2020. The ~~decrease~~increase is due primarily to ~~reduced~~increased Same Store revenues driven by a 2.8% increase in average occupancy to 95.6% for the three months ended March 31, 2021 and ~~increased~~decreased Same Store expenses, ~~offset partially by~~ the acquisition and development of new facilities and the fill-up of unstabilized facilities.

Same Store Facilities

The Same Store Facilities consist of facilities that have been owned and operated on a stabilized level of occupancy, revenues and cost of operations since January 1, ~~2018.~~2019. Our Same Store Facilities increased from 2,221 facilities at December 31, 2020 to 2,278 at March 31, 2021. The composition of our Same Store Facilities allows us to more effectively evaluate the ongoing performance of our self-storage portfolio in ~~2018,~~ 2019, 2020, and ~~2020~~2021 and exclude the impact of fill-up of unstabilized facilities, which can significantly affect operating trends. We believe the Same Store information is used by investors and REIT analysts 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 of these ~~2,224~~2,278 facilities ~~(143.9~~(148.9 million net rentable square feet) that represent approximately ~~84%~~85% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at ~~June 30, 2020.~~March 31, 2021. 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 our same store facilities relative to our self-storage facilities.

3834


Selected Operating Data for the Same Store Facilities (2,224 facilities)
Selected Operating Data for the Same Store Facilities (2,278 facilities)
	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
					Percentage					Percentage					Percentage
		2020	2019		Change		2020	2019		Change		2021	2020		Change
	(Dollar amounts in thousands, except weighted average amounts)										(Dollar amounts in thousands, except for per square foot data)
Revenues:
Rental income	$	579,643	$	590,082	(1.8)%	$	1,163,375	$	1,165,644	(0.2)%	$	627,811	$	600,059	4.6%
Late charges and
administrative fees		17,707		25,973	(31.8)%		43,510		52,708	(17.5)%		20,006		26,632	(24.9)%
Total revenues (a)		597,350		616,055	(3.0)%		1,206,885		1,218,352	(0.9)%		647,817		626,691	3.4%

Cost of operations:
Direct cost of operations (a):
Property taxes		70,003		67,550	3.6%		140,190		134,377	4.3%		66,555		72,778	(8.6)%
On-site property manager
payroll		37,496		31,067	20.7%		69,550		62,102	12.0%		28,729		33,106	(13.2)%
Supervisory payroll		10,839		10,213	6.1%		21,652		20,264	6.8%
Repairs and maintenance		11,308		12,068	(6.3)%		23,703		25,826	(8.2)%		13,031		12,713	2.5%
Utilities		9,124		9,921	(8.0)%		19,554		21,217	(7.8)%		10,745		10,849	(1.0)%
Marketing	Marketing	17,005		12,426	36.9%		31,301		21,427	46.1%		14,571		14,808	(1.6)%
Other direct property costs		16,498		16,643	(0.9)%		32,950		33,487	(1.6)%		18,341		16,889	8.6%
Allocated overhead		11,086		11,993	(7.6)%		24,740		26,505	(6.7)%
Total cost of operations (a)		183,359		171,881	6.7%		363,640		345,205	5.3%
Total direct cost of operations												151,972		161,143	(5.7)%
Direct net operating income												495,845		465,548	6.5%

Indirect cost of operations (a):
Supervisory payroll												(9,834)		(10,911)	(9.9)%
Centralized management costs												(13,017)		(13,812)	(5.8)%
Share-based compensation												(6,189)		(3,323)	86.2%
Net operating income		413,991		444,174	(6.8)%		843,245		873,147	(3.4)%		466,805		437,502	6.7%
Depreciation and
amortization expense		(105,801)		(101,587)	4.1%		(210,169)		(201,941)	4.1%		(109,407)		(110,317)	(0.8)%
Net income	$	308,190	$	342,587	(10.0)%	$	633,076	$	671,206	(5.7)%	$	357,398	$	327,185	9.2%


Gross margin (before indirect costs and											Gross margin (before indirect costs and
depreciation and amortization expense)												76.5%		74.3%	3.0%

Gross margin (before depreciation	Gross margin (before depreciation										Gross margin (before depreciation
and amortization expense)	and amortization expense)	69.3%		72.1%	(3.9)%		69.9%		71.7%	(2.5)%		72.1%		69.8%	3.3%

Weighted average for the period:	Weighted average for the period:										Weighted average for the period:
Square foot occupancy	Square foot occupancy	94.2%		94.0%	0.2%		93.7%		93.2%	0.5%		95.6%		93.0%	2.8%

Realized annual rental income per (b):	Realized annual rental income per (b):										Realized annual rental income per (b):
Occupied square foot	$	17.10	$	17.45	(2.0)%	$	17.26	$	17.38	(0.7)%	$	17.63	$	17.33	1.7%
Available square foot	$	16.11	$	16.40	(1.8)%	$	16.17	$	16.20	(0.2)%	$	16.86	$	16.12	4.6%

At June 30:
At March 31:
Square foot occupancy							94.6%		94.1%	0.5%		96.0%		92.7%	3.6%
Annual contract rent per	Annual contract rent per										Annual contract rent per
occupied square foot (c)						$	17.35	$	17.91	(3.1)%	$	18.06	$	17.88	1.0%

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(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)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.

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

Analysis of Same Store Revenue

Revenues generated by our Same Store Facilities decreased by 3.0% and 0.9% in the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019. These decreases were due to (i) a 1.8% and 0.2% decrease in rental income for the three and six months, respectively, due primarily to a reduction in realized annual rent per occupied square foot, and (ii) a 31.8% and 17.5% reduction in late fees and administrative charges collected for the three and six months, respectively.

~~Revenue Strategy~~

We believe ~~that occupancies of at least 90% help~~a balanced occupancy and rate strategy will maximize our ~~rental income and, as a result we~~revenues over time. We regularly adjust the rental rates and promotional discounts offered (generally, “$1.00 rent for the first month”), as well as ~~adjusting~~ our marketing efforts on the Internet and other channels ~~in order~~ to ~~generate sufficient move-in volume~~maximize revenue from new tenants to replace tenants that vacate.

We typically increase rental rates to our long-term tenants (generally, those that have been with us for at least a year) once per year. 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 balancing the additional revenue from the increase against the negative impact of incremental move-outs, by considering the customer’s in-place rent and prevailing market rents, among other factors. ~~Most of~~

Revenues generated by our ~~revenue growth~~Same Store Facilities increased by 3.4% in the ~~last few years has come primarily from existing tenant rate increases.~~

~~Realized Annual Rent per Occupied Square Foot~~

~~Realized annual rent per occupied square foot decreased 0.7% for the six~~three months ended ~~June 30, 2020~~March 31, 2021, as compared to the same period in ~~2019. On~~2020. The increase is due primarily to a ~~quarterly basis,~~2.8% increase in average occupancy, combined with a 1.7% increase in realized rent per occupied foot, offset by a 24.9% decrease in late charges and administrative fees. For the three months ended March 31, 2021, our revenues were impacted by certain restrictions on rate increases to existing tenants imposed by local governments due to “State of Emergency” declarations in response to the COVID Pandemic and other disasters. Although certain restrictions have recently been lifted, we continue to expect a portion of our revenues to remain impacted throughout 2021.

During the three months ended March 31, 2021, 14 of our top 15 markets increased revenues, weighted average square foot occupancy, realized annual rent per occupied square foot, ~~increased 0.8%~~and REVPAF over the three months ended March 31, 2020. This growth occurred across broad markets notwithstanding those markets affected by new supply levels and/or COVID related consumer restrictions.

The improvement in occupancy trends in the three months ended March 31, ~~2020 as compared~~2021 was due primarily to ~~the same period~~improved trends in ~~2019, and turned increasingly negative during~~move-outs, with year over year move-outs down 11.3% in the three months ended ~~June 30, 2020, decreasing 2.0% as compared to the same period in 2019. At June 30, 2020, contract rent per occupied square foot was 3.1% lower than at June 30, 2019, as compared to a 0.9% increase at~~ March 31, ~~2020 as compared to March 31, 2019.~~

~~The reduction~~2021. This resulted in realized annual rent per occupied square foot during the three and six month periods in 2020 compared to the same periods in 2019, and the change from an 0.9% year-over-year increase in contract rent per occupied square foot at March 31, 2020 to a 3.1% reduction at June 30, 2020, were primarily due to two factors: (i) a year-over-year reduction in market rental rates charged to new tenants and (ii) conservative rate increases to existing long-term tenants.

The year-over-year reduction in market rental rates charged to new tenants was due to our response to softening demand caused by (i) the negative economic impact caused by the COVID Pandemic which has affected all our markets and (ii) increased supply of newly constructed facilities, most notably in markets such as Atlanta, Austin, Charlotte, Chicago, Dallas, Denver, Houston, Miami, Minneapolis, New York and Portland. To offset softness in

demand, we significantly reduced move-in rental rates and, as a result, rental rates for tenants moving in were 13.9% and 9.2% lower in the three and six months ended June 30, 2020, respectively, as compared to the same periods last year. We believe such action, in part, helped maintain our occupancy levels. With respect to being conservative on rate increases to existing longer term tenants, this was a decision predicated primarily on our anticipation of a negative economic impact on our tenants.

~~Throughout 2019 and the first six months of 2020, we have had~~ an increased average length of ~~stay. Until~~stay for the ~~quarter~~three months ended ~~June 30, 2020 when we significantly curtailed rent increases, the~~March 31, 2021. An increased average length of stay ~~contributed to an increased beneficial effect of rent increases to existing tenants,~~supports revenue growth, due to more long-term ~~customers~~tenants who ~~were~~are eligible for rate ~~increases.~~

~~Occupancy Levels~~

~~We maintained~~increases, and a reduced requirement to replace vacating tenants with new tenants which can lead to increased promotional costs and decrease our ~~occupancy levels at 94.2% and 94.0% during the three months ended June 30,~~pricing leverage. This trend to an increased length of stay became more pronounced over 2020 and ~~2019, despite a significant reduction~~into 2021 due in ~~demand,~~part, we believe, to effects resulting from the ~~impact of the~~ COVID ~~Pandemic. Reduced demand was mitigated by (i) the aforementioned 13.9% reduction in rates charged to new tenants, (ii) an 8.7% reduction in move-outs during the three months ended June 30, 2020~~Pandemic such as ~~compared to the same period in 2019, and (iii) an increase in marketing spend as noted below.~~less consumer mobility.

Demand historically has been higher in the summer months than in the winter months and, as a result, rental rates charged to new tenants have typically been higher in the summer months than in the winter months. Demand fluctuates due to various local and regional factors, including the overall economy. Demand into our system is also impacted by new supply of self-storage space as well as alternatives to self-storage.

‎

Late Charges and Administrative Fees

We experienced a ~~31.8% and 17.5%~~24.9% year over year reduction in late ~~fees~~charges and administrative fees collected during the three ~~and six~~ months ended ~~June 30, 2020 as compared to the same periods in 2019. This decrease was~~March 31, 2021 due to ~~the following factors in the three months ended June 30, 2020:~~ (i) ~~reduced late fees charged due to~~ an acceleration in average collections ~~relative~~whereby a greater percentage of tenants paid their monthly rent promptly to avoid the ~~late fee date, (ii) an increase in customer concessions, (iii) a reduction in lien~~incurrence of such fees ~~collected due to the suspension and delay of auctions,~~ and, to a lesser extent ~~(iv)~~(ii) reduced move-in administrative fees due to lower move-ins.

~~Bad Debt and Collection Losses~~

Our ability to collect customer rent was challenged in the three months ended June 30, 2020 by the COVID Pandemic due to (i) consumer stress resulting from unemployment, furloughs, and reduced small business activity, (ii) the temporary delay of auctions due to logistical difficulties or governmental restrictions, and (iii) temporary closures of venues that auction bidders typically used to resell their goods. Nonetheless, we did not experience a significant increase in bad debt from historical levels, because we believe the federal government stimulus and supplements to unemployment benefits mitigated consumer stress, and we took certain steps to augment our collection efforts and accelerate payment by our customers.

‎

Selected Key Statistical Data

The following table sets forth average annual contract rent per square foot and total square footage for tenants moving in and moving out during ~~each of~~ the three ~~and six~~ months ended ~~June 30, 2020 and 2019.~~March 31, 2021. It also includes promotional discounts, which vary based upon the move-in contractual rates, ~~for related promotional period.~~move-in volume, and percentage of tenants moving in who receive the discount.


													Three Months Ended March 31,
													2021		2020		Change
	Three Months Ended June 30,						Six Months Ended June 30,						(amounts in thousands, except for per
	2020		2019		Change		2020		2019		Change		square foot amounts)
	($ amounts in thousands, except for per square foot amounts)
Tenants moving in during the period:	Tenants moving in during the period:												Tenants moving in during the period:
Average annual contract rent per foot	$	11.86	$	13.77		(13.9)%	$	12.41	$	13.67		(9.2)%
Average annual contract rent
per square foot													$	14.95	$	12.91		15.8%
Square footage		26,517		28,858		(8.1)%		51,798		53,781		(3.7)%		24,534		26,185		(6.3)%
Promotional discounts given	$	18,131	$	20,057		(9.6)%	$	38,229	$	40,530		(5.7)%	$	16,505	$	20,748		(20.5)%

Tenants moving out during the period:	Tenants moving out during the period:												Tenants moving out during the period:
Average annual contract rent per foot	$	15.28	$	15.98		(4.4)%	$	15.58	$	15.98		(2.5)%
Average annual contract rent
per square foot													$	16.26	$	15.84		2.7%
Square footage		23,785		26,050		(8.7)%		47,664		49,762		(4.2)%		21,842		24,620		(11.3)%

~~Promotional discounts declined due to lower rates and a lower level of move-ins, offset by a higher proportion of tenants that received a move-in promotional discount.~~

~~Revenue Outlook~~

The timing of any improvement in revenue trends and a return to revenue growth is dependent upon the extent to which we can increase existing tenant rates and new tenant move-in rental rates, which in turn are dependent upon factors such as storage demand and customer behavior, which are outside of our control and difficult to predict, particularly given the COVID Pandemic.

Beginning partway through the second quarter and continuing subsequent to June 30, 2020, we have noted encouraging signs that, if they persist, may suggest improved storage demand and a gradual improvement in rental rate trends in the medium term, including (i) year-over-year occupancy levels have increased, (ii) the level of move-in rental rate decreases have moderated and (iii) move out rates continue to remain low.

As noted above, we significantly curtailed existing tenant rate increases during the three months ended June 30, 2020. We have recently begun reinstituting modest existing tenant rate increases. We will seek to cautiously, over time, increase the level of existing tenant rate increases to historical averages, while monitoring customer sensitivity to rate increases during the current recessionary environment.

As noted above, we did not experience an expected increase in bad debt losses; however, we still believe it is reasonably likely that bad debt losses will increase as extended unemployment benefits end or due to other factors.

While late charges and administrative fees represent only approximately 4% of nominal revenues, as noted above, they contributed nearly half the revenue decrease in the three months ended June 30, 2020. We believe that a significant portion of the decrease is due to short-term factors such as reduced move-ins affecting administrative fees, and increased customer concessions with respect to late fees and auction lien fees charged. In addition, certain measures we took which accelerated rent collections, also reduced the level of late fees charged. To the extent that we maintain those measures, late fees charged could be impacted.

Despite the encouraging signs noted above, when considering the 3.1% year-over-year reduction in in-place contractual rent per occupied foot at June 30, 2020 as compared to June 30, 2019, the potential persistence of decreases in late charges and administrative fees, as well as the various factors noted above, we believe that it is likely that our total revenue (inclusive of late fees and administrative fees) in the last half of 2020 will decrease on a year-over-year basis at a rate that is higher than the year-over-year decrease in the three months ended June 30, 2020. There can be no assurance how quickly we can return to revenue growth after 2020.

42Revenue Expectations

At March 31, 2021, in place contractual rent was 4.6% higher on a year-over-year basis (comprised of a 3.6% increase in square foot occupancy and a 1.0% increase in annual contract rent per occupied foot).

We expect continued revenue growth over 2021 supported by increased customer demand and modest move out activity. There is more uncertainty in the level of positive growth during the second half of 2021 given challenging comparables over 2020 and risk that customer behavior (particularly the level of move-out activity) returns to pre-Pandemic historical levels.

Notwithstanding our expectations of continued positive revenue growth, we are in a time of significant uncertainty, and there are reasonably possible circumstances and events which could result in actual future revenues being significantly lower than our expectations, including the following:

Storage demand could decline or collection losses could increase due to increased recessionary circumstances, worsening of the COVID Pandemic, the potential confluence of higher seasonal influenza infections and COVID infections, or other factors.

The ~~recent trend~~moderation of ~~year over year declines in~~below-trend move-outs noted above could ~~reverse to the extent it was driven by temporary factors such as stay-at-home orders, delays in our auction process, customer caution about exposure to virus risk,~~ be sudden and dramatic, and/or ~~our curtailment of existing tenant rate increases. If move-outs were to increase, particularly~~disproportionally involve long-term tenants with ~~respect to long-term customers at~~ higher ~~rates as we have seen in previous recessionary circumstances, we could experience a more pronounced level of reduction in realized rent per occupied square foot.~~rental rates.

It is possible that the COVID Pandemic could impact current seasonal demand trends in the short or long term, due to changes in certain factors impacting moving trends, such as potentially fewer

college students living on-campus in favor of online learning or an increase in working from home reducing the necessity of moving for employment reasons.

Analysis of Same Store Cost of Operations

Cost of operations (excluding depreciation and amortization) ~~increased 6.7% and 5.3%~~decreased 4.3% in the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021 as compared to the same ~~periods~~period in ~~2019,~~2020, due primarily to ~~increased~~decreased property tax, on-site property manager payroll and supervisory payroll; offset partially by increased share-based compensation and other direct property ~~tax and marketing expense.~~costs.

Property tax expense ~~increased 3.6% and 4.3%~~decreased 8.6% in the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021 as compared to the same ~~periods~~period in ~~2019. We expect~~2020. In 2020 our property tax expense ~~growth~~was recognized on an accelerated basis in each of the first three quarters. For 2021, we expect our future quarterly tax expense to approximate our 2021 first quarter results, excluding property tax refunds recorded for the three months ended March 31, 2021, based on current property value assessments and property tax rates. We expect annualized 2021 property tax expense to increase approximately ~~3.5% in the remainder of~~5.0% over 2020 due primarily to higher assessed values ~~(excluding the potential impact of the California initiative noted below)~~ and, to a lesser extent, increased tax rates.

As a result of Proposition 13, which limits increases in assessed values to 2% per year, the assessed value and property taxes we pay in California is less than it would be if the properties were assessed at current values. An initiative on California’s November 2020 statewide ballot, if approved by voters, could result in the reassessment A summary of our ~~California properties~~2020 actual and ~~substantially increase~~2021 estimated quarterly property tax expense is presented below. Amounts for each of the three months ended June 30, September 30 and December 31, 2021 are based on our current estimates of 2021’s full-year property tax expense. It is uncertain (i) whether an initiative will pass, and (ii) if it does pass, what the timing and level of the reassessment and related property tax increases would be. See “Risk Factors – We have exposure to increased property tax in California” in our December 31, 2019 Form 10-K for further information such as our aggregate net operating income and property tax expense in California.


			Actual
	2021		2020
	(Amounts in thousands)
For the three months ended:
March 31	$	66,555	$	72,779

June 30		68,000		72,458

September 30		68,000		71,616

December 31		68,000		41,197

	$	270,555	$	258,050

On-site property manager payroll expense ~~increased 20.7% and 12.0%~~decreased 13.2% in the three ~~and six~~ months ended June 30, 2020, respectively, as compared to the same periods in 2019. The significant increase in the three and six months is due to a temporary $3.00 hourly wage increase, and enhancement of paid time off benefits, to virtually all of our property managers to enable them to keep working, which began April 1, 2020 and ended June 30, 2020. While these measures could be re-instituted if necessary, we currently have no plans to do so. We expect continued inflationary increases in on-site property manager payroll expense in the last six months of 2020March 31, 2021 as compared to the same period in ~~2019.~~

Supervisory payroll expense, which represents compensation paid to the management personnel who directly and indirectly supervise the on-site property managers, increased 6.1% and 6.8% in the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019,2020. The decrease is due to ~~increased headcount~~a year over year decline in hours worked due to staffing reductions from reduced move-in and ~~higher wages.~~move-out activity and revisions to other operational processes. We expect ~~similar increases~~reductions in hours worked to continue throughout the remainder of ~~2020.~~2021.

Repairs and maintenance expense ~~decreased 6.3% and 8.2%~~increased 2.5% in the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021 as compared to the same ~~periods~~period in ~~2019.~~2020. Repair and maintenance costs include snow removal expense totaling ~~$0.1 million and~~ $2.0 million in each of the three month periods ended March 31, 2021 and ~~six months ended June 30, 2020, respectively, as compared to $0.3 million and $3.2 million in the same periods in 2019. Excluding snow removal costs, repairs and maintenance~~

~~decreased 4.8% and 4.4% in the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019.~~2020.

Repairs and maintenance expense levels are dependent upon many factors such as (i) sporadic occurrences such as accidents, damage, and equipment malfunctions, (ii) short-term local supply and demand factors for material and labor, and (iii) weather conditions, which can impact costs such as snow removal, roof repairs, and HVAC maintenance and repairs. Accordingly, it is difficult to estimate future repairs and maintenance expense.

Our utility expenses are comprised primarily of electricity costs, which are dependent upon energy prices and usage levels. Changes in usage levels are driven primarily by weather and temperature. Utility expense decreased ~~8.0% and 7.8%~~1.0% in the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021 as compared to the same ~~periods~~period in ~~2019.~~2020. It is difficult to estimate future utility costs, because weather, temperature, and energy prices are volatile and not predictable. WeThe decrease experienced in the three months ended March 31, 2021 is due primarily to investments we are making ~~investments~~ in energy saving technology such as solar power and LED lights which generate favorable returns on investment in the form of lower utility usage. We continue to make investments in solar power and LED lights and expect ~~continued modest reductions~~a decline in utility expense throughout the remainder of ~~2020, based upon the expected level of and timing of such investments.~~2021.

Marketing expense is comprised principally of Internet ~~advertising, television~~ advertising and the operating costs of our telephone reservation center. Internet advertising expense, comprised primarily of 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. Marketing expense ~~increased 36.9% and 46.1%~~decreased 1.6% in the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021 as compared to the same ~~periods~~period in 2019. These increases are due primarily to higher traditional “per click” advertising on paid search platforms as we have sought to attract more customers for our space, and cost per click for keyword search terms increased due to more keyword bidding competition from existing self-storage owners and operators, including owners of newly developed facilities and nontraditional storage providers. To a lesser extent, the increases reflects additional spending on social media outlets as well as aggregator websites, as we believe these channels provide exposure to incremental customers at a favorable cost.2020. We expect ~~continued increases~~a reduction in the level of marketing expense growth in the remainder of ~~2020.~~2021 depending on customer activity.

Other direct property costs include administrative expenses specific to each self-storage facility, such as property insurance, telephone and data communication lines, business license costs, bank charges related to processing the facilities’ cash receipts, tenant mailings, credit card fees, eviction costs and the cost of operating each property’s rental office. These costs ~~decreased 0.9% and 1.6% in~~increased 8.6% in the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021 as compared to the same ~~periods~~period in ~~2019.~~2020. We continue to experience increased credit card fees due to a long-term trend of more customers paying with credit cards rather than cash, checks, or other methods of payment with lower transaction costs. ~~We expect inflationary increases in other direct~~

Supervisory payroll expense, which represents cash compensation paid to the management personnel who directly and indirectly supervise the on-site property ~~costs~~managers, decreased 9.9% in the ~~remainder of 2020.~~three months ended March 31, 2021 as compared to the same period in 2020 due primarily to lower accrued incentives.

~~Allocated overhead~~Centralized management costs represents administrative and cash compensation expenses for shared general corporate functions to the extent their efforts are devoted to self-storage operations. Such functions include information technology support, hardware, and software, as well as centralized administration of payroll, benefits, training, repairs and maintenance, customer service, pricing and marketing, operational accounting and finance, and legal costs. ~~These amounts also include the~~Centralized management costs ~~of senior executives responsible for these processes (other than our Chief Executive Officer and Chief Financial Officer, which are included in general and administrative expense). Allocated overhead~~ decreased 7.6% and 6.7% in the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019, due primarily to reduced headcount, reduced travel expenses, and the impact of an annual national leadership and sales conference which occurred5.8% in the three months ended March 31, ~~2019 but is not expected~~2021 as compared to ~~occur~~the same period in 2020. The decrease was due to lower incentive expense and reduced travel expenses, offset partially by increased investment in our IT infrastructure. We expect ~~minimal~~ increases in ~~allocated overhead~~centralized management costs in the remainder 2021 due to increased headcount.

Share-based compensation expense includes the amortization of ~~2020.~~restricted share units and stock options granted to management personnel who directly and indirectly supervise the on-site property managers, as well as those employees responsible for providing shared general corporate functions to the extent their efforts are devoted to self-storage operations. Such functions are listed above under centralized management costs. Share-based compensation expense also includes related employer taxes and varies based upon the level of grants and their related vesting and amortization periods, forfeitures, as well as the Company’s common share price on the date of each grant. Based on our awards currently outstanding, we expect our future quarterly share-based compensation expense to approximate our 2021 first quarter results.

Analysis of Same Store Depreciation and Amortization

Depreciation and amortization for Same Store Facilities ~~increased 4.1%~~decreased 0.8% in ~~each of~~ the three ~~and six month periods~~months ended ~~June 30, 2020, respectively,~~March 31, 2021 as compared to the same ~~periods~~period in ~~2019, due primarily to elevated capital expenditures.~~2020. We expect modest increases in depreciation expense in the remainder of ~~the remainder~~2021 due to elevated levels of ~~2020.~~capital expenditures.

‎

4439

Quarterly Financial Data

The following table summarizes selected quarterly financial data with respect to the Same Store Facilities:


	For the Quarter Ended										For the Quarter Ended
	March 31		June 30		September 30		December 31		Entire Year		March 31		June 30		September 30		December 31		Entire Year

	(Amounts in thousands, except for per square foot amounts)										(Amounts in thousands, except for per square foot amounts)
Total revenues:
2021											$	647,817
2020	$	609,535	$	597,350							$	626,691	$	614,418	$	629,169	$	638,149	$	2,508,427
2019	$	602,297	$	616,055	$	628,573	$	615,268	$	2,462,193

Total cost of operations:	Total cost of operations:										Total cost of operations:
2021											$	181,012
2020	$	180,281	$	183,359							$	189,189	$	192,345	$	184,329	$	146,584	$	712,447
2019	$	173,324	$	171,881	$	175,983	$	140,306	$	661,494

Property taxes:
2021											$	66,555
2020	$	70,187	$	70,003							$	72,778	$	72,458	$	71,616	$	41,197	$	258,049
2019	$	66,827	$	67,550	$	67,353	$	38,904	$	240,634

Repairs and maintenance:	Repairs and maintenance:										Repairs and maintenance:
2021											$	13,031
2020	$	12,395	$	11,308							$	12,713	$	11,670	$	12,973	$	13,485	$	50,841
2019	$	13,758	$	12,068	$	13,166	$	12,572	$	51,564

Marketing:	Marketing:										Marketing:
2021											$	14,571
2020	$	14,296	$	17,005							$	14,808	$	17,630	$	16,158	$	13,526	$	62,122
2019	$	9,001	$	12,426	$	14,345	$	13,230	$	49,002

REVPAF:
2021											$	16.86
2020	$	16.23	$	16.11							$	16.12	$	16.01	$	16.39	$	16.62	$	16.29
2019	$	16.00	$	16.40	$	16.71	$	16.37	$	16.37

Weighted average realized annual rent per occupied square foot:	Weighted average realized annual rent per occupied square foot:										Weighted average realized annual rent per occupied square foot:
2021											$	17.63
2020	$	17.43	$	17.10							$	17.33	$	17.00	$	17.16	$	17.46	$	17.24
2019	$	17.30	$	17.45	$	17.74	$	17.59	$	17.52

Weighted average occupancy levels for the period:	Weighted average occupancy levels for the period:										Weighted average occupancy levels for the period:
2021												95.6%
2020		93.1%		94.2%								93.0%		94.2%		95.5%		95.2%		94.5%
2019		92.5%		94.0%		94.2%		93.1%		93.4%

‎

4540

Analysis of Market Trends

The following table sets forth selected market trends in our Same Store Facilities:

Same Store Facilities Operating Trends by Market

For the Three Months Ended March 31,

Same Store Facilities Operating Trends by Market
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
Change
2020
2019
Change
(Amounts in thousands, except for weighted average data)
Market (number of facilities,
square footage in millions)
Revenues:
Los Angeles (212, 14.9)
$
93,023
$
94,727
(1.8)%
$
188,222
$
187,485
0.4%
San Francisco (128, 7.9)
50,393
50,695
(0.6)%
100,949
100,134
0.8%
New York (89, 6.2)
37,649
39,271
(4.1)%
76,441
77,648
(1.6)%
Seattle-Tacoma (86, 5.8)
28,322
28,713
(1.4)%
56,789
56,568
0.4%
Washington DC (89, 5.5)
27,768
28,561
(2.8)%
55,916
56,289
(0.7)%
Miami (81, 5.7)
26,644
28,120
(5.2)%
54,253
55,911
(3.0)%
Chicago (129, 8.1)
28,932
29,688
(2.5)%
58,515
58,675
(0.3)%
Atlanta (99, 6.5)
20,620
21,988
(6.2)%
41,807
43,553
(4.0)%
Dallas-Ft. Worth (102, 6.5)
20,695
21,440
(3.5)%
41,895
42,602
(1.7)%
Houston (84, 5.8)
17,518
18,513
(5.4)%
35,621
37,146
(4.1)%
Orlando-Daytona (72, 4.5)
14,929
15,727
(5.1)%
30,341
31,124
(2.5)%
Philadelphia (56, 3.5)
14,549
14,766
(1.5)%
29,279
29,070
0.7%
West Palm Beach (38, 2.5)
11,207
11,662
(3.9)%
22,834
23,132
(1.3)%
Tampa (52, 3.5)
11,290
11,971
(5.7)%
22,980
23,737
(3.2)%
Charlotte (50, 3.8)
9,994
10,462
(4.5)%
20,278
20,759
(2.3)%
All other markets (857, 53.2)
183,817
189,751
(3.1)%
370,765
374,519
(1.0)%
Total revenues
$
597,350
$
616,055
(3.0)%
$
1,206,885
$
1,218,352
(0.9)%
Net operating income:
Los Angeles
$
73,881
$
77,380
(4.5)%
$
151,031
$
152,958
(1.3)%
San Francisco
39,518
40,669
(2.8)%
79,459
80,146
(0.9)%
New York
25,382
27,517
(7.8)%
51,060
53,191
(4.0)%
Seattle-Tacoma
20,829
21,902
(4.9)%
42,176
43,133
(2.2)%
Washington DC
19,479
20,839
(6.5)%
39,483
40,777
(3.2)%
Miami
17,573
19,780
(11.2)%
36,575
39,415
(7.2)%
Chicago
15,452
15,765
(2.0)%
29,446
29,030
1.4%
Atlanta
13,921
15,778
(11.8)%
29,123
31,552
(7.7)%
Dallas-Ft. Worth
12,654
13,941
(9.2)%
26,277
27,794
(5.5)%
Houston
10,279
11,640
(11.7)%
21,541
23,463
(8.2)%
Orlando-Daytona
9,901
11,161
(11.3)%
20,569
22,035
(6.7)%
Philadelphia
9,800
10,358
(5.4)%
19,875
20,357
(2.4)%
West Palm Beach
7,718
8,532
(9.5)%
16,090
16,950
(5.1)%
Tampa
7,171
8,234
(12.9)%
14,891
16,330
(8.8)%
Charlotte
7,047
7,624
(7.6)%
14,509
15,141
(4.2)%
All other markets
123,386
133,054
(7.3)%
251,140
260,875
(3.7)%
Total net operating income
$
413,991
$
444,174
(6.8)%
$
843,245
$
873,147
(3.4)%



	Number	Square	Realized Rent per								Realized Rent Per										Net Operating
	of	Feet	Occupied Square Foot					Average Occupancy			Available Square Foot					Revenues ($000's)					Income ($000's)
	Facilities	(millions)		2021		2020	Change	2021	2020	Change		2021		2020	Change		2021		2020	Change		2021		2020	Change
Los Angeles	214	15.2	$	26.45	$	26.04	1.6%	97.9%	95.2%	2.8%	$	25.89	$	24.79	4.4%	$	100,514	$	97,247	3.4%	$	82,219	$	78,476	4.8%
San Francisco	130	8.1		26.83		26.50	1.2%	97.5%	93.7%	4.1%		26.17		24.84	5.4%		53,906		51,610	4.4%		43,241		40,563	6.6%
New York	91	6.5		26.36		26.10	1.0%	96.0%	93.4%	2.8%		25.30		24.39	3.7%		42,105		41,134	2.4%		29,302		27,056	8.3%
Seattle-Tacoma	129	8.1		20.66		20.35	1.5%	94.9%	92.6%	2.5%		19.61		18.84	4.1%		29,647		28,808	2.9%		22,451		21,470	4.6%
Miami	89	5.5		20.46		20.14	1.6%	96.3%	92.7%	3.9%		19.70		18.67	5.5%		29,563		28,336	4.3%		22,009		19,439	13.2%
Washington DC	87	5.9		21.42		21.26	0.8%	95.1%	92.7%	2.6%		20.37		19.70	3.4%		28,687		28,148	1.9%		20,833		19,905	4.7%
Chicago	83	5.8		15.42		15.16	1.7%	94.9%	91.6%	3.6%		14.62		13.88	5.3%		30,751		29,584	3.9%		16,729		13,846	20.8%
Atlanta	103	6.6		13.38		13.33	0.4%	94.6%	92.0%	2.8%		12.65		12.26	3.2%		21,433		21,105	1.6%		15,518		15,071	3.0%
Dallas-Ft. Worth	92	6.4		13.59		13.51	0.6%	94.8%	92.0%	3.0%		12.89		12.44	3.6%		22,258		21,720	2.5%		15,129		13,846	9.3%
Houston	98	6.4		12.83		12.86	(0.2)%	93.4%	91.2%	2.4%		11.97		11.73	2.0%		19,850		19,676	0.9%		12,273		12,004	2.2%
Philadelphia	56	3.5		17.49		16.67	4.9%	96.7%	94.9%	1.9%		16.92		15.82	7.0%		15,521		14,730	5.4%		10,948		10,002	9.5%
Orlando-Daytona	50	3.8		13.73		13.71	0.1%	95.3%	93.6%	1.8%		13.09		12.84	1.9%		15,220		15,105	0.8%		10,822		10,417	3.9%
West Palm Beach	52	3.5		19.00		18.27	4.0%	96.4%	93.8%	2.8%		18.31		17.14	6.8%		13,505		12,759	5.8%		9,846		9,133	7.8%
Tampa	40	2.9		14.10		13.95	1.1%	95.6%	91.8%	4.1%		13.48		12.81	5.2%		12,155		11,690	4.0%		8,429		7,668	9.9%
Charlotte	70	4.5		11.41		11.25	1.4%	94.8%	91.1%	4.1%		10.81		10.24	5.6%		10,750		10,307	4.3%		7,863		7,389	6.4%
All other markets	894	56.2		14.52		14.17	2.5%	95.4%	93.0%	2.6%		13.85		13.18	5.1%		201,952		194,732	3.7%		139,193		131,217	6.1%
Totals	2,278	148.9	$	17.63	$	17.33	1.7%	95.6%	93.0%	2.8%	$	16.86	$	16.12	4.6%	$	647,817	$	626,691	3.4%	$	466,805	$	437,502	6.7%

Same Store Facilities Operating Trends by Market (Continued)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
Change
2020
2019
Change
Weighted average square foot
occupancy:
Los Angeles
96.3%
95.2%
1.2%
95.8%
95.0%
0.8%
San Francisco
95.3%
94.9%
0.4%
94.6%
94.3%
0.3%
New York
94.7%
94.6%
0.1%
94.1%
93.9%
0.2%
Seattle-Tacoma
94.1%
93.9%
0.2%
93.4%
92.8%
0.6%
Washington DC
94.3%
94.5%
(0.2)%
93.5%
93.1%
0.4%
Miami
93.1%
93.0%
0.1%
92.9%
92.5%
0.4%
Chicago
93.6%
92.5%
1.2%
92.6%
91.0%
1.8%
Atlanta
92.0%
93.6%
(1.7)%
91.9%
93.1%
(1.3)%
Dallas-Ft. Worth
92.8%
92.5%
0.3%
92.3%
91.8%
0.5%
Houston
91.5%
89.3%
2.5%
91.5%
89.1%
2.7%
Orlando-Daytona
94.3%
94.8%
(0.5)%
94.0%
94.3%
(0.3)%
Philadelphia
95.7%
96.0%
(0.3)%
95.3%
95.3%
0.0%
West Palm Beach
94.1%
94.3%
(0.2)%
94.2%
93.8%
0.4%
Tampa
92.6%
93.1%
(0.5)%
92.2%
92.5%
(0.3)%
Charlotte
91.9%
92.2%
(0.3)%
91.6%
91.6%
0.0%
All other markets
94.7%
94.5%
0.2%
93.9%
93.5%
0.4%
Total weighted average
square foot occupancy
94.2%
94.0%
0.2%
93.7%
93.2%
0.5%
Realized annual rent per
occupied square foot:
Los Angeles
$
25.46
$
25.86
(1.5)%
$
25.73
$
25.63
0.4%
San Francisco
26.35
26.45
(0.4)%
26.51
26.27
0.9%
New York
25.21
25.96
(2.9)%
25.56
25.80
(0.9)%
Seattle-Tacoma
20.11
20.24
(0.6)%
20.24
20.16
0.4%
Washington DC
20.88
21.18
(1.4)%
21.07
21.14
(0.3)%
Miami
19.53
20.37
(4.1)%
19.81
20.33
(2.6)%
Chicago
14.70
15.02
(2.1)%
14.93
15.09
(1.1)%
Atlanta
13.16
13.56
(2.9)%
13.23
13.46
(1.7)%
Dallas-Ft. Worth
13.21
13.55
(2.5)%
13.35
13.55
(1.5)%
Houston
12.73
13.59
(6.3)%
12.86
13.66
(5.9)%
Orlando-Daytona
13.37
13.85
(3.5)%
13.53
13.75
(1.6)%
Philadelphia
16.54
16.54
0.0%
16.61
16.37
1.5%
West Palm Beach
18.27
18.68
(2.2)%
18.48
18.60
(0.6)%
Tampa
13.58
14.12
(3.8)%
13.76
14.06
(2.1)%
Charlotte
10.96
11.29
(2.9)%
11.08
11.26
(1.6)%
All other markets
14.12
14.40
(1.9)%
14.24
14.33
(0.6)%
Total realized rent per
occupied square foot
$
17.10
$
17.45
(2.0)%
$
17.26
$
17.38
(0.7)%

‎

4741

Same Store Facilities Operating Trends by Market (Continued)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
Change
2020
2019
Change
REVPAF:
Los Angeles
$
24.51
$
24.62
(0.4)%
$
24.64
$
24.35
1.2%
San Francisco
25.12
25.09
0.1%
25.08
24.77
1.3%
New York
23.87
24.54
(2.7)%
24.06
24.23
(0.7)%
Seattle-Tacoma
18.93
19.01
(0.4)%
18.90
18.72
1.0%
Washington DC
19.69
20.01
(1.6)%
19.70
19.69
0.1%
Miami
18.18
18.94
(4.0)%
18.40
18.81
(2.2)%
Chicago
13.75
13.90
(1.1)%
13.82
13.74
0.6%
Atlanta
12.10
12.69
(4.6)%
12.17
12.53
(2.9)%
Dallas-Ft. Worth
12.26
12.54
(2.2)%
12.33
12.44
(0.9)%
Houston
11.65
12.13
(4.0)%
11.76
12.17
(3.4)%
Orlando-Daytona
12.61
13.13
(4.0)%
12.72
12.96
(1.9)%
Philadelphia
15.83
15.88
(0.3)%
15.82
15.60
1.4%
West Palm Beach
17.19
17.61
(2.4)%
17.41
17.43
(0.1)%
Tampa
12.57
13.13
(4.3)%
12.69
13.00
(2.4)%
Charlotte
10.07
10.40
(3.2)%
10.15
10.31
(1.6)%
All other markets
13.36
13.60
(1.8)%
13.38
13.40
(0.1)%
Total REVPAF
$
16.11
$
16.40
(1.8)%
$
16.17
$
16.20
(0.2)%

~~The declining Same Store revenue trends noted above affected nearly~~Revenue increased on a year-over-year basis for all of our markets. We believe that our geographic diversification and scale across substantially all major metropolitan markets in the U.S. provides some insulation from localized economic effects and enhances the stability of our cash flows. It is difficult to predict localized trends in short-term self-storage demand and operating results. Over the long run, we believe that markets that experience population growth, high employment, and otherwise exhibit economic strength and consistency will outperform markets that do not exhibit these characteristics.

Acquired Facilities

The Acquired Facilities represent 84121 facilities that we acquired in ~~2018,~~ 2019, 2020, and the first ~~six~~three months of ~~2020.~~2021. 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:

4842



ACQUIRED FACILITIES	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2020		2019		Change (a)		2020		2019		Change (a)		2021		2020		Change (a)
	($ amounts in thousands, except for per square foot amounts)												($ amounts in thousands, except for per square foot amounts)
Revenues (b):
2018 Acquisitions	$	4,244	$	3,982	$	262	$	8,370	$	7,706	$	664
2019 Acquisitions		7,533		2,458		5,075		14,594		2,655		11,939	$	9,046	$	7,061	$	1,985
2020 Acquisitions		1,826		-		1,826		2,508		-		2,508		10,291		682		9,609
2021 Acquisitions														832		-		832
Total revenues		13,603		6,440		7,163		25,472		10,361		15,111		20,169		7,743		12,426

Cost of operations (b):
2018 Acquisitions		1,949		1,993		(44)		3,818		4,047		(229)
2019 Acquisitions		3,500		864		2,636		6,813		924		5,889		3,530		3,369		161
2020 Acquisitions		1,469		-		1,469		1,799		-		1,799		6,626		337		6,289
2021 Acquisitions														551		-		551
Total cost of operations		6,918		2,857		4,061		12,430		4,971		7,459		10,707		3,706		7,001

Net operating income:
2018 Acquisitions		2,295		1,989		306		4,552		3,659		893
2019 Acquisitions		4,033		1,594		2,439		7,781		1,731		6,050		5,516		3,692		1,824
2020 Acquisitions		357		-		357		709		-		709		3,665		345		3,320
2021 Acquisitions														281		-		281
Net operating income		6,685		3,583		3,102		13,042		5,390		7,652		9,462		4,037		5,425
Depreciation and
amortization expense		(9,808)		(5,899)		(3,909)		(19,330)		(9,591)		(9,739)		(13,755)		(7,318)		(6,437)
Net loss	$	(3,123)	$	(2,316)	$	(807)	$	(6,288)	$	(4,201)	$	(2,087)	$	(4,293)	$	(3,281)	$	(1,012)

At June 30:
At March 31:
Square foot occupancy:
2018 Acquisitions								93.4%		86.8%		7.6%
2019 Acquisitions								91.8%		78.2%		17.4%		94.2%		81.1%		16.2%
2020 Acquisitions								68.6%		-		-		73.1%		49.4%		48.0%
2021 Acquisitions														67.6%		-		-
								87.7%		82.7%		6.0%		79.7%		74.9%		6.4%
Annual contract rent per
occupied square foot:
2018 Acquisitions							$	11.00	$	11.73		(6.2)%
2019 Acquisitions								10.63		12.48		(14.8)%	$	12.47	$	11.64		7.1%
2020 Acquisitions								12.56		-		-		12.40		15.09		(17.8)%
2021 Acquisitions														13.64		-		-
							$	11.03	$	12.07		(8.6)%	$	12.55	$	12.08		3.9%

Number of facilities:
2018 Acquisitions								25		25		-
2019 Acquisitions								44		22		22		44		44		-
2020 Acquisitions								15		-		15		62		9		53
2021 Acquisitions														15		-		15
								84		47		37		121		53		68
Net rentable square feet (in thousands):	Net rentable square feet (in thousands):
2018 Acquisitions								1,629		1,629		-
2019 Acquisitions								3,154		1,428		1,726		3,154		3,145		9
2020 Acquisitions								1,167		-		1,167		5,075		748		4,327
2021 Acquisitions														1,087		-		1,087
								5,950		3,057		2,893		9,316		3,893		5,423

4943


ACQUIRED FACILITIES (Continued)	As of ‎June 30, 2020		As of ‎March 31, 2021
Costs to acquire (in thousands):
2018 Acquisitions	$	181,020
2019 Acquisitions		429,850	$	429,850
2020 Acquisitions		253,331		796,065
2021 Acquisitions				203,108
	$	864,201	$	1,429,023

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

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

We believe that our economies of scale in marketing and operations allows us to generate higher net operating income from newly acquired facilities than was achieved by the previous owners. However, it can take 2412 or more months for us to fully achieve the higher net operating income, or even longer in the case of an acquired facility with low occupancy levels and/or below market in place rents, and the ultimate levels of net operating income to be achieved can be affected by changes in general economic conditions. As a result, there can be no assurance that we will achieve our expectations with respect to these newly acquired facilities.

The Acquired Facilities have an aggregate of approximately ~~6.0~~9.3 million net rentable square feet, including 0.8 million in Virginia, 0.6 million in each of Arizona, Florida and Texas, 0.5 million in each of ~~Florida~~Michigan, Ohio and ~~Texas,~~Pennsylvania, 0.4 million each in ~~each of~~California, Georgia ~~Indiana, Minnesota, Nebraska~~ and ~~Ohio,~~Illinois, 0.3 million in each of ~~California,~~Alabama, Colorado Indiana, Massachusetts, Missouri, Minnesota, North Carolina and South Carolina and ~~Tennessee and 1.0~~1.6 million in other states.

For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, the weighted average annualized yield on cost, based upon net operating income, for the 2544 facilities acquired in ~~2018~~2019 was ~~5.0%~~5.1%. The yield for the facilities acquired in ~~the six months ended June 30,~~ 2020 ~~is not meaningful due to our limited ownership period, and the yield for the facilities acquired in 2019~~ is not meaningful due to the presence of unstabilized facilities.

~~We continue to seek to acquire additional self-storage~~ The yield for the facilities ~~from third parties. During~~acquired in the three months ended ~~June 30, 2020, third party~~March 31, 2021 is not meaningful due to our limited ownership period.

Subsequent to March 31, 2021, we acquired or were under contract to acquire 87 self-storage facilities across 18 states with 7.6 million net rentable square feet, for $2.3 billion, including the ezStorage portfolio consisting of 48 properties (4.2 million net rentable square feet) for acquisition cost of $1.8 billion, which is currently expected to close in late April 2021.

We are actively seeking to acquire additional facilities and the environment for new acquisitions has improved. We are observing increased selling activity for both new constructed non-stabilized and stabilized properties. However, future acquisition volume slowed as third party sellers delayed the sale of their properties due to economic uncertainty resulting from the COVID Pandemic. Seller inquiries have increased since June 30, 2020, with five properties under contract for an aggregate purchase price of $33.3 million, and negotiations under way on additional facilities. Volume later in 2020 could increase further if leveraged owners of recently developed facilities are forced to sell, the economy stabilizes and seller confidence returns, orwill depend upon whether additional owners ~~are otherwise~~will be motivated to ~~sell. There can be no assurance~~market their facilities, which will in turn depend upon factors such as toeconomic conditions and the level of ~~future acquisitions of facilities.~~seller confidence.

‎

Analysis of Depreciation and Amortization of Acquired Facilities

Depreciation and amortization with respect to the Acquired Facilities for the three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ totaled ~~$9.8~~$13.8 million and ~~$5.9~~$7.3 million, ~~respectively, and $19.3 million and $9.6 million for the six months ended June 30, 2020 and 2019,~~ respectively. These amounts include (i) depreciation of the acquired buildings, which is recorded generally on a straight line basis over a 25 year period, and (ii) amortization of cost allocated to the tenants in place upon acquisition of a facility, which is recorded based upon the benefit of such existing tenants to each period and thus is highest when the facility is first acquired and declines as such tenants vacate. With respect to the Acquired Facilities owned at ~~June 30, 2020,~~March 31, 2021, depreciation of buildings and amortization of tenant intangibles is expected to aggregate approximately ~~$35.9~~$44.3 million in the year ending December 31, ~~2020.~~2021. There will be additional depreciation and amortization of tenant intangibles with respect to new buildings that are acquired in the remainder of ~~2020.~~2021.

‎

5045

Developed and Expanded Facilities

The developed and expanded facilities include 7665 facilities that were developed on new sites since January 1, ~~2015,~~2016, and 71 facilities subject to expansion of their net rentable square footage. Of these expansions, 2044 were completed at January 1, ~~2019, 32~~2020, 10 were completed in the 1815 months ended ~~June 30, 2020,~~March 31, 2021, and 1917 are currently in process or are expected to commence renovation in ~~2020.~~2021. The following table summarizes operating data with respect to the Developed and Expanded Facilities:

DEVELOPED AND EXPANDED
FACILITIES
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
Change (a)
2020
2019
Change (a)
($ amounts in thousands, except for per square foot amounts)
Revenues (b):
Developed in 2015
$
4,428
$
4,324
$
104
$
8,939
$
8,560
$
379
Developed in 2016 - 2018
16,775
13,536
3,239
33,146
25,798
7,348
Developed in 2019
1,443
216
1,227
2,518
226
2,292
Developed in 2020
7
-
7
7
-
7
Expansions completed before 2019
8,182
7,133
1,049
16,244
13,750
2,494
Expansions completed in 2019 or 2020
7,199
5,303
1,896
14,120
10,178
3,942
Expansions in process
5,169
5,662
(493)
10,514
11,377
(863)
Total revenues
43,203
36,174
7,029
85,488
69,889
15,599
Cost of operations (b):
Developed in 2015
1,479
1,615
(136)
3,062
3,016
46
Developed in 2016 - 2018
7,753
7,465
288
15,283
14,356
927
Developed in 2019
1,282
652
630
2,353
737
1,616
Developed in 2020
51
-
51
51
-
51
Expansions completed before 2019
2,961
2,787
174
5,787
5,162
625
Expansions completed in 2019 or 2020
4,233
3,611
622
8,099
5,833
2,266
Expansions in process
1,550
1,453
97
3,022
2,925
97
Total cost of operations
19,309
17,583
1,726
37,657
32,029
5,628
Net operating income (loss):
Developed in 2015
2,949
2,709
240
5,877
5,544
333
Developed in 2016 - 2018
9,022
6,071
2,951
17,863
11,442
6,421
Developed in 2019
161
(436)
597
165
(511)
676
Developed in 2020
(44)
-
(44)
(44)
-
(44)
Expansions completed before 2019
5,221
4,346
875
10,457
8,588
1,869
Expansions completed in 2019 or 2020
2,966
1,692
1,274
6,021
4,345
1,676
Expansions in process
3,619
4,209
(590)
7,492
8,452
(960)
Net operating income
23,894
18,591
5,303
47,831
37,860
9,971
Depreciation and
amortization expense
(15,131)
(13,560)
(1,571)
(30,240)
(25,516)
(4,724)
Net income
$
8,763
$
5,031
$
3,732
$
17,591
$
12,344
$
5,247
At June 30:
Square foot occupancy:
Developed in 2015
94.3%
93.2%
1.2%
Developed in 2016 - 2018
89.1%
74.9%
19.0%
Developed in 2019
80.0%
38.9%
105.7%
Developed in 2020
5.2%
-
-
Expansions completed before 2019
86.8%
73.6%
17.9%
Expansions completed in 2019 or 2020
74.4%
53.3%
39.6%
Expansions in process
84.7%
86.4%
(2.0)%
83.3%
70.8%
17.7%


DEVELOPED AND EXPANDED
FACILITIES	Three Months Ended March 31,
	2021		2020		Change (a)
	($ amounts in thousands, except for per square foot amounts)
Revenues (b):
Developed in 2016	$	7,772	$	6,809	$	963
Developed in 2017 - 2019		14,434		10,637		3,797
Developed in 2020		369		-		369
Developed in 2021		4		-		4
Expansions completed before 2020		13,722		10,684		3,038
Expansions completed in 2020 or 2021		2,298		1,948		350
Expansions in process		4,340		4,623		(283)
Total revenues		42,939		34,701		8,238

Cost of operations (b):
Developed in 2016		2,458		2,516		(58)
Developed in 2017 - 2019		6,473		6,200		273
Developed in 2020		399		-		399
Developed in 2021		83		-		83
Expansions completed before 2020		6,081		5,362		719
Expansions completed in 2020 or 2021		1,385		824		561
Expansions in process		1,259		1,190		69
Total cost of operations		18,138		16,092		2,046

Net operating income (loss):
Developed in 2016		5,314		4,293		1,021
Developed in 2017 - 2019		7,961		4,437		3,524
Developed in 2020		(30)		-		(30)
Developed in 2021		(79)		-		(79)
Expansions completed before 2020		7,641		5,322		2,319
Expansions completed in 2020 or 2021		913		1,124		(211)
Expansions in process		3,081		3,433		(352)
Net operating income		24,801		18,609		6,192
Depreciation and
amortization expense		(16,335)		(13,168)		(3,167)
Net income	$	8,466	$	5,441	$	3,025

At March 31:
Square foot occupancy:
Developed in 2016		94.0%		84.8%		10.8%
Developed in 2017 - 2019		90.6%		71.8%		26.2%
Developed in 2020		55.7%		-		-
Developed in 2021		13.1%		-		-
Expansions completed before 2020		86.0%		67.5%		27.4%
Expansions completed in 2020 or 2021		58.9%		67.3%		(12.5)%
Expansions in process		91.0%		90.4%		0.7%
		85.4%		73.1%		16.8%

‎

5146

DEVELOPED AND EXPANDED
FACILITIES (Continued)
Six Months Ended June 30,
2020
2019
Change (a)
(Amounts in thousands,
except for number of facilities)
Annual contract rent per occupied square foot:
Developed in 2015
$
15.00
$
15.04
(0.3)%
Developed in 2016 - 2018
12.23
12.22
0.1%
Developed in 2019
7.83
9.22
(15.1)%
Developed in 2020
11.08
-
-
Expansions completed before 2019
13.69
14.54
(5.8)%
Expansions completed in 2019 or 2020
9.00
12.44
(27.7)%
Expansions in process
19.88
20.93
(5.0)%
$
12.25
$
13.74
(10.8)%
Number of facilities:
Developed in 2015
13
13
-
Developed in 2016 - 2018
50
50
-
Developed in 2019
11
6
5
Developed in 2020
2
-
2
Expansions completed before 2019
20
20
-
Expansions completed in 2019 or 2020
32
32
-
Expansions in process
19
19
-
147
140
7
Net rentable square feet (c):
Developed in 2015
1,242
1,242
-
Developed in 2016 - 2018
6,250
6,250
-
Developed in 2019
1,057
597
460
Developed in 2020
246
-
246
Expansions completed before 2019
2,755
2,754
1
Expansions completed in 2019 or 2020
4,395
3,436
959
Expansions in process
1,217
1,203
14
17,162
15,482
1,680
As of
‎June 30, 2020
Costs to develop:
Developed in 2015
$
119,258
Developed in 2016 - 2018
759,643
Developed in 2019
150,387
Developed in 2020
28,689
Expansions completed before 2019 (d)
159,217
Expansions completed in 2019 or 2020 (d)
264,009
$
1,481,203


DEVELOPED AND EXPANDED
FACILITIES (Continued)	Year Ended March 31,
	2021		2020		Change (a)
	(Amounts in thousands, except for number of facilities)
Annual contract rent per occupied square foot:
Developed in 2016	$	15.61	$	14.85		5.1%
Developed in 2017 - 2019		12.66		11.78		7.5%
Developed in 2020		11.20		-		-
Developed in 2021		14.25		-		-
Expansions completed before 2020		11.32		10.96		3.3%
Expansions completed in 2020 or 2021		12.42		14.40		(13.8)%
Expansions in process		17.98		18.89		(4.8)%
	$	12.93	$	12.74		1.5%
Number of facilities:
Developed in 2016		16		16		-
Developed in 2017 - 2019		45		45		-
Developed in 2020		3		-		3
Developed in 2021		1		-		1
Expansions completed before 2020		44		44		-
Expansions completed in 2020 or 2021		10		10		-
Expansions in process		17		17		-
		136		132		4

Net rentable square feet (c):
Developed in 2016		2,141		2,141		-
Developed in 2017 - 2019		5,166		5,166		-
Developed in 2020		347		-		347
Developed in 2021		200		-		200
Expansions completed before 2020		5,822		5,819		3
Expansions completed in 2020 or 2021		1,365		793		572
Expansions in process		1,027		1,054		(27)
		16,068		14,973		1,095

	As of ‎March 31, 2021
Costs to develop (in thousands):
Developed in 2016	$	257,585
Developed in 2017 - 2019		652,445
Developed in 2020		42,063
Developed in 2021		45,333
Expansions completed before 2020 (d)		381,940
Expansions completed in 2020 or 2021 (d)		96,780
	$	1,476,146

5247

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

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

(c)The facilities included above have an aggregate of approximately ~~17.2~~16.1 million net rentable square feet at ~~June 30, 2020,~~March 31, 2021, including ~~6.5~~5.9 million in Texas, ~~2.4 million in California,~~ 2.0 million in Florida, ~~1.5~~1.7 million in California, 1.4 million in Colorado, 1.1 million in Minnesota, 0.8 million in North Carolina, ~~0.7~~0.6 million in Washington, 0.4 million in each of Missouri and Virginia, 0.3 million in each of ~~Arizona,~~ Georgia, Michigan, New Jersey and South Carolina and ~~1.0~~0.6 million in other states.

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

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

We believe that our development and redevelopment activities generate favorable risk-adjusted returns over the long run. However, in the short run, our earnings are diluted during the construction and stabilization period due to the cost of capital to fund the development cost, as well as the related construction and development overhead expenses included in general and administrative expense. We believe the level of dilution incurred in ~~2019~~2020 and the first ~~two quarters~~quarter of ~~2020~~2021 will continue at similar levels for the remainder of ~~2020.~~2021.

~~The COVID Pandemic could delay~~Our existing unstabilized facilities continued to fill up in terms of occupancies consistent with our general expectations during the ~~estimated timing~~three months ended March 31, 2021, despite the impact of completion of our existing pipeline of development and expansion projects, because some jurisdictions may shut down or delay entitlement activities, and further “stay at home” orders could potentially delay construction activities. In addition, the COVID Pandemic, ~~could extend~~and we expect that trend to continue. Our unstabilized facilities are affected by the same market dynamics that affect our Same Store properties. Accordingly, whether we ultimately achieve our yield expectations, and the timeframe for reaching stabilized cash flows, depends largely upon the same factors affecting aggregate demand, move-ins, move-outs, and realized annual rent per occupied square foot for our Same Store Facilities as set forth under “Analysis of Same Store Revenue” above.

At March 31, 2021, we had a ~~newly developed facility~~development pipeline to ~~reach stabilized occupancies~~develop 16 new self-storage facilities and ~~cash flows.~~expand 25 existing self-storage facilities, which will add approximately 3.4 million net rentable square feet at a cost of $510.3 million. We have continued to add projects to our development pipeline in the three months ended March 31, 2021 despite the impact of the COVID Pandemic. We expect to continue to ~~monitor our~~seek to add projects to ~~ensure~~maintain a robust pipeline. Our ability to do so continues to be challenged by various constraints such as difficulty in finding projects that ~~they still~~ meet our risk-adjusted yield expectations, and ~~reduced project yield estimates due to the COVID Pandemic or other factors could result~~challenges in ~~the cancellation of existing projects~~obtaining building permits for self-storage facilities in ~~the future, or we may not pursue~~ certain new projects that we would have otherwise sought. Given the impact of the COVID Pandemic on our operations, we determined to cease pursuit of several early stage development and expansion projects, and incurred $3.2 million in incremental general and administrative expense on the related cumulative costs incurred.municipalities.

Newly Developed Facilities

The facilities included under “Developed in ~~2015”~~2016” had high occupancies at ~~December~~March 31, ~~2018,~~2021, but had ~~4.4%~~14.1% year over year revenue growth during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 which exceeds the ~~0.9% reduction~~3.4% increase in year over year revenue growth in the Same Store facilities. This outperformance relative to the Same Store Facilities reflects the maturity of the existing tenant base following attainment of high occupancy, illustrating the latter stage of the stabilization process noted above. The annualized yield on cost for these facilities, based upon the net operating income for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021 was ~~9.9%~~8.3%.

We typically underwrite new developments to stabilize at approximately an 8.0% NOI yield on cost. We believe the 2017-2019 developed facilities, in aggregate, will meet that target on stabilization and have thus far leased-up as expected. The occupancies of facilities ~~included under “Developed~~developed in ~~2016 - 2018”~~2020 and ~~“Developed in 2019” continue to be, on average, in~~ the ~~occupancy~~first three months of 2021 have leased-up as expected and are at the beginning of their revenue stabilization ~~phase.~~periods. We expect continued growth in these ~~facilities throughout~~in the

remainder of ~~2020~~2021 and beyond as they continue to stabilize. The annualized yields that may be achieved on these facilities upon stabilization will depend on many factors, including local and current market conditions in the vicinity of each property, the level of new and existing supply, as well as the impact of the COVID Pandemic. The 16 properties developed in 2016, which are near stabilization and included under “Developed in 2016 – 2018” have an annualized yield on cost, based upon the net operating income ended June 30, 2020, of 6.7%. The yield on cost that will ultimately be achieved on the remainder of the newly developed facilities cannot be determined at this time.

We have ~~ten~~16 additional newly developed facilities in process, which will have a total of ~~1.1~~1.4 million net rentable square feet of storage space and have an aggregate development cost totaling approximately ~~$195.3~~$224.2 million. We expect these facilities to open over the next 18 to 24 months.

Expansions of Existing Facilities

The expansion of an existing facility involves the construction of new space on an existing facility, either on existing unused land or through the demolition of existing buildings in order to facilitate densification. The construction costs for an expanded facility may include, in addition to adding space, adding amenities such as climate control to existing space, improving the visual appeal of the facility, and to a much lesser extent, the replacement of existing doors, roofs, and HVAC.

The return profile on the expansion of existing facilities differs from a new facility, due to a lack of land cost, and there can be less cash flow risk because we have more direct knowledge of the local demand for space on the site as compared to a new facility. However, many expansions involve the demolition of existing revenue-generating space with the loss of the related revenues during the construction and fill-up period.

The facilities under “completed expansions” represent those facilities where the expansions have been completed at ~~June 30, 2020.~~March 31, 2021. We incurred a total of ~~$423.2~~$478.7 million in direct cost to expand these facilities, demolished a total of ~~1.0~~1.1 million net rentable square feet of storage space, and built a total of ~~4.8~~5.2 million net rentable square feet of new storage space.

The facilities under “expansions in process” represent those facilities where development is in process at ~~June 30, 2020~~March 31, 2021 or which will commence construction by December 31, ~~2020.~~2021. We have a pipeline to add a total of ~~2.7~~2.0 million net rentable square feet of storage space by expanding existing self-storage facilities for an aggregate direct development cost of ~~$360.9~~$286.1 million. ~~We have already demolished 0.1 million net rentable square feet of space in connection with our expansion projects, and expect to demolish an additional 0.3 million net rentable square feet.~~

Analysis of Depreciation and Amortization of Developed and Expanded Facilities

Depreciation and amortization with respect to the Developed and Expanded Facilities totaled ~~$15.1~~$16.3 million and ~~$30.2~~$13.2 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~respectively, as compared to $13.6 million and $25.5 million for the same periods in 2019.~~respectively. These amounts represent depreciation of the developed buildings and, in the case of the expanded facilities, the legacy depreciation on the existing buildings. With respect to the Developed and Expanded Facilities completed at ~~June 30, 2020,~~March 31, 2021, depreciation of buildings is expected to aggregate approximately ~~$59.5~~$45.6 million in the year ending December 31, ~~2020.~~2021. There will be additional depreciation of new buildings that are developed or expanded in the remainder of ~~2020.~~2021.

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, ~~2018,~~2019, due primarily to casualty events such as hurricanes, floods, and ~~fires, as well as facilities acquired from third parties prior to January 1, 2018 that were recently developed or expanded by the previous owner.~~fires.

The other non-same store facilities have an aggregate of ~~3.6~~1.9 million net rentable square feet, including ~~0.7~~0.5 million in Texas, ~~0.5~~0.2 million in each of California, Georgia, Ohio and ~~Oklahoma, 0.4 million in each of New York~~Tennessee and ~~South Carolina and 1.1~~0.6 million in other states.

The net operating income for these facilities was ~~$6.1~~$3.2 million and ~~$12.9~~$3.0 million in the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~respectively, as compared to $6.9 million and $13.6 million for the same periods in 2019.~~respectively. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, the average occupancy for these facilities ~~was 87.8%~~totaled 87.4%, and ~~86.4%~~77.4%, respectively, ~~as compared to 87.2%~~ and ~~86.3% for~~ the ~~same periods in 2019.~~realized rent per occupied square feet totaled $12.56 and $12.89, respectively.

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Over the longer term, we expect the growth in operations of these facilities to be similar to that of our Same Store facilities. However, in the short run, year over year comparisons will vary due to the impact of the underlying events which resulted in these facilities being classified as non-same store.

Depreciation and amortization with respect to the other non-same store facilities totaled ~~$6.9~~$7.4 million and ~~$13.8~~$5.1 million for the three ~~and six~~ months ended ~~June 30, 2020, respectively, as compared to $5.8 million~~March 31, 2021 and ~~$11.8 million for the same periods in 2019.~~2020. We expect that depreciation for the remainder of ~~2020~~2021 will approximate the level experienced in the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

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 in the U.S. and the sale of merchandise at our self-storage facilities. The following table sets forth our ancillary operations:



	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2020		2019		Change		2020		2019		Change		2021		2020		Change
	(Amounts in thousands)												(Amounts in thousands)
Revenues:
Tenant reinsurance premiums	$	36,933	$	32,972	$	3,961	$	71,629	$	64,565	$	7,064	$	39,681	$	34,696	$	4,985
Merchandise		7,810		8,639		(829)		14,995		15,676		(681)		7,036		7,185		(149)
Third party property management														4,198		2,962		1,236
Total revenues		44,743		41,611		3,132		86,624		80,241		6,383		50,915		44,843		6,072

Cost of Operations:	Cost of Operations:
Tenant reinsurance		7,285		6,671		614		14,067		12,922		1,145		7,824		6,782		1,042
Merchandise		4,497		4,982		(485)		8,660		9,276		(616)		3,966		4,163		(197)
Third party property management														4,528		2,627		1,901
Total cost of operations		11,782		11,653		129		22,727		22,198		529		16,318		13,572		2,746

Net operating income
Tenant reinsurance		29,648		26,301		3,347		57,562		51,643		5,919		31,857		27,914		3,943
Merchandise		3,313		3,657		(344)		6,335		6,400		(65)		3,070		3,022		48
Third party property management														(330)		335		(665)

Total net operating income	$	32,961	$	29,958	$	3,003	$	63,897	$	58,043	$	5,854	$	34,597	$	31,271	$	3,326

Tenant reinsurance operations: Our customers have the option of purchasing insurance from a non-affiliated insurance company to cover certain losses to their goods stored at our facilities. A wholly-owned, consolidated subsidiary of Public Storage fully reinsures such policies, and thereby assumes all risk of losses under these policies from the insurance company. The subsidiary receives reinsurance premiums, substantially equal to the premiums collected from our tenants, from the non-affiliated insurance company. Such reinsurance premiums are shown as “Tenant reinsurance premiums” in the above table.

The subsidiary pays a fee to Public Storage to assist with the administration of the program and to allow the insurance to be marketed to our tenants. This fee represents a substantial amount of the reinsurance premiums received by our subsidiary. The fee is eliminated in consolidation and is therefore not shown in the above table.

Tenant reinsurance revenue increased ~~$4.0~~$5.0 million or ~~12.0%~~14.4 % in the three months ended ~~June 30, 2020, and increased $7.1 million or 10.9% in the six months ended June 30, 2020, in each case as compared to~~March 31, 2021 over the same period in ~~2019.~~2020. The increase is due to higher average premiums and an increase in our tenant base with respect to acquired, newly developed, and expanded facilities. Tenant reinsurance revenue with respect to the Same Store Facilities ~~increased $2.0~~totaled $33.1 million ~~or 6.8% from $28.8~~and $30.5 million in the three months ended ~~June 30, 2019 to $30.8 million in the three months ended June 30,~~March 31, 2021 and 2020, ~~and increased $3.4 million or 6.1% from $56.8 million in the six months ended June 30, 2019 to $60.2 million in the six months ended June 30, 2020.~~

respectively.

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

Cost of operations primarily includes claims paid ~~that are not covered by our outside third-party insurers,~~ as well as claims adjustment expenses. Claims expenses vary based upon the number of insured tenants and the volume of events which drive covered customer losses, such as burglary, as well as catastrophic weather events affecting multiple properties such as hurricanes and floods. Cost of operations were ~~$7.3~~$7.8 million and ~~$14.1~~$6.8 million in the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~respectively, as compared to $6.7 million and $12.9 million for the same periods in 2019.~~respectively.

Merchandise sales: We sell locks, boxes, and packing supplies at our self-storage facilities and the level of sales of these items is primarily impacted by the level of move-ins and other customer traffic at our self-storage facilities. We do not expect any significant changes in revenues or profitability from our merchandise sales in the remainder of ~~2020.~~2021.

Third party property management: At March 31, 2021, we manage 99 facilities for third parties, and were under contract to manage 25 additional facilities including 24 facilities that are currently under construction. While we expect this business to increase in scope and size, we don’t 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 lease-up for newly managed properties.

Equity in earnings of unconsolidated real estate entities

For all periods presented, we have equity investments in PSB and Shurgard, which we account for on the equity method and record our pro-rata share of the net income of these entities. The following table, and the discussion below, sets forth our equity in earnings of unconsolidated real estate entities:



	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2020		2019		Change		2020		2019		Change		2021		2020		Change
	(Amounts in thousands)												(Amounts in thousands)
Equity in earnings:
PSB	$	13,228	$	14,864	$	(1,636)	$	34,965	$	28,584	$	6,381	$	14,476	$	21,737	$	(7,261)
Shurgard		4,427		4,050		377		6,658		8,002		(1,344)		4,980		2,231		2,749
Total equity in earnings	$	17,655	$	18,914	$	(1,259)	$	41,623	$	36,586	$	5,037	$	19,456	$	23,968	$	(4,512)

Investment in PSB: Throughout all periods presented, we owned 7,158,354 shares of PS Business Parks, Inc. (“PSB”) common stock and 7,305,355 limited partnership units in an operating partnership controlled by PSB, representing an approximate 42% common equity interest. The limited partnership units are convertible at our option, subject to certain conditions, on a one-for-one basis into PSB common stock.

At ~~June 30, 2020,~~March 31, 2021, PSB wholly-owned approximately ~~27.5~~27.8 million rentable square feet of commercial space and had a 95% interest in a 395-unit apartment complex. PSB also manages commercial space that we own pursuant to property management agreements.

Included in our equity earnings from PSB for the ~~six~~three months ended ~~June 30,~~March 31, 2020 is our equity share of gains on sale of real estate totaling $8.1 ~~million.~~million (none for the same period in 2021).

Equity in earnings from PSB, excluding the aforementioned real estate gains, ~~decreased $1.6 million and $1.7~~increased $0.9 million in the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021, as compared to the same ~~periods~~period in ~~2019~~2020 due primarily to ~~reduced~~increased net operating income from PSB’s ~~sale of assets.~~non-same park properties. See Note 4 to our ~~June 30, 2020~~March 31, 2021 financial statements for further discussion regarding PSB. PSB’s filings and selected financial information, including discussion of the factors that affect its earnings, including impacts from the COVID Pandemic, can be accessed through the SEC, and on PSB’s website, www.psbusinessparks.com. Information on this website is not incorporated by reference herein and is not a part of this Quarterly Report on Form 10-Q.

Investment in Shurgard: Throughout all periods presented, we effectively owned, directly and indirectly, 31,268,459 Shurgard common shares, representing an approximate 35% equity interest in Shurgard. Shurgard’s common shares trade on Euronext Brussels under the “SHUR” symbol.

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At ~~June 30, 2020,~~March 31, 2021, Shurgard owned ~~238~~243 self-storage facilities with approximately 13 million net rentable square feet. Shurgard pays us license fees for use of the “Shurgard” trademark, as described in more detail in Note 4 to our ~~June 30, 2020~~March 31, 2021 financial statements.

In the ~~six~~three months ended ~~June 30,~~March 31, 2020, Shurgard acquired ~~six~~two facilities for an aggregate cost of ~~$53.9~~$24.5 million (none for the same period in 2021). In the three months ended March 31, 2021, Shurgard opened two newly developed facilities at an aggregate cost totaling $28.0 million (none in the same period in ~~2019)~~2020).

The $2.7 million increase ~~of $0.4 million~~ in our equity in earnings from Shurgard ~~for~~from the three months ~~ended June 30,~~March 31, 2021 to 2020 ~~as compared~~is due to the impact of (i) improved same ~~period~~store, non-same store and ancillary operating income , (ii) a $2.7 million decrease in ~~2019 is due primarily to (i)~~ our ~~$2.1 million~~ equity share of costs due to a ~~net~~ casualty ~~gain~~loss recorded in the three months ended ~~June 30,~~March 31, 2020, and (iii) a 9.2% increase in average exchange rates of the U.S. Dollar to the Euro, offset partially by ~~(ii) our $0.7 million equity share of a net gain on disposition recorded during the three months ended June 30, 2019~~(iv) increases in depreciation and ~~(iii) our equity share of increased depreciation~~interest expense.

The $1.3 million decrease in our equity in earnings from Shurgard for the six months ended June 30, 2020 as compared to the same period in 2019 is due to (i) our $2.0 million equity share of a net casualty loss recorded in the six months June 30, 2020, (ii) our $0.7 million equity share of a net gain on disposition recorded in the six months ended June 30, 2019, offset partially by (iii) our $1.4 million equity share of Shurgard’s resolution of a contingency in the six months ended June 30, 2020.

Our future earnings from Shurgard will also be affected by (i) the operating results of its existing facilities, (ii) the level of development and acquisition activities, (iii) the income tax rates applicable in the various European jurisdictions in which Shurgard operates, and (iv) the exchange rate between the U.S. Dollar and currencies in the countries in which Shurgard conducts its business (principally the Euro).

Shurgard’s public filings and publicly reported information, including discussion of the factors that affect its earnings, including impacts from the COVID Pandemic, can be obtained on its website, https://corporate.shurgard.eu and on the website of the Luxembourg Stock Exchange, http://www.bourse.lu. Information on these websites is not incorporated by reference herein and is not a part of this Quarterly Report on Form 10-Q.

For purposes of recording our equity in earnings from Shurgard, the Euro was translated at exchange rates of approximately 1.173 U.S. Dollars per Euro at March 31, 2021 (1.226 at December 31, 2020), and average exchange rates of ~~1.101~~1.205 and ~~1.124~~1.103 for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and 1.102 and 1.130 for the six months ended June 30, 2020 and 2019,~~ respectively.

Analysis of items not allocated to segments

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



	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2020		2019		Change		2020		2019		Change		2021		2020		Change
	(Amounts in thousands)												(Amounts in thousands)

Share-based compensation expense	$	7,009	$	5,646	$	1,363	$	13,616	$	13,240	$	376	$	7,642	$	2,880	$	4,762
Costs of senior executives		327		327		-		1,967		1,655		312		886		1,640		(754)
Development and acquisition costs		4,255		1,723		2,532		6,699		3,790		2,909		1,599		2,444		(845)
Tax compliance costs and taxes paid	Tax compliance costs and taxes paid	1,316		1,285		31		3,029		2,718		311		1,698		1,713		(15)
Legal costs		824		1,222		(398)		3,256		4,926		(1,670)		1,820		2,432		(612)
Public company costs		1,211		1,215		(4)		2,597		2,727		(130)		1,640		1,386		254
Other costs		5,352		3,846		1,506		10,194		5,711		4,483		4,289		5,373		(1,084)
Total	$	20,294	$	15,264	$	5,030	$	41,358	$	34,767	$	6,591	$	19,574	$	17,868	$	1,706

Share-based compensation expense includes the amortization of restricted share units and stock options granted to certain corporate employees and trustees, as well as related employer taxes. We corrected our prior period financial statement presentation of share-based compensation expense between general and administrative expense and self-storage cost of operations. As a result, we revised our statement of income for the three months ended March 31, 2020 with an increase in self-storage cost of operations of $3.2 million and a corresponding decrease to general and administrative expenses. This immaterial correction had no impact on our total expenses or net income. The correction also had no impact on the balance sheet, statements of comprehensive income, statements of equity, or cash flows as of and for the three months ended March 31, 2020.

Share-based compensation expense, as well as related employer taxes, for management personnel who directly and indirectly supervise the on-site property managers, as well as those employees responsible for providing shared general corporate functions to the extent their efforts are devoted to self-storage operations, are included as self-storage cost of operations. See “Same Store Facilities” for further information. Share-based compensation

expense varies based upon the level of grants and their related vesting and amortization periods, forfeitures, as well as the Company’s

common share price on the date of each grant. ~~See Note 10 to our June 30, 2020 financial statements for further information on our share-based compensation.~~

~~Our~~In July 2020, our share-based compensation plans were ~~revised after June 30, 2020~~modified to allow immediate vesting upon retirement (“Retirement ~~Vesting”~~Acceleration”), ~~rather than forfeiture,~~and to extend the exercisability of ~~all unvested share-based grants upon termination~~outstanding stock options up to a year after retirement, for currently outstanding and future grants. Employees are eligible for Retirement Acceleration if they meet certain conditions including length of service, age, notice of intent to retire, and facilitation of succession for ~~employees that meet certain requirements, such as minimum age, minimum years of service, notice, and who cooperate as needed~~their role. This modification resulted in ~~a transition plan. This change is expected to increase~~incremental share-based compensation expense of $3.8 million in the ~~remainder of 2020, due primarily to accelerated amortization of share-based grants that are expected to be eligible for Retirement Vesting at an earlier date than the original vesting date.~~

~~Costs of senior executives represent the cash compensation paid to our CEO and CFO.~~three months ended March 31, 2021.

Development and acquisition costs primarily represent internal and external expenses related to our development and acquisition of real estate facilities and varies primarily based upon the level of activities. The amounts in the above table are net of ~~$3.0~~$3.2 million, and ~~$6.1~~$3.1 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, respectively, ~~as compared to $3.0 million and $6.0 million for the same periods in 2019,~~ in development costs that were capitalized to newly developed and redeveloped self-storage facilities. ~~During the six months ended June 30, 2020, we incurred $3.2 million in costs associated with the write-off of cancelled development projects.~~ Development and acquisition costs are expected to ~~remain stable~~increase in the remainder of 2021, as compared to the same period in 2020.

Tax compliance costs and taxes paid include taxes paid to various state and local authorities, the internal and external costs of filing tax returns, costs associated with complying with federal and state tax laws, and maintaining our compliance with Internal Revenue Service REIT rules. Such costs vary primarily based upon the tax rates of the various states in which we do business.

Legal costs include internal personnel as well as fees paid to legal firms and other third parties with respect to general corporate legal matters and risk management, and varies based upon the level of legal activity. ~~The future level of legal costs is not determinable.~~

Public company costs represent the incremental costs of operating as a publicly-traded company, such as internal and external investor relations expenses, stock listing and transfer agent fees, ~~board of trustees’ (our “Board”)~~Board costs, and costs associated with maintaining compliance with applicable laws and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and Sarbanes-Oxley Act of 2002.

Other costs represent certain professional and consulting fees, payroll, and overhead that are not attributable to our property operations. Such costs include nonrecurring and variable items, including $1.6 million in due diligence costs incurred in the ~~six~~three months ended ~~June 30,~~March 31, 2020, in connection with our non-binding proposal, which we did not proceed with, to acquire 100% of the stapled securities of National Storage REIT. The level of these costs depends upon corporate activities and ~~initiatives and, as a result, such costs are not predictable.~~

~~Our future general and administrative expenses are difficult to estimate, due to their dependence upon many factors, including those noted above.~~initiatives.

Interest and other income: Interest and other income ~~includes $2.2 million and $4.8 million in~~is comprised primarily of the ~~three and six months ended June 30, 2020, respectively, as compared to $2.6 million and $5.3 million for the same periods in 2019, in aggregate~~ net income from our commercial ~~and~~operations, our property management ~~operations. We do not expect any significant changes in income from commercial and property management operations in the remainder of 2020. The remaining amounts include~~operation, interest earned on cash balances, ~~which reflected a decrease in average interest rates,~~and trademark license fees received from Shurgard, ~~and~~as well as sundry other income items that are received from time to time ~~(including~~in varying amounts. Excluding amounts attributable to our commercial operations totaling $2.0 million ~~in interest income associated with the early repayment of a note receivable~~and $2.2 million in the three ~~and six~~ months ended ~~June 30, 2020).~~March 31, 2021 and 2020, respectively, interest and other income decreased $3.1 million in the three months ended March 31, 2021 as compared to the same period in 2020. The decrease includes $2.9 million of interest earned on cash balances. The level of other interest and income items in the remainder of ~~2020~~2021 will be dependent upon the level of cash balances we retain, interest rates, and the level of sundry other income items.

Interest expense: For the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, we incurred ~~$14.9~~$16.2 million and ~~$29.5~~$14.6 million, respectively, of interest on our outstanding ~~debt, as compared to $13.1 million and $22.4 million for~~

~~the same periods in 2019.~~debt. In determining interest expense, these amounts were offset by capitalized interest of ~~$0.7 million and $1.7~~$0.9 million during each of the three month periods ended March 31, 2021 and ~~six months ended June 30,~~ 2020, ~~respectively,~~ associated with our development ~~activities, as compared to $0.8 million and $2.0 million for the same periods in 2019.~~activities. The increase in the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, as compared to the same ~~periods~~period in ~~2019,~~2020, is due to our ~~issuances~~issuance on ~~(i) April 12, 2019~~January 19, 2021 of $500 million ~~in senior notes bearing interest at an annual rate of 3.385% and on (ii) January 24, 2020 of €500 million ($551.6 million) aggregate principal amount~~ of senior notes bearing interest at an annual rate of 0.875%. and maturing on February 15, 2026. At ~~June 30, 2020,~~March 31, 2021, we had ~~$2.5~~$3.0 billion of debt outstanding, with an average interest rate of ~~2.4%~~approximately 2.2%.

Future interest expense will be dependent upon the level of outstanding debt and the amount of in-process development costs.

Foreign Exchange ~~(Loss)~~ Gain: For the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, we recorded foreign currency ~~translation losses~~gains of ~~$19.3~~$45.4 million and ~~$10.4~~$8.9 million, respectively, representing the changes in the U.S. Dollar equivalent of our Euro-denominated unsecured notes due to fluctuations in exchange rates. For the three months ended June 30, 2019, we recorded foreign currency translation losses of $5.2 million, and for the six months ended June 30, 2019, we recorded foreign currency translation gains of $2.6 million. The Euro was translated at exchange rates of approximately ~~1.123~~1.173 U.S. Dollars per Euro at ~~June 30,~~March 31, 2021, 1.226 at December 31, 2020, 1.100 at March 31, 2020 and 1.122 at December 31, ~~2019, 1.137 at June 30, 2019 and 1.144 at December 31, 2018.~~2019. Future gains and losses on foreign currency ~~translation~~ will be dependent upon changes in the relative value of the Euro to the U.S. Dollar, and the level of Euro-denominated debt outstanding.

Gain on Real Estate Investment Sales: In the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we recorded ~~$1.1~~a gain of $9.4 million in ~~gains, and~~connection with the complete sale of a real estate facility pursuant to an eminent domain proceeding in Saint Louis, Missouri. In the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, we recorded gains totaling ~~$341,000, primarily~~$1.1 million in connection ~~with~~ the partial sale of real estate facilities pursuant to eminent domain proceedings.

Net Income Allocable to Preferred Shareholders: Net income allocable to preferred shareholders based upon distributions decreased from ~~$53.5 million and $108.5~~$52.0 million in the three ~~and six~~ months ended ~~June 30, 2019, respectively,~~March 31, 2020 to ~~$53.0 million and $105.0~~$46.1 million in the same ~~periods~~period in ~~2020,~~2021. This decrease is due primarily to lower average coupon rates due to redemptions of preferred shares with the proceeds from the issuance of new series with lower market coupon rates ~~partially offset by higher~~and lower average preferred shares outstanding. We also allocated income from our common shareholders to the holders of our preferred shares totaling $15.1 million in each of the three and six month periods ended June 30, 2020 and $8.9 million and $17.4 million in the three and six months ended June 30, 2019, respectively, in connection with the redemption of preferred securities. Based upon our preferred shares outstanding at ~~June 30, 2020,~~March 31, 2021, our quarterly distribution to our preferred shareholders is expected to be approximately ~~$51.9~~$45.2 million.

Liquidity and Capital Resources

While being a REIT allows us to minimize the payment of U.S. federal corporate income tax expense, we are required to distribute 100% of our taxable income to our shareholders. This requirement limits cash flow from operations that can be retained and reinvested in the business, increasing our reliance upon raising capital to fund growth.

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 debt has 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 and ratings enable us to effectively access both the public and private capital markets to raise capital.

While we must distribute our taxable income, we are nonetheless able to retain operating cash flow to the extent that our tax depreciation exceeds our maintenance capital expenditures. In recent years, we have retained approximately $200 million to $300 million per year in cash flow.

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

We have a $500.0 million revolving line of credit which we occasionally use as temporary “bridge” financing until we are able to raise longer term capital. As of ~~June 30, 2020~~March 31, 2021 and ~~August 5, 2020,~~April 28, 2021, there were no borrowings outstanding on the revolving line of ~~credit;~~credit, however, we do have approximately ~~$19.3~~$24.3 million of outstanding letters of credit which limits our borrowing capacity to ~~$480.7~~$475.7 million. Our line of credit matures on April 19, 2024.

We believe that we have significant financial flexibility to adapt to changing conditions and opportunities. Currently, market rates of interest for our debt, and market coupon rates for our preferred equity, are at historically low levels and we have significant access to these sources of capital. ~~We recently issued $565.0 million in preferred securities at a 4.625% coupon rate.~~ Based upon 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 were to change significantly in the long run, our access to or cost of debt and preferred equity capital could be negatively impacted and potentially affect future investment activities.

Liquidity and Capital Resource Analysis: We believe that our net cash provided by our operating activities will continue to be sufficient to enable us to meet our ongoing requirements for principal payments on debt, maintenance capital expenditures and distributions to our shareholders ~~over~~for the ~~next 12 months.~~foreseeable future.

~~As of June 30, 2020, we~~We expect capital resources over the next year of approximately ~~$1.9~~$2.9 billion, which exceeds our currently identified capital needs of approximately ~~$931.1 million.~~$2.6 billion. Our expected capital resources include: (i) ~~$1.3 billion~~$159.6 million of cash as of ~~June 30, 2020,~~March 31, 2021, (ii) ~~$480.7~~$475.7 million of available borrowing capacity on our revolving line of credit, (iii) $2.0 billion in proceeds from the public issuance of senior notes issued in April 2021 and ~~(iii)~~(iv) approximately ~~$150 million to $200~~$300 million of expected retained operating cash flow ~~in the next year.~~over 2021. Retained operating cash flow represents our expected cash flow provided by operating activities, less shareholder distributions and capital ~~expenditures to maintain our real estate facilities.~~expenditures.

Our currently identified capital needs consist primarily of ~~$33.3 million~~(i) $2.3 billion in property acquisitions currently under contract ~~$495.0 million to redeem our Series V Preferred Shares on July 10, 2020~~ and ~~$402.8~~(ii) $309.0 million of remaining spending on our current development pipeline, which will be incurred primarily in the next 18 to 24 months. We have no substantial principal payments on debt until 2022. We expect our capital needs to increase over the next year as we add projects to our development pipeline and acquire additional properties. Additional potential capital needs could result from various activities including the redemption of outstanding preferred securities, repurchases of common stock, or mergers and acquisition activities; however, there can be no assurance of any such activities transpiring in the near or longer term. In addition, the COVID Pandemic could result in increases or decreases to our capital needs as we continue to adjust our acquisition and development of self-storage facilities in light of potential returns, execution issues, the cost and availability of capital, and other factors.

To the extent our retained operating cash flow, cash on hand, and line of credit are insufficient to fund our activities, we believe we have a variety of possibilities to raise additional capital including issuing common or preferred securities, issuing debt, or entering into joint venture arrangements to acquire or develop facilities.

Required Debt Repayments: As of ~~June 30, 2020,~~March 31, 2021, the principal outstanding on our debt totaled approximately ~~$2.5~~$3.0 billion, consisting of ~~$26.3~~$24.7 million of secured debt, ~~$945.5 million~~$1.0 billion of Euro-denominated unsecured debt and ~~$1.5~~$2.0 billion of U.S. Dollar denominated unsecured debt. Approximate principal maturities are as follows (amounts in thousands):



Remainder of 2020	$	1,019
2021		1,858
Remainder of 2021			$	1,321
2022		502,584		502,574
2023		19,219		19,219
2024		112,414		117,401
2025				283,958
Thereafter		1,834,665		2,087,715
	$	2,471,759	$	3,012,188

~~The remaining maturities~~On April 23, 2021, we completed a public offering of $700 million, $650 million and $650 million aggregate principal amount of senior notes bearing interest at an annual rate of SOFR + 0.47%, 1.85% and 2.30%, respectively, and maturing on ~~our debt over at the next two years are nominal.~~ April 23, 2024, May 1, 2028 and May 1, 2031, respectively.

Our debt is well-laddered ~~with~~and we have no material debt ~~maturities at least 18 months apart, which moderates refinancing risk.~~

maturity until September 2022.

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

Capital expenditures totaled ~~$95.6~~$35.8 million in the first ~~six~~three months of ~~2020,~~2021, and are expected to approximate ~~$175~~$250.0 million into $300.0 million for the year ending December 31, ~~2020. Our~~2021. In addition to standard capital ~~expenditures for 2020 include certain projects that are upgrades and not traditional like-for-like replacements~~repairs of ~~existing components, and in certain circumstances replace existing components before~~building elements reaching the end of their ~~functional lives.~~useful lives, our capital expenditures in recent years have included incremental expenditures to enhance the competitive position of certain of our facilities relative to local competitors pursuant to a multi-year program. Such ~~projects~~investments include ~~installation~~development of more pronounced, attractive, and clearly identifiable color schemes and signage, upgrades to the configuration and layout of the offices and other customer

zones to improve the customer experience. In addition, we have made investments in LED lighting ~~replacing existing planting configurations with more drought tolerant~~ and ~~low maintenance configurations,~~the installation of solar ~~panels, improvements to office and customer zone configurations to provide a more customer-friendly experience, and improvements to outdoor facades and color schemes. Such~~panels.

We believe that these incremental investments improve customer satisfaction, the attractiveness and competitiveness of our facilities to new and existing customers orand, in the case of LED lighting and solar panels, reduce operating costs. The $175 million in capital expenditures expected for the year ending December 31, 2020, as well as the $192.5 million incurred in 2019, represent a substantial increase from the amounts incurred of $139.4 million, $124.8 million and $86.0 million in 2018, 2017, and 2016, respectively. We expect continued elevated capital expenditures beyond 2020; however, the level and persistence of this elevation is uncertain at this time.

Requirement to Pay Distributions: For all periods presented herein, we have elected to be treated as a REIT, as defined in the Code. AsFor each taxable year in which we qualify for taxation as a REIT, we dowill not ~~incur~~be subject to U.S. federal corporate income tax on our ~~REIT~~“REIT taxable income” (generally, taxable income ~~(generally,~~subject to specified adjustments, including a deduction for dividends paid and excluding our net ~~rents and gains from real property, dividends, and interest)~~capital gain) that is ~~fully~~ distributed ~~each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we meet certain organizational and operational rules.~~to our shareholders. We believe we have met these requirements in all periods presented herein, and we expect to continue to ~~elect and~~ qualify as a REIT.

On ~~August 3, 2020,~~April 21, 2021, our Board declared a regular common quarterly ~~cash~~ dividend of $2.00 per common share totaling approximately $350 million, which will be paid at the end of ~~September 2020.~~June 2021. Our consistent, long-term dividend policy has been to distribute only 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.

We estimate the annual distribution requirements with respect to our Preferred Shares outstanding at ~~June 30, 2020, excluding the Series V Preferred Shares which were redeemed on July 10, 2020,~~March 31, 2021 to be approximately ~~$207.5~~$180.7 million per year.

We estimate we will pay approximately ~~$5.3~~$5.1 million per year in distributions to noncontrolling interests outstanding at ~~June 30, 2020.~~March 31, 2021.

Real Estate Investment Activities: We continue to seek to acquire additional self-storage facilities from third parties. ~~During the three months ended June 30, 2020, third party acquisition volume slowed as third party sellers delayed the sale of their properties due~~Subsequent to ~~economic uncertainty resulting from the COVID Pandemic. Seller inquiries have increased since June 30, 2020, with five properties~~March 31, 2021, we acquired or were under contract to acquire 87 self-storage facilities for ~~an aggregate~~a total purchase price of ~~$33.3 million,~~$2.3 billion. Eleven of these properties are under construction and ~~negotiations under way on~~expected to close as they are completed in the remainder of 2021.

We are actively seeking to acquire additional facilities. ~~Volume later in 2020 could increase further if leveraged owners of recently developed facilities are forced to sell, the economy stabilizes and seller confidence returns, or~~However, future acquisition volume will depend upon whether additional owners ~~are otherwise~~will be motivated to ~~sell. There can be no assurance~~market their facilities, which will in turn depend upon factors such as toeconomic conditions and the level of ~~future acquisitions of facilities.~~seller confidence.

As of ~~June 30, 2020~~March 31, 2021, we had development and expansion projects at a total cost of approximately ~~$556.2~~$510.3 million. Costs incurred through ~~June 30, 2020~~March 31, 2021 were ~~$153.4~~$201.3 million, with the remaining cost to complete of ~~$402.8~~$309.0 million expected to be incurred primarily in the next 18 to 24 months.

Some of these projects are subject to ~~significant~~ contingencies such as entitlement approval. We expect to continue to seek ~~additional projects; however, the level of future development~~to add projects to maintain and ~~redevelopment may~~increase our robust pipeline. Our ability to do so continues to be ~~limited due to~~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 ~~activities~~facilities in certain municipalities.

The COVID Pandemic could delay the estimated timing of completion of our existing pipeline of development and expansion projects, because many jurisdictions have shut down or delayed entitlement activities, and “stay at home” orders could potentially delay construction activities. In addition, the COVID Pandemic could extend the timeframe for a newly developed facility to reach stabilized occupancies and cash flows. Given the impact of the COVID Pandemic on our operations, we determined to cease pursuit of several early stage development and expansion projects during the three months ended June 30, 2020. We continue to monitor our projects to ensure that they still meet our risk-adjusted yield expectations, and reduced project yield estimates due to the COVID Pandemic or other factors could result in the cancellation of existing projects in the future, or we may not pursue certain new projects that we would have otherwise sought.

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 ~~August 5, 2020,~~April 28, 2021, we have ~~the following~~no series of preferred securities that are eligible for redemption, at our option and with 30 days’ ~~notice; our 5.200% Series W Preferred Shares ($500 million) and our 5.200% Series X Preferred Shares ($225 million).~~notice. See Note 8 to our ~~June 30, 2020~~March 31, 2021 financial statements for the redemption dates of all of our ~~other~~ 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 ~~June 30, 2020,~~March 31, 2021, we did not repurchase any of our common shares. From the inception of the repurchase program through ~~August 5, 2020,~~April 28, 2021, we have repurchased a total of 23,721,916 common shares at an aggregate cost of

approximately $679.1 million. Future levels of common share repurchases will be dependent upon our available capital, investment alternatives and the trading price of our common shares.

Contractual Obligations

Our significant contractual obligations ~~at June 30, 2020~~as March 31, 2021 and their impact on our cash flows and liquidity are summarized below for the years ending December 31 (amounts in thousands):


				Remainder														Remainder
				of														of
		Total		2020		2021		2022		2023		2024		Thereafter		Total		2021		2022		2023		2024		2025		Thereafter


Interest and principal payments
on debt (1)	$	2,857,022	$	30,001	$	59,746	$	556,922	$	64,644	$	155,928	$	1,989,781	$	3,379,057	$	48,430	$	561,848	$	69,580	$	165,781	$	329,533	$	2,203,885

Leases and other commitments (2)		74,733		2,195		4,533		3,619		3,518		3,539		57,329		76,573		3,160		3,901		3,614		3,639		3,740		58,519

Construction commitments (3)		78,166		38,175		39,070		921		-		-		-		110,993		90,154		20,839		-		-		-		-

Total	$	3,009,921	$	70,371	$	103,349	$	561,462	$	68,162	$	159,467	$	2,047,110	$	3,566,623	$	141,744	$	586,588	$	73,194	$	169,420	$	333,273	$	2,262,404

(1)Represents contractual principal and interest payments. Amounts with respect to certain Euro-denominated debt are based upon exchange rates at ~~June 30, 2020.~~March 31, 2021. See Note 6 to our ~~June 30, 2020~~March 31, 2021 financial statements for further information.

(2)Represents future contractual payments on land, equipment and office space under various leases and other commitments.

(3)Represents future expected payments for construction under contract at ~~June 30, 2020.~~March 31, 2021.

We estimate the annual distribution requirements with respect to our Preferred Shares outstanding at ~~June 30, 2020 (excluding the Series V Preferred Shares which were redeemed on July 10, 2020),~~March 31, 2021 to be approximately ~~$207.5~~$180.7 million per year. Dividends are paid when and if declared by our Board and accumulate if not paid.

Off-Balance Sheet Arrangements: At ~~June 30, 2020,~~March 31, 2021, we had no material off-balance sheet arrangements as defined under Regulation S-K 303(a)(4) and the instructions thereto.

‎

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

To limit our exposure to market risk, we are capitalized primarily with preferred and common equity. Our preferred shares are redeemable at our option generally five years after issuance, but the holder has no redemption option. Our debt is our only market-risk sensitive portion of our capital structure, which totals approximately ~~$2.5~~$3.0 billion and represents ~~27.3%~~34.9% of the book value of our equity at ~~June 30, 2020.~~March 31, 2021.

We have foreign currency exposure at ~~June 30, 2020~~March 31, 2021 related to (i) our investment in Shurgard, with a book value of ~~$320.9~~$339.8 million, and a fair value of ~~$1.2~~$1.4 billion based upon the closing price of Shurgard’s stock on ~~June 30, 2020,~~March 31, 2021, and (ii) €842.0 million ($~~945.5 million)~~1.0 billion) of Euro-denominated unsecured notes payable.

The fair value of our fixed rate debt at ~~June 30, 2020~~March 31, 2021 is approximately ~~$2.7~~$3.1 billion. The table below summarizes the annual maturities of our fixed rate debt, which had a weighted average effective rate of ~~2.4%~~2.2% at ~~June 30, 2020.~~March 31, 2021. See Note 6 to our ~~June 30, 2020~~March 31, 2021 financial statements for further information regarding our fixed rate debt (amounts in thousands).

Remainder of
2020
2021
2022
2023
2024
Thereafter
Total
Fixed rate debt
$
1,019
$
1,858
$
502,584
$
19,219
$
112,414
$
1,834,665
$
2,471,759


	Remainder of
	2021			2022		2023		2024		2025		Thereafter		Total

Fixed rate debt	$	1,321	$	502,574	$	19,219	$	117,401	$	283,958	$	2,087,715	$	3,012,188

ITEM 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports we file and submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in accordance with SEC guidelines and that such information is communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures in reaching that level of reasonable assurance. We also have investments in certain unconsolidated real estate entities and because we do not control these entities, our disclosure controls and procedures with respect to such entities are substantially more limited than those we maintain with respect to our consolidated subsidiaries.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at a reasonable assurance level.

Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~June 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

‎

6358


Part II.		OTHER INFORMATION


ITEM 1.	Legal Proceedings


ITEM 1A.	Risk Factors

In addition to the other information in this Quarterly Report on Form 10-Q, you should carefully consider the risks described in our Annual Report on Form 10-K filed for the year ended December 31, ~~2019,~~2020, in Part I, Item 1A, Risk Factors, and in our other filings with the SEC. These factors may materially affect our business, financial condition and operating results. ~~Except as described below, there~~There have been no material changes to the risk factors relating to the Company disclosed in our Form 10-K for the year ended December 31, ~~2019.~~2020.

In addition, in considering the forward-looking statements contained in this Form 10-Q and elsewhere, you should refer to the qualifications and limitations on our forward-looking statements that are described in Forward Looking Statements at the beginning of Part I, Item 2 of this Form 10-Q.

~~We are subject to risks from the COVID Pandemic and we may in the future be subject to risks from other public health crises.~~

Since being reported in December 2019, the COVID Pandemic has spread globally, including to every state in the United States, adversely affecting public health and economic activity. Our business is subject to risks from the COVID Pandemic, including, among others:

~~risk of illness or death of our employees or customers;~~

~~continuing negative impacts on the economic conditions in our markets which have reduced and we expect will continue to reduce the demand for self-storage;~~

continuing, new or reinstituted government restrictions that (i) limit or prevent use of our facilities, (ii) limit our ability to increase rent or otherwise limit the rent we can charge, (iii) limit our ability to collect rent or evict delinquent tenants, or (iv) limit our ability to complete development and redevelopment projects;

~~risk that even after the initial restrictions due to the COVID Pandemic ease, they could be reinstituted in case of future waves of infection or if additional pandemics occur;~~

risk that we could experience a change in the move-out patterns of our long-term customers due to economic uncertainty and the significant increase in unemployment in the last 30 days. This could lead to lower occupancies and rent “roll down” as long-term customers are replaced with new customers at lower rates; and

~~risk of negative impacts on the cost and availability of debt and equity capital as a result of the COVID Pandemic, which could have a material impact upon our capital and growth plans.~~

We believe that the degree to which the COVID Pandemic adversely impacts our business, operating results, cash flows and/or financial condition will be driven primarily by the duration, spread and severity of the pandemic itself, as well as the duration of indirect economic impacts such as recession, dislocation in capital markets, and job loss, as well as potential longer term changes in consumer behavior, all of which are uncertain and difficult to predict. As a result, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our

~~business, results of operations, financial condition and cash flows could be material. Future pandemics or public health crises could have similar impacts.~~


ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Common Share Repurchases

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. From the inception of the repurchase program through ~~August 5, 2020,~~April 28, 2021, we have repurchased a total of 23,721,916 common shares (all purchased prior to 2010) at an aggregate cost of approximately $679.1 million. Our common share repurchase program does not have an expiration date and there are 11,278,084 common shares that may yet be repurchased under our repurchase program as of ~~June 30, 2020.~~March 31, 2021. 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.

Preferred Share Redemptions

We ~~had no~~redeemed pursuant to our option to redeem such shares, 12,000,000 of our 5.400% Series B preferred ~~redemptions during the three months ended June 30, 2020.~~shares in January 2021, at $25.00 per share.


ITEM 6.	Exhibits

Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index which is incorporated herein by reference.

‎

6559

‎

	PUBLIC STORAGE
	INDEX TO EXHIBITS (1)
	(Items 15(a)(3) and 15(c))

3.1	Restated Declaration of Trust of Public Storage. Filed herewith.

~~3.1~~3.2	~~Articles Supplementary for~~ Amended and Restated Bylaws of Bylaws of Public Storage. Filed herewith.

10.1	Public Storage ~~4.625% Cumulative Preferred Shares, Series L.~~2021 Equity and Performance-Based Incentive Compensation Plan. Filed ~~with~~as Appendix A to the ~~Registrant’s Current Report on Form 8-K~~Company’s 2021 Proxy Statement dated ~~June 8, 2020~~March 16, 2021 and incorporated by reference herein.

31.1	Rule 13a – 14(a) Certification. Filed herewith.

31.2	Rule 13a – 14(a) Certification. Filed herewith.

32	Section 1350 Certifications. Filed herewith.

101 .INS	Inline XBRL Instance Document. Filed herewith.

101 .SCH	Inline XBRL Taxonomy Extension Schema. Filed herewith.

101 .CAL	Inline XBRL Taxonomy Extension Calculation Linkbase. Filed herewith.

101 .DEF	Inline XBRL Taxonomy Extension Definition Linkbase. Filed herewith.

101 .LAB	Inline XBRL Taxonomy Extension Label Linkbase. Filed herewith.

101 .PRE	Inline XBRL Taxonomy Extension Presentation Link. Filed herewith.

104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

_ (1) SEC	File No. 001-33519 unless otherwise indicated.
‎

* Denotes management compensatory plan agreement or arrangement.

‎

6660

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

4
		DATED: ~~August 5, 2020~~April 28, 2021 PUBLIC STORAGE

		By: /s/ H. Thomas Boyle
		H. Thomas Boyle ‎Senior Vice President & Chief Financial Officer ‎(Principal financial officer and duly authorized officer)
‎

6761


	Investments in Unconsolidated Real Estate
	Entities at
	June 30, 2020		December 31, 2019

PSB	$	432,466	$	427,875
Shurgard		320,892		339,941
Total	$	753,358	$	767,816


			At June 30, 2020			At December 31, 2019
Series	Earliest Redemption Date	Dividend Rate	Shares Outstanding	Liquidation Preference		Shares Outstanding	Liquidation Preference

			(Dollar amounts in thousands)
Series V	9/20/2017	5.375%	-	$	-	19,800	$	495,000
Series W	1/16/2018	5.200%	20,000		500,000	20,000		500,000
Series X	3/13/2018	5.200%	9,000		225,000	9,000		225,000
Series B	1/20/2021	5.400%	12,000		300,000	12,000		300,000
Series C	5/17/2021	5.125%	8,000		200,000	8,000		200,000
Series D	7/20/2021	4.950%	13,000		325,000	13,000		325,000
Series E	10/14/2021	4.900%	14,000		350,000	14,000		350,000
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	-		-
Total Preferred Shares			165,400	$	4,135,000	162,600	$	4,065,000