Public Storage
Annual Report 2020

Plain-text annual report

Public Storage 2 0 2 0 A n n u A l R e p o R t P U B L I C S T O R A G E A N N U A L R E P O R T 2 0 2 0 Public Storage WA 101/3 OR 40 NV 28 CA 432/47 HI 11 MN 61 WI 15 MI 50 NH 2 NY 69 PA 33 OH CO 78 UT 9 AZ 49 NE 5 KS 21 OK 23 MO 41 TX 315/21 LA 11 IL IN 130 40 55 KY 15 TN 37 AL 27 GA 116 MS 1 VA 104/20 NC 93 SC 63 FL 301/3 UNITED KINGDOM 32 MA RI CT 28 3 15 NJ DE MD 58 5 63/4 SWEDEN 36 DENMARK 10 NETHERLANDS 61 BELGIUM 21 GERMANY 22 P R O P E RT I E S (as of December 31, 2020) Number of Properties Net Rentable Square Feet Number of Properties Net Rentable Square Feet FRANCE 59 Public Storage Alabama Arizona California Colorado Connecticut Delaware Florida Georgia Hawaii Illinois Indiana Kansas Kentucky Louisiana Maryland Massachusetts Michigan Minnesota Mississippi Missouri Nebraska Nevada New Hampshire New Jersey New York North Carolina Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina 27 49 432 78 15 5 301 116 11 130 40 21 15 11 63 28 50 61 1 41 5 28 2 58 69 93 55 23 40 33 3 63 1,224,000 3,311,000 29,932,000 5,739,000 966,000 324,000 21,006,000 7,820,000 801,000 8,361,000 2,570,000 1,268,000 866,000 777,000 3,878,000 1,976,000 3,496,000 4,721,000 63,000 2,752,000 430,000 1,915,000 132,000 3,863,000 4,817,000 6,833,000 3,692,000 1,644,000 2,127,000 2,415,000 155,000 3,668,000 Public Storage (cont.) Tennessee Texas Utah Virginia Washington Wisconsin 37 315 9 104 101 15 2,363,000 24,115,000 566,000 6,455,000 7,042,000 968,000 2,548 175,051,000 Shurgard Self Storage SA Belgium Denmark France Germany Netherlands Sweden United Kingdom 21 10 59 22 61 36 32 Self-storage totals 241 2,789 PS Business Parks, Inc. California Florida Maryland Texas Virginia Washington 47 3 4 21 20 3 98 1,260,000 572,000 3,120,000 1,182,000 3,183,000 1,966,000 1,871,000 13,154,000 188,205,000 11,297,000 3,866,000 1,145,000 4,850,000 5,220,000 1,350,000 27,728,000 Grand Totals 2,887 215,933,000 CHAIRMAN’S LETTER Fellow Shareholders, Public Storage’s businesses delivered solid results in 2020, achieving record revenues and net operating income in a very difficult environment due to the global COVID-19 pandemic. Below are the key figures for our four businesses. They are presented as if Public Storage owned 100% of each to help you better understand our business results. At year-end 2020, Public Storage owned approximately 42% of PS Business Parks (traded on the NYSE, symbol PSB) and 35% of Shurgard (traded on the Euronext, symbol SHUR.BR). While our interest is significant, both companies have separate Boards of Directors, the majority of which are independent. Revenues1 (Amounts in millions) U.S. self-storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ European self-storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ancillary businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,722 268 428 230 $ 2,685 254 443 206 $ 2,598 241 428 196 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,648 $ 3,588 $ 3,463 2020 2019 2018 Net Operating Income1 (Amounts in millions) 2020 2019 2018 U.S. self-storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ European self-storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ancillary businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,914 159 299 166 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,538 Public Storage’s share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,246 $ $ $ 1,922 151 310 150 2,533 2,241 $ $ $ 1,888 145 299 144 2,476 2,213 1. See accompanying schedule “Supplemental Non-GAAP Disclosures.” The combined revenues of these businesses increased by about $60 million, to $3.6 billion, and their NOI increased to $2.5 billion in 2020. Our share of their NOI was $2.2 billion. While the overall growth rate slowed, principally due to the impact of the COVID-19 pandemic, our outstanding leadership teams positioned the companies for accelerated growth into 2021. Joe Russell’s letter and this shareholders report provide greater detail on our 2020 operating results, key initiatives, and outlook for 2021. 1 COVID-19 The biggest event in 2020 for Public Storage and every other company was the COVID-19 pandemic. Our executive management team, led by Joe Russell, did an excellent job ensuring the health, safety, and wellbeing of our customers and employees. The speed with which they pivoted to a work from home model was amazing. The quick and dramatic changes required significant technology, teamwork, and leadership. In addition, despite being considered an “essential” business by government authorities, there were hundreds of edicts issued across the 38 states and nearly 1,020 cities where we operate, necessitating active monitoring and frequent modifications to our operations. There is no doubt the pandemic has and will continue to drive changes to business models. Within this context, self-storage has once again proved to be a durable, resilient, and adaptable business as Public Storage continues to widen its leadership position in the industry. Trustees Our trustees did a superb job in 2020 providing counsel, leadership, and support to the management team. Their workload increased significantly, as we transitioned to monthly meetings. Four of our long-standing trustees, Uri Harkham, Dan Staton, Wayne Hughes Jr. and Gary Pruitt, retired. Their leadership contributed to the approximately $37 billion of shareholder value created over the last 20 years. We also added six new trustees with various backgrounds and skillsets to the Board in 2020 and early 2021. These trustees bring tremendous integrity and enthusiasm in helping guide the Company into the future. Conclusion Public Storage has an outstanding business model comprising the industry-leading brand, an efficient operating platform, high quality properties located in growing markets, and very talented leadership in Joe Russell and his team. This exceptional Company should deliver solid returns to shareholders for years to come. Ronald L. Havner, Jr. Chairman of the Board of Trustees February 28, 2021 2 CHIEF EXECUTIVE OFFICER’S LETTER Fellow Shareholders, On behalf of the entire Public Storage team, we wish the best for those personally impacted by the global pandemic. At Public Storage, I am proud of how our team met the challenges of 2020 with perseverance, compassion, and resilience. Their extraordinary efforts allowed our 2,548 properties to remain open as “essential” businesses serving our customers and communities. The COVID-19 pandemic has shown that our sustainable operations, focus on long-term value creation, and financial fortitude are essential to our Company’s ability to withstand disruptions and crises. Our long-term strategy, engaged and agile employees, and fortress balance sheet allowed us to continue safely serving our customers and position for continued growth in one of the most difficult operating environments in the Company’s history. The outlook for the self-storage sector is favorable as we enter 2021. The operating environment at Public Storage is strong, aided by new and traditional sources of demand. Our substantial investment in technology is driving digital innovation, enhancing the customer experience, and transforming our operating model. The external growth environment is robust, with heightened property acquisition targets, strong lease-up in our development properties, and more land acquisition opportunity filling our future pipeline. We are broadly optimistic as we look forward into 2021 and beyond. Below I will review our business performance and outlook. Business Results We have two principal businesses: (i) self-storage, conducted under the Public Storage® brand, and (ii) ancillary businesses, primarily the reinsurance of policies offered to our self-storage customers under the Orange Door® brand. Below are the revenues and net operating income (“NOI”) for each business. Revenues1 (Amounts in millions) Self-storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Ancillary businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,722 193 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,915 $ $ 2,685 170 2,855 $ $ 2,598 162 2,760 2020 2019 2018 1 Net Operating Income1 (Amounts in millions) Self-storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Ancillary businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,914 134 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,048 $ $ 1,922 120 2,042 $ $ 1,888 115 2,003 2020 2019 2018 1. See accompanying schedule “Supplemental Non-GAAP Disclosures.” The NOI of these businesses increased by $6 million, or 0.3%, to $2.0 billion during 2020. Our earnings, core funds from operations, and free cash flow per share for the last three years were: Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Core FFO per share1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free cash flow per share1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. See accompanying schedule “Supplemental Non-GAAP Disclosures.” The Strength of the Public Storage Team 2020 $ 6.29 $10.61 $ 9.78 2019 $ 7.29 $10.75 $ 9.72 2018 $ 8.54 $10.56 $ 9.88 Public Storage’s long-standing commitment to training, developing, and protecting the wellbeing of our team is particularly relevant in trying times like these. As we discussed in our inaugural 2020 Sustainability Report, integrity, accountability, entrepreneurship, employee development, diversity, and inclusion underpin a strong corporate culture. We recognized the performance, commitment, and growth of the Public Storage team with many promotions across the company in 2020. We promoted Natalia Johnson from Chief Human Resources Officer to Chief Administrative Officer. In real estate, we promoted Andres Friedman to Senior Vice President of Development and Paul Spittle to Vice President of Acquisitions. In field operations, we promoted nearly 300 of our property managers due to their outstanding leadership and customer service. In supervisory operations leadership, we promoted Seth Smith and Nate Clark to Divisional Vice President roles overseeing the Midwest and Southeast markets, respectively. In legal, we promoted Hallock Svensk to Vice President and Assistant General Counsel. We actively hired and expanded leadership in critical roles this year. Michael Braine and Philip Kim joined Public Storage as Chief Technology Officer and Chief Data and Analytics Officer, respectively. Terry Spidell joined as Controller and, most recently, Paul Runyan joined as Chief Human Resources Officer. Collectively, these individuals and many more bring additional skillsets and new perspectives that are driving our strategic initiatives. 2 The health and safety of all employees are overarching priorities at Public Storage. In response to the pandemic, we implemented several enhanced protocols focused on the wellbeing of our associates and their families. (cid:129) Property Level Health and Safety: Implemented mandatory face coverings and protective shields while strengthening cleaning protocols and limiting the number of customers in our sales offices. (cid:129) Employee Wellbeing: Supported our employees through the creation of the PS Cares Emergency Fund (>$10 million), which includes additional incentive pay, childcare assistance, extended paid time off, and coronavirus testing coverage. (cid:129) Work From Home: Corporate and call center employees transitioned to work from home ahead of official governmental orders utilizing digital cloud-based operating systems and phone/video platforms put in place during 2018 and 2019. I am proud of the way the Public Storage team came together throughout the crisis. The transformation of our day-to-day operations has enhanced the safety and efficiency of our business in ways that will outlast the impacts from the pandemic. Customer Experience Innovations in 2020 In addition to focusing on employee wellbeing, we also prioritized the health and safety of customers while advancing the self-storage experience at Public Storage. With our exceptional market knowledge and operating platform, Public Storage leads the self-storage industry in adoption and innovation of technology. The pandemic coincided with implementation of several first-mover innovations, which hundreds of thousands of new Public Storage customers enjoyed in 2020. (cid:129) (cid:129) (cid:129) eRental®: A digital lease that allows customers to rent online and move in without the need to interact with a property manager. eRental® now accounts for nearly 50% of our move-ins, which compares favorably to the 20% to 35% achievement of online leases implemented by our self-storage REIT competitors. Property Access Systems: A digital infrastructure jointly developed with a technology partner that enables remote control and centralized monitoring of property systems including parking gates, exterior doors, interior doors, and elevators. We completed rollout across the entire portfolio in 2020, providing us with a new set of centralized data regarding property activity. Public Storage App: Released in December, the Public Storage App interfaces with the property access systems to provide customers with contactless control of gates, doors, and elevators using their phones. It also allows customers to fully manage their accounts, including paying rent. Adoption by customers has been swift and well received, with a rating of 4.7 out of 5.0 stars in the Apple App Store. 3 These initiatives are built upon first-mover technologies we implemented over the past two years, including a fifth-generation website and proprietary operating system. The website is mobile-centric and, among its numerous advantages, includes personalization specific to the individual viewer in regards to content and pricing. Web Champ 2, the proprietary operating system, is the core of our digital platform and the foundation for continued innovation across Public Storage’s broad technology roadmap. The benefits of innovation go beyond enhanced customer experience, however. They give us better understanding of how customers use properties while unlocking the ability to further optimize our operating model. Improved understanding of customer utility through real-time experiential data will inform decision making across the company, from how we price units to how we build new properties. Further, the digitization of our customer experience and company infrastructure is transforming our operating model, the benefit of which was on display in the form of lower property payroll expenses from staffing efficiencies during the second half of 2020. I commend our operations team, headed by Executive Vice Presidents Steven Lentin and Jim Shinnick, as it required exceptional focus and perseverance to integrate and adopt these significant customer enhancements. Digital leadership is a primary reason why Public Storage generates industry-leading performance, with our same-store operating margin 400 to 900 basis points higher than the self- storage REIT competitor group during 2020. The technology roadmap is ripe with opportunity and we are excited about further transformation that lies ahead. How We Measure Our Results We measure operating results in a simple manner that logically separates the portfolio into two categories: (i) stabilized properties in the same-store pool and (ii) unstabilized properties in the non same-store pool. The same-store pool allows us and investors to measure the health of our self-storage business by only including properties with stabilized revenues (i.e., rent and occupancy) and operating expenses that reflect organic growth on an “apples-to-apples” basis. Our approach is quite different than other self-storage REITs that include high-growth, unstabilized lease-up properties in their same-store pools. They also allocate a significant portion of property operating expenses to general and administrative expense rather than cost of operations, which enhances their reported performance under metrics frequently used by investors and analysts, including same-store NOI growth, operating margin, and NAV (net asset value). We report the way we would want our performance to be reported if we were in our shareholders’ position. 4 Same-Store Properties (Dollar amounts in millions, except REVPAF) Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs of operations . . . . . . . . . . . . . . . . . . . . . . Net operating income . . . . . . . . . . . . . . . . . . . . Net rentable square feet . . . . . . . . . . . . . . . . . . Average occupancy . . . . . . . . . . . . . . . . . . . . . . Year-end occupancy . . . . . . . . . . . . . . . . . . . . . Rent per available square foot (REVPAF) 1 . . . . 2020 2,437 688 1,749 143.7 94.5% 94.2% 16.40 $ $ $ 2019 2,460 670 1,790 143.7 93.4% 91.7% 16.38 $ $ $ 2018 2,423 642 1,781 143.7 93.0% 91.3% 16.12 $ $ $ 1. Realized annual rent per available square foot is computed by dividing annualized rental income by total available rentable square footage. Rental income . . . . . . . . . . . . . . . . . . . . . . . . . Late charges and administrative fees . . . . . . . . Q4 2.1% (28.6)% Total revenues . . . . . . . . . . . . . . . . . . . . . . . . 0.8% Costs of operations . . . . . . . . . . . . . . . . . . . . . (1.1)% Net operating income . . . . . . . . . . . . . . . . . . . 1.3% Year-Over-Year Growth Rates – 2020 Q3 (1.4)% (32.3)% (2.7)% (0.1)% (3.8)% Q2 (1.8)% (31.8)% (3.0)% 6.9% (6.9)% Q1 1.4% (3.5)% 1.2% 4.3% (0.1)% As with most businesses, Public Storage’s operations were impacted by the pandemic in 2020. Our same-store NOI declined by 2.3% during the year. The primary contributor to the NOI decline was consumer uncertainty as the country sheltered in place at the onset of the pandemic. New-customer demand softened, to which we responded with reduced move-in rates in order to sustain new customer volume. We also accommodated in-place customers by halting rent increases and auctions of delinquent units, in addition to providing rent and fee relief. Mid-year marked a positive inflection point characterized by recovering move-in demand and a healthy customer base staying in place at a higher rate of payment (i.e., lower delinquency). These trends remained and, in conjunction with our digital and other operational innovations, began to drive strong operating performance during the third quarter despite a continued impact on reported results from the events of the second quarter. The strength of demand and benefit of innovations noted above boosted operating performance and, by the fourth quarter, revenue and NOI growth turned positive. Same-store rental income growth (i.e., the combination of rental rate and occupancy) was the highest since the first quarter of 2018 and operating expense growth was the lowest since the first quarter of 2016. While continued decline in late charges and auction fees weighed on our total same-store 5 revenue growth, the trend is reflective of a healthy customer base and will positively influence rental income growth over the near term. With record-high seasonal move-in rents and occupancy (270 basis points higher year-over-year on December 31), our same-store pool is well positioned as we begin 2021. We separate unstabilized properties (defined as non same-stores) from revenue and/or operating expense perspectives into our non same-store pool because the year-over-year performance is not comparable on an “apples-to-apples” basis. Given self-storage’s long stabilization period (typically 3-5 years for occupancy and rents), this pool primarily comprises properties we have developed or redeveloped since 2015 and acquired since 2018. It consists of 327 properties totaling 31.3 million square feet as we enter 2021. We have significant upside tied to this growing pool of assets. Non-Same Stores (Amounts in millions, except occupancy and REVPAF) 2020 2019 2018 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Costs of operations . . . . . . . . . . . . . . . . . . . . . . . . . . Net operating income . . . . . . . . . . . . . . . . . . . . . . . . $ 285 120 165 Net rentable square feet . . . . . . . . . . . . . . . . . . . . . . . Average occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . REVPAF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31.3 82.7% 10.07 $ $ $ 225 93 132 25.2 74.5% 9.61 $ $ $ 175 68 107 18.3 75.1% 10.35 Growing Coverage and Scale (Acquisitions, Third-Party Management, and Development) Public Storage is the largest owner, operator, and developer of self-storage properties in the world. Our portfolio consist of approximately 175 million square feet located across 38 states. There are significant benefits of coverage and scale in our business, including operating and overhead expense efficiencies. Our scale, combined with our technologies, operating platform, and brand, afford meaningful advantages that result in superior operating margins and cash flow generation. In 2020, the real estate team added 6.2 million square feet to the portfolio through acquisitions, development, and redevelopment (representing a 4% expansion). The non same-store assets now comprise 18% of our total portfolio square footage, but only 9% of our self-storage NOI (due to 82.7% average occupancy and rents that are below market). Our teams, systems, and strategies are generating strong lease-up in these properties, with revenue and NOI increasing by 26.7% and 25.0%, respectively, in 2020. The non same-store pool will continue to grow as we acquire new properties and complete new developments and redevelopments in 2021. These properties will be a meaningful driver of NOI growth and value creation moving forward. 6 On the heels of an active 2019, Mike McGowan and the acquisition team acquired 62 properties with 5.1 million square feet for $796 million in 2020. A majority of the acquisitions were off-market (i.e., not marketed by brokers), with sellers coming to us from new and long- standing relationships due to our reputation as a sensible buyer with no financing contingencies. Our acquisition volume is strong year-to-date in 2021 ($580 million acquired or under contract) and we expect the environment will continue to be vibrant. ($ millions) $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Acquisitions $1,157 $240 $226 $87 $431 $429 $430 $169 $285 $181 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $796 We entered the third-party management business in 2018 under the leadership of Pete Panos. Through this platform, we manage properties for independent private owners as if they were our own, including the industry-leading operating margins and cash flow. We are happy to share our competitive advantages as a lever to increase our own market coverage and scale. In 2020, we added 37 properties to our program, equating to 46% year-over-year growth and the momentum of this business continues to build as our partners see the economic and reputational benefits of Public Storage’s platform and brand. We have the only in-house, nationwide property development program in the industry, which is a significant competitive advantage, led by Andres Friedman and Phil Williams. Since 2013, we have invested $1.2 billion into new property development at an average cost of $125 per square foot. Building directly allows us to develop properties at costs well below the inflated values at which many stabilized, and newly built unoccupied properties, have traded in the marketplace. The program is dilutive to short-term earnings but creates significant value over the long-term. We estimate the market value of the development since 2013 is approximately $2.2 billion, which equates to approximately $1 billion of value creation. In addition, we deployed approximately $600 million into redevelopment and expansion of our existing properties over the same time. We continue to find new development and redevelopment opportunities. Our pipeline entering 2021 consists of 3.6 million square feet at a total cost of $561 million. As with property acquisitions, we saw more opportunity to acquire land parcels at reasonable prices in 2020. This presents opportunity for Public Storage while also confirming that activity by other developers is tapering down nationally. Our team is actively searching for additional development sites and analyzing next phases of redevelopment within Public Storage’s portfolio. 7 Property of Tomorrow We are also retooling existing properties with more focused capital investment while we put significant rigor into growing the company’s platform. We are innovating our approach to facility maintenance of existing assets by employing strategies that leverage competitive advantages to further optimize our property operations. This includes investments into existing assets that make both environmental and economic sense, including LED lighting, solar panels, low water-use landscaping, and our new digital property access systems. While our environmental impact is already significantly lower than other property types, we strive to reduce it further as described in our 2020 Sustainability Report. John Sambuco, Robbie Williams, and Val Bauguess from our asset management team began rolling the Property of Tomorrow program out to major markets nationally in 2018. This initiative is a comprehensive rebranding of prior generation properties as we update older assets with components of our new “Generation Five” developments. Through 2020, we have implemented Property of Tomorrow across major markets including Los Angeles, San Francisco, New York, Miami, and Chicago. The common elements of the program include prominent use of our orange branding, new signage, landscaping, enhanced digital security, solar panels, interior upgrades with LED lighting, and offices that cater to better customer service. We anticipate total investment tied to Property of Tomorrow will be more than $500 million and will take a few more years to complete. Financial Strength Public Storage consistently has one of the strongest balance sheets in corporate America. We maintain low leverage with a variety of capital options and well-laddered maturities. Nearly 95% of our $47 billion total capitalization is permanent equity capital. We are one of only two REITs with A2/A credit ratings from Moody’s and S&P, respectively. We maintain our fortress balance sheet for stability and the ability to invest capital through full economic cycles. Being able to deploy capital when valuations are most attractive is optimal for our focus on long-term value creation and has proven to be the right decision over time. We have funded growth in recent years primarily with debt and free cash flow. Since 2016, we have added $2.7 billion of unsecured debt to our balance sheet at a blended rate of 2.1%. In January 2020, our CFO Tom Boyle and his team issued €500 million of inaugural 12-year euro- denominated unsecured bonds and, in January 2021, they issued $500 million of 5-year dollar- denominated unsecured bonds. Both issuances were at rates of 0.875%. We have also improved the cost of our perpetual preferred equity capital by 100 basis points since 2016 by refinancing approximately $4 billion of preferred equity. In the second half of 2020, the finance team capitalized on the dramatically improved financing environment by issuing preferred equity at record sub-4% rates in order to refinance older, higher rate preferred. Needless to say, our low leverage, scale, profitability, and long-term track record allow us to raise capital on attractive terms. 8 Commitment to Sustainability The various aspects of our business described above reflect the one core philosophy Public Storage’s corporate strategy has centered on for nearly five decades: creating value by our properties and Company for the long-term. Sustainability has been ingrained in Public Storage’s ethos for decades, and sustainability-minded decision-making has and will continue to benefit our long-term resilience. We focused on disclosure around our sustainability profile in 2020. In addition to the Sustainability Report, we formally submitted to the Global Real Estate Sustainability Benchmark (GRESB) and Carbon Disclosure Projects (CDP) surveys. We are proud that our GRESB Real Estate Assessment score is in the top tier among self-storage REITs, and our GRESB Public Disclosure score is well above the competitor average. Further, we scored well above the North American average and self-storage REIT scores in our inaugural CDP survey. We are also in the top 10% of Sustainalytics’ global coverage universe of approximately 13,600 companies. Conclusion We enter 2021 in a position of strength characterized by robust demand for our product, digital innovations that are driving operating model transformation, portfolio growth opportunity across our acquisition, development, redevelopment, and third-party management platforms, and significant capacity to fund growth using our low-leverage balance sheet and strong free cash flow. Collectively, skilled and seasoned professionals that are experts in the self-storage industry are leading these initiatives, and they are motivated and empowered to deliver exceptional results. Public Storage is well positioned to create shareholder value into the future. Joseph D. Russell, Jr. President and Chief Executive Officer February 28, 2021 9 CUMULATIVE TOTAL RETURN Public Storage, S&P 500 Index and NAREIT Equity Index December 31, 2010 - December 31, 2020 $400 $350 $300 $250 $200 $150 $100 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 Public Storage S&P 500 Index NAREIT Equity Index 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 Public Storage S&P 500 Index NAREIT Equity Index $100.00 $136.75 $152.20 $163.48 $207.35 $286.84 $267.05 $259.33 $260.96 $284.38 $320.09 $100.00 $102.11 $118.45 $156.82 $178.28 $180.75 $202.37 $246.55 $235.74 $309.97 $367.00 $100.00 $108.28 $129.62 $133.32 $170.68 $175.51 $190.65 $207.19 $198.81 $255.79 $242.69 The graph set forth above compares the yearly change in the Company’s cumulative total shareholder return on its Common Shares for the ten-year period ended December 31, 2020 to the cumulative total return of the Standard & Poor’s 500 Stock Index (“S&P 500 Index”) and the National Association of Real Estate Investment Trusts Equity Index (“NAREIT Equity Index”) for the same period (total shareholder return equals price appreciation plus dividends). The stock price performance graph assumes that the value of the investment in the Company’s Common Shares and each index was $100 on December 31, 2010 and that all dividends were reinvested. The share price performance shown in the graph is not necessarily indicative of future price performance. Supplemental Non-GAAP Disclosures (unaudited) Core funds from operations per share (“Core FFO”) represents diluted net income per share (“EPS”) before the impact of i) depreciation expense and disposition gains or losses and ii) foreign currency gains and losses, the application of EITF D-42, and certain other items. Free cash flow per share (“Free Cash Flow”) represents Core FFO, less per share capital expenditures and non-cash stock based compensation and other expense. Core FFO and Free Cash Flow are not substitutes for EPS and may not be comparable with other REITs due to calculation differences; however, we believe they are helpful measures for investors and REIT analysts to understand our performance. Net Operating Income (“NOI”) represents revenues less pre-depreciation cost of operations earned directly at our properties, and we believe is a useful performance measure that we and the investment community use to evaluate performance and real estate values. Each of these non-GAAP measures exclude the impact of depreciation, which is based upon historical cost and assumes the value of buildings diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. We also present supplemental measures of our revenues and NOI including PSB and Shurgard Europe as if we owned them, to provide a measure of the performance of all the businesses we have a significant interest in. However, the inclusion of these entities in these supplemental measures does not substitute for “equity in earnings of unconsolidated real estate entities” on our income statement. Reconciliation of Core FFO and Free Cash Flow per Share EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eliminate noncore items (including our equity share): Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate gain and Shurgard IPO gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency, EITF D-42, and other noncore items . . . . . . . . . . . . . . . . . . . . Core FFO per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deduct capital expenditures and adjust non-cash comp/other . . . . . . . . . . . . . . . . . . . Free Cash Flow per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reconciliation of Revenues including PSB and Shurgard Europe (Amounts in millions) Consolidated revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial and property management included in interest and other income . . . . . . PSB’s revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shurgard Europe’s revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenues as if we owned PSB and Shurgard Europe . . . . . . . . . . . . . . . . . . . . . . . . . . Reconciliation of NOI (Amounts in millions) Net income on our income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eliminate: Depreciation, G&A, interest expense, interest and other income, equity in earnings, currency exchange and casualty gains (losses), and gains on real estate sales and Shurgard IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add - PSB and Shurgard Europe NOI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add back - Commercial and property management included in interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less - NOI of Shurgard Europe and PSB allocable to others . . . . . . . . . . . . . . . . . Public Storage’s share of NOI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For the year ended December 31, 2020 6.29 $ 3.53 (0.07) 0.86 $ 10.61 (0.83) 9.78 $ 2019 7.29 $ 3.32 (0.03) 0.17 $ 10.75 (1.03) 9.72 $ 2018 8.54 $ 3.21 (1.30) 0.11 $ 10.56 (0.68) 9.88 $ For the year ended December 31, 2020 $ 2,915 12 416 305 $ 3,648 2019 $ 2,855 13 430 290 $ 3,588 2018 $ 2,760 14 414 275 $ 3,463 For the year ended December 31, 2020 $ 1,361 2019 $ 1,526 2018 $ 1,717 687 481 9 2,538 (292) $ 2,246 516 491 8 2,533 (292) $ 2,241 286 463 10 2,476 (263) $ 2,213 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FORM 10-K For the fiscal year ended December 31, 2020. or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to . Commission File Number: 001-33519 PUBLIC STORAGE (Exact name of Registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation or organization) 95-3551121 (I.R.S. Employer Identification Number) 701 Western Avenue, Glendale, California 91201-2349 (Address of principal executive offices) (Zip Code) (818) 244-8080 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Shares, $0.10 par value Title of Class Depositary Shares Each Representing 1/1,000 of a 5.125% Cum Pref Share, Series C, $0.01 par value Depositary Shares Each Representing 1/1,000 of a 4.950% Cum Pref Share, Series D, $0.01 par value Depositary Shares Each Representing 1/1,000 of a 4.900% Cum Pref Share, Series E, $0.01 par value Depositary Shares Each Representing 1/1,000 of a 5.150% Cum Pref Share, Series F, $0.01 par value Depositary Shares Each Representing 1/1,000 of a 5.050% Cum Pref Share, Series G, $0.01 par value Depositary Shares Each Representing 1/1,000 of a 5.600% Cum Pref Share, Series H, $0.01 par value Depositary Shares Each Representing 1/1,000 of a 4.875% Cum Pref Share, Series I, $0.01 par value 1 Trading Symbol PSA PSAPrC PSAPrD PSAPrE PSAPrF PSAPrG PSAPrH PSAPrI Name of exchange on which registered New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange Depositary Shares Each Representing 1/1,000 of a 4.700% Cum Pref Share, Series J, $0.01 par value Depositary Shares Each Representing 1/1,000 of a 4.750% Cum Pref Share, Series K, $0.01 par value Depositary Shares Each Representing 1/1,000 of a 4.625% Cum Pref Share, Series L, $0.01 par value Depositary Shares Each Representing 1/1,000 of a 4.125% Cum Pref Share, Series M, $0.01 par value Depositary Shares Each Representing 1/1,000 of a 3.875% Cum Pref Share, Series N, $0.01 par value Depositary Shares Each Representing 1/1,000 of a 3.900% Cum Pref Share, Series O, $0.01 par value 0.875% Senior Notes due 2032 PSAPrJ PSAPrK PSAPrL PSAPrM PSAPrN PSAPrO PSA32 New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X] 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 the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] 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 [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ] Emerging growth company [ ] 2 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The aggregate market value of the voting and non-voting common shares held by non-affiliates of the Registrant as of June 30, 2020: Common Shares, $0.10 Par Value Per Share – $29,116,505,000 (computed on the basis of $191.89 per share, which was the reported closing sale price of the Company's Common Shares on the New York Stock Exchange (the “NYSE”) on June 30, 2020). As of February 19, 2021, there were 174,912,175 outstanding Common Shares, $.10 par value per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement to be filed in connection with the Annual Meeting of Shareholders to be held in 2021 are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described therein. 3 ITEM 1. Business Forward Looking Statements PART I This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this document, other than statements of historical fact, are the words statements which may "expects," "believes," "anticipates," "should," "estimates" and similar expressions. forward-looking identified use the by be of 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" and in our other filings with the Securities and Exchange Commission (the “SEC”). These include 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 economic downturns in the national and local markets in which we operate; risks associated with the COVID-19 pandemic (the “COVID Pandemic”) or similar events, including negative economic impacts which could reduce the demand for our facilities or increase tenant delinquencies and regulatory actions to close or limit access to our facilities, limit our ability to set rents or limit our ability to collect rent or evict delinquent tenants; the risk that there could be an out-migration of population from our markets which would reduce demand for our facilities; risks related to increased reliance on Google as a customer acquisition channel; risks associated with international operations including, but not limited to, unfavorable foreign currency rate fluctuations and changes in tax laws; 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; risks due to ballot initiatives or other 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 federal or state tax laws related to the taxation of real estate investment trusts (“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; and delays and cost overruns on our projects to develop new facilities or expand our existing facilities. 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 as a result of new information, new estimates, or other factors, events or circumstances after the date of these forward looking statements, except when expressly required by law. Given these risks and uncertainties, you should not rely on any forward-looking statements in this report, or which management may make orally or in writing from time to time, neither as predictions of future events nor guarantees of future performance. General Discussion of our Business Public Storage (referred to herein as “the Company”, “we”, “us”, or “our”), a Maryland REIT, was organized in 1980. Our principal business activities include the ownership and operation of self-storage facilities and other related operations including tenant reinsurance and third-party self-storage management. We are the industry leading owner and operator of self-storage properties with a recognizable brand, including the ubiquitous orange color, which is one of the most recognizable within the industry. 4 Self-storage Operations: We acquire, develop, own and operate self-storage facilities, which offer storage spaces for lease on a month- to-month basis, for personal and business use. We are the largest owner and operator of self-storage facilities in the U.S. with physical presence in most major markets and 38 states. We believe our scale, brand name and technology platform afford us competitive advantages. At December 31, 2020, we held interests in and consolidated 2,548 self- storage facilities (an aggregate of 175 million net rentable square feet of space) operating under the “Public Storage” brand name. We own all of the economic interest in these facilities, except for 21 of these facilities held with other noncontrolling interests. Ancillary and Other Operations: We reinsure policies held by tenants against losses to goods stored at the self-storage facilities we own, as well as those we manage for third parties. These policies cover claims for losses related to specified events up to a maximum limit of $5,000 per storage unit. We reinsure all risks in this program, but purchase insurance from an independent third party insurer to cover this exposure for a limit of $15.0 million for losses in excess of $5.0 million per occurrence. At December 31, 2020, there were approximately 990,000 certificates held by our self-storage customers, representing aggregate coverage of approximately $3.9 billion. At December 31, 2020, we managed 92 facilities for third parties, and are under contract to manage 25 additional facilities including 24 facilities that are currently under construction. In addition, we sell merchandise, primarily locks and cardboard boxes at our self-storage facilities. We hold a 42% equity interest in PS Business Parks, Inc. (“PSB”) and a 35% interest in Shurgard Self Storage SA (“Shurgard”). PSB is a publicly held REIT that owns, operates, acquires and develops commercial properties, primarily multi-tenant flex, office, and industrial parks. At December 31, 2020, PSB owned and operated 27.7 million rentable square feet of commercial space. Shurgard is a public company traded on Euronext Brussels under the “SHUR” symbol and owns 241 self-storage facilities (13.2 million net rentable square feet) located in seven countries in Western Europe operated under the “Shurgard” brand name. For all periods presented herein, we have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended (the “Code”). For each taxable year in which we qualify for taxation as a REIT, we will not be subject to U.S. federal corporate income tax on our “REIT taxable income” (generally, taxable income subject to specified adjustments, including a deduction for dividends paid and excluding our net capital gain) that is distributed to our shareholders. We believe we met these requirements in all periods presented herein and we expect to continue to qualify as a REIT. We report annually to the SEC on Form 10-K, which includes financial statements certified by our independent registered public accountants. We also report quarterly to the SEC on Form 10-Q, which includes unaudited financial statements. We expect to continue such reporting. On our website, www.publicstorage.com, we make available, free of charge, our Annual Reports on Form 10- K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC. The information contained on our website is not a part of, or incorporated by reference into, this Annual Report on Form 10-K. Competition Ownership and operation of self-storage facilities is highly fragmented. As the largest owner of self-storage facilities, we believe that we own approximately 7% of the self-storage square footage in the U.S. and that collectively the five largest self-storage owners in the U.S. own approximately 16%, with the remaining 84% owned by regional and local operators. 5 We generally own facilities in major markets. We believe that we have market share and concentration in major metropolitan centers, with approximately 70% of our 2020 same-store revenues generated in the 20 Metropolitan Statistical Areas (each, an “MSA”, as defined by the U.S. Census Bureau) with the highest population levels. We believe this is a competitive advantage relative to other self-storage operators, which do not have our geographic concentration and market share in the major MSAs. The high level of ownership fragmentation in the industry is partially attributable to the relative simplicity of managing a local self-storage facility, such that small-scale owners can operate self-storage facilities at a basic level of profitability without significant managerial or operational infrastructure. Our facilities compete with nearby self- storage facilities owned by other operators using marketing channels, including Internet advertising, signage, and banners and offering services similar to ours. As a result, competition is significant and affects the occupancy levels, rental rates, rental income and operating expenses of our facilities. However, we believe that the economies of scale inherent in this business result in our being able to operate self-storage facilities at a materially higher level of cash flow per square foot than other operators without our scale. Recently, larger national operators (including ourselves) are offering to manage facilities owned by third parties on their platform for a fee, and Google is offering a more convenient platform for small operators to compete with larger operators in paid search bidding campaigns to drive web traffic and increase reservations. Depending upon how many smaller operators avail themselves of these management services and Google’s platform, these two developments may potentially diminish the competitive advantage we have versus smaller owner/operators. Newly developed facilities compete with many of the facilities we own, negatively impacting our occupancies, rental rates, and rental growth, particularly as newly developed facilities fill up. The level of new construction varies in each market over time, depending upon many factors such as the cost and availability of land, construction costs, zoning limitations, and the availability of capital, as well as local demand and economic conditions. Currently, we are affected by newly developed facilities in markets such as Atlanta, Austin, Charlotte, Chicago, Dallas, Denver, Houston, Miami, Minneapolis, New York and Portland. We expect development of new self-storage facilities to continue to impact our results for the foreseeable future. Technology We believe technology enables revenue optimization and cost efficiencies. Over the past few years we have invested in technologies that we believe have enabled us to operate and compete more effectively. Centralized information networks: Our centralized reporting and information network enables us to identify changing market conditions and operating trends as well as analyze customer data and, on an automated basis, quickly change each of our individual properties’ pricing and promotions, as well as to drive marketing spending such as the relative level of bidding for various paid search terms on paid search engines. Convenient shopping experience: Customers can conveniently shop for available storage space, reviewing attributes such as facility location, size, amenities such as climate-control, as well as pricing, through the following marketing channels: • Our Desktop and Mobile Websites: The online marketing channel is a key source of customers. Approximately 76% of our move-ins in 2020 were sourced through our website and we believe that many of our other customers who reserved directly through our call center or arrived at a facility and moved in without a reservation, have reviewed our pricing and availability online through our websites. We seek to regularly update the structure, layout, and content of our website in order to enhance our placement in “unpaid” search in Google and related websites, to improve the efficiency of our bids in “paid” search campaigns, and to maximize users’ likelihood of reserving space on our website. 6 • Our Call Center: Our call center is staffed by skilled sales specialists. Customers reach our call center by calling our advertised toll-free telephone numbers provided on search engines or our website. We believe giving customers the option to interact with a call center agent, despite the higher marginal cost relative to a reservation made on our website, enhances our ability to close sales with potential customers. • Our Properties: Customers can also shop at any one of our facilities. Property managers access the same information that is available on our website and to our call center agents, and can inform the customer of available space at that site or our other nearby storage facilities. Property managers are trained to maximize the conversion of such “walk in” shoppers into customers. To further enhance the move-in experience, in 2020 we initiated our “eRental®” process whereby prospective tenants (including those who initially reserved a space) expedite the move-in process by executing a lease agreement from their smartphone or computer and then going directly to their space on the move-in date. Approximately half of customers elected this “eRental®” process during the fourth quarter of 2020. In addition, in 2020 we have implemented technology solutions in the area of labor scheduling, an integrated customer smartphone application, automated and centralized property access systems, and website customer chat functions. Growth and Investment Strategies Our ongoing growth strategies consist of: (i) improving the operating performance of our existing self-storage facilities, (ii) acquiring and developing facilities, (iii) growing ancillary business activities including tenant reinsurance and third-party management services, and (iv) leveraging the growth of our investment in PSB and Shurgard. While our long-term strategy includes each of these elements, in the short run the level of growth in our asset base in any period is dependent upon the cost and availability of capital, as well as the relative attractiveness of available investment alternatives. From time to time we explore expansion of our activities to other countries. Any such strategic expansion would most likely involve acquiring an interest in an existing operator’s platform. There can be no assurance that any such expansion will occur in the future or the timing thereof. Improve the operating performance of existing facilities: We regularly update and enhance our strategies to increase the net cash flow of our existing self-storage facilities through maximizing revenues and controlling operating costs. We maximize revenues through striking the appropriate balance between occupancy and rates to new and existing tenants, by regularly adjusting (i) our promotional and other discounts, (ii) the rental rates we charge to new and existing customers, and (iii) our marketing spending and intensity. We inform these pricing and marketing decisions by observing their impact on web and call center traffic, reservations, move-ins, move-outs, tenant length of stay, and other indicators of response. The size and scope of our operations have enabled us to achieve high operating margins and a low level of administrative costs relative to revenues through the centralization of many functions, such as facility maintenance, employee compensation and benefits programs, revenue management, as well as the development and documentation of standardized operating procedures. Acquire existing properties in the U.S.: We seek to capitalize on the fragmentation of the self-storage business through acquiring attractively priced, well-located existing self-storage facilities. We believe our presence in and knowledge of substantially all of the major markets in the U.S. enhances our ability to identify attractive acquisition opportunities. Data on the rental rates and occupancy levels of our existing facilities provide us an advantage in evaluating the potential of acquisition opportunities. Our aggressiveness in bidding for particular marketed facilities depends upon many factors including the potential for future growth, the quality of construction and location, the cash flow we expect from the facility when operated on our platform, how well the facility fits into our current geographic footprint, as well as our return on capital expectations. 7 Develop new self-storage facilities and expand existing facilities: The development of new self-storage locations and the expansion of existing facilities has been an important source of our growth. Our operating experience in major markets and experience in stabilizing new properties provides us advantages in developing new facilities. We plan to increase our development activity given attractive risk adjusted return profile with yields above those of acquisitions. However, our level of development is dependent upon many factors, including the cost and availability of land, the cost and availability of construction materials and labor, zoning and permitting limitations, our cost of capital, the cost of acquiring facilities relative to developing new facilities, as well as local demand and economic conditions. Grow ancillary business activities: We pursue growth initiatives providing attractive insurance offerings for tenants who choose to protect their stored items against loss and desire to maximize their storage experience. As we grow our self-storage portfolio we have the opportunity to increase the growth profile of our tenant reinsurance business. Our third party management business enables us to generate revenues through management fees, expand our presence, increase our economies of scale, promote our brand and enhance our ability to acquire additional facilities over the medium and long-term as a result of strategic relationships forged with third-party owners. Participate in the growth of PS Business Parks, Inc.: We hold a 42% equity interest in PSB. Our investment in PSB provides diversification into another asset type. PSB seeks to grow its asset base in its existing markets as well as increase the cash flows from its owned portfolio. As of December 31, 2020, PSB owned and operated approximately 27.7 million rentable square feet of commercial space. Participate in the growth of Shurgard: We hold a 35% interest in Shurgard. We believe Shurgard is the largest self-storage company in Western Europe. Customer awareness and availability of self-storage is significantly lower in Europe than in the U.S. However, with more awareness and product supply, we believe there is potential for increased demand for storage space in Europe. We believe Shurgard can capitalize on potential increased demand through the development of new facilities and acquiring existing facilities. From January 1, 2018 through December 31, 2020, Shurgard acquired 17 facilities from third parties for approximately $187.7 million, and has opened six development properties at a total cost of approximately $66.9 million. At December 31, 2020, Shurgard had ten properties in their development pipeline. Compliance with Government Regulations We are subject to various laws, ordinances and regulations, including various federal, state and local regulations that apply generally to the ownership of real property and the operation of self-storage properties. These include various laws and government regulations concerning environmental matters, labor matters and employee safety and health matters. Further, our insurance activities are subject to state insurance laws and regulations as determined by the particular insurance commissioner for each state in accordance with certain federal regulations. We are not aware of any government regulations that have resulted or that we expect will result in compliance costs that had or will have a material effect on our capital expenditures, earnings or competitive position. See “We have significant exposure to real estate risk.” and “We are subject to new and changing legislation and regulations, including the California’s Consumer Privacy Act” in Item 1A. “Risk Factors” for further information regarding our risks related to government regulations. In addition, during public health crises, such as the COVID Pandemic, or in response to natural disasters, such as wildfires in California in recent years, our properties and our tenants have been subject to emergency government regulations that have impacted our operations and our business. See “We are subject to risks from the COVID Pandemic and we may in the future be subject to risks from other public health crises” and “We have been and may in the future be adversely impacted by emergency regulations adopted in response to significant events, such as natural disasters or public health crises, that could adversely impact our operations.” in Item 1A. “Risk Factors”. We are committed to a long-term environmental stewardship program that reduces emissions of hazardous materials into the environment and the remediation of identified existing environmental concerns, including 8 environmentally-friendly capital initiatives and building and operating properties with a high structural resilience and low obsolescence. We accrue environmental assessments and estimated remediation costs when it is probable that such efforts will be required and the related costs can be reasonably estimated. Our current practice is to conduct environmental investigations in connection with property acquisitions. Although there can be no assurance, we are not aware of any environmental contamination of any of our facilities, which individually or in the aggregate would be material to our overall business, financial condition, or results of operations. Impact of the COVID-19 Pandemic During a significant portion of the year ended December 31, 2020, the COVID Pandemic has resulted in restrictions on 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 significant increase in unemployment in the U.S. The impact of the COVID Pandemic on our business is described more fully in “Overview” and the various sections of our Management’s Discussion and Analysis of Financial Condition and Results of Operations which follows. Human Capital Resources The Company’s key human capital management objectives are to attract, develop and retain the highest quality talent. We seek to earn the commitment of employees by making a strong commitment to them. While most join without experience in the self-storage industry, many find career success with us given our emphasis on training, development and promotion from within. Doing the right thing and integrity are core values we live by at Public Storage and the cornerstone to our culture. Acting with the highest integrity is imperative to our success, our customer’s satisfaction and our employee’s engagement. We have approximately 5,400 employees, including 4,700 customer facing roles (such as property level and call center personnel), 380 field management employees, and 320 employees in our corporate operations. Diversity and Inclusion At Public Storage, we are united under one common goal – creating a diverse and inclusive environment where all employees feel valued, included, and excited to be part of a best-in-class team. With over 5,400 team members from all different races, backgrounds, and life experiences, we celebrate inclusion and value the diversity each person brings to Public Storage. This commitment drives everything we do, from the people we hire, to the business decisions we make. Public Storage hires based on character, skills, and experience without regard to age, gender, race, ethnicity, religion, sexual orientation, or other protected characteristic. Adherence to this practice has resulted in a diverse and inclusive employee base that reflects the diversity of customers we serve. We maintain policies regarding diversity, equal opportunity, pay-for-performance, discrimination, harassment, and labor (e.g., child, forced, and compulsory). Our employee population is approximately 70% female and approximately 51% have self-identified as people of color; Black or African American (23%), Hispanic or Latino (18%), Asian (4%), of two or more races (4%), Native American (1%), and Pacific Islander (1%). Diversity is an important factor in all levels of the organization. Our executive team is 25% female and 25% people of color and 38% of our leadership roles are held by women. In 2020, 54% of employees promoted to leadership roles were diverse. Additionally, by having a balanced mix of generations in the organization, we gain from the experiences each age group brings - our employees are 16% Boomer, 28% Gen X, 47% Gen Y and 9% Gen Z. 9 Some examples of key programs and initiatives that are focused to attract, develop and retain our diverse workforce include: Compensation, Health and Wellness Public Storage believes in aligning employee compensation with our short- and long-term performance goals and providing compensation and incentives needed to attract, motivate and retain employees who are crucial to our success. We tailor our compensation programs to each employee group to ensure competitiveness in the market and to drive employee engagement. Public Storage is also committed to our employees and their overall health and well-being. We want to help them feel happy, healthy, socially connected, and purposeful. Our goal is to provide tools and resources to help empower our employees to explore what they need and to evaluate for themselves what makes sense in achieving a healthy and balanced lifestyle. We offer benefits to virtually all our employees. Anyone working 20 hours or more is eligible to participate in our health benefit offerings which include medical, dental, vision, flexible and health savings accounts, discount and income protection plans. We also offer a 401(k) plan with matching employer contributions to help our employees prepare for retirement. Our dedicated health and wellness website is designed to provide educational and motivational content that help our employees focus on their well-being. We also host individual and team contests to promote goal setting, action and monitoring. Additionally, employee support programs are available with access to free counseling services through various channels (web, phone, in person), life planning tools and other discount programs for legal services, pet insurance, home and auto, and more. The COVID-19 Pandemic The COVID Pandemic brought varying challenges to each of our employee groups. We took a multipronged approach in providing resources, tools and added protocols that focused on employees and their families while still allowing us to support the customers we serve during these unprecedented times. Our field operations and store protocols were quickly modified to ensure a safe workspace for our employees and our customers. We implemented a policy of allowing only one customer in office at a time, required mandatory face coverings, and installed Plexiglass protection. We also sought to reduce in person touchpoints with various initiatives, most notably our newly-launched “eRental®” program described above. Additionally, we had a swift transition to work-from-home for our corporate and call center operations by utilizing new operating and call center technology platforms that were put in place prior to prepare for these types of situations. We established the PS Cares Fund which was designed to support our employees that may be directly impacted by COVID-19. We provided additional incentive pay for property personnel and district managers, opened personal paid time off policies for full use and provided extended paid time to ensure employees had time off assistance when and if needed. Childcare assistance and online educational content was made available to help employees balance the need to work and care for children impacted by school closures. Additionally, mental well-being offerings were provided for those struggling during these unique times. Training, Development and Recognition We provide robust training programs for our new hires in our field and call center operations to help them quickly learn and operate in the self-storage business. We also offer ongoing training and development programs for 10 our workforce. We are able to accomplish this by utilizing an online platform that provides a one-stop shop for accessing training courses and relevant reference materials. Public Storage employees completed more than 367,000 formal training hours in 2020. The online training and development platform also allows us to reinforce our culture of ongoing recognition by providing a means to show appreciation to others across all levels of the business by awarding employee recognition badges such as team player or appreciation badge. Over 54,000 badges were awarded in 2020. Communication and Engagement Given the geographically dispersed nature of our business, it is important for us to ensure that employees feel they are informed and included. We communicate through various channels such as monthly meetings or “touch bases”, frequent email communications and updates from corporate, company intranet postings, engagement surveys and monthly newsletters. Our monthly newsletter is an additional way to keep up with company information and each other. It contains a CEO message and provides company strategy and performance updates, employee achievements and promotions, health and wellness tips, and other pertinent information that helps keep us connected. Employee engagement is instrumental in understanding the effectiveness of our strategies. We conduct various engagement surveys through the year to help us measure commitment, motivation and engagement, as well as gain employee feedback that helps us improve. Seasonality We experience minor seasonal fluctuations in the demand for self-storage space, with demand and rental rates generally higher in the summer months than in the winter months. We believe that these fluctuations result in part from increased moving activity during the summer months. ITEM 1A. Risk Factors In addition to the other information in our Annual Report on Form 10-K, you should consider the risks described below that we believe may be material to investors in evaluating the Company. This section contains forward-looking statements, and in considering these statements, you should refer to the qualifications and limitations on our forward-looking statements that are described in Item 1, “Business.” We have significant exposure to real estate risk. Risks Related to Our Business Since our business consists primarily of acquiring, developing, and operating real estate, we are subject to risks related to the ownership and operation of real estate that could result in reduced revenues, increased expenses, increased capital expenditures, or increased borrowings, which could negatively impact our operating results, cash flow available for distribution or reinvestment, and our stock price: Natural disasters or terrorist attacks could cause damage to our facilities, resulting in increased costs and reduced revenues. Natural disasters, such as earthquakes, fires, hurricanes and floods, or terrorist attacks could cause significant damage to our facilities and require significant repair costs, and make facilities temporarily uninhabitable, thereby reducing our revenues. Damage and business interruption losses could exceed the aggregate limits of our insurance coverage. In addition, because we self-insure a portion of our risks, losses below a certain level may not be covered by insurance. See Note 13 to our December 31, 2020 financial statements for a description of the risks of losses that are not covered by third-party insurance contracts. We may not have sufficient insurance coverage for losses caused by a terrorist attack, or such insurance may not be maintained, available or cost-effective. In addition, significant natural disasters, terrorist attacks, threats of future terrorist attacks, or resulting wider armed conflicts could have negative impacts on self-storage demand and/or our revenues. 11 Consequences of climate change, including severe weather events, and the steps taken to prevent climate change, could result in increased capital expenditures, increased expenses, and reduced revenues: Direct and indirect impacts of climate change, such as increased destructive weather events, fires, reduced lifespans and population reduction, reduced natural habitats, water, food, arable land, and other resources, as well as resulting armed conflicts, could increase our costs or reduce demand for our self-storage facilities. Governmental, political, and societal pressure could (i) require costly changes to future newly developed facilities, or require retrofitting of our existing facilities, to reduce carbon emissions through multiple avenues including changes to insulation, space configuration, lighting, heating, and air conditioning, (ii) increase energy costs as a result of switching to less carbon-intensive, but more expensive, sources of energy to operate our facilities, and (iii) result in consumers reducing their individual carbon footprints by owning fewer durable material consumer goods, collectibles, and other such items requiring storage, resulting in a reduced demand for our self-storage space. Operating costs, including property taxes, could increase. We could be subject to increases in insurance premiums, property or other taxes, repair and maintenance costs, payroll, utility costs, workers compensation, and other operating expenses due to various factors such as inflation, labor shortages, commodity and energy price increases, weather, increases to minimum wage rates, changes to governmental safety and real estate use limitations, as well as other governmental actions. Our property tax expense, which totaled approximately $297.8 million during the year ended December 31, 2020, generally depends upon the assessed value of our real estate facilities as determined by assessors and government agencies, and accordingly could be subject to substantial increases if such agencies changed their valuation approaches or opinions or if new laws are enacted, especially if new approaches are adopted or laws are enacted that result in increased property tax assessments in states or geographies where we have a high concentration of facilities. See also “We have exposure to increased property tax in California” below. The acquisition of existing properties or self-storage operating companies is subject to risks that may adversely affect our growth and financial results. We have acquired self-storage facilities from third parties in the past, and we expect to continue to do so in the future. We face significant competition for suitable acquisition properties from other real estate investors. As a result, we may be unable to acquire additional properties we desire or the purchase price for desirable properties may be significantly increased. Failures or unexpected circumstances in integrating facilities that we acquire directly or via the acquisition of operating companies into our operations, or circumstances we did not detect or anticipate during due diligence, such as environmental matters, needed repairs or deferred maintenance, customer collection issues, assumed liabilities, turnover of critical personnel involved in acquired operating companies, or the effects of increased property tax following reassessment of a newly-acquired property, as well as the general risks of real estate investment and mergers and acquisitions, could jeopardize realization of the anticipated earnings from an acquisition. Development of self-storage facilities can subject us to risks. At December 31, 2020, we had a pipeline of development projects totaling $561.4 million (subject to contingencies), and we expect to continue to seek additional development projects. There are significant risks involved in developing self-storage facilities, such as delays or cost increases due to changes in or failure to meet government or regulatory requirements, failure of revenue to meet our underwriting estimates, weather issues, unforeseen site conditions, or personnel problems. Self-storage space is generally not pre-leased, and rent-up of newly developed space can be delayed or ongoing cash flow yields can be reduced due to competition, reductions in storage demand, or other factors. There is significant competition among self-storage operators and from other storage alternatives. Our self- storage facilities generate most of our revenue and earnings. Significant competition from self-storage operators, property developers, and other storage alternatives may adversely impact our ability to attract and retain customers and may negatively impact our ability to generate revenue. Competition in the local market areas in which many of our properties are located is significant and has affected our occupancy levels, rental rates, and operating expenses. There is also an increasing influx of capital from outside financing sources driving more money, development, and supply into the industry. Development of self-storage facilities has increased in recent years, which has intensified competition and will continue to do so as newly developed facilities are opened. Development of self-storage facilities by other operators could continue to increase, due to increases in availability of funds for investment or other reasons, and further intensify competition. 12 Demand for self-storage facilities may be affected by customer perceptions and factors outside of our control. Significantly lower logistics costs could introduce new competitors such as valet-style storage services and reduce the demand for traditional self-storage. Customer preferences and/or needs for self-storage could change, decline, or shift to other product types thereby impacting our business model and ability to grow and/or generate revenues. Shifts in population and demographics could cause the geographical distribution of our portfolio to be suboptimal and affect our ability to maintain occupancy and attract new customers. Security incidents could result in the perception that our properties are not safe. If our customers do not feel our properties are safe, they may select competitors for their self- storage needs, or if there is an industry perception of inadequate security customer use of self-storage could be negatively impacted. Our newly developed and expanded facilities, and facilities that we manage for third party owners, may negatively impact the revenues of our existing facilities. We continue to develop new self-storage facilities and expand our existing self-storage facilities. In addition, we are seeking to increase the number of self-storage facilities that we manage for third party owners in exchange for a fee, many of which are in the process of stabilization and are in proximity to our existing stabilized self-storage facilities. In order to hasten the fill-up of these new facilities, we aggressively price such space during the fill-up period. While we believe that this aggressive pricing allows us to increase our market share relative to our competitors and increase the cash flows of these properties, such pricing and the added capacity may also negatively impact our existing stabilized self-storage facilities that are in proximity to these unstabilized facilities. Many of our existing self-storage facilities may be at a competitive disadvantage to newly developed facilities. There is a significant level of development of new self-storage facilities, by us and other operators. These newly developed facilities are generally of high quality, with a more fresh and vibrant appearance, more amenities such as climate control, more attractive office configurations, newer elements, and a more imposing and attractive retail presence as compared to many of our existing stabilized self-storage facilities, some of which were built as much as 50 years ago. Such qualitative differentials may negatively impact our ability to compete with these facilities for new tenants and our existing tenants may move to newly developed facilities. We may incur significant liabilities from environmental contamination or moisture infiltration. Existing or future laws impose or may impose liability on us to clean up environmental contamination on or around properties that we currently or previously owned or operated, even if we were not responsible for or aware of the environmental contamination or even if such environmental contamination occurred prior to our involvement with the property. We have conducted preliminary environmental assessments on most of our properties, which have not identified any material liabilities. These assessments, commonly referred to as “Phase 1 Environmental Assessments,” include an investigation (excluding soil or groundwater sampling or analysis) and a review of publicly available information regarding the site and other nearby properties. We are also subject to potential liability relating to moisture infiltration, which can result in mold or other damage to our or our customers’ property, as well as potential health concerns. When we receive a complaint or otherwise become aware that an air quality concern exists, we implement corrective measures and seek to work proactively with our customers to resolve issues, subject to our contractual limitations on liability for such claims. We are not aware of any environmental contamination or moisture infiltration related liabilities that could be material to our overall business, financial condition, or results of operation. However, we may not have detected all material liabilities, we could acquire properties with material undetected liabilities, or new conditions could arise or develop at our properties, any of which could result in a cash settlement or adversely affect our ability to sell, lease, operate, or encumber affected facilities. Economic conditions can adversely affect our business, financial condition, growth and access to capital. Economic downturns or adverse economic or industry conditions could adversely impact our financial results, growth, and access to capital. 13 Our revenues and operating cash flow can be negatively impacted by reductions in employment and population levels, household and disposable income, and other general economic factors that lead to a reduction in demand for rental space in each of the markets in which we operate. Our ability to raise capital to fund our activities may be adversely affected by challenging market conditions. In periods when the capital and credit markets experience significant volatility, the amounts, sources, and cost of capital available to us may be adversely affected. If we were unable to raise capital at reasonable rates, prospective earnings growth through expanding our asset base could be limited. We have exposure to European operations through our ownership in Shurgard. We own approximately 35% of the common shares of Shurgard, and this investment has a $341.1 million book value and a $1.4 billion market value (based upon the closing trading price of Shurgard’s common stock) at December 31, 2020. We recognized $15.7 million in equity in earnings, and received $34.9 million in dividends, in 2020, with respect to Shurgard. Shurgard, as an owner, operator, and developer of self-storage facilities, is subject to many of the same risks we are with respect to self-storage. However, through our investment in Shurgard, we are exposed to additional risks unique to the various European markets Shurgard operates in which may adversely impact our business and financial results, many of which are referred to in Shurgard’s public filings. These risks include the following: • Currency risks: Currency fluctuations can impact the fair value of our investment in Shurgard, our equity earnings, our ongoing dividends, and any other related repatriations of cash. • Legislative, tax, and regulatory risks: Shurgard is subject to a variety of local, national, and pan European laws and regulations related to permitting and land use, the environment, labor, and other areas, as well as income, property, sales, value added and employment tax laws. These laws can be difficult to apply or interpret and can vary in each country or locality, and are subject to unexpected changes in their form and application due to regional, national, or local political uncertainty and other factors. Such changes, or Shurgard’s failure to comply with these laws, could subject it to penalties or other sanctions, adverse changes in business processes, as well as potentially adverse income tax, property tax, or other tax burdens. • Impediments to capital repatriation could negatively impact the realization of our investment in Shurgard: Laws in Europe and the U.S. may create, impede, or increase our cost to repatriate distributions received from Shurgard or proceeds from the sale of Shurgard’s shares. • Risks of collective bargaining and intellectual property: Collective bargaining, which is prevalent in certain areas in Europe, could negatively impact Shurgard’s labor costs or operations. Many of Shurgard’s employees participate in various national unions. • Potential operating and individual country risks: Economic slowdowns or extraordinary political or social change in the countries in which it operates have posed, and could continue to pose, challenges or result in future reductions of Shurgard’s operating cash flows. • Liquidity of our ownership stake: We have no plans to liquidate our interest in Shurgard. However, while Shurgard is a publicly held entity, if we chose to, our ability to liquidate our shares in Shurgard in an efficient manner could be limited by the level of Shurgard’s public “float” relative to any ownership stake we sought to sell. Our existing relationship with our legacy joint venture partner may place further contractual limitations on our ability to sell all of the shares we own if we desired to do so. • Impediments of Shurgard’s public ownership structure: Shurgard’s strategic decisions, involving activities such as borrowing money, capital contributions, raising capital from third parties, as well as 14 selling or acquiring significant assets, are determined by its board of directors. As a result, Shurgard may be precluded from taking advantage of opportunities that we would find attractive but that we may not be able to pursue economically separately, or it could take actions that we do not agree with. We have exposure to commercial property risk through our ownership in PSB. We own approximately 42% of the common equity of PSB, and this investment has a $432.0 million book value and a $1.9 billion market value (based upon the closing trading price of PSB’s common stock) at December 31, 2020. We recognized $64.8 million in equity in earnings, and received $60.7 million in dividends, in 2020, with respect to PSB. PSB, as an owner, operator, and developer of real estate, is subject to many of the same risks we are with respect to real estate. However, we may be exposed to other risks as a result of PSB’s ownership specifically of commercial facilities. These risks are set forth in PSB’s Form 10-K for the year ended December 31, 2020, under “Item 1A. Risk Factors.” 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; 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 high-cost major markets; 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 increases in unemployment as a result of the COVID Pandemic. 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, the speed and effectiveness of vaccine and treatment developments, 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 15 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. We have been and may in the future be adversely impacted by emergency regulations adopted in response to significant events, such as natural disasters or public health crises, that could adversely impact our operations. In response to significant events, local, state and federal governments have and may in the future adopt regulations that could impact our operations. For example, in response to wildfires in 2018 and 2019, the State of California and some localities in California adopted temporary regulations that imposed certain limits on the rents we could charge at certain of our facilities and the extent to we could increase rents to existing tenants. As noted above, in response to the COVID Pandemic, certain localities adopted restrictions on the use of certain of our facilities, limited our ability to increase rents, limited our ability to collect rent or evict delinquent tenants, and limited our ability to complete development and redevelopment projects. Similar restrictions could be imposed in the future in response to significant events and these restrictions could adversely impact our operations. Our marketing and pricing strategies may fail to be effective or may be constrained by factors outside of our control. Marketing initiatives, including our increasing dependence on Google to source customers, may fail to be effective and could negatively impact financial performance. Approximately 64% of our new storage customers in 2020 were sourced directly or indirectly through “unpaid” search and “paid” search campaigns on Google. We believe that the vast majority of customers searching for self-storage use Google at some stage in their shopping experience. Google is providing tools to allow smaller and less sophisticated operators to bid for search terms, increasing competition for self-storage search terms. The predominance of Google in the shopping experience, as well as Google’s enabling of additional competitors to bid for placements in self-storage search terms, may reduce the number of new customers that we can procure, and/or increase our costs to obtain new customers. In addition, the inability to utilize our pricing methodology due to regulatory or market constraints could also significantly impact our financial results. We are exposed to 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. We have over 5,400 employees, more than 1.6 million customers, and we conduct business at facilities with 175 million net rentable square feet of storage space. As a result, we are subject to the risk of legal claims and proceedings (including class actions) and regulatory enforcement actions in the ordinary course of our business and otherwise, and we could incur significant liabilities and substantial legal fees as a result of these actions. Resolution of these claims and actions may divert time and attention by our management could involve payment of damages or expenses by us, all of which may be significant, and could damage our reputation and our brand. In addition, any such resolution could involve our agreement to terms that restrict the operation of our business. The results of legal proceedings cannot be predicted with certainty. We cannot guarantee losses incurred in connection with any current or future legal or regulatory proceedings or actions will not exceed any provisions we may have set aside in respect of such proceedings or actions or will not exceed any available insurance coverage. The impact of any such legal claims, proceedings, and regulatory enforcement actions and could negatively impact our operating results, cash flow available for distribution or reinvestment, and/or the price of our common shares. In addition, through exercising their authority to regulate our activities, governmental agencies can otherwise negatively impact our business by increasing costs or decreasing revenues. Our failure to modernize and adopt advancements in information technology may hinder or prevent us from achieving strategic objectives. 16 Our inability to adapt and deliver new capabilities in time with strategic requirements may cause the organization to miss market competitive timing, first mover position, or to suffer material loss due to failed technology choices or implementation. We are heavily dependent on computer systems, telecommunications and the Internet to process transactions, make payments, summarize results and manage our business. The failure or disruption of our computer and communications systems could significantly harm our business. We are heavily dependent upon automated information technology and Internet commerce, with more than half of our new customers coming from the telephone or over the Internet. We centrally manage significant components of our operations with our computer systems, including our financial information, and we also rely extensively on third-party vendors to retain data, process transactions and provide other systems services. These systems are subject to damage or interruption from power outages, computer and telecommunications failures, hackers, computer worms, viruses and other destructive or disruptive security breaches and catastrophic events. Such incidents could also result in significant costs to repair or replace such networks or information systems, as well as actual monetary losses in case of a breach that resulted in fraudulent payments or other cash transactions. As a result, our operations could be severely impacted by a natural disaster, terrorist attack, attack by hackers, acts of vandalism, data theft, misplaced or lost data, programming or human error, or other circumstance that results in a significant outage of our systems or those of our third party providers, despite our use of back up and redundancy measures. If our confidential information is compromised or corrupted, including as a result of a cybersecurity breach, our reputation and business relationships could be damaged, which could adversely affect our financial condition and operating results. In the ordinary course of our business we acquire and store sensitive data, including personally identifiable information of our prospective and current customers and our employees. The secure processing and maintenance of this information is critical to our operations and business strategy. Although we believe we have taken commercially reasonable steps to protect the security of our confidential information, information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyberattacks. Despite our security measures, we have experienced security breaches due to cyberattacks and additional breaches could occur in the future. In these cases, our information technology and infrastructure could be vulnerable and our or our customers’ or employees’ confidential information could be compromised or misappropriated. Any such breach could result in serious and harmful consequences for us or our tenants. Our confidential information may also be compromised due to programming or human error or malfeasance. We must continually evaluate and adapt our systems and processes to address the evolving threat landscape, and therefore there is no guarantee that they will be adequate to safeguard against all data security breaches or misuses of data. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and changing requirements applicable to our business from multiple regulatory agencies at the local, state, federal, or international level, compliance with those requirement could also result in additional costs, or we could fail to comply with those requirements due to various reasons such as not being aware of them. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers or damage our reputation, any of which could adversely affect our results of operations, reputation and competitive position. In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to discontinue leasing our self-storage facilities. Such events could lead to lost future revenues and adversely affect our results of operations and could result in remedial and other costs, fines or lawsuits, which could be in excess of any available insurance that we have procured. 17 Ineffective succession planning for our CEO and executive management, as well as for our other key employees, may impact the execution of our strategic plan. We may not effectively or appropriately identify ready-now succession candidates for CEO and executive management team which may negatively impact our ability to meet key strategic goals. Failure to implement succession plan for other key employees may leave us vulnerable to retirements and turnover. We may fail to adequately protect our trademarks. Our trademark and trade dress could be deemed generic and indistinct and lose protection. We could lose rights to our other intellectual property and trade secrets. Competitor use of our trademarks and trade names could lead to likelihood of confusion, tarnishment of our brand, and loss of legal protection for our marks. Risks Related to Our Ownership, Organization and Structure The Hughes Family could significantly influence us and take actions adverse to other shareholders. At December 31, 2020, B. Wayne Hughes, our former Chairman and his family, which includes his daughter, Tamara Hughes Gustavson, a current member of our Board of Trustees (our “Board”), and his son, B. Wayne Hughes, Jr., a former member of the Board who retired effective December 31, 2020, (collectively, the “Hughes Family”), owned approximately 13.0% of our aggregate outstanding common shares. Our declaration of trust permits the Hughes Family to own up to 35.66% of our outstanding common shares while it generally restricts the ownership by other persons and entities to 3% of our outstanding common shares unless our Board grants an ownership waiver, as has occurred in certain cases for large mutual fund companies. Consequently, the Hughes Family may significantly influence matters submitted to a vote of our shareholders, including electing trustees, amending our organizational documents, dissolving and approving other extraordinary transactions, such as a takeover attempt, which may result in an outcome that may not be favorable to other shareholders. Takeover attempts or changes in control could be thwarted, even if beneficial to shareholders. In certain circumstances, shareholders might desire a change of control or acquisition of us, in order to realize a premium over the then-prevailing market price of our shares or for other reasons. However, the following could prevent, deter, or delay such a transaction: • Provisions of Maryland law may impose limitations that may make it more difficult for a third party to negotiate or effect a business combination transaction or control share acquisition with Public Storage. Currently, the Board has opted not to subject the Company to these provisions of Maryland law, but it could choose to do so in the future without shareholder approval. • To protect against the loss of our REIT status due to concentration of ownership levels, our declaration of trust generally limits the ability of a person, other than the Hughes Family or “designated investment entities” (each as defined in our declaration of trust), to own, actually or constructively, more than 3% of our outstanding common shares or 9.9% of the outstanding shares of any class or series of preferred or equity shares. Our Board may grant, and has previously granted, a specific exemption. These limits could discourage, delay or prevent a transaction involving a change in control of the Company not approved by our Board. • Similarly, current provisions of our declaration of trust and powers of our Board could have the same effect, including (1) limitations on removal of trustees, (2) restrictions on the acquisition of our shares of beneficial interest, (3) the power to issue additional common shares, preferred shares or equity shares on terms approved by the Board without obtaining shareholder approval, (4) the advance notice provisions of our bylaws and (5) the Board’s ability under Maryland law, without obtaining shareholder approval, to implement takeover defenses that we may not yet have and to 18 take, or refrain from taking, other actions that could have the effect of delaying, deterring or preventing a transaction or a change in control. Holders of our preferred shares have dividend, liquidation and other rights that are senior to the rights of the holders of shares of our common stock. Holders of our preferred shares are entitled to cumulative dividends before any dividends may be declared or set aside on our common stock. Upon liquidation, holders of our preferred shares will receive a liquidation preference of $25,000 per share (or $25.00 per depositary share) plus any accrued and unpaid distributions before any payment is made to the common shareholders. These preferences may limit the amount received by our common shareholders either from ongoing distributions or upon liquidation. In addition, our preferred shareholders have the right to elect two additional directors to our Board whenever dividends are in arrears in an aggregate amount equivalent to six or more quarterly dividends, whether or not consecutive. Preferred Shareholders are subject to certain risks. Holders of our preferred shares have preference rights over our common shareholders with respect to liquidation and distributions, which give them some assurance of continued payment of their stated dividend rate, and receipt of their principal upon liquidation of the Company or redemption of their securities. However, holders of our Preferred Shares should consider the following risks: • The Company has in the past, and could in the future, issue or assume additional debt. Preferred shareholders would be subordinated to the interest and principal payments of such debt, which would increase the risk that there would not be sufficient funds to pay distributions or liquidation amounts to the preferred shareholders. • The Company has in the past, and could in the future, issue additional preferred shares that, while pari passu to the existing preferred shares, increases the risk that there would not be sufficient funds to pay distributions to the preferred shareholders. • While the Company has no plans to do so, if the Company were to lose its REIT status or no longer elect REIT status, it would no longer be required to distribute its taxable income to maintain REIT status. If, in such a circumstance, the Company ceased paying dividends, unpaid distributions to the preferred shareholders would continue to accumulate. The preferred shareholders would have the ability to elect two additional members to serve on our Board of Trustees until the arrearage was cured. The preferred shareholders would not receive any compensation (such as interest) for the delay in the receipt of distributions, and it is possible that the arrearage could accumulate indefinitely. Risks Related to Government Regulations and Taxation We would incur adverse tax consequences if we failed to qualify as a REIT, and we would have to pay substantial U.S. federal corporate income taxes. REITs are subject to a range of complex organizational and operational requirements. A qualifying REIT does not generally incur U.S. federal corporate income tax on its “REIT taxable income” (generally, taxable income subject to specified adjustments, including a deduction for dividends paid and excluding net capital gain) that it distributes to its shareholders. Our REIT status is also dependent upon the ongoing REIT qualification of PSB as a result of our substantial ownership interest in it. We believe we have qualified as a REIT and we intend to continue to maintain our REIT status. However, there can be no assurance that we qualify or will continue to qualify as a REIT, because of the highly technical nature of the REIT rules, the ongoing importance of factual determinations, the possibility of 19 unidentified issues in prior periods, or changes in our circumstances, as well as share ownership limits in our articles of incorporation that do not necessarily ensure that our shareholder base is sufficiently diverse for us to qualify as a REIT. For any year we fail to qualify as a REIT, unless certain relief provisions apply (the granting of such relief could nonetheless result in significant excise or penalty taxes), we would not be allowed a deduction for dividends paid, we would be subject to U.S. federal corporate income tax on our taxable income, and generally we would not be allowed to elect REIT status until the fifth year after such a disqualification. Any taxes, interest, and penalties incurred would reduce our cash available for distributions to shareholders and could negatively affect our stock price. However, for years in which we failed to qualify as a REIT, we would not be subject to REIT rules that require us to distribute substantially all of our taxable income to our shareholders. Changes in tax laws could negatively impact us. The United States Treasury Department and Congress frequently review federal income tax legislation, regulations and other guidance. We cannot predict whether, when, or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted. Any legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect taxation of us or our shareholders. Changes made by the Tax Cuts and Jobs Act, signed into law on December 22, 2017, limit our ability to deduct compensation in excess of $1 million paid to certain senior executives. This could require us to increase distributions to our shareholders in the future in order to avoid paying tax and to maintain our REIT status. We may pay some taxes, reducing cash available for shareholders. Even if we qualify as a REIT for U.S. federal corporate income tax purposes, we may be subject to some federal, foreign, state and local taxes on our income and property. Since January 1, 2001, certain consolidated corporate subsidiaries of the Company have elected to be treated as taxable REIT subsidiaries (“TRSs”) for U.S. federal corporate income tax purposes, and are taxable as regular corporations and subject to certain limitations on intercompany transactions. If tax authorities determine that amounts paid by our TRSs 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, and ongoing intercompany arrangements could have to change, resulting in higher ongoing tax payments. To the extent the Company is required to pay federal, foreign, state or local taxes or federal penalty taxes due to existing laws or changes thereto, we will have less cash available for distribution to shareholders. In addition, certain local and state governments have imposed taxes on self-storage rent. While in most cases those taxes are paid by our customers, they increase the cost of self-storage rental to our customers and can negatively impact our revenues. Other local and state governments may impose self-storage rent taxes in the future. We have exposure to increased property tax in California. Approximately $583 million of our 2020 net operating income is from our properties in California, and we incurred approximately $44 million in related property tax expense. Due to the impact of Proposition 13, which generally limits increases in assessed values to 2% per year, the assessed value and resulting property tax we pay is less than it would be if the properties were assessed at current values. From time to time, proposals have been made to reduce the beneficial impact of Proposition 13, most recently in the November 2020 ballot. While this ballot initiative failed, there can be no assurance that future initiatives or other legislative actions will not eliminate or reduce the benefit of Proposition 13 with respect to our properties. If the beneficial effect of Proposition 13 were ended for our properties, our property tax expense could increase substantially, adversely affecting our cash flow from operations and net income. We are subject new and changing legislation and regulations, including the California Privacy Rights Act (CPRA). We are subject to new and changing legislation or regulations, including the Americans with Disabilities Act of 1990 and legislation regarding property taxes, income taxes, REIT status, labor and employment, privacy and, lien 20 sales, at the city, county, state, and federal level, which could materially impact our business and operations. Failure to comply with applicable laws, regulations, and policies may subject us to increased litigation and regulatory actions and negatively affect our business and operations or reputation. On November 3, 2020, Californians passed a ballot measure that creates the California Privacy Rights Act (“CPRA”). The CPRA amends and expands the California Consumer Privacy Act (CCPA), which went into effect on January 1, 2020. The CPRA, which goes into effect on January 1, 2023, provides new rights and amends existing rights found in the CCPA. It also creates a new privacy enforcement authority, the California Privacy Protection Agency (“CalPPA”). The CPRA grants the Attorney General and the CalPPA the authority to issue regulations on a wide range of topics. It therefore remains unclear what, if any, modifications will be made to the CPRA or how it will be interpreted. While we believe we have developed processes to comply with current privacy requirements, a regulatory agency may not agree with certain of our implementation decisions, which could subject us to litigation, regulatory actions or changes to our business practices that could increase costs or reduce revenues. Other states have also considered or are considering privacy laws similar to those passed in California. Similar laws may be implemented in other jurisdictions in which we do business and in ways that may be more restrictive than those in California, increasing the cost of compliance, as well as the risk of noncompliance, on our business. Our tenant reinsurance business is subject to governmental regulation which could reduce our profitability or limit our growth. We hold Limited Lines Self-Service Storage Insurance Agent licenses from a number of individual state departments of insurance and are subject to state governmental regulation and supervision. Our continued ability to maintain these Limited Lines Self-Service Storage Insurance Agent licenses in the jurisdictions in which we are licensed depends on our compliance with related rules and regulations. The regulatory authorities in each jurisdiction generally have broad discretion to grant, renew and revoke licenses and approvals, to promulgate, interpret, and implement regulations, and to evaluate compliance with regulations through periodic examinations, audits and investigations of the affairs of insurance agents. As a result of regulatory or private action in any jurisdiction, we may be temporarily or permanently suspended from continuing some or all of our reinsurance activities, or otherwise fined or penalized or suffer an adverse judgment, which could reduce our net income. ITEM 1B. Unresolved Staff Comments None. 21 ITEM 2. Properties At December 31, 2020, we had controlling ownership interests in 2,548 self-storage facilities located in 38 states within the U.S.: At December 31, 2020 Number of Storage Facilities Net Rentable Square Feet (in thousands) California Southern Northern Texas Florida Illinois Georgia Washington North Carolina Virginia Colorado New York Minnesota Maryland New Jersey Ohio South Carolina Michigan Arizona Missouri Indiana Pennsylvania Tennessee Oregon Massachusetts Nevada Oklahoma Kansas Other states (12 states) Total (a) 253 179 315 301 130 116 101 93 104 78 69 61 63 58 55 63 50 49 41 40 33 37 40 28 28 23 21 119 18,661 11,271 24,115 21,006 8,361 7,820 7,042 6,833 6,455 5,739 4,817 4,721 3,878 3,863 3,692 3,668 3,496 3,311 2,752 2,570 2,415 2,363 2,127 1,976 1,915 1,644 1,268 7,272 2,548 175,051 (a) See Schedule III: Real Estate and Accumulated Depreciation in the Company’s 2020 financials, for a summary of land, building, accumulated depreciation, square footage, and number of properties by market. At December 31, 2020, 27 of our facilities with a net book value of $102 million were encumbered by an aggregate of $25 million in mortgage notes payable. The configuration of self-storage facilities has evolved over time. The oldest facilities are comprised generally of multiple single-story buildings, and have on average approximately 500 primarily “drive up” spaces per facility, and a small rental office. The most prevalent recently constructed facilities have higher density footprints with large, multi-story buildings with climate control and 1,000 or more self-storage spaces, a more imposing and visible retail presence, and a prominent and large rental office designed to appeal to customers as an attractive and retail-focused “store.” Our self-storage portfolio includes facilities with characteristics of the oldest facilities, characteristics of the most recently constructed facilities, and those with characteristics of both older and recently 22 constructed facilities. Most spaces have between 25 and 400 square feet and an interior height of approximately eight to 12 feet. ITEM 3. Legal Proceedings For a description of the Company’s legal proceedings, see “Note 13. Commitments and Contingencies” to our consolidated financial statements included in this Annual Report on Form 10-K. ITEM 4. Mine Safety Disclosures Not applicable. 23 PART II ITEM 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Our Common Shares of beneficial interest (the “Common Shares”) (NYSE: PSA) have been listed on the NYSE since October 19, 1984. As of February 19, 2021, there were approximately 11,158 holders of record of our 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. From the inception of the repurchase program through February 24, 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 December 31, 2020. 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. Refer to Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” for information about our equity compensation plans. ITEM 6. Selected Financial Data Not applicable ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our financial statements and notes thereto. Critical Accounting Policies Our MD&A discusses our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), and are affected by our judgments, assumptions and estimates. The notes to our December 31, 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 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 Code. For each taxable year in which we qualify for taxation as a REIT, we will not be subject to U.S. federal corporate income tax on our “REIT taxable income” (generally, taxable income subject to specified adjustments, including a deduction for dividends paid and excluding our net capital gain) that is distributed to our shareholders. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no U.S. federal corporate 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. 24 In addition, certain of our consolidated corporate subsidiaries have elected to be treated as TRSs for U.S. federal corporate 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 TRSs 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 costs 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. Overview During a significant portion of 2020, the 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 in certain markets, initial government restrictions were eased in response to reductions in the rate of new infections, there have been increases in the rate of infection in certain markets from time to time and re-imposition of certain restrictions. These restrictions as well as public concerns about the COVID Pandemic continue to have an ongoing negative impact the economy, with unemployment continuing to be at high levels. Our self-storage facilities have been classified as “essential” businesses under all applicable business closure orders and thus remained open to all customer activity. 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 initiating our touchless eRental® leasing platform, touchless mobile app allowing customer access to our properties, enforcing social distancing requirements in our property offices and grounds, and providing protective equipment, including face coverings, gloves, and plastic barriers. Our corporate offices as well as our call centers migrated to a “work from home” environment during the COVID Pandemic. We expect our corporate employees to return to the corporate office assuming the risk of the COVID Pandemic continues to recede. However, we expect that our call centers will remain in a “work from home” 25 environment due to certain favorable aspects of a distributed call center team. We believe these changes have not resulted in any significant negative impacts to our operations or decision making. It is possible that stricter government restrictions, including stay at home orders, could be instituted or reinstituted in response to increases in infections, the aggregate effect of the COVID Pandemic and seasonal influenza infections, or if additional pandemics occur. We cannot estimate the extent of the COVID Pandemic’s future negative impacts. The negative impacts of the COVID Pandemic are described more fully below, as well as throughout our MD&A which follows. Our self-storage operations generate most of our net income. Our earnings growth is most impacted by the level of organic growth in our Same Store Facilities’ revenues. Accordingly, a significant portion of management’s time is devoted to maximizing cash flows from our existing self-storage facilities. During the years ended December 31, 2020 and 2019, revenues generated by our Same Store Facilities decreased by 1.0% and increased by 1.5%, respectively, as compared to the previous year. Revenue growth in each year was impacted by increased competition from newly developed facilities. The decrease in revenue in the year ended December 31, 2020 included the negative impact caused by the COVID Pandemic including restrictions on rate increases to tenants imposed by local government due to “States of Emergency.” Our trends in revenue have improved in the last half of 2020, with revenues from our Same Store Facilities increasing 0.8% during the three months ended December 31, 2020 as compared to the three months ended December 31, 2019. At December 31, 2020, as compared to December 31, 2019, occupancies for our Same Store Facilities was 2.7% higher, while the contract rent per occupied foot was essentially flat, suggesting continued revenue growth into early 2021. See “Self-storage Operations – Same Store Operations” for further information with respect to our same- store operations, including potential downside risks to our expectations. In addition to managing our existing facilities for organic growth, we have grown and plan to continue to grow through the acquisition and development of new facilities and expanding our existing self-storage facilities. In the three years ended December 31, 2020, we acquired a total of 131 facilities with 9.9 million net rentable square feet from third parties for approximately $1.4 billion, and we opened newly developed and expanded self-storage space for a total cost of $866.1 million, adding approximately 7.9 million net rentable square feet. In order to enhance the competitive position of certain of our facilities relative to local competitors (including newly developed “fifth generation” facilities), we have embarked on a 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. The timing and scope of the program will evolve as the work is executed and we evaluate its impact. 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 is discussed more fully in “Liquidity and Capital Resources – Capital Expenditure Requirements” below. See “Liquidity and Capital Resources” for further information regarding our capital requirements and anticipated sources of capital to fund such requirements. 26 Results of Operations Operating results for 2020 and 2019 In 2020, net income allocable to our common shareholders was $1,098.3 million or $6.29 per diluted common share, compared to $1,272.8 million or $7.29 per diluted common share in 2019 representing a decrease of $174.4 million or $1.00 per diluted common share. The decrease is due primarily to (i) a $105.8 million decrease due to the impact of foreign currency exchange gains and losses associated with our Euro denominated debt, (ii) a $40.3 million increase in depreciation and amortization expense, (iii) a $21.1 million increase in general and administrative expense, (iv) a $15.6 million decrease due to the impact of allocations to preferred shareholders with respect to redemption of preferred shares, and (v) a $8.0 million decrease in self-storage net operating income. The $8.0 million decrease in self-storage net operating income is a result of a $41.7 million decrease in our Same Store Facilities (as defined below), offset partially by a $33.7 million increase in our non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities decreased 1.0% or $23.7 million in 2020 as compared to 2019, due primarily to reduced late charges and administrative fees. Cost of operations for the Same Store Facilities increased by 2.7% or $18.1 million in 2020 as compared to 2019, due primarily to a 22.5% ($11.0 million) increase in marketing expenses, a 3.1% ($7.4 million) increase in property tax expense, and a 2.5% ($3.1 million) increase in on-site property manager payroll expense. The increase in net operating income of $33.7 million for the non-Same Store Facilities is due primarily to the impact of facilities acquired in 2020 and 2019 and the fill-up of recently developed and expanded facilities. Operating results for 2019 and 2018 In 2019, net income allocable to our common shareholders was $1,272.8 million or $7.29 per diluted common share, compared to $1,488.9 million or $8.54 per diluted common share in 2018 representing a decrease of $216.1 million or $1.25 per diluted common share. The decrease is due primarily to (i) $183.1 million in aggregate gains due to Shurgard’s initial public offering and the sale of our facility in West London to Shurgard in October 2018, (ii) our $37.7 million equity share of gains recorded by PS Business Parks during 2018, (iii) a $10.3 million decrease due to the impact of foreign currency exchange gains associated with our euro denominated debt and (iv) a $32.7 million allocation to our preferred shareholders associated with our preferred share redemption activities in 2019. These impacts were offset partially by a $34.3 million increase in self-storage net operating income (described below) and a reduction in general and administrative expense attributable to $30.7 million in incremental share-based compensation expense in 2018 for the planned retirement of our former CEO and CFO. The $34.3 million increase in self-storage net operating income is a result of a $9.9 million increase in our Same Store Facilities and $24.4 million increase in our non-Same Store Facilities. Revenues for the Same Store Facilities increased 1.5% or $36.7 million in 2019 as compared to 2018, due primarily to higher realized annual rent per occupied square foot. Cost of operations for the Same Store Facilities increased by 4.2% or $26.9 million in 2019 as compared to 2018, due primarily to a 47.1% ($15.7 million) increase in marketing expenses and increased property taxes. The increase in net operating income of $24.4 million for the non-Same Store Facilities is due primarily to the impact of facilities acquired in 2019 and 2018 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 net income before depreciation and amortization, which is excluded because it is based upon historical costs and assumes that building values diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. FFO also excludes gains or losses on sale of real estate assets and real estate impairment charges, which are also based upon historical costs and are impacted by historical depreciation. FFO and FFO per share are not a substitute for net income or earnings per share. FFO is not a substitute for net cash flow in evaluating our liquidity or ability to pay dividends, because it excludes investing and financing 27 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 year ended December 31, 2020, FFO was $9.75 per diluted common share, as compared to $10.58 and $10.45 per diluted common share for the years ended December 31, 2019 and 2018, respectively, representing a decrease in 2020 of 7.8%, or $0.83 per diluted common share, as compared to 2019. The following tables reconcile diluted earnings per share to FFO per share and set forth the computation of FFO per share: Year Ended December 31, 2019 (Amounts in thousands, except per share data) 2020 2018 Reconciliation of Diluted Earnings per Share to FFO per Share: Diluted Earnings per Share Eliminate amounts per share excluded from FFO: Depreciation and amortization Gains on sale of real estate investments and Shurgard IPO, including our equity share from investments FFO per share Computation of FFO per Share: $ 6.29 $ 7.29 $ 3.53 3.32 8.54 3.21 $ (0.07) 9.75 $ (0.03) 10.58 $ (1.30) 10.45 Net income allocable to common shareholders $ 1,098,335 $ 1,272,767 $ 1,488,900 Eliminate items excluded from FFO: Depreciation and amortization Depreciation from unconsolidated real estate investments Depreciation allocated to noncontrolling interests and restricted share unitholders Gains on sale of real estate investments and Shurgard IPO, including our equity share from investments and other FFO allocable to common shares Diluted weighted average common shares FFO per share 549,975 511,413 483,646 70,681 (3,850) 71,725 79,868 (4,208) (3,646) (12,791) 1,702,350 174,642 9.75 $ $ (5,896) 1,845,801 $ 174,530 10.58 $ (227,332) 1,821,436 174,297 10.45 $ $ 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 such as loss contingency accruals, casualties, transactional due diligence, and 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. 28 The following table reconciles FFO per share to Core FFO per share: Year Ended December 31, Year Ended December 31, 2020 2019 Percentage Change 2019 2018 Percentage Change $ 9.75 $ 10.58 (7.8)% $ 10.58 $ 10.45 1.2% FFO per share Eliminate the per share impact of items excluded from Core FFO, including our equity share from investments: Foreign currency exchange loss (gain) Application of EITF D-42 Shurgard - IPO costs and casualty loss (Forfeiture)/Acceleration of share- based compensation expense due to the departure of senior executives Other items Core FFO per share 0.56 0.28 - (0.04) 0.21 - (0.04) 0.21 - (0.10) - 0.03 - 0.02 (0.01) 0.01 (0.01) 0.01 $ 10.61 $ 10.75 (1.3)% $ 10.75 $ 0.18 - 10.56 1.8% Analysis of Net Income by Reportable Segment The following discussion and analysis is presented and organized in accordance with Note 11 to our December 31, 2020 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 2,221 facilities that we have owned and operated on a stabilized basis since January 1, 2018 (the “Same Store Facilities”), (ii) 131 facilities we acquired after December 31, 2017 (the “Acquired facilities”), (iii) 148 facilities that have been newly developed or expanded, or that had commenced expansion by December 31, 2020 (the “Newly developed and expanded facilities”) and (iv) 48 other facilities, which are otherwise not stabilized with respect to occupancies or rental rates since January 1, 2018 (the “Other non-same store facilities”). See Note 11 to our December 31, 2020 financial statements “Segment Information,” for a reconciliation of the amounts in the tables below to our total net income. 29 Percentage Change 1.5% 456.1% 23.2% (3.9)% 3.3% 4.2% 467.0% 31.6% 0.4% 7.4% 0.6% 448.0% 17.6% (6.1)% 1.8% 0.1% 310.0% 18.5% 9.3% Self-Storage Operations Summary Year Ended December 31, Year Ended December 31, 2020 Percentage Change 2019 2018 (Dollar amounts and square footage in thousands) 2019 Revenues: Same Store facilities Acquired facilities Newly developed and expanded facilities Other non-same store facilities Cost of operations (a): Same Store facilities Acquired facilities Newly developed and expanded facilities Other non-same store facilities Net operating income (b): $ 2,436,546 $ 2,460,229 28,733 151,043 44,547 2,684,552 59,818 180,764 44,502 2,721,630 (1.0)% $ 2,460,229 $ 2,423,485 5,167 28,733 108.2% 122,602 151,043 19.7% 46,353 (0.1)% 44,547 2,597,607 2,684,552 1.4% 687,828 27,627 75,642 16,446 807,543 669,763 12,456 64,312 15,885 762,416 2.7% 121.8% 17.6% 3.5% 5.9% 669,763 12,456 64,312 15,885 762,416 642,870 2,197 48,858 15,814 709,739 Same Store facilities Acquired facilities Newly developed and expanded facilities Other non-same store facilities Total net operating income 1,748,718 32,191 105,122 28,056 1,914,087 1,790,466 16,277 86,731 28,662 1,922,136 (2.3)% 97.8% 21.2% (2.1)% (0.4)% 1,790,466 16,277 86,731 28,662 1,922,136 1,780,615 2,970 73,744 30,539 1,887,868 Depreciation and amortization expense: Same Store facilities Acquired facilities Newly developed and expanded facilities Other non-same store facilities Total depreciation and amortization expense Net income (loss): (422,461) (40,986) (61,643) (28,167) (409,270) (24,355) (53,844) (25,449) 3.2% 68.3% 14.5% 10.7% (409,270) (24,355) (53,844) (25,449) (408,972) (5,940) (45,454) (23,280) (553,257) (512,918) 7.9% (512,918) (483,646) 6.1% Same Store facilities Acquired facilities Newly developed and expanded facilities Other non-same store facilities Total net income 1,326,257 (8,795) 43,479 (111) 1,381,196 (8,078) 32,887 3,213 $ 1,360,830 $ 1,409,218 (4.0)% 8.9% 32.2% (103.5)% 1,371,643 1,381,196 (2,970) (8,078) 28,290 32,887 7,259 3,213 (3.4)% $ 1,409,218 $ 1,404,222 0.7% 172.0% 16.2% (55.7)% 0.4% Number of facilities at period end: Same Store facilities Acquired facilities Newly developed and expanded facilities Other non-same store facilities Net rentable square footage at period end: Same Store facilities Acquired facilities Newly developed and expanded facilities Other non-same store facilities 2,221 131 148 48 2,548 143,721 9,882 17,716 3,732 175,051 2,221 69 145 48 2,483 143,721 4,762 16,649 3,776 168,908 30 - 89.9% 2.1% 0.0% 2.6% - 107.5% 6.4% (1.2)% 3.6% 2,221 69 145 48 2,483 2,221 25 134 49 2,429 143,721 4,762 16,649 3,776 168,908 143,721 1,629 12,840 3,857 162,047 - 176.0% 8.2% (2.0)% 2.2% - 192.3% 29.7% (2.1)% 4.2% (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 years ended December 31, 2019 and 2018 with an increase in self-storage cost of operations of $9.8 million and $14.0 million, respectively, 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 year ended December 31, 2019 and 2018. (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. These measures are not a substitute for net income, operating cash flow, or other related financial measures, in evaluating our operating results. See Note 11 to our December 31, 2020 financial statements for a reconciliation of NOI to our total net income for all periods presented. Net operating income from our self-storage operations decreased 0.4% in 2020 and increased 1.8% in 2019, as compared to the previous year. The decrease in 2020 is due primarily to a reduction in Same Store net operating income due to the impact of the COVID Pandemic, partially offset 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. The composition of our Same Store Facilities allows us to more effectively evaluate the ongoing performance of our self-storage portfolio in 2018, 2019, and 2020 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. The following table summarizes the historical operating results of these 2,221 facilities (143.7 million net rentable square feet) that represent approximately 82% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at December 31, 2020. 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. 31 Selected Operating Data for the Same Store Facilities (2,221 facilities) Revenues: Rental income Late charges and administrative fees Total revenues (a) Direct cost of operations (a): Property taxes On-site property manager payroll Repairs and maintenance Utilities Marketing Other direct property costs Total direct cost of operations Direct net operating income Indirect cost of operations (a): Supervisory payroll Centralized management costs Share based compensation Net operating income Depreciation and amortization expense Net income Year Ended December 31, Year Ended December 31, 2020 2019 Percentage Change 2019 2018 Percentage Change (Dollar amounts in thousands, except weighted average amounts) $ 2,355,576 $ 2,353,625 0.1% $ 2,353,625 $ 2,317,577 1.6% 80,970 2,436,546 106,604 2,460,229 (24.0)% (1.0)% 106,604 2,460,229 105,908 2,423,485 0.7% 1.5% 247,860 240,451 3.1% 240,451 230,035 4.5% 125,051 49,221 39,459 59,901 66,646 588,138 1,848,408 121,978 51,503 43,461 48,911 65,331 571,635 1,888,594 2.5% (4.4)% (9.2)% 22.5% 2.0% 2.9% (2.1)% 121,978 51,503 43,461 48,911 65,331 571,635 1,888,594 119,125 49,917 44,762 33,249 63,762 540,850 1,882,635 2.4% 3.2% (2.9)% 47.1% 2.5% 5.7% 0.3% (39,291) (47,713) (12,686) 1,748,718 (37,719) (49,453) (10,956) 1,790,466 4.2% (3.5)% 15.8% (2.3)% (37,719) (49,453) (10,956) 1,790,466 (37,114) (49,705) (15,201) 1,780,615 1.6% (0.5)% (27.9)% 0.6% (422,461) (409,270) $ 1,326,257 $ 1,381,196 (408,972) (409,270) 3.2% (4.0)% $ 1,381,196 $ 1,371,643 0.1% 0.7% Gross margin (before indirect costs and depreciation and amortization expense) 75.9% 76.8% (1.2)% 76.8% 77.7% (1.2)% Gross margin (before depreciation and amortization expense) Weighted average for the period: Square foot occupancy Realized annual rental income per (b): 71.8% 72.8% (1.4)% 72.8% 73.5% (1.0)% 94.5% 93.4% 1.2% 93.4% 93.0% 0.4% Occupied square foot Available square foot $ $ 17.34 $ 16.40 $ 17.53 16.38 (1.1)% $ 0.1% $ 17.53 $ 16.38 $ 17.33 16.12 1.2% 1.6% At December 31: Square foot occupancy Annual contract rent per occupied square foot (c) 94.2% 91.7% 2.7% 91.7% 91.3% 0.4% $ 17.99 $ 18.06 (0.4)% $ 18.06 $ 17.95 0.6% 32 (a) Revenues and cost of operations do not include tenant reinsurance and merchandise sales 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 1.0% in 2020, and increased by 1.5% in 2019, in each case as compared to the previous year. The decrease in 2020 is due to the negative impact caused by the COVID Pandemic, certain restrictions on rate increases to existing tenants imposed by local governments due to “States of Emergency”, reduced late charges and administrative fees, as well as the continued impact of increased new supply from new developments (see below). The revenue increase in 2019 was due to a 1.2% increase in realized rent per occupied foot, combined with a 0.4% increase in average occupancy. Same Store revenue growth in 2019 was lower than long-term historical averages due to softness in demand for our storage space, which has led to lower move-in rental rates for new tenants (see below). We attribute some of this softness to local economic conditions and, in some markets most notably Atlanta, Austin, Charlotte, Chicago, Dallas, Denver, Houston, Miami, Minneapolis, New York and Portland, increased supply of newly constructed self-storage facilities. Revenue Strategy We believe a balanced occupancy and rate strategy will maximize our revenues over time. We regularly adjust the rental rates and promotional discounts offered (generally, “$1.00 rent for the first month”), as well as our marketing efforts on the Internet and other channels to 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. During the year ended December 31, 2019, our primary revenue growth came from existing tenant rate increases. However, during the year ended December 31, 2020, rental rate increases were of smaller magnitude resulting from COVID Pandemic concerns and pricing regulations in multiple markets. Realized Annual Rent per Occupied Square Foot Realized annual rent per occupied square foot decreased 1.1% and increased 1.2% in 2020 and 2019, respectively. The decrease in realized rent per occupied square foot for the year ended December 31, 2020 was due to (i) our decision to temporarily curtail our tenant rate increase program for a limited period during the COVID Pandemic in response to anticipated negative economic impacts on our tenants and (ii) limitations on the magnitude 33 of rate increases given to existing tenants due to temporary governmental pricing limitations as a result of “State of Emergency” declarations. The increase in realized rent per occupied foot for the year ended December 31, 2019 was due primarily to the impact of rate increases to existing long-term tenants. In each of the years ended December 31, 2020 and 2019, we had an increased average length of stay. An increased average length of stay supports revenue growth, due to more long-term tenants who are eligible for rate increases, and a reduced requirement to replace vacating tenants with new tenants which can reduce promotional costs and increase our pricing leverage. This trend to an increased length of stay became more pronounced in 2020 due in significant part, we believe, to temporary effects resulting from the COVID Pandemic such as less consumer mobility. Occupancy Levels Our average square foot occupancy levels increased 1.2% and 0.4% on a year over year basis during the years ended December 31, 2020 and 2019, respectively. The improvement in occupancy trends in the year ended December 31, 2020 was due primarily to improved trends in move-outs, with year over year move-outs down 7.4% in the year ended December 31, 2020. 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 24.0% year over year reduction in late charges and administrative fees collected during the year ended December 31, 2020. This decrease was due primarily to reduced late charges and lien fees beginning with the onset of the COVID Pandemic in early March 2020, due to (i) an acceleration in average collections whereby a greater percentage of tenants paid their monthly rent promptly to avoid the incurrence of such fees and, to a lesser extent and (ii) reduced move-in administrative fees due to lower move-ins. Bad Debt and Collection Losses Despite consumer stress and temporary delays of auctions due to logistical difficulties or governmental restrictions in year ended December 31, 2020, we did not experience a significant increase in bad debt from historical levels because of (i) federal government stimulus and supplements to unemployment benefits which mitigated consumer stress, and (ii) steps we took 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 the years ended December 31, 2020, 2019 and 2018. It also includes promotional discounts, which vary based upon the move-in contractual rates, move-in volume, and percentage of tenants moving in who receive the discount. 34 Year Ended December 31, 2019 2020 Change Year Ended December 31, 2018 2019 Change (Amounts in thousands, except for per square foot amounts) Tenants moving in during the period: Average annual contract rent per square foot Square footage Promotional discounts given $ 13.63 $ 100,878 13.61 105,731 $ 73,150 $ 79,525 13.61 $ 0.1% $ (4.6)% 105,731 (8.0)% $ 79,525 $ 14.05 107,652 82,837 (3.1)% (1.8)% (4.0)% Tenants moving out during the period: Average annual contract rent per square foot Square footage Revenue Expectations $ 15.65 $ 97,303 16.08 105,068 (2.7)% $ (7.4)% 16.08 $ 105,068 16.13 107,164 (0.3)% (2.0)% At December 31, 2020, in place contractual rent was 2.3% higher on a year-over-year basis (comprised of a 2.7% increase in square foot occupancy offset partially by a 0.4% decrease in annual contract rent per occupied foot). As noted above, the COVID Pandemic resulted in reduced demand, lower rates charged to new tenants on a year over year basis, and curtailed rent increases to existing tenants during the first six months of 2020, which had continuing negative impact on revenue growth in the remainder of 2020. Notwithstanding the decrease in Same-Store revenue for all of 2020, revenue growth trends improved steadily in the last half of 2020, with increased demand for storage space, increased rates charged to new tenants moving in, decreased move-outs, and a resumption of rate increases to existing long-term tenant albeit at a lesser magnitude than in prior years. Total revenues increased 0.8% on a year over year basis in the three months ended December 31, 2020. We expect continued revenue growth during the first half of 2021 supported by increased customer demand and modest move out activity. There is more uncertainty in the level of 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 historical levels. We expect that the impact of reduced late charges noted above will persist on a year over year basis through the quarter ending March 31, 2021. Notwithstanding our expectations, 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 moderation of below-trend move-outs noted above could be sudden and dramatic, and/or disproportionally involve long-term tenants with higher 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. 35 Analysis of Same Store Cost of Operations Costs of Operations Cost of operations (excluding depreciation and amortization) increased 2.7% in 2020 as compared to 2019, and 4.2% in 2019 as compared to 2018, due primarily to increased property tax, marketing expense and on-site property manager payroll. Property tax expense increased 3.1% in 2020 as compared to 2019, and 4.5% in 2019 as compared to 2018. We expect property tax expense growth of approximately 5.5% in 2021 due primarily to higher assessed values and, to a lesser extent, increased tax rates. See “Risk Factors – We have exposure to increased property tax in California” for further information on our property tax with respect to our California properties. On-site property manager payroll expense increased 2.5% in 2020 as compared to 2019 and 2.4% in 2019 as compared to 2018. The increase for 2020 includes the impact of COVID Pandemic measures taken between April 1, 2020 and June 30, 2020 to keep our facilities open, including a $3.00 hourly wage increase, and enhancement of paid time off benefits, for virtually all of our property managers, offset by a 6.9% year over year decrease in hours worked due to staffing reductions from reduced move-in and move-out activity and revisions to other operational processes. We expect reductions in hours worked to continue throughout 2021. Repairs and maintenance expense decreased 4.4% in 2020 as compared to 2019 and increased 3.2% in 2019 as compared to 2018. Repair and maintenance costs include snow removal expense totaling $2.6 million, $4.1 million, and $3.7 million in 2020, 2019, and 2018, respectively. Excluding snow removal costs, repairs and maintenance decreased 1.8% in 2020 as compared to 2019 and increased 2.7% in 2019 as compared to 2018. 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 9.2% in 2020 as compared to 2019 and 2.9% in 2019 as compared to 2018. It is difficult to estimate future utility costs, because weather, temperature, and energy prices are volatile and not predictable. The decreases experienced in 2020 are due primarily to investments we are making 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 a decline in utility expense throughout 2021. Marketing expense is comprised principally of Internet 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 22.5% in 2020 as compared to 2019 and 47.1% in 2019 as compared to 2018. 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. We expect moderation in the level of marketing expense growth in 2021. 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 36 processing the facilities’ cash receipts, tenant mailings, credit card fees, and the cost of operating each property’s rental office. These costs increased 2.0% in 2020 as compared to 2019 and 2.5% in 2019 as compared to 2018. 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 property costs in 2021. Supervisory payroll expense, which represents cash compensation paid to the management personnel who directly and indirectly supervise the on-site property managers, increased 4.2% in 2020 as compared to 2019 due primarily to higher headcount, and increased 1.6% in 2019 as compared to 2018 due primarily to higher wage rates. We expect inflationary increases in 2021. 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. Centralized management costs decreased 3.5% in 2020 as compared to 2019 and 0.5% in 2019 as compared to 2018. The decrease in 2020 was due to reduced headcount and reduced travel expenses. We expect increases in centralized management costs in 2021 due to increased headcount. Share-based compensation expense includes the amortization of 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. Analysis of Same Store Depreciation and Amortization Depreciation and amortization for Same Store Facilities increased 3.2% in 2020 as compared to 2019 and 0.1% in 2019 as compared to 2018. We expect modest increases in depreciation expense in 2021 due to elevated levels of capital expenditures. 37 Quarterly Financial Data The following table summarizes selected quarterly financial data with respect to the Same Store Facilities: For the Quarter Ended March 31 June 30 September 30 (Amounts in thousands, except for per square foot amounts) December 31 Entire Year Total revenues: 2020 2019 2018 $ $ $ 609,053 $ 601,805 $ 592,267 $ 596,896 $ 615,564 $ 603,230 $ 611,085 $ 628,078 $ 620,706 $ 619,512 $ 614,782 $ 607,282 $ 2,436,546 2,460,229 2,423,485 182,842 $ 175,376 $ 170,158 $ 185,862 $ 173,911 $ 166,824 $ 178,213 $ 177,996 $ 168,500 $ 140,911 $ 142,480 $ 137,388 $ 70,097 $ 66,744 $ 63,689 $ 69,913 $ 67,466 $ 64,373 $ 69,072 $ 67,272 $ 64,153 $ 38,778 $ 38,969 $ 37,820 $ 12,381 $ 13,745 $ 12,495 $ 11,292 $ 12,056 $ 12,440 $ 12,579 $ 13,154 $ 12,188 $ 12,969 $ 12,548 $ 12,794 $ 14,275 $ 8,981 $ 7,055 $ 16,979 $ 12,404 $ 8,319 $ 15,572 $ 14,319 $ 8,444 $ 13,075 $ 13,207 $ 9,431 $ Total cost of operations: 2020 2019 2018 Property taxes: 2020 2019 2018 $ $ $ $ $ $ Repairs and maintenance: 2020 2019 2018 Marketing: 2020 2019 2018 REVPAF: 2020 2019 2018 $ $ $ $ $ $ $ $ $ 16.24 $ 16.00 $ 15.75 $ 16.13 $ 16.41 $ 16.08 $ Weighted average realized annual rent per occupied square foot: 2020 2019 2018 $ $ $ 17.44 $ 17.31 $ 17.10 $ 17.11 $ 17.46 $ 17.14 $ Weighted average occupancy levels for the period: 16.50 $ 16.72 $ 16.51 $ 17.27 $ 17.75 $ 17.61 $ 16.72 $ 16.38 $ 16.15 $ 17.56 $ 17.60 $ 17.47 $ 2020 2019 2018 93.1% 92.5% 92.1% 94.3% 94.0% 93.8% 95.5% 94.2% 93.8% 95.2% 93.1% 92.5% 38 687,828 669,763 642,870 247,860 240,451 230,035 49,221 51,503 49,917 59,901 48,911 33,249 16.40 16.38 16.12 17.34 17.53 17.33 94.5% 93.4% 93.0% Analysis of Market Trends The following table sets forth selected market trends in our Same Store Facilities: Same Store Facilities Operating Trends by Market Year Ended December 31, 2020 2019 Change Year Ended December 31, 2019 2018 Change Market (number of facilities, square footage in millions) Revenues: Los Angeles (212, 14.9) San Francisco (128, 7.9) New York (89, 6.2) Seattle-Tacoma (86, 5.8) Washington DC (89, 5.5) Miami (80, 5.6) Chicago (129, 8.1) Atlanta (99, 6.5) Dallas-Ft. Worth (101, 6.4) Houston (84, 5.8) Orlando-Daytona (72, 4.5) Philadelphia (56, 3.5) West Palm Beach (38, 2.5) Tampa (52, 3.5) Charlotte (50, 3.8) All other markets (856, 53.2) Total revenues Net operating income: Los Angeles San Francisco New York Seattle-Tacoma Washington DC Miami Chicago Atlanta Dallas-Ft. Worth Houston Orlando-Daytona Philadelphia West Palm Beach Tampa Charlotte All other markets Total net operating income (Amounts in thousands, except for weighted average data) $ 381,535 205,558 154,538 114,606 112,739 108,598 118,560 83,511 83,162 70,975 60,772 59,666 46,038 46,216 41,006 749,066 $ 2,436,546 $ 379,097 202,747 157,029 114,774 114,483 111,402 119,281 87,518 84,988 73,683 62,869 59,120 46,664 47,706 41,781 757,087 $ 2,460,229 369,091 379,097 $ 0.6% $ 198,598 202,747 1.4% 153,980 157,029 (1.6)% 113,189 114,774 (0.1)% 111,511 114,483 (1.5)% 113,100 111,402 (2.5)% 118,056 119,281 (0.6)% 86,055 87,518 (4.6)% 85,570 84,988 (2.1)% 76,939 73,683 (3.7)% 61,944 62,869 (3.3)% 56,747 59,120 0.9% 46,230 46,664 (1.3)% 47,797 47,706 (3.1)% 41,728 41,781 (1.9)% (1.1)% 742,950 757,087 (1.0)% $ 2,460,229 $ 2,423,485 $ 309,991 163,962 108,681 86,874 82,415 79,472 62,749 59,940 56,020 43,073 42,568 41,572 32,752 31,290 29,509 $ 311,049 162,667 111,424 89,440 84,704 82,910 63,319 64,423 58,192 45,793 45,282 41,592 34,125 33,421 30,104 532,021 $ 1,790,466 (0.3)% $ 311,049 $ 303,648 0.8% 162,667 160,757 (2.5)% 111,424 110,458 (2.9)% 89,440 88,238 (2.7)% 84,704 82,859 (4.1)% 82,910 85,703 (0.9)% 63,319 64,750 (7.0)% 64,423 63,188 (3.7)% 58,192 59,575 (5.9)% 45,793 50,290 (6.0)% 45,282 44,965 (0.0)% 41,592 39,860 (4.0)% 34,125 34,191 (6.4)% 33,421 34,100 (2.0)% 30,104 31,244 526,789 532,021 (2.7)% (2.3)% $ 1,790,466 $ 1,780,615 517,850 $ 1,748,718 2.7% 2.1% 2.0% 1.4% 2.7% (1.5)% 1.0% 1.7% (0.7)% (4.2)% 1.5% 4.2% 0.9% (0.2)% 0.1% 1.9% 1.5% 2.4% 1.2% 0.9% 1.4% 2.2% (3.3)% (2.2)% 2.0% (2.3)% (8.9)% 0.7% 4.3% (0.2)% (2.0)% (3.6)% 1.0% 0.6% 39 Same Store Facilities Operating Trends by Market (Continued) Weighted average square foot occupancy: Year Ended December 31, 2020 2019 Change Year Ended December 31, 2019 2018 Change Los Angeles San Francisco New York Seattle-Tacoma Washington DC Miami Chicago Atlanta Dallas-Ft. Worth Houston Orlando-Daytona Philadelphia West Palm Beach Tampa Charlotte All other markets Total weighted average square foot occupancy Realized annual rent per occupied square foot: Los Angeles San Francisco New York Seattle-Tacoma Washington DC Miami Chicago Atlanta Dallas-Ft. Worth Houston Orlando-Daytona Philadelphia West Palm Beach Tampa Charlotte All other markets Total realized rent per occupied square foot 96.7% 96.1% 95.2% 94.1% 94.4% 94.4% 93.8% 92.8% 92.9% 92.1% 94.4% 96.1% 95.0% 93.4% 93.0% 94.5% 1.6% 95.2% 1.9% 94.3% 1.2% 94.1% 1.2% 93.0% 1.1% 93.4% 1.5% 93.0% 92.1% 1.8% 93.0% (0.2)% 0.9% 92.1% 2.2% 90.1% 0.2% 94.2% 0.8% 95.3% 1.1% 94.0% 0.9% 92.6% 1.2% 91.9% 1.0% 93.6% 95.2% 94.3% 94.1% 93.0% 93.4% 93.0% 92.1% 93.0% 92.1% 90.1% 94.2% 95.3% 94.0% 92.6% 91.9% 93.6% 0.3% 94.9% 94.3% 0.0% 94.2% (0.1)% 0.0% 93.0% 1.2% 92.3% 0.2% 92.8% 90.3% 2.0% 93.2% (0.2)% 91.4% 0.8% 91.3% (1.3)% 94.6% (0.4)% 0.4% 94.9% 93.8% 0.2% 92.9% (0.3)% 0.4% 91.5% 0.8% 92.9% 94.5% 93.4% 1.2% 93.4% 93.0% 0.4% $ $ 25.88 26.64 25.62 20.33 21.11 19.77 14.96 13.15 13.36 12.75 13.54 16.86 18.51 13.70 11.07 14.35 25.86 26.62 26.05 20.42 21.45 20.36 15.15 13.56 13.63 13.39 13.89 16.65 18.72 14.10 11.29 14.48 0.1% $ 0.1% (1.7)% (0.4)% (1.6)% (2.9)% (1.3)% (3.0)% (2.0)% (4.8)% (2.5)% 1.3% (1.1)% (2.8)% (1.9)% (0.9)% 25.86 $ 26.62 26.05 20.42 21.45 20.36 15.15 13.56 13.63 13.39 13.89 16.65 18.72 14.10 11.29 14.48 25.23 26.02 25.50 20.15 21.21 20.70 15.31 13.27 13.82 13.81 13.64 16.04 18.56 14.09 11.32 14.30 2.5% 2.3% 2.2% 1.3% 1.1% (1.6)% (1.0)% 2.2% (1.4)% (3.0)% 1.8% 3.8% 0.9% 0.1% (0.3)% 1.3% $ 17.34 $ 17.53 (1.1)% $ 17.53 $ 17.33 1.2% 40 Same Store Facilities Operating Trends by Market (Continued) $ REVPAF: Los Angeles San Francisco New York Seattle-Tacoma Washington DC Miami Chicago Atlanta Dallas-Ft. Worth Houston Orlando-Daytona Philadelphia West Palm Beach Tampa Charlotte All other markets Total REVPAF $ Year Ended December 31, 2020 2019 Change $ 25.02 25.61 24.39 19.13 19.93 18.66 14.04 12.20 12.41 11.75 12.78 16.20 17.59 12.80 10.29 13.57 16.40 $ 24.62 25.09 24.50 18.99 20.03 18.93 13.95 12.62 12.55 12.06 13.08 15.86 17.59 13.06 10.38 13.55 16.38 1.6% $ 2.1% (0.4)% 0.7% (0.5)% (1.4)% 0.6% (3.3)% (1.1)% (2.6)% (2.3)% 2.1% 0.0% (2.0)% (0.9)% 0.1% 0.1% $ Year Ended December 31, 2019 2018 Change 24.62 $ 25.09 24.50 18.99 20.03 18.93 13.95 12.62 12.55 12.06 13.08 15.86 17.59 13.06 10.38 13.55 16.38 $ 23.95 24.54 24.04 18.74 19.58 19.21 13.82 12.37 12.63 12.60 12.90 15.22 17.42 13.08 10.36 13.29 16.12 2.8% 2.2% 1.9% 1.3% 2.3% (1.5)% 0.9% 2.0% (0.6)% (4.3)% 1.4% 4.2% 1.0% (0.2)% 0.2% 2.0% 1.6% Revenue declined on a year-over-year basis for nearly all of our markets in 2020 as compared to 2019. 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 131 facilities that we acquired in 2018, 2019, and 2020. 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: 41 ACQUIRED FACILITIES Year Ended December 31, 2020 2019 Change (a) Year Ended December 31, 2018 Change (a) 2019 Revenues (b): 2018 Acquisitions 2019 Acquisitions 2020 Acquisitions Total revenues Cost of operations (b): 2018 Acquisitions 2019 Acquisitions 2020 Acquisitions Total cost of operations Net operating income: 2018 Acquisitions 2019 Acquisitions 2020 Acquisitions Net operating income Depreciation and amortization expense Net loss At December 31: Square foot occupancy: 2018 Acquisitions 2019 Acquisitions 2020 Acquisitions Annual contract rent per occupied square foot: 2018 Acquisitions 2019 Acquisitions 2020 Acquisitions Number of facilities: 2018 Acquisitions 2019 Acquisitions 2020 Acquisitions Net rentable square feet (in thousands): 2018 Acquisitions 2019 Acquisitions 2020 Acquisitions ($ amounts in thousands, except for per square foot amounts) $ 17,119 $ 16,029 $ 12,704 31,334 11,365 59,818 28,733 - 1,090 $ 16,029 $ 12,704 18,630 - 11,365 28,733 31,085 5,167 $ 10,862 12,704 - 23,566 - - 5,167 7,562 13,323 6,742 27,627 7,278 5,178 - 12,456 284 8,145 6,742 15,171 7,278 5,178 - 12,456 2,197 - - 2,197 5,081 5,178 - 10,259 9,557 18,011 4,623 32,191 8,751 7,526 - 16,277 806 10,485 4,623 15,914 8,751 7,526 - 16,277 2,970 - - 2,970 5,781 7,526 - 13,307 (40,986) (8,795) $ (24,355) (8,078) $ (16,631) (717) $ (24,355) (8,078) $ (5,940) (2,970) $ (18,415) (5,108) $ 89.8% 91.7% 63.5% 77.0% 82.6% 73.6% - 76.7% 8.7% 24.6% - 0.4% 82.6% 73.6% - 76.7% 79.6% - - 79.6% 3.8% - - (3.6)% $ $ 11.59 $ 11.93 12.50 12.10 $ 11.98 12.27 - 12.16 (3.3)% $ (2.8)% - (0.5)% $ 11.98 $ 12.27 - 12.16 $ 11.10 - - 11.10 7.9% - - 9.5% 25 44 62 131 25 44 - 69 - - 62 62 25 44 - 69 25 - - 25 - 44 - 44 1,653 3,154 5,075 9,882 1,629 3,133 - 4,762 24 21 5,075 5,120 1,629 3,133 - 4,762 1,629 - - 1,629 - 3,133 - 3,133 42 ACQUIRED FACILITIES (Continued) Costs to acquire (in thousands): 2018 Acquisitions 2019 Acquisitions 2020 Acquisitions As of December 31, 2020 $ $ 181,020 429,850 796,065 1,406,935 (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 or merchandise sales 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 12 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 9.9 million net rentable square feet, including 0.8 million in Virginia, 0.7 million in each of Minnesota and Texas, 0.6 million in each of Florida and Ohio, 0.5 million each in Georgia, Michigan and Pennsylvania, 0.4 million in each of Colorado, Indiana, Illinois and Nebraska, 0.3 million in each of Alabama, Arizona, California, Massachusetts, Missouri, South Carolina, Tennessee and Washington and 1.0 million in other states. For 2020, the weighted average annualized yield on cost, based upon net operating income, for the 25 properties acquired in 2018 was 5.3%. The yield for the facilities acquired in 2019 is not meaningful due to the presence of unstabilized facilities. The yield for the facilities acquired in 2020 is not meaningful due to our limited ownership period. Subsequent to December 31, 2020, we acquired or were under contract to acquire 40 self-storage facilities across 18 states with 3.5 million net rentable square feet, for $580.1 million. These include 12 newly developed facilities that are expected to close as they are completed throughout 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 will depend upon whether additional owners will be motivated to market their facilities, which will in turn depend upon factors such as economic conditions and the level of seller confidence. 43 Analysis of Depreciation and Amortization of Acquired Facilities Depreciation and amortization with respect to the Acquired Facilities totaled $41.0 million, $24.4 million and $5.9 million for 2020, 2019, and 2018, 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 December 31, 2020, depreciation of buildings and amortization of tenant intangibles is expected to aggregate approximately $56.5 million in the year ending December 31, 2021. There will be additional depreciation and amortization of tenant intangibles with respect to new buildings that are acquired in 2021. Developed and Expanded Facilities The developed and expanded facilities include 77 facilities that were developed on new sites since January 1, 2015, and 71 facilities subject to expansion of their net rentable square footage. Of these expansions, 20 were completed at January 1, 2019, 39 were completed in the 24 months ended December 31, 2020, and 12 were in process at December 31, 2020. The following table summarizes operating data with respect to the Developed and Expanded Facilities: 44 DEVELOPED AND EXPANDED FACILITIES Revenues (b): Year Ended December 31, 2019 Change (a) 2020 Year Ended December 31, 2018 Change (a) 2019 ($ amounts in thousands, except for per square foot amounts) Developed in 2015 Developed in 2016 - 2018 Developed in 2019 Developed in 2020 Expansions completed before 2019 Expansions completed in 2019 or 2020 Expansions in process $ 18,228 $ 17,630 $ 56,868 1,720 - 29,354 28,898 16,573 180,764 151,043 70,180 6,455 301 33,921 36,031 15,648 598 $ 17,630 $ 56,868 1,720 - 29,354 28,898 16,573 151,043 13,312 4,735 301 4,567 7,133 (925) 29,721 16,648 $ 37,625 - - 23,752 27,492 17,085 122,602 982 19,243 1,720 - 5,602 1,406 (512) 28,441 Total revenues Cost of operations (b): Developed in 2015 Developed in 2016 - 2018 Developed in 2019 Developed in 2020 Expansions completed before 2019 Expansions completed in 2019 or 2020 Expansions in process Total cost of operations 5,720 29,728 4,685 383 11,492 19,372 4,262 75,642 Net operating income (loss): Developed in 2015 Developed in 2016 - 2018 Developed in 2019 Developed in 2020 Expansions completed before 2019 Expansions completed in 2019 or 2020 Expansions in process Net operating income 12,508 40,452 1,770 (82) 22,429 16,659 11,386 105,122 5,842 27,694 1,915 - 10,462 14,571 3,828 64,312 11,788 29,174 (195) - 18,892 14,327 12,745 86,731 (122) 2,034 2,770 383 1,030 4,801 434 11,330 720 11,278 1,965 (82) 3,537 2,332 (1,359) 18,391 5,842 27,694 1,915 - 10,462 14,571 3,828 64,312 11,788 29,174 (195) - 18,892 14,327 12,745 86,731 5,712 22,396 - - 8,156 8,867 3,727 48,858 10,936 15,229 - - 15,596 18,625 13,358 73,744 130 5,298 1,915 - 2,306 5,704 101 15,454 852 13,945 (195) - 3,296 (4,298) (613) 12,987 Depreciation and amortization expense Net income (61,643) (53,844) $ 43,479 $ 32,887 $ 10,592 $ 32,887 $ (53,844) (7,799) (45,454) 28,290 $ (8,390) 4,597 At December 31: Square foot occupancy: Developed in 2015 Developed in 2016 - 2018 Developed in 2019 Developed in 2020 Expansions completed before 2019 Expansions completed in 2019 or 2020 Expansions in process 92.9% 88.6% 84.6% 34.0% 88.5% 72.7% 88.8% 82.8% 3.2% 90.0% 74.1% 19.6% 38.1% 122.0% - 17.7% 25.8% (2.3)% 19.0% - 75.2% 57.8% 90.9% 69.6% 90.0% 74.1% 38.1% - 75.2% 57.8% 90.9% 69.6% 89.1% 63.5% - - 59.1% 83.8% 90.7% 69.8% 1.0% 16.7% - - 27.2% (31.0)% 0.2% (0.3)% 45 DEVELOPED AND EXPANDED FACILITIES (Continued) Annual contract rent per occupied square foot: Developed in 2015 Developed in 2016 - 2018 Developed in 2019 Developed in 2020 Expansions completed before 2019 Expansions completed in 2019 or 2020 Expansions in process Number of facilities: Developed in 2015 Developed in 2016 - 2018 Developed in 2019 Developed in 2020 Expansions completed before 2019 Expansions completed in 2019 or 2020 Expansions in process Net rentable square feet (c): Developed in 2015 Developed in 2016 - 2018 Developed in 2019 Developed in 2020 Expansions completed before 2019 Expansions completed in 2019 or 2020 Expansions in process Year Ended December 31, 2019 Change (a) 2020 Year Ended December 31, 2018 Change (a) 2019 (Amounts in thousands, except for number of facilities) $ $ 16.10 $ 13.57 9.69 10.08 14.72 10.48 23.07 13.30 $ 15.76 13.37 10.13 - 14.98 11.71 24.26 14.01 2.2% $ 1.5% (4.3)% - (1.7)% (10.5)% (4.9)% (5.1)% $ 15.76 $ 13.37 10.13 - 14.98 11.71 24.26 14.01 $ 14.87 11.87 - - 16.06 14.55 24.60 14.45 6.0% 12.6% - - (6.7)% (19.5)% -1.4% (3.0)% 13 50 11 3 20 39 12 148 13 50 11 - 20 39 12 145 - - - 3 - - - 3 13 50 11 - 20 39 12 145 13 50 - - 20 39 12 134 - - 11 - - - - 11 1,242 6,250 1,057 347 2,754 5,327 739 17,716 1,242 6,250 1,057 - 2,754 4,631 715 16,649 - - - 347 - 696 24 1,067 1,242 6,250 1,057 - 2,754 4,631 715 16,649 1,242 6,135 - - 2,689 2,029 745 12,840 - 115 1,057 - 65 2,602 (30) 3,809 Costs to develop: As of December 31, 2020 Developed in 2015 Developed in 2016 - 2018 Developed in 2019 Developed in 2020 Expansions completed before 2019 (d) Expansions completed in 2019 or 2020 (d) $ 119,258 759,643 150,387 42,063 159,217 319,442 $ 1,550,010 46 (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 or merchandise sales generated at the facilities. See “Ancillary Operations” below for more information. (c) The facilities included above have an aggregate of approximately 17.7 million net rentable square feet at December 31, 2020, including 6.6 million in Texas, 2.4 million in California, 2.3 million in Florida, 1.5 million in Colorado, 1.1 million in Minnesota, 0.8 million in North Carolina, 0.7 million in Washington, 0.4 million in Missouri, 0.3 million in each of Arizona, Georgia, Michigan and South Carolina and 0.7 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 and 2020 will continue at similar levels in 2021. Our existing unstabilized facilities continued to fill up in terms of occupancies consistent with our general expectations during 2020, despite the impact of the COVID Pandemic, 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 December 31, 2020, we had a pipeline to develop 15 new self-storage facilities and expand 23 existing self-storage facilities, which will add approximately 3.6 million net rentable square feet at a cost of $561.4 million. We have continued to add projects to our development throughout 2020, despite the impact of the COVID Pandemic. We expect to continue to seek to add projects to maintain a robust pipeline. Our ability to do so continues to be challenged by various constraints such as difficulty in finding projects that meet our risk-adjusted yield expectations, and challenges in obtaining building permits for self-storage facilities in certain municipalities. Newly Developed Facilities The facilities included under “Developed in 2015” in the table above had high occupancies at December 31, 2018, but had 3.4% year over year revenue growth in 2020 which exceeds the 1.0% reduction 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 yield on cost for these facilities, based upon the net operating income during 2020, was 10.5%. We typically underwrite new developments to stabilize at approximately an 8.0% NOI yield on cost. We believe the 2016-2018 developed facilities, in aggregate, will meet that target on stabilization, though not to the same level of yield as the 2015 developed facilities, and have thus far leased-up as expected. The occupancies of facilities developed in 2019 and 2020 have leased-up as expected and are at the beginning of their revenue stabilization periods. We expect continued growth in these in 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 47 conditions in the vicinity of each property, the level of new and existing supply, as well as the impact of the COVID Pandemic. We have 15 additional newly developed facilities in process, which will have a total of 1.4 million net rentable square feet of storage space and have an aggregate development cost totaling approximately $235.6 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, 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 December 31, 2020. We incurred a total of $478.7 million in direct cost to expand these facilities, demolished a total of 1.1 million net rentable square feet of storage space, and built a total of 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 December 31, 2020. We have a pipeline to add a total of 2.2 million net rentable square feet of storage space by expanding existing self-storage facilities for an aggregate direct development cost of $325.8 million. Analysis of Depreciation and Amortization of Developed and Expanded Facilities Depreciation and amortization with respect to the Developed and Expanded Facilities totaled $61.6 million, $53.8 million and $45.5 million for 2020, 2019, and 2018, 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 December 31, 2020, depreciation of buildings is expected to aggregate approximately $67.3 million in 2021. There will be additional depreciation of new buildings that are developed or expanded in 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, due primarily to casualty events such as hurricanes, floods, and fires. The Other non-same store facilities have an aggregate 3.7 million net rentable square feet, including 0.8 million in Texas, 0.5 million in each of Ohio and Oklahoma, 0.4 million in South Carolina, 0.3 million in each Florida and New York, and 0.9 million in other states. The net operating income for these facilities decreased from $30.5 million in 2018 to $28.7 million in 2019 and decreased from $28.7 million in 2019 to $28.1 million in 2020. During 2020, 2019, and 2018, the average occupancy for these facilities totaled 89.2%, 86.1%, and 85.5%, respectively, and the realized rent per occupied square feet totaled $12.66, $13.11, and $13.92, respectively. 48 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 $28.2 million, $25.4 million and $23.3 million for 2020, 2019, and 2018, respectively. We expect depreciation for these facilities in 2021 to approximate the depreciation incurred in 2020. 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., the sale of merchandise at our self-storage facilities and third party property management. The following table sets forth our ancillary operations: Revenues: (Amounts in thousands) Year Ended December 31, 2019 Change 2020 Year Ended December 31, 2018 Change 2019 Tenant reinsurance premiums Merchandise Third party property management $ 149,286 $ 131,913 $ 30,358 8,285 170,556 29,702 14,450 193,438 17,373 $ 131,913 $ 30,358 8,285 170,556 (656) 6,165 22,882 125,575 $ 31,098 5,243 161,916 6,338 (740) 3,042 8,640 Total revenues Cost of Operations: Tenant reinsurance Merchandise Third party property management Total cost of operations 28,486 17,609 13,824 59,919 26,202 18,002 6,532 50,736 2,284 (393) 7,292 9,183 26,202 18,002 6,532 50,736 25,646 18,345 3,353 47,344 556 (343) 3,179 3,392 Net operating income Tenant reinsurance Merchandise Third party property management 120,800 12,093 626 105,711 12,356 1,753 15,089 (263) (1,127) 105,711 12,356 1,753 99,929 12,753 1,890 5,782 (397) (137) Total net operating income $ 133,519 $ 119,820 $ 13,699 $ 119,820 $ 114,572 $ 5,248 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. Tenant reinsurance revenue increased 13.2% in 2020 and 5.0% in 2019 on a year over year basis. These increases reflect higher average premiums, as well as an increase in the tenant base with respect to acquired, newly developed, and expanded facilities. Tenant insurance revenues with respect to our Same Store Facilities totaled $123.5 million, $114.5 million, and $112.3 million in 2020, 2019, and 2018, respectively, representing a 7.9% year over year increase in 2020 and 2.0% year over year increase in 2019. 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. 49 Cost of operations primarily includes claims paid as well as claims adjustment expenses. Claims expenses vary based upon the number of insured tenants and the volume of events which drive customer covered losses, such as burglary, as well as catastrophic weather events affecting multiple properties such as hurricanes and floods. Cost of operations were $28.5 million in 2020, $26.2 million in 2019, and $25.6 million in 2018. 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 2021. Third party property management: At December 31, 2020, we manage 92 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 At December 31, 2020, we had 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 for each period. The following table, and the discussion below, sets forth the significant components of our equity in earnings of unconsolidated real estate entities: Year Ended December 31, 2019 2020 Year Ended December 31, 2018 Change Change 2019 (Amounts in thousands) Equity in earnings: PSB Shurgard $ Total equity in earnings $ 64,835 15,662 80,497 $ $ 54,090 15,457 69,547 $ $ 10,745 $ 205 10,950 $ 89,362 $ (35,272) 54,090 $ 1,324 14,133 15,457 69,547 $ 103,495 $ (33,948) Investment in PSB: Throughout all periods presented, we owned 7,158,354 shares of PSB common stock and 7,305,355 limited partnership units in an operating partnership controlled by PSB, representing an aggregate approximately 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 December 31, 2020, PSB wholly-owned approximately 27.7 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 are (i) our equity share of gains on sale of real estate totaling $11.3 million, $4.4 million and $37.7 million for 2020, 2019, and 2018, respectively, and (ii) our equity share of preferred redemption charges totaling $4.6 million for 2019. Equity in earnings from PSB, excluding the aforementioned real estate gains and preferred redemption charges, decreased $0.7 million in 2020 as compared to 2019 due primarily to reduced net operating income from PSB’s sale of assets and increased $2.6 million in 2019 as compared to 2018 due primarily to improved property operations. See Note 4 to our December 31, 2020 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 Annual Report on Form 10- K. 50 Investment in Shurgard: Throughout all periods presented, we effectively owned, directly and indirectly 31.3 million Shurgard common shares. On October 15, 2018, Shurgard completed an initial global offering (the “Offering”), issuing 25.0 million of its common shares to third parties at a price of €23 per share (€575 million in gross proceeds), reducing our ownership interest from 49% to approximately 35%. Following the Offering, Shurgard’s shares trade on Euronext Brussels under the “SHUR” symbol. While we did not sell any shares in the Offering, and have no current plans to do so, we recorded a gain on disposition in 2018 totaling $151.6 million as if we had sold a proportionate share of our investment in Shurgard. At December 31, 2020, Shurgard owned 241 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 December 31, 2020 financial statements. In 2020, 2019, and 2018, Shurgard acquired six facilities, three facilities and eight facilities, respectively, for an aggregate cost of $55.6 million, $17.6 million, and $114.5 million, respectively. In 2020, Shurgard opened one newly developed facility at an aggregate cost totaling $17.2 million, and in each of 2019 and 2018, Shurgard opened two newly developed facilities at an aggregate cost totaling $22.2 million, and $19.6 million, respectively. The $0.2 million increase in our equity earnings from Shurgard from 2019 to 2020 is due to the impact of improved same store operating income offset partially by increases in tax and depreciation expense. The increase of $1.3 million from 2018 to 2019 is due to (i) a $10.1 million decrease in our equity share of depreciation expense, (ii) a $5.2 million decrease in our equity share of costs due to a casualty loss occurring in 2018 and the costs of the Offering, offset partially by (iii) a reduced average equity ownership interest during 2019 due to the Offering as well as $220 million uninvested offering proceeds, and (iv) a 5.2% reduction in average exchange rates of the U.S. Dollar to 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 Annual Report on Form 10-K. For purposes of recording our equity in earnings from Shurgard, the Euro was translated at exchange rates of approximately 1.226 U.S. Dollars per Euro at December 31, 2020 (1.122 at December 31, 2019), and average exchange rates of 1.141 for 2020, 1.120 for 2019, and 1.181 for 2018. 51 Analysis of items not allocated to segments General and administrative expense: The following table sets forth our general and administrative expense: Year Ended December 31, 2019 2020 Change Year Ended December 31, 2018 Change 2019 (Amounts in thousands) $ Share-based compensation expense Costs of senior executives Development and acquisition costs Tax compliance costs and taxes paid Legal costs Public company costs Other costs Total $ 54,592 $ (40,070) 19,068 $ 14,522 $ (2,513) 4,822 2,309 2,621 1,409 5,441 6,850 10,076 (357) 5,438 5,081 7,949 (542) 8,234 7,692 10,021 295 4,712 5,007 4,975 28,489 (788) 21,473 20,685 83,199 $ 62,146 $ 21,053 $ 62,146 $ 104,712 $ (42,566) 4,546 $ 14,522 $ 2,309 6,850 5,081 7,692 5,007 20,685 312 3,226 2,868 2,329 (32) 7,804 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 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 years ended December 31, 2019 and 2018 with an increase in self-storage cost of operations of $9.8 million and $14.0 million, respectively, 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 year ended December 31, 2019 and 2018. 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. In February 2018, we announced that our CEO and CFO at the time were retiring from their executive roles at the end of 2018 and would serve only as trustees of the Company. Accordingly, all remaining share-based compensation expense for these two executives was amortized through the end of 2018, resulting in approximately $30.7 million in incremental share-based compensation expense for 2018. 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. 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 resulted in incremental share-based compensation expense during 2020. Costs of senior executives represent the cash compensation paid to our CEO and CFO. 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 $11.8 million, $12.0 million, and $12.2 million for 2020, 2019, and 2018, respectively, in development costs that were capitalized to newly developed and redeveloped self-storage facilities. 52 During 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 consistent in 2021 with the amount incurred in 2019. 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 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 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, as well as $5.6 million in advisory costs. 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. Interest and other income: Interest and other income is comprised primarily of the net income from our commercial operations, our property management operation, interest earned on cash balances, and trademark license fees received from Shurgard, as well as sundry other income items that are received from time to time in varying amounts. Excluding amounts attributable to our commercial operations totaling $8.6 million, $8.9 million, and $9.9 million in 2020, 2019, and 2018, respectively, interest and other income decreased $4.0 million in 2020 and increased $3.1 million in 2019 on a year over year basis. The decrease for 2020 includes $10.6 million of interest earned on cash balances, partially offset by litigation settlements and the early repayment of notes receivable. The level of other interest and income items in 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 2020, 2019 and 2018, we incurred $59.7 million, $49.6 million, and $37.3 million, respectively, of interest on our outstanding debt. In determining interest expense, these amounts were offset by capitalized interest of $3.4 million, $3.9 million and $4.8 million during 2020, 2019, and 2018, respectively, associated with our development activities. The increase in 2020, 2019, and 2018 is due to the issuance of debt. At December 31, 2020, we had $2.5 billion of debt outstanding, with an average interest rate of approximately 2.4%. On January 19, 2021, we issued, $500 million of senior notes bearing interest at an annual rate of 0.875% and maturing on February 15, 2026. Future interest expense will be dependent upon the level of outstanding debt and the amount of in-process development costs. Foreign Exchange Gain (Loss): For 2020, we recorded a foreign currency translation loss of $98.0 million representing the change in the U.S. Dollar equivalent of our Euro-denominated unsecured notes due to fluctuations in exchange rates (gains of $7.8 million and loss of $18.1 million for 2019 and 2018, respectively). The Euro was translated at exchange rates of approximately 1.226 U.S. Dollars per Euro at December 31, 2020, 1.122 at December 31, 2019 and 1.144 at December 31, 2018. Future gains and losses on foreign currency translation will be 53 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 2020, 2019 and 2018, we recorded gains on real estate investment sales totaling $1.5 million, $0.3 million and $37.9 million, respectively. On October 18, 2018, we sold our property in West London to Shurgard for $42.1 million and recorded a related gain on sale of real estate of approximately $31.5 million. The remainder of the gains are primarily in connection with the partial sale of real estate facilities pursuant to eminent domain proceedings. Gain due to Shurgard Public Offering: In connection with Shurgard’s Offering of its common shares to the public, our equity interest in Shurgard decreased from 49% to 35.2%. While we did not sell any of our shares in the Offering, we recorded a gain on disposition in 2018 of $151.6 million, as if we had sold a proportionate share of our investment in Shurgard. Net Income Allocable to Preferred Shareholders: Net income allocable to preferred shareholders based upon distributions totaled $207.1 million, $210.2 million, and $216.3 million in 2020, 2019, and 2018, respectively. These decreases are 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. We also allocated $48.3 million and $32.7 million of income from our common shareholders to the holders of our preferred shares in 2020 and 2019, respectively, (none in 2018) in connection with the redemption of our preferred shares. Based upon our preferred shares outstanding at December 31, 2020, our quarterly distribution to our preferred shareholders is expected to be approximately $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 requirements 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 December 31, 2020 and February 24, 2021, there were no borrowings outstanding on the revolving line of credit, however, we do have approximately $24.3 million of outstanding letters of credit which limits our borrowing capacity to $475.7 million. Our line of credit matures on April 19, 2024. 54 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. On November 17, 2020, we issued $170.0 million in preferred securities at a 3.900% coupon rate and on January 19, 2021 we issued $500.0 million of unsecured senior notes at 0.875% maturing on February 15, 2026, both representing historically low financing costs to fund our growth initiatives. 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 for the foreseeable future. As of December 31, 2020, we expect capital resources over the next year of approximately $1.5 billion, which exceeds our currently identified capital needs of approximately $1.3 billion. Our expected capital resources include: (i) $257.6 million of cash as of December 31, 2020, (ii) $475.7 million of available borrowing capacity on our revolving line of credit, (iii) $496.2 million in net proceeds from the public issuance of Senior Note due 2026 on January 14, 2021, and (iv) approximately $250 million to $300 million of expected retained operating cash flow in 2021. Retained operating cash flow represents our expected cash flow provided by operating activities, less shareholder distributions and capital expenditures. Our currently identified capital needs consist primarily of (i) $580.1 million in property acquisitions currently under contract, (ii) $373.3 million of remaining spending on our current development pipeline, which will be incurred primarily in the next 18 to 24 months and (iii) $300 million for the redemption of our Series B Preferred Shares. 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. 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 December 31, 2020, the principal outstanding on our debt totaled approximately $2.6 billion, consisting of $25.2 million of secured debt, $1.0 billion of Euro-denominated unsecured debt and $1.5 billion of U.S. Dollar denominated unsecured debt. Approximate principal maturities are as follows (amounts in thousands): 2021 2022 2023 2024 2025 Thereafter $ $ 1,851 502,574 19,219 122,770 296,952 1,614,563 2,557,929 On January 19, 2021, we completed a public offering of $500 million aggregate principal amount of senior notes bearing interest at an annual rate of 0.875% and maturing on February 15, 2026. 55 Our debt is well-laddered and we have no material debt maturities 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 $163.8 million in 2020, and are expected to approximate $250.0 million in 2021. In addition to standard capital repairs of building elements reaching the end of their useful lives, our capital expenditures in recent years have included incremental expenditures to enhance the competitive position of certain of our facilities relative to local competitors pursuant to a multi-year program. Such investments include development of more pronounced, attractive, and clearly identifiable color schemes and signage, 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 and the installation of solar panels. We believe that these incremental investments improve customer satisfaction, the attractiveness and competitiveness of our facilities to new and existing customers and, in the case of LED lighting and solar panels, reduce operating costs. We expect to experience capital expenditures of $250 million to $300 million per year over the next several years. Requirement to Pay Distributions: For all periods presented herein, we have elected to be treated as a REIT, as defined in the Code. For each taxable year in which we qualify for taxation as a REIT, we will not be subject to U.S. federal corporate income tax on our “REIT taxable income” (generally, taxable income subject to specified adjustments, including a deduction for dividends paid and excluding our net capital gain) that is distributed to our shareholders. We believe we have met these requirements in all periods presented herein, and we expect to continue to qualify as a REIT. On February 16, 2021, our Board declared a regular common quarterly dividend of $2.00 per common share totaling approximately $350 million, which will be paid at the end of March 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 December 31, 2020, excluding the Series B Preferred Shares which were redeemed on January 20, 2021 to be approximately $180.7 million per year. We estimate we will pay approximately $5.6 million per year in distributions to noncontrolling interests outstanding at December 31, 2020. Real Estate Investment Activities: We continue to seek to acquire additional self-storage facilities from third parties. Subsequent to December 31, 2020, we acquired or were under contract to acquire 40 self-storage facilities for a total purchase price of $580.1 million. Twelve of these properties are under construction and expected to close as they are completed in 2021. We are actively seeking to acquire additional facilities. However, future acquisition volume will depend upon whether additional owners will be motivated to market their facilities, which will in turn depend upon factors such as economic conditions and the level of seller confidence. As of December 31, 2020, we had development and expansion projects at a total cost of approximately $561.4 million. Costs incurred through December 31, 2020 were $188.1 million, with the remaining cost to complete of $373.3 million expected to be incurred primarily in the next 18 to 24 months. Some of these projects are subject to contingencies such as entitlement approval. We expect to continue to seek to add projects to maintain and increase 56 our robust pipeline. Our ability to do so continues to be challenged by various constraints such as difficulty in finding projects that meet our risk-adjusted yield expectations, and challenges in obtaining building permits for self-storage facilities in certain municipalities. 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 February 24, 2021, we have no series of preferred securities that are eligible for redemption, at our option and with 30 days’ notice. See Note 8 to our December 31, 2020 financial statements for the redemption dates of all of our series of preferred shares. Redemption of such preferred shares will depend upon many factors, including the rate at which we could issue replacement preferred securities. None of our preferred securities are redeemable at the option of the holders. Repurchases of Common Shares: Our Board has authorized management to repurchase up to 35,000,000 of our common shares on the open market or in privately negotiated transactions. During 2020, we did not repurchase any of our common shares. From the inception of the repurchase program through February 24, 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. 57 ITEM 7A. 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 billion and represents 29.7% of the book value of our equity at December 31, 2020. We have foreign currency exposure at December 31, 2020 related to (i) our investment in Shurgard, with a book value of $341.1 million, and a fair value of $1.4 billion based upon the closing price of Shurgard’s stock on December 31, 2020, and (ii) €842.0 million ($1.0 billion) of Euro-denominated unsecured notes payable. The fair value of our fixed rate debt at December 31, 2020 is approximately $2.8 billion. The table below summarizes the annual maturities of our fixed rate debt, which had a weighted average effective rate of 2.4% at December 31, 2020. See Note 6 to our December 31, 2020 financial statements for further information regarding our fixed rate debt (amounts in thousands). 2021 2022 2023 2024 2025 Thereafter Total Fixed rate debt $ 1,851 $ 502,574 $ 19,219 $ 122,770 $ 296,952 $ 1,614,563 $ 2,557,929 58 ITEM 9A. 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. As of December 31, 2020, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020, at a reasonable assurance level. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee on Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the framework in Internal Control-Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2020. The effectiveness of internal control over financial reporting as of December 31, 2020, has been audited by Ernst & Young LLP, an independent registered public accounting firm. Ernst & Young LLP’s report on our internal control over financial reporting appears below. Changes in Internal Control Over Financial Reporting There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2020 to which this report relates that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting. 59 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Trustees of Public Storage Opinion on Internal Control over Financial Reporting We have audited Public Storage’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Public Storage (the Company) maintained, in all material aspects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020 and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 24, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 60 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Los Angeles, California February 24, 2021 61 ITEM 9B. Other Information None. 62 ITEM 10. Trustees, Executive Officers and Corporate Governance PART III The following is a biographical summary of the current executive officers of the Company: Joseph D. Russell, Jr., age 61, has served as Chief Executive Officer since January 1, 2019, and as President since July 2016. Prior to joining Public Storage, Mr. Russell was President and Chief Executive Officer of PS Business Parks, Inc. from August 2002 to July 2016. Mr. Russell has also served as a trustee of Public Storage since January 1, 2019, and as a director of PS Business Parks, Inc. since August 2003. H. Thomas Boyle, age 38, has served as Chief Financial Officer since January 1, 2019, and was previously Vice President and Chief Financial Officer, Operations since joining the Company in November 2016. Prior to joining Public Storage, Mr. Boyle served in roles of increasing responsibilities with Morgan Stanley since 2005, from analyst to his last role as Executive Director, Equity and Debt Capital Markets. Nathaniel A. Vitan, age 47, has served as Senior Vice President, Chief Legal Officer and Corporate Secretary since April 20, 2019, and was Vice President and Chief Counsel–Litigation and Operations since joining the Company in June 2016. Prior to joining Public Storage, Mr. Vitan was Assistant General Counsel for Altria Client Services, Inc. and served as a Trial Practice and Appellate Litigation Attorney at Latham & Watkins LLP. Natalia Johnson, age 43, has served as the Chief Administrative Officer since August 4, 2020. Previously, Ms. Johnson served as Senior Vice President, Chief Human Resources Officer from April 25, 2018 to August 4, 2020 and Senior Vice President of Human Resources from July 2016 to April 2018. Prior to joining Public Storage, Ms. Johnson held a variety of senior management positions at Bank of America, including Chief Operating Officer for Mortgage Technology and Human Resources Executive for the Mortgage Business and worked for Coca-Cola Andina and San Cristόbal Insurance. Other information required by this item is hereby incorporated by reference to the material appearing in the Notice and Proxy Statement for the 2021 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act. ITEM 11. Executive Compensation The information required by this item is hereby incorporated by reference to the material appearing in the Notice and Proxy Statement for the 2021 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act. 63 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters The following table sets forth information as of December 31, 2020 on the Company’s equity compensation plans: Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans 3,513,955 (b) $210.59 (d) 343,648 - - - Equity compensation plans approved by security holders (a) .................. Equity compensation plans not approved by security holders (c) ... a) b) c) d) The Company’s stock option and stock incentive plans are described more fully in Note 10 to the December 31, 2020 financial statements. All plans were approved by the Company’s shareholders. Includes 552,788 restricted share units that, if and when vested, will be settled in common shares of the Company on a one for one basis. There are no securities available for future issuance or currently outstanding under plans not approved by the Company’s shareholders as of December 31, 2020. Represents the average exercise price of 2,961,167 stock options outstanding at December 31, 2020. We also have 552,788 restricted share units outstanding at December 31, 2020 that vest for no consideration. Other information required by this item is hereby incorporated by reference to the material appearing in the Notice and Proxy Statement for the 2021 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act. ITEM 13. Certain Relationships and Related Transactions and Trustee Independence The information required by this item is hereby incorporated by reference to the material appearing in the Notice and Proxy Statement for the 2021 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act. ITEM 14. Principal Accountant Fees and Services The information required by this item is hereby incorporated by reference to the material appearing in the Notice and Proxy Statement for the 2021 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Exchange Act of 1934. 64 ITEM 15. Exhibits and Financial Statement Schedules a. 1. Financial Statements PART IV The financial statements listed in the accompanying Index to Financial Statements and Schedules hereof are filed as part of this report. 2. Financial Statement Schedules The financial statements schedules listed in the accompanying Index to Financial Statements and Schedules are filed as part of this report. 3. Exhibits See Index to Exhibits contained herein. b. Exhibits: See Index to Exhibits contained herein. c. Financial Statement Schedules Not applicable. 65 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 3.14 PUBLIC STORAGE INDEX TO EXHIBITS (1) (Items 15(a)(3) and 15(c)) Articles of Amendment and Restatement of Declaration of Trust of Public Storage, a Maryland real estate investment trust, filed with the Maryland State Department of Assessments and Taxation on May 4, 2018. Filed with the Registrant’s Current Report on Form 8-K dated May 8, 2018 and incorporated by reference herein. Amended and Restated Bylaws of Public Storage, a Maryland real estate investment trust, dated May 4, 2018. Filed with the Registrant’s Current Report on Form 8-K dated May 8, 2018 and incorporated by reference herein. Articles Supplementary for Public Storage 5.400% Cumulative Preferred Shares, Series B. Filed with the Registrant’s Current Report on Form 8-K dated January 12, 2016 and incorporated by reference herein. Articles Supplementary for Public Storage 5.125% Cumulative Preferred Shares, Series C. Filed with the Registrant’s Current Report on Form 8-K dated May 10, 2016 and incorporated by reference herein. Articles Supplementary for Public Storage 4.950% Cumulative Preferred Shares, Series D. Filed with the Registrant’s Current Report on Form 8-K dated July 13, 2016 and incorporated by reference herein. Articles Supplementary for Public Storage 4.900% Cumulative Preferred Shares, Series E. Filed with the Registrant’s Current Report on Form 8-K dated October 6, 2016 and incorporated by reference herein. Articles Supplementary for Public Storage 5.150% Cumulative Preferred Shares, Series F. Filed with the Registrant’s Current Report on Form 8-K dated May 23, 2017 and incorporated by reference herein. Articles Supplementary for Public Storage 5.050% Cumulative Preferred Shares, Series G. Filed with the Registrant’s Current Report on Form 8-K dated July 31, 2017 and incorporated by reference herein. Articles Supplementary for Public Storage 5.600% Cumulative Preferred Shares, Series H. Filed with the Registrant’s Current Report on Form 8-K dated February 28, 2019 and incorporated by reference herein. Articles Supplementary for Public Storage 4.875% Cumulative Preferred Shares, Series I. Filed with the Registrant’s Current Report on Form 8-K dated September 5, 2019 and incorporated by reference herein. Articles Supplementary for Public Storage 4.700% Cumulative Preferred Shares, Series J. Filed with the Registrant’s Current Report on Form 8-K dated November 5, 2019 and incorporated by reference herein. Articles Supplementary for Public Storage 4.750% Cumulative Preferred Shares, Series K. Filed with the Registrant’s Current Report on Form 8-K dated December 11, 2019 and incorporated by reference herein. Articles Supplementary for Public Storage 4.625% Cumulative Preferred Shares, Series L. Filed with the Registrant’s Current Report on Form 8-K dated June 8, 2020 and incorporated by reference herein. Articles Supplementary for Public Storage 4.125 % Cumulative Preferred Shares, Series M. Filed with the Registrant’s Current Report on Form 8-K dated August 11, 2020 and incorporated by reference herein. 66 3.15 3.16 4.1 4.2 10.1 10.2 10.3 10.4* 10.5* 10.6* 10.7* 10.8* 10.9* 10.10 Articles Supplementary for Public Storage 3.875% Cumulative Preferred Shares, Series N. Filed with the Registrant’s Current Report on Form 8-K dated September 29, 2020 and incorporated by reference herein. Articles Supplementary for Public Storage 3.900% Cumulative Preferred Shares, Series O. Filed with the Registrant’s Current Report on Form 8-K dated November 9, 2020 and incorporated by reference herein. Master Deposit Agreement, dated as of May 31, 2007. Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated by reference herein. Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. Filed herewith. Agreement of Limited Partnership of PS Business Parks, L.P. Filed with PS Business Parks, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 (SEC File No. 001-10709) and incorporated herein by reference. Amended and Restated Agreement of Limited Partnership of Storage Trust Properties, L.P. (March 12, 1999). Filed with PSI’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999 (SEC File No. 001-0839) and incorporated herein by reference. Second Amended and Restated Credit Agreement, dated April 19, 2019, by and among Public Storage, the lenders party thereto, Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporation, as joint lead arrangers and as joint bookrunners, Bank of America, N.A., as syndication agent, and Citibank, N.A., as documentation agent. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 19, 2019 and incorporated herein by reference. Form of 2007 Plan Restricted Stock Unit Agreement. Filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference. Form of 2007 Plan Restricted Stock Unit Agreement – deferral of receipt of shares. Filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference. Form of 2007 Plan Stock Option Agreement. Filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference. Form of 2007 Plan Trustee Stock Option Agreement. Filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference. Form of 2016 Plan Restricted Stock Unit Agreement – deferral of receipt of shares. Filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference. Form of 2016 Plan Trustee Non-Qualified Stock Option Agreement. Filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference. Form of Trustee and Officer Indemnification Agreement. Filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference. 67 10.11* 10.12* 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21* 10.22* 10.23* 10.24* Public Storage 2007 Equity and Performance-Based Incentive Compensation Plan, as Amended. Filed with Registrant’s Current Report on Form 8-K dated May 1, 2014 and incorporated herein by reference. Public Storage 2016 Equity and Performance-Based Incentive Compensation Plan. Filed as Appendix A to the Company’s 2016 Proxy Statement dated March 16, 2016 and incorporated herein by reference. Note Purchase Agreement, dated as of November 3, 2015, by and among Public Storage and the signatories thereto. Filed with Registrant’s Current Report on Form 8-K dated November 3, 2015 and incorporated herein by reference. Note Purchase Agreement, dated as of April 12, 2016, by and among Public Storage and the signatories thereto. Filed with Registrant’s Current Report on Form 8-K dated April 12, 2016 and incorporated herein by reference. Indenture, dated as of September 18, 2017, between Public Storage and Wells Fargo Bank, National Association, as trustee. Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated September 18, 2017 and incorporated herein by reference. First Supplemental Indenture, dated as of September 18, 2017, between Public Storage and Wells Fargo Bank, National Association, as trustee, including the form of Global Note representing the 2022 Notes and the form of Global Note representing the 2027 Notes. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated September 18, 2017 and incorporated herein by reference. Second Supplemental Indenture, dated as of April 12, 2019, between Public Storage and Wells Fargo Bank, National Association, as trustee, including the form of Global Note representing the 2029 Notes. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated April 12, 2019 and incorporated herein by reference. Third Supplemental Indenture, dated as of January 24, 2020, between Public Storage and Wells Fargo Bank, National Association, as trustee. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated January 24, 2020 and incorporated herein by reference. Fourth Supplemental Indenture, dated as of January 19, 2021, between Public Storage and Wells Fargo Bank, National Association, as trustee. Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated January 14, 2021 and incorporated herein by reference. Amendment to Amended Agreement of Limited Partnership of PS Business Parks, L.P. to Authorize Special Allocations, dated as of January 1, 2017. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 (SEC File No. 001-33519) and incorporated herein by reference. Form of 2016 Plan Restricted Stock Unit Agreement – deferral of receipt of shares (2018). Filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference. Form of 2016 Plan Trustee Deferred Stock Unit Agreement (2018). Filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference. Form of 2016 Plan Executive Restricted Stock Unit Agreement (2018). Filed as Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference. Form of 2016 Employee Stock Unit Agreement (2020). Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and incorporated herein by reference. 68 10.25* 10.26* 21 23.1 31.1 31.2 32 Form of 2016 Plan Employee Non-Qualified Stock Option Agreement (2020). Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and incorporated herein by reference. Form of 2016 Plan Performance-Based Non-Qualified Stock Option Agreement (2020). Filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and incorporated herein by reference. Listing of Subsidiaries. Filed herewith. Consent of Ernst & Young LLP. Filed herewith. Rule 13a – 14(a) Certification. Filed herewith. Rule 13a – 14(a) Certification. Filed herewith. 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 _ (1) Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) SEC File No. 001-33519 unless otherwise indicated. * Denotes management compensatory plan agreement or arrangement. 69 PUBLIC STORAGE INDEX TO FINANCIAL STATEMENTS AND SCHEDULES (Item 15 (a)) Page References Report of Independent Registered Public Accounting Firm ........................................................... F-1 – F-2 Balance sheets as of December 31, 2020 and 2019 ........................................................................ F-3 For the years ended December 31, 2020, 2019 and 2018: Statements of income ..................................................................................................................... Statements of comprehensive income ............................................................................................ F-4 F-5 Statements of equity ...................................................................................................................... F-6 – F-7 Statements of cash flows ................................................................................................................ F-8 – F-9 Notes to financial statements .......................................................................................................... F-10 – F-32 Schedule: III – Real estate and accumulated depreciation .............................................................................. F-33 – F-35 All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements or notes thereto. 70 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Trustees of Public Storage Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Public Storage (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 24, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-1  Purchase Price Allocation Description of the Matter For the year ended December 31, 2020, the Company completed the acquisition of 62 real estate facilities for a total purchase price of $796.1 million. As further discussed in Notes 2 and 3 of the consolidated financial statements, the transactions were accounted for as asset acquisitions, and the purchase price was allocated based on a relative fair value of assets acquired and liabilities assumed. Auditing the accounting for the Company’s 2020 acquisitions of real estate facilities was subjective because the Company must exercise a high level of management judgment in determining the fair value of acquired land and the replacement cost of acquired facilities. Determining the fair value of acquired land was difficult due to the lack of available directly comparable land market information. The replacement costs of the acquired facilities were calculated by estimating the cost of building similar facilities in comparable markets and adjusting those costs for the age, quality, and configuration associated with the acquired facilities. Determining the replacement cost was difficult due to the judgment utilized by management in determining the adjustments that should be applied to each facility. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over management’s accounting for acquired real estate facilities, including controls over the review of assumptions underlying the purchase price allocation and accuracy of the underlying data used. For example, we tested controls over the determination of the fair value of the land and building assets, including the controls over the review of the valuation models and the underlying assumptions used to develop such estimates. For the 2020 acquisitions of real estate facilities described above, our procedures included, but were not limited to, evaluating the sensitivity of changes in significant assumptions on the purchase price allocation. We performed a sensitivity analysis to evaluate the impact on the Company’s financial statements resulting from changes in allocated land and building values. For certain of these asset acquisitions, we also read the purchase agreements, evaluated whether the Company had appropriately determined whether the transaction was a business combination or asset acquisition, evaluated the methods and significant assumptions used by the Company, assessed the reasonableness of the allocated building value, and tested the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. Additionally, for certain of these asset acquisitions, we involved our valuation specialists to assist in the assessment of the methodology utilized by the Company, in addition to performing corroborative analyses to assess whether the conclusions in the valuation were supported by observable market data. For example, our valuation specialists used independently identified data sources to evaluate management’s selected comparable land sales and replacement cost assumptions. /s/ Ernst & Young LLP We have served as the Company's auditor since 1980. Los Angeles, California February 24, 2021 F-2 PUBLIC STORAGE BALANCE SHEETS (Amounts in thousands, except share data) ASSETS Cash and equivalents Real estate facilities, at cost: Land Buildings Accumulated depreciation Construction in process Investments in unconsolidated real estate entities Goodwill and other intangible assets, net Other assets Total assets LIABILITIES AND EQUITY Notes payable Preferred shares called for redemption (Note 8) Accrued and other liabilities Total liabilities Commitments and contingencies (Note 13) Equity: Public Storage shareholders’ equity: Preferred Shares, $0.01 par value, 100,000,000 shares authorized, 151,700 shares issued (in series) and outstanding, (162,600 at December 31, 2019), at liquidation preference Common Shares, $0.10 par value, 650,000,000 shares authorized, 174,581,742 shares issued and outstanding (174,418,615 shares at December 31, 2019) Paid-in capital Accumulated deficit Accumulated other comprehensive loss Total Public Storage shareholders’ equity Noncontrolling interests Total equity Total liabilities and equity December 31, December 31, 2020 (Unaudited) 2019 $ 257,560 $ 409,743 4,375,588 12,997,039 17,372,627 (7,152,135) 10,220,492 188,079 10,408,571 773,046 204,654 172,715 11,816,546 2,544,992 300,000 394,655 3,239,647 $ $ 4,186,873 12,102,273 16,289,146 (6,623,475) 9,665,671 141,934 9,807,605 767,816 205,936 174,344 11,365,444 1,902,493 - 383,284 2,285,777 3,792,500 4,065,000 17,458 5,707,101 (914,791) (43,401) 8,558,867 18,032 8,576,899 11,816,546 $ 17,442 5,710,934 (665,575) (64,890) 9,062,911 16,756 9,079,667 11,365,444 $ $ $ See accompanying notes. F-3 PUBLIC STORAGE STATEMENTS OF INCOME (Amounts in thousands, except per share amounts) Revenues: Self-storage facilities Ancillary operations Expenses: Self-storage cost of operations Ancillary cost of operations Depreciation and amortization General and administrative Interest expense Other increases (decreases) to net income: Interest and other income Equity in earnings of unconsolidated real estate entities Foreign currency exchange (loss) gain Gain on sale of real estate Gain due to Shurgard public offering Net income Allocation to noncontrolling interests Net income allocable to Public Storage shareholders Allocation of net income to: Preferred shareholders - distributions Preferred shareholders - redemptions (Note 8) Restricted share units Net income allocable to common shareholders Net income per common share: Basic Diluted Basic weighted average common shares outstanding Diluted weighted average common shares outstanding For the Years Ended December 31, 2019 2020 2018 $ 2,721,630 $ 193,438 2,915,068 2,684,552 $ 170,556 2,855,108 2,597,607 161,916 2,759,523 807,543 59,919 553,257 83,199 56,283 1,560,201 22,323 80,497 (97,953) 1,493 - 1,361,227 (4,014) 1,357,213 (207,068) (48,265) (3,545) 762,416 50,736 512,918 62,146 45,641 1,433,857 26,683 69,547 7,829 341 - 1,525,651 (5,117) 1,520,534 (210,179) (32,693) (4,895) 709,739 47,344 483,646 104,712 32,542 1,377,983 24,552 103,495 18,117 37,903 151,616 1,717,223 (6,192) 1,711,031 (216,316) - (5,815) $ $ $ 1,098,335 $ 1,272,767 $ 1,488,900 6.29 $ 6.29 $ 174,494 174,642 7.30 $ 7.29 $ 174,287 174,530 8.56 8.54 173,969 174,297 See accompanying notes. F-4 PUBLIC STORAGE STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) For the Years Ended December 31, 2019 2018 2020 Net income $ 1,361,227 $ 1,525,651 $ 1,717,223 Adjust for foreign currency exchange loss reflected in gain on sale of real estate and gain on Shurgard public offering Foreign currency exchange gain (loss) on investment in Shurgard Total comprehensive income Allocation to noncontrolling interests Comprehensive income allocable to Public Storage shareholders - - 27,207 21,489 1,382,716 (4,014) (830) 1,524,821 (5,117) (16,203) 1,728,227 (6,192) $ 1,378,702 $ 1,519,704 $ 1,722,035 See accompanying notes. F-5 E G A R O T S C I L B U P Y T I U Q E F O S T N E M E T A T S ) s t n u o m a e r a h s r e p d n a e r a h s t p e c x e , s d n a s u o h t n i s t n u o m A ( e g a r o t S c i l b u P r e h t O l a t o T d e t a l u m u c c A l a t o T y t i u q E g n i l l o r t n o c n o N ’ s r e d l o h e r a h S e v i s n e h e r p m o C d e t a l u m u c c A s t s e r e t n I y t i u q E s s o L t i c i f e D n i - d i a P l a t i p a C n o m m o C s e r a h S e v i t a l u m u C d e r r e f e r P s e r a h S 9 6 3 , 4 6 9 , 8 $ 0 6 3 , 4 2 $ 9 0 0 , 0 4 9 , 8 $ ) 4 6 0 , 5 7 ( $ ) 1 1 7 , 5 7 6 ( $ 9 9 3 , 8 4 6 , 5 $ 5 8 3 , 7 1 $ 0 0 0 , 5 2 0 , 4 $ 5 2 5 , 2 1 0 2 7 , 1 9 8 5 , 7 5 - - 0 2 7 , 1 3 2 2 , 7 1 7 , 1 - - ) 2 2 0 , 7 ( ) 6 1 3 , 6 1 2 ( 2 9 1 , 6 - ) 2 2 0 , 7 ( 4 0 0 , 1 1 ) 4 6 3 , 6 9 3 , 1 ( - - 5 2 5 , 2 1 - 9 8 5 , 7 5 ) 2 9 1 , 6 ( 3 2 2 , 7 1 7 , 1 - ) 6 1 3 , 6 1 2 ( 4 0 0 , 1 1 ) 4 6 3 , 6 9 3 , 1 ( - - - - - - - - - - - ) 2 9 1 , 6 ( 3 2 2 , 7 1 7 , 1 - ) 6 1 3 , 6 1 2 ( ) 4 6 3 , 6 9 3 , 1 ( 4 0 0 , 1 1 - - - - - - - - 9 8 5 , 7 5 - - - - - - - - 7 9 4 , 2 1 8 2 - - - - - - - - - 6 5 1 , 9 5 0 , 1 ) 0 0 0 , 0 5 0 , 1 ( 4 6 5 , 3 3 1 7 6 , 3 1 ) 0 0 0 , 5 3 ( 8 4 1 , 4 - - - - 8 4 1 , 4 ) 7 8 0 , 1 1 ( 1 5 6 , 5 2 5 , 1 - - ) 2 7 6 , 6 ( ) 9 7 1 , 0 1 2 ( 7 1 1 , 5 - ) 2 7 6 , 6 ( ) 0 3 8 ( ) 0 7 5 , 8 9 3 , 1 ( - - 6 5 1 , 9 5 0 , 1 ) 0 0 0 , 0 5 0 , 1 ( 4 6 5 , 3 3 - 1 7 6 , 3 1 ) 3 1 9 , 3 2 ( ) 7 1 1 , 5 ( 1 5 6 , 5 2 5 , 1 - ) 9 7 1 , 0 1 2 ( ) 0 3 8 ( ) 0 7 5 , 8 9 3 , 1 ( - - - - - - - - - - - - - - - - - ) 7 1 1 , 5 ( 1 5 6 , 5 2 5 , 1 - ) 9 7 1 , 0 1 2 ( ) 0 7 5 , 8 9 3 , 1 ( ) 0 3 8 ( - - - - - - - - 1 7 6 , 3 1 ) 3 1 9 , 3 2 ( - - - - - - - - - 5 3 5 , 3 3 9 2 . s e t o n g n i y n a p m o c c a e e S 6 - F - - - - - - - - - - - ) 4 4 8 , 0 3 ( - - 0 0 0 , 0 9 0 , 1 ) 0 0 0 , 0 5 0 , 1 ( 8 2 7 , 4 4 1 , 9 $ 0 5 2 , 5 2 $ 8 7 4 , 9 1 1 , 9 $ ) 0 6 0 , 4 6 ( $ ) 0 6 3 , 7 7 5 ( $ 5 8 4 , 8 1 7 , 5 $ 3 1 4 , 7 1 $ 0 0 0 , 5 2 0 , 4 $ ) 0 1 e t o N ( ) s e r a h s 1 1 5 , 7 7 2 ( n o i t a s n e p m o c d e s a b - e r a h s h t i w n o i t c e n n o c n i s e r a h s n o m m o c f o e c n a u s s I h s a c f o t e n , e s n e p x e n o i t a s n e p m o c d e s a b - e r a h S ) 0 1 e t o N ( s e r a h s n o m m o c f o u e i l n i d i a p s t s e r e t n i g n i l l o r t n o c n o n y b s n o i t u b i r t n o C s t s e r e t n i g n i l l o r t n o c n o n o t d e t a c o l l a e m o c n i t e N e m o c n i t e N 7 1 0 2 , 1 3 r e b m e c e D t a s e c n a l a B e r a h s d e t c i r t s e r d n a s r e d l o h e r a h s n o m m o C ) 2 e t o N ( e m o c n i e v i s n e h e r p m o c r e h t O 8 1 0 2 , 1 3 r e b m e c e D t a s e c n a l a B ) e r a h s r e p 0 0 . 8 $ ( s r e d l o h t i n u ) 8 e t o N ( s e r a h s d e r r e f e r p 0 0 0 , 2 4 f o n o i t p m e d e R h t i w n o i t c e n n o c n i s e r a h s n o m m o c f o e c n a u s s I ) 8 e t o N ( s e r a h s d e r r e f e r p 0 0 6 , 3 4 f o e c n a u s s I : s r e d l o h y t i u q e o t s n o i t u b i r t s i D ) 8 e t o N ( s e r a h s d e r r e f e r P s t s e r e t n i g n i l l o r t n o c n o N ) 0 1 e t o N ( ) s e r a h s 4 3 7 , 7 8 2 ( n o i t a s n e p m o c d e s a b - e r a h s h s a c f o t e n , e s n e p x e n o i t a s n e p m o c d e s a b - e r a h S s t s e r e t n i g n i l l o r t n o c n o n o t d e t a c o l l a e m o c n i t e N ) 0 1 e t o N ( s e r a h s n o m m o c f o u e i l n i d i a p s t s e r e t n i g n i l l o r t n o c n o n f o n o i t i s i u q c A s t s e r e t n i g n i l l o r t n o c n o n y b s n o i t u b i r t n o C e m o c n i t e N e r a h s d e t c i r t s e r d n a s r e d l o h e r a h s n o m m o C ) e r a h s r e p 0 0 . 8 $ ( s r e d l o h t i n u ) 2 e t o N ( s s o l e v i s n e h e r p m o c r e h t O ) 8 e t o N ( s r e d l o h e r a h s d e r r e f e r P s t s e r e t n i g n i l l o r t n o c n o N : o t s n o i t u b i r t s i D E G A R O T S C I L B U P Y T I U Q E F O S T N E M E T A T S ) s t n u o m a e r a h s r e p d n a e r a h s t p e c x e , s d n a s u o h t n i s t n u o m A ( e g a r o t S c i l b u P r e h t O l a t o T d e t a l u m u c c A l a t o T y t i u q E g n i l l o r t n o c n o N ’ s r e d l o h e r a h S e v i s n e h e r p m o C d e t a l u m u c c A s t s e r e t n I y t i u q E s s o L t i c i f e D n i - d i a P l a t i p a C n o m m o C s e r a h S e v i t a l u m u C d e r r e f e r P s e r a h S 7 6 6 , 9 7 0 , 9 $ 6 5 7 , 6 1 $ 1 1 9 , 2 6 0 , 9 $ ) 0 9 8 , 4 6 ( $ ) 5 7 5 , 5 6 6 ( $ 4 3 9 , 0 1 7 , 5 $ 2 4 4 , 7 1 $ 0 0 0 , 5 6 0 , 4 $ 6 0 2 , 8 0 2 , 1 ) 0 0 0 , 0 2 5 , 1 ( 4 6 6 , 2 1 ) 3 3 ( 9 2 6 , 2 5 4 8 , 2 2 - - - - ) 1 ( 9 2 6 , 2 7 2 2 , 1 6 3 , 1 - - ) 6 6 3 , 5 ( ) 8 6 0 , 7 0 2 ( 4 1 0 , 4 - ) 6 6 3 , 5 ( 9 8 4 , 1 2 ) 1 6 3 , 9 9 3 , 1 ( - - 6 0 2 , 8 0 2 , 1 ) 0 0 0 , 0 2 5 , 1 ( 4 6 6 , 2 1 - ) 2 3 ( 5 4 8 , 2 2 ) 4 1 0 , 4 ( 7 2 2 , 1 6 3 , 1 - ) 8 6 0 , 7 0 2 ( 9 8 4 , 1 2 ) 1 6 3 , 9 9 3 , 1 ( - - - - - - - - - - - - - - - - - ) 4 1 0 , 4 ( 7 2 2 , 1 6 3 , 1 - ) 8 6 0 , 7 0 2 ( ) 1 6 3 , 9 9 3 , 1 ( 9 8 4 , 1 2 - - - - - - - - ) 2 3 ( 5 4 8 , 2 2 - - - - - - - - - 8 4 6 , 2 1 6 1 - - - - - - - - - - - ) 4 9 2 , 9 3 ( - - 0 0 5 , 7 4 2 , 1 ) 0 0 0 , 0 2 5 , 1 ( 9 9 8 , 6 7 5 , 8 $ 2 3 0 , 8 1 $ 7 6 8 , 8 5 5 , 8 $ ) 1 0 4 , 3 4 ( $ ) 1 9 7 , 4 1 9 ( $ 1 0 1 , 7 0 7 , 5 $ 8 5 4 , 7 1 $ 0 0 5 , 2 9 7 , 3 $ 0 0 8 , 0 6 f o n o i t p m e d e r r o f d e l l a c s e r a h s d n a n o i t p m e d e R ) 8 e t o N ( s e r a h s d e r r e f e r p 0 0 9 , 9 4 f o e c n a u s s I ) 8 e t o N ( s e r a h s d e r r e f e r p ) 0 1 e t o N ( ) s e r a h s 7 2 1 , 3 6 1 ( n o i t a s n e p m o c d e s a b - e r a h s h s a c f o t e n , e s n e p x e n o i t a s n e p m o c d e s a b - e r a h S h t i w n o i t c e n n o c n i s e r a h s n o m m o c f o e c n a u s s I 9 1 0 2 , 1 3 r e b m e c e D t a s e c n a l a B s t s e r e t n i g n i l l o r t n o c n o n o t d e t a c o l l a e m o c n i t e N ) 0 1 e t o N ( s e r a h s n o m m o c f o u e i l n i d i a p s t s e r e t n i g n i l l o r t n o c n o n f o n o i t i s i u q c A s t s e r e t n i g n i l l o r t n o c n o n y b s n o i t u b i r t n o C e m o c n i t e N e r a h s d e t c i r t s e r d n a s r e d l o h e r a h s n o m m o C ) 2 e t o N ( e m o c n i e v i s n e h e r p m o c r e h t O 0 2 0 2 , 1 3 r e b m e c e D t a s e c n a l a B ) e r a h s r e p 0 0 . 8 $ ( s r e d l o h t i n u ) 8 e t o N ( s r e d l o h e r a h s d e r r e f e r P s t s e r e t n i g n i l l o r t n o c n o N : o t s n o i t u b i r t s i D . s e t o n g n i y n a p m o c c a e e S 7 - F PUBLIC STORAGE STATEMENTS OF CASH FLOWS (Amounts in thousands) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash flows from operating activities: Gain due to Shurgard public offering Gain on real estate investment sales Depreciation and amortization Equity in earnings of unconsolidated real estate entities Distributions from cumulative equity in earnings of unconsolidated real estate entities Foreign currency exchange loss (gain) Share-based compensation expense Other Total adjustments Net cash flows from operating activities Cash flows from investing activities: Capital expenditures to maintain real estate facilities Development and expansion of real estate facilities Acquisition of real estate facilities and intangible assets Distributions in excess of cumulative equity in earnings from unconsolidated real estate entities Repayment of note receivable Proceeds from sale of real estate investments Net cash flows used in investing activities Cash flows from financing activities: Repayments on notes payable Issuance of notes payable, net of issuance costs Issuance of preferred shares Issuance of common shares Redemption of preferred shares Cash paid upon vesting of restricted share units Acquisition of noncontrolling interests Contributions by noncontrolling interests Distributions paid to preferred shareholders, common shareholders and restricted share unitholders Distributions paid to noncontrolling interests Net cash flows used in financing activities Net cash flows (used in) from operating, investing, and financing activities Net effect of foreign exchange impact on cash and equivalents, including restricted cash (Decrease) increase in cash and equivalents, including restricted cash $ For the Years Ended December 31, 2019 2018 2020 $ 1,361,227 $ 1,525,651 $ 1,717,223 - (1,493) 553,257 (80,497) 72,098 97,953 33,363 6,994 681,675 2,042,902 (169,998) (189,413) (792,266) 24,658 7,509 1,796 (1,117,714) (2,020) 545,151 1,208,206 12,664 (1,220,000) (10,518) (33) 2,629 (1,606,429) (5,366) (1,075,716) - (341) 512,918 (69,547) 73,259 (7,829) 25,833 7,690 541,983 2,067,634 (187,303) (284,682) (437,758) 11,630 - 762 (897,351) (1,920) 496,900 1,059,156 33,564 (1,050,000) (12,162) (35,000) 4,148 (151,616) (37,903) 483,646 (103,495) 109,754 (18,117) 69,936 (5,782) 346,423 2,063,646 (140,980) (340,032) (181,020) 91,927 - 54,184 (515,921) (1,784) - - 12,525 - (12,347) - 1,720 (1,608,749) (6,672) (1,120,735) (1,612,680) (7,022) (1,619,588) (150,528) 49,548 (71,863) (426) (150,954) $ (13) 49,535 $ (171) (72,034) See accompanying notes. F-8 PUBLIC STORAGE STATEMENTS OF CASH FLOWS (Amounts in thousands) For the Years Ended December 31, 2019 2020 2018 Cash and equivalents, including restricted cash at beginning of the period: Cash and equivalents Restricted cash included in other assets Cash and equivalents, including restricted cash at end of the period: Cash and equivalents Restricted cash included in other assets 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 Construction or expansion of real estate facilities Accrued and other liabilities Real estate acquired in exchange for assumption of a liability Liability assumed in connection with acquisition of real estate Notes payable assumed in connection with acquisition of real estate Preferred shares called for redemption and reclassified to liabilities Preferred shares called for redemption and reclassified from equity Other disclosures: Foreign currency translation adjustment: Real estate facilities, net of accumulated depreciation Investments in unconsolidated real estate entities Notes payable Accumulated other comprehensive gain $ $ $ $ $ $ $ $ $ $ $ 409,743 23,811 433,554 257,560 25,040 282,600 (10,359) (32,349) 42,708 (3,799) 3,799 - 300,000 (300,000) $ $ $ $ $ 361,218 22,801 384,019 409,743 23,811 433,554 (16,558) (32,356) 48,914 (1,817) - 1,817 - - 433,376 22,677 456,053 361,218 22,801 384,019 (11,422) 81,157 92,579 - - - - - $ - (21,489) - 21,489 $ - 830 (7,842) 6,999 203 15,997 (18,285) 1,914 See accompanying notes. F-9 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 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 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 December 31, 2020, we have direct and indirect equity interests in 2,548 self-storage facilities (with approximately 175.1 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 241 self- storage facilities (with approximately 13 million net rentable square feet) located in seven 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 27.7 million net rentable square feet of commercial properties, primarily multi-tenant industrial, flex, and office space, located in six states. Disclosures of the number and square footage of facilities, as well as the number and coverage of tenant reinsurance policies (Note 13) are unaudited and outside the scope of our independent registered public accounting firm’s audit of our financial statements in accordance with the standards of the Public Company Accounting Oversight Board (U.S.). 2. Summary of Significant Accounting Policies Basis of Presentation The financial statements are presented on an accrual basis in accordance with U.S. generally accepted accounting principles (“GAAP”) as defined in the Financial Accounting Standards Board Accounting Standards Codification (the “Codification”). Certain amounts previously reported in our December 31, 2019 and 2018 financial statements have been reclassified to conform to the December 31, 2020 presentation, including revenues from our third party management activities of $8.3 million and $5.2 million for the years ended December 31, 2019 and 2018, respectively, previously reported within interest and other income; and cost of operations from our third party management activities of $6.5 million and $3.4 million for the years ended December 31, 2019 and 2018, respectively, previously reported within interest and other income. This reclassification had no impact on the our balance sheet, statements of comprehensive income, statements of equity, or cash flows as of and for the year ended December 31, 2019 and for the year ended 2018. Additionally, 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 years ended December 31, 2019 and 2018 with an increase in self-storage cost of operations of $9.8 million and $14.0 million, respectively, 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 year ended December 31, 2019 and for the year ended 2018. F-10 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 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 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 December 31, 2020, the Company and the Subsidiaries own 2,548 self-storage facilities and four commercial facilities in the U.S. At December 31, 2020, 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”). For each taxable year in which we qualify for taxation as a REIT, we will not be subject to U.S. federal corporate income tax on our “REIT taxable income” (generally, taxable income subject to specified adjustments, including a deduction for dividends paid and excluding our net capital gain) that is distributed to our shareholders. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no U.S. federal corporate income tax expense related to our REIT taxable income. Our tenant reinsurance, merchandise and 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 F-11 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 had full knowledge of the relevant facts and circumstances of our positions. As of December 31, 2020, we had no 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. We 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, restricted cash and right-to-use assets. At December 31, 2019, other assets included notes receivable which were amortized on the effective interest method with book value of $4.4 million at the time they were repaid during 2020, at their respective $7.5 million contractual note balance. The $3.1 million excess proceeds were recorded as interest and other income in 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. 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. Because our estimates of fair value involve considerable judgment, including determination of the factors that market participants would consider in negotiating exchange values, such estimates may be limited in their ability to reflect what would actually be realized in an actual market exchange. F-12 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 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 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 December 31, 2020, 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 million at December 31, 2020 and 2019. 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 December 31, 2020 and 2019. 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 December 31, 2020, these intangibles had a net book value of $11.3 million ($12.5 million at December 31, 2019). Accumulated amortization totaled $27.3 million at December 31, 2020 ($27.5 million at December 31, 2019), and amortization expense of $16.1 million, $16.8 million and $16.6 million was recorded in 2020, 2019 and 2018, respectively. The estimated future amortization expense for our finite-lived intangible assets at December 31, 2020 is approximately $11.9 million in 2021, $2.6 million in 2022 and $5.6 million thereafter. During 2020, 2019 and 2018, intangibles increased $14.9 million, $18.5 million and $11.6 million, respectively, 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. F-13 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 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. 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. No 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 1.226 U.S. Dollars per Euro at December 31, 2020 (1.122 at December 31, 2019), and average exchange rates of 1.141, 1.120 and 1.181 for the years ended December 31, 2020, 2019 and 2018, 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, which are comprised primarily of foreign currency exchange gains and losses on our investment in Shurgard. F-14 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 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 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. 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”), with the remaining net income 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): F-15 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 Weighted average common shares and equivalents outstanding: Basic weighted average common shares outstanding Net effect of dilutive stock options - based on treasury stock method Diluted weighted average common shares outstanding For the Years Ended December 31, 2019 2020 2018 174,494 174,287 173,969 148 243 328 174,642 174,530 174,297 3. Real Estate Facilities Activity in real estate facilities during 2020, 2019 and 2018 is as follows: 2020 For the Years Ended 2019 (Amounts in thousands) 2018 Operating facilities, at cost: Beginning balance Capital expenditures to maintain real estate facilities Acquisitions Dispositions Developed or expanded facilities opened for operation Impact of foreign exchange rate changes Ending balance $ 16,289,146 163,834 781,219 (303) 138,731 - 17,372,627 $ 15,296,844 192,539 421,097 (426) 379,092 - 16,289,146 $ 14,665,989 139,397 169,436 (25,633) 348,270 (615) 15,296,844 Accumulated depreciation: Beginning balance Depreciation expense Dispositions Impact of foreign exchange rate changes Ending balance Construction in process: Beginning balance Costs incurred to develop and expand real estate facilities Write-off of cancelled projects Developed or expanded facilities opened for operation Dispositions Transfer from other assets Ending balance Total real estate facilities at December 31, (6,623,475) (528,660) - - (7,152,135) (6,140,072) (483,408) 5 - (6,623,475) 141,934 188,102 (3,226) (138,731) - - 188,079 $ 10,408,571 285,339 235,687 - (379,092) - - 141,934 $ 9,807,605 $ (5,700,331) (457,029) 16,876 412 (6,140,072) 264,441 362,397 - (348,270) (2,698) 9,469 285,339 9,442,111 During 2020, we acquired 62 self-storage facilities (5.1 million net rentable square feet of storage space), for a total cost of $792.3 million which includes the assumption of a $3.8 million liability. Approximately $14.9 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing $138.7 million during 2020, adding 1.1 million net rentable square feet of self-storage space. F-16 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 Included in general and administrative expense in 2020 is $3.2 million in development projects which were cancelled. Construction in process at December 31, 2020 consists of projects to develop new self-storage facilities and expand existing self-storage facilities. During 2020, our accrual for unpaid construction costs decreased $1.3 million (a $49.0 million decrease for the same period in 2019). During 2020, our accrual for capital expenditures to maintain real estate facilities decreased $6.2 million (a $5.2 million increase for the same period in 2019). During 2019, we acquired 44 self-storage facilities and one commercial facility (3.1 million net rentable square feet of storage space and 46,000 net rentable square feet of commercial space), for a total cost of $439.6 million, consisting of $437.8 million in cash and the assumption of $1.8 million in mortgage notes. Approximately $18.5 million of the total cost was allocated to intangible assets. We completed development and redevelopment activities costing $379.1 million during 2019, adding 3.7 million net rentable square feet of self- storage space. During 2019, our accrual for unpaid construction costs decreased $49.0 million (a $22.4 million increase for the same period in 2018). During 2019, our accrual for capital expenditures to maintain real estate facilities increased $5.2 million (a $1.6 million decrease for the same period in 2018). During 2018, we acquired 25 self-storage facilities (1.6 million net rentable square feet), for a total cost of $181.0 million in cash, of which $11.6 million was allocated to intangible assets. We completed development and redevelopment activities costing $348.3 million during 2018, adding 3.0 million net rentable square feet of self-storage space. Construction in process at December 31, 2018 consists of projects to develop new self-storage facilities and redevelop existing self-storage facilities. On October 18, 2018, we sold our property in West London to Shurgard for $42.1 million and recorded a related gain on sale of real estate of approximately $31.5 million. This gain was net of the recognition of a cumulative other comprehensive loss totaling $4.8 million with respect to foreign currency translation. On October 25, 2018, we sold a commercial facility for $8.7 million and recorded a related gain on sale of real estate of approximately $4.6 million. During 2018, we also sold portions of real estate facilities in connection with eminent domain proceedings for $3.4 million in cash proceeds and recorded a related gain on sale of real estate of approximately $1.8 million. During 2018, we also transferred $9.5 million of accumulated construction costs from other assets to construction in process. At December 31, 2020, the adjusted basis of real estate facilities for U.S. federal tax purposes was approximately $11.2 billion (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): F-17 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 Investments in Unconsolidated Real Estate Entities at December 31, 2020 2019 Equity in Earnings of Unconsolidated Real Entities for the Year Ended December 31, 2018 2019 2020 PSB Shurgard Total $ $ 431,963 341,083 773,046 $ $ $ 427,875 339,941 $ 767,816 64,835 15,662 80,497 $ $ 54,090 15,457 69,547 $ 89,362 14,133 $ 103,495 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 one-for-one basis into PSB common stock. Based upon the closing price at December 31, 2020 ($132.87 per share of PSB common stock), the shares and units we owned had a market value of approximately $1.9 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 2020, 2019, and 2018, we received cash distributions from PSB totaling $60.7 million, $60.7 million, and $55.0 million, respectively. At December 31, 2020, 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 $3.4 million ($4.2 million at December 31, 2019). 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 $0.8 million, $3.2 million, and $1.8 million during 2020, 2019, and 2018, respectively. PSB is a publicly held entity traded on the New York Stock Exchange under the symbol “PSB”. Investment in Shurgard Throughout all periods presented, we effectively owned, directly and indirectly, 31,268,459 Shurgard common shares. On October 15, 2018, Shurgard completed an initial global offering (the “Offering”), issuing 25.0 million of its common shares to third parties at a price of €23 per share, reducing our ownership interest to approximately 35%. Following the Offering, Shurgard’s shares began to trade on Euronext Brussels under the “SHUR” symbol. We recorded a “Gain due to Shurgard public offering” of $151.6 million, as if we had sold a proportionate share of our investment in Shurgard. The gain resulted in a $174.0 million increase in our investment in Shurgard and a $22.4 million reduction in other comprehensive loss with respect to cumulative foreign currency translation losses for Shurgard. Based upon the closing price at December 31, 2020 (€35.50 per share of Shurgard common stock, at 1.226 exchange rate of US Dollars to the Euro), the shares we owned had a market value of approximately $1.4 billion. Our equity in earnings of Shurgard is comprised of our equity share of Shurgard’s net income, plus $1.1 million, $1.0 million, and $1.3 million for 2020, 2019 and 2018, respectively, representing our equity share F-18 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 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 earnings, with any excess classified as “distributions in excess of cumulative equity in earnings from unconsolidated real estate entities.” During 2020 and 2019, Shurgard paid €0.99 and €0.67, respectively, per share in dividends to its shareholders, of which our share totaled $34.9 million and $23.1 million, respectively. During 2018, Shurgard paid a cash dividend to its shareholders at the time, of which our equity share was $145.4 million. Changes in foreign currency exchange rates increased our investment in Shurgard by approximately $21.5 million in 2020 and decreased our investment in Shurgard by approximately $0.8 million and $16.0 million in 2019 and 2018, 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 December 31, 2020). 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 December 31, 2020). At December 31, 2020 and February 24, 2021, we had no outstanding borrowings under this Credit Facility. We had undrawn standby letters of credit, which reduce our borrowing capacity, totaling $24.3 million at December 31, 2020 ($15.9 million at December 31, 2019). The Credit Facility has various customary restrictive covenants, all of which we were in compliance with at December 31, 2020. F-19 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 6. Notes Payable Our notes payable are reflected net of issuance costs (including original issue discounts), which are amortized as interest expense on the effective interest method over the term of each respective note. Our notes payable at December 31, 2020 and 2019 are set forth in the tables below: Coupon Effective Rate Rate Principal Amounts at December 31, 2020 Unamortized Costs Book Value ($ amounts in thousands) Fair Value U.S. Dollar Denominated Unsecured Debt Notes due September 15, 2022 Notes due September 15, 2027 Notes due May 1, 2029 2.370% 2.483% $ 3.094% 3.218% 3.385% 3.459% Euro Denominated Unsecured Debt Notes due April 12, 2024 Notes due November 3, 2025 Notes due January 24, 2032 1.540% 1.540% 2.175% 2.175% 0.875% 0.978% 500,000 $ 500,000 500,000 1,500,000 (891) $ (3,548) (2,567) (7,006) 499,109 $ 496,452 497,433 1,492,994 517,419 560,833 574,833 1,653,085 122,646 296,821 613,232 1,032,699 - - (5,931) (5,931) 122,646 296,821 607,301 1,026,768 129,192 323,552 634,389 1,087,133 Mortgage Debt, secured by 27 real estate facilities with a net book value of $102.1 million 3.962% 3.947% 25,230 - 25,230 26,958 $ 2,557,929 $ (12,937) $ 2,544,992 $ 2,767,176 U.S. Dollar Denominated Unsecured Debt Notes due September 15, 2022 Notes due September 15, 2027 Notes due May 1, 2029 Euro Denominated Unsecured Debt Notes due April 12, 2024 Notes due November 3, 2025 Notes due January 24, 2032 Mortgage Debt F-20 Amounts at December 31, 2019 Book Value Fair Value ($ amounts in thousands) $ 498,581 $ 495,924 497,124 1,491,629 505,639 520,694 531,911 1,558,244 112,156 271,433 - 383,589 115,932 298,398 - 414,330 27,275 28,506 $ 1,902,493 $ 2,001,080 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 U.S. Dollar Denominated Unsecured Notes On April 12, 2019, we completed a public offering of $500 million in aggregate principal amount of senior notes bearing interest at an annual rate of 3.385% maturing on May 1, 2029. In connection with the offering, we incurred a total of $3.1 million in costs. The notes issued on April 12, 2019 along with notes previously issued in 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 December 31, 2020. Included in these covenants are (a) a maximum Debt to Total Assets of 65% (approximately 8% at December 31, 2020) and (b) a minimum ratio of Adjusted EBITDA to Interest Expense of 1.5x (approximately 38x for the twelve months ended December 31, 2020) 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 three 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 (a loss of $98.0 million for 2020, as compared to gains of $7.8 million and $18.1 million for 2019 and 2018, 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. During 2019, we assumed a mortgage note with a contractual value of $1.8 million and an interest rate of 3.9%, which approximated market rate, in connection with the acquisition of a real estate facility. At December 31, 2020, 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 December 31, 2020, approximate principal maturities of our Notes Payable are as follows (amounts in thousands): F-21 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 Unsecured Debt Mortgage Debt $ $ - 500,000 - 122,646 296,821 1,613,232 2,532,699 2.4% $ $ 1,851 2,574 19,219 124 131 1,331 25,230 3.9% $ $ Total 1,851 502,574 19,219 122,770 296,952 1,614,563 2,557,929 2.4% 2021 2022 2023 2024 2025 Thereafter Weighted average effective rate Cash paid for interest totaled $52.7 million, $48.3 million and $36.3 million for 2020, 2019 and 2018, respectively. Interest capitalized as real estate totaled $3.4 million, $3.9 million and $4.8 million for 2020, 2019 and 2018, respectively. 7. Noncontrolling Interests At December 31, 2020, the noncontrolling interests represent (i) third-party equity interests in subsidiaries owning 21 operating self-storage facilities and five 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 one-for-one basis (subject to certain limitations) into common shares of the Company at the option of the unitholder (collectively, the “Noncontrolling Interests”). At December 31, 2020, the Noncontrolling Interests cannot require us to redeem their interests, other than pursuant to a liquidation of the subsidiary. During 2020, 2019 and 2018, we allocated a total of $4.0 million, $5.1 million and $6.2 million, respectively, of income to these interests; and we paid $5.4 million, $6.7 million and $7.0 million, respectively, in distributions to these interests. During 2019, we acquired noncontrolling interests for an aggregate of $35.0 million in cash, of which $11.1 million was allocated to Noncontrolling Interests, with the remainder allocated to Paid-in Capital. During 2020, 2019 and 2018, Noncontrolling Interests contributed $2.6 million, $4.1 million and $1.7 million, respectively, to our subsidiaries. 8. Shareholders’ Equity Preferred Shares At December 31, 2020 and 2019, we had the following series of Cumulative Preferred Shares (“Preferred Shares”) outstanding: F-22 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 At December 31, 2020 At December 31, 2019 Earliest Redemption Date Series Dividend Rate Shares Outstanding Liquidation Preference Shares Outstanding Liquidation Preference (Dollar amounts in thousands) Series V Series W Series X Series B Series C Series D Series E Series F Series G Series H Series I Series J Series K Series L Series M Series N Series O 9/20/2017 1/16/2018 3/13/2018 1/20/2021 5/17/2021 7/20/2021 10/14/2021 6/2/2022 8/9/2022 3/11/2024 9/12/2024 11/15/2024 12/20/2024 6/17/2025 8/14/2025 10/6/2025 11/17/2025 5.375% 5.200% 5.200% 5.400% 5.125% 4.950% 4.900% 5.150% 5.050% 5.600% 4.875% 4.700% 4.750% 4.625% 4.125% 3.875% 3.900% Total Preferred Shares - $ - - - 8,000 13,000 14,000 11,200 12,000 11,400 12,650 10,350 9,200 22,600 9,200 11,300 6,800 151,700 $ - - - - 200,000 325,000 350,000 280,000 300,000 285,000 316,250 258,750 230,000 565,000 230,000 282,500 170,000 3,792,500 19,800 $ 20,000 9,000 12,000 8,000 13,000 14,000 11,200 12,000 11,400 12,650 10,350 9,200 - - - - 162,600 $ 495,000 500,000 225,000 300,000 200,000 325,000 350,000 280,000 300,000 285,000 316,250 258,750 230,000 - - - - 4,065,000 The holders of our Preferred Shares have general preference rights with respect to liquidation, quarterly distributions and any accumulated unpaid distributions. Except as noted below, holders of the Preferred Shares do not have voting rights. In the event of a cumulative arrearage equal to six quarterly dividends, holders of all outstanding series of preferred shares (voting as a single class without regard to series) will have the right to elect two additional members to serve on our Board of Trustees (our “Board”) until the arrearage has been cured. At December 31, 2020, there were no dividends in arrears. The affirmative vote of at least 66.67% of the outstanding shares of a series of Preferred Shares is required for any material and adverse amendment to the terms of such series. The affirmative vote of at least 66.67% of the outstanding shares of all of our Preferred Shares, voting as a single class, is required to issue shares ranking senior to our Preferred Shares. Except under certain conditions relating to the Company’s qualification as a REIT, the Preferred Shares are not redeemable prior to the dates indicated on the table above. On or after the respective dates, each of the series of Preferred Shares is redeemable at our option, in whole or in part, at $25.00 per depositary share, plus accrued and unpaid dividends. Holders of the Preferred Shares cannot require us to redeem such shares. Upon issuance of our Preferred Shares, we classify the liquidation value as preferred equity on our balance sheet with any issuance costs recorded as a reduction to Paid-in capital. In 2020, we redeemed our Series V, Series W and Series X Preferred Shares, at par, for a total of $1.22 billion in cash, before payment of accrued dividends. F-23 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 On December 14, 2020, we called for redemption of, and on January 20, 2021, we redeemed our 5.40% Series B Preferred Shares, at par. The liquidation value (at par) of $300.0 million was reclassified as a liability at December 31, 2020. We recorded a $9.9 million allocation of income from our common shareholders to the holders of our Preferred Shares in 2020 in connection with this redemption. In 2020, we issued an aggregate 49.9 million depositary shares, each representing 0.001 of a share of our Series L, Series M, Series N and Series O Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $1.25 billion in gross proceeds, and we incurred $39.3 million in issuance costs. In 2019, we redeemed our Series U, Series Y, Series Z and Series A Preferred Shares, at par, for a total of $1.05 billion in cash, before payment of accrued dividends. In 2019, we issued an aggregate 43.6 million depositary shares, each representing 0.001 of a share of our Series H, Series I, Series J and Series K Preferred Shares, at an issuance price of $25.00 per depositary share, for a total of $1.09 billion in gross proceeds, and we incurred $30.8 million in issuance costs. In 2020 and 2019, we recorded $48.3 million and $32.7 million, respectively, in EITF D-42 allocations of income from our common shareholders to the holders of our Preferred Shares in connection with redemptions of Preferred Shares, including the redemption of our Series B Preferred Shares as noted above. Common Shares During 2020, 2019 and 2018, activity with respect to the issuance of our common shares was as follows (dollar amounts in thousands): Employee stock-based compensation and exercise of stock options (Note 10) 163,127 $ 12,664 287,734 $ 33,564 277,511 $ 12,525 2020 2019 2018 Shares Amount Shares Amount Shares Amount Our Board previously authorized the repurchase from time to time of up to 35.0 million of our common shares on the open market or in privately negotiated transactions. Through December 31, 2020, we repurchased approximately 23.7 million shares pursuant to this authorization; none of which were repurchased during the three years ended December 31, 2020. At December 31, 2020 and 2019, we had 3,513,955 and 2,958,817, respectively, of common shares reserved in connection with our share-based incentive plans (see Note 10), and 231,978 shares reserved for the conversion of partnership units owned by Noncontrolling Interests. The unaudited characterization of dividends for U.S. federal corporate income tax purposes is made based upon earnings and profits of the Company, as defined by the Code. Common share dividends including amounts paid to our restricted share unitholders totaled $1.399 billion ($8.00 per share), $1.399 billion ($8.00 per share) and $1.396 billion ($8.00 per share) for the years ended December 31, 2020, 2019 and 2018, respectively. Preferred share dividends totaled $207.1 million, $210.2 million and $216.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. F-24 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 For the tax year ended December 31, 2020, distributions for the common shares and all the various series of preferred shares were classified as follows: Ordinary Income Long-Term Capital Gain Total 2020 (unaudited) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 100.00% 100.00% 100.00% 0.00% 0.00% 0.00% 100.00% 100.00% 100.00% 100.00% 0.00% 100.00% The ordinary income dividends distributed for the tax year ended December 31, 2020 are not qualified dividends under the Internal Revenue Code, however, they are subject to the 20% deduction under IRS Section 199A. 9. Related Party Transactions B. Wayne Hughes, our former Chairman and his family, including his daughter Tamara Hughes Gustavson, a current member of the Board, and his son B. Wayne Hughes, Jr., a former member of the Board who retired effective December 31, 2020, collectively own approximately 13.0% of our common shares outstanding at December 31, 2020. At December 31, 2020, Tamara Hughes Gustavson and her adult children owned and controlled 64 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 no ownership interest in these facilities and we do not own or operate any facilities in Canada. If we chose to acquire or develop our own facilities in Canada, we would have to share the use of the “Public Storage” name in Canada. We have a right of first refusal, subject to limitations, to acquire the stock or assets of the corporation engaged in the operation of these facilities if their owners agree to sell them. Our subsidiaries reinsure risks relating to loss of goods stored by customers in these facilities, and have received approximately $1.6 million, $1.5 million and $1.3 million for the years ended December 31, 2020, 2019 and 2018, 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. 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. 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 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). F-25 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 Modifications to the terms of awards that were probable of vesting before the modification (“Type I Modifications”) are recorded prospectively, with remaining unamortized grant-date fair value at the time of modification amortized over the remaining service period. Modifications of awards which were considered improbable of vesting before the modification (“Type III Modifications”) are accounted for as a cancellation of the original award and a new grant under the revised terms. 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 $5.7 million in accelerated compensation expense during 2020, with such amounts included in the amounts disclosed below under “Stock Options” and “Restricted Share Units.” 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. In February 2018, we announced that our Chief Executive Officer and Chief Financial Officer at the time were retiring from their executive roles at the end of 2018 and would then serve only as Trustees of the Company. Pursuant to our share-based compensation plans, their unvested grants will continue to vest over the original vesting periods during their service as Trustees. For financial reporting, the end of the service periods for previous stock option and RSU grants for these executives changed from (i) the various vesting dates to (ii) December 31, 2018 when they retired. Accordingly, all remaining share-based compensation expense for these two executives was amortized in the year ended December 31, 2018. 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 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. F-26 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 During 2020, 770,000 stock options were granted where vesting is dependent upon meeting certain performance targets with respect to 2020, 2021, and 2022. As of December 31, 2020, these targets are expected to be met at 100% achievement. These options are included in the grants during 2020 and in options outstanding at December 31, 2020, and $3.0 million in related compensation expense was recorded during 2020. The stock options outstanding at December 31, 2020 have an aggregate intrinsic value (the excess, if any, of each option’s market value over the exercise price) of approximately $63.2 million and remaining average contractual lives of approximately six years. The aggregate intrinsic value of exercisable stock options at December 31, 2020 amounted to approximately $52.3 million. Approximately 1,240,000 of the stock options outstanding at December 31, 2020, have an exercise price of more than $225. Included in our stock options exercisable at December 31, 2020, are 16,667 stock options which expire through June 30, 2021, with an average exercise price per share of $115.96. Additional information with respect to stock options during 2020, 2019 and 2018 is as follows: 2020 2019 2018 Weighted Weighted Weighted Average Number Exercise Number Exercise Number Exercise Average Average Options outstanding January 1, Granted Exercised Cancelled of Price of Price of Options per Share Options per Share Options 2,339,667 $ 840,000 (71,500) (147,000) 204.53 226.58 175.16 222.67 2,420,922 $ 120,000 (191,255) (10,000) 201.31 221.12 174.55 197.90 2,408,917 $ 200,000 (179,995) (8,000) Price per Share 192.12 194.29 69.53 223.50 Options outstanding December 31, 2,961,167 $ 210.59 2,339,667 $ 204.53 2,420,922 $ 201.31 Options exercisable at December 31, 1,585,091 $ 199.54 1,501,667 $ 196.37 1,147,122 $ 178.31 2020 2019 2018 Stock option expense for the year (in 000's) (a) $ 7,613 $ 4,950 $ 17,162 Aggregate exercise date intrinsic value of options exercised during the year (in 000's) $ 3,433 $ 11,848 $ 25,117 Average assumptions used in valuing options with the Black-Scholes method: Expected life of options in years, based upon historical experience Risk-free interest rate Expected volatility, based upon historical volatility Expected dividend yield 5 0.43% 21.6% 3.8% 5 2.3% 8.9% 3.6% 5 2.7% 12.5% 4.1% Average estimated value of options granted during the year $ 17.79 $ 9.61 $ 13.09 (a) Amounts for 2020 include $0.3 million in connection with the Retirement Acceleration. Amounts for 2018 include $8.1 million, in connection with the acceleration of amortization on grants discussed above. Of the total expense recorded, $2.8 million, $2.2 million and $2.1 million for 2020, 2019 and 2018, F-27 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 respectively, was allocated to cost of operations, with the remainder allocated to general and administrative expense. 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. The fair value of our RSUs outstanding at December 31, 2020 was approximately $127.7 million. Remaining compensation expense related to RSUs outstanding at December 31, 2020 totals approximately $76.9 million and is expected to be recognized as compensation expense over the next 4 years on average. The following tables set forth relevant information with respect to restricted shares (dollar amounts in thousands): 2020 2019 2018 Number of Grant Date Number of Grant Date Number of Grant Date Restricted Aggregate Restricted Aggregate Restricted Aggregate Share Units Fair Value Share Units Fair Value Share Units Fair Value Restricted share units outstanding January 1, Granted Vested Forfeited Restricted share units outstanding December 31, 619,150 $ 110,755 (140,089) (37,028) 132,058 24,617 (28,141) (7,964) 717,696 $ 97,140 (160,329) (35,357) 151,212 21,113 (32,714) (7,553) 799,129 $ 138,567 (164,104) (55,896) 166,144 27,733 (30,717) (11,948) 552,788 $ 120,570 619,150 $ 132,058 717,696 $ 151,212 Amounts for the year (in 000's, except number of shares): Fair value of vested shares on vesting date Cash paid for taxes upon vesting in lieu of issuing common shares Common shares issued upon vesting Restricted share unit expense (a) 2020 2019 2018 $ $ $ 31,076 $ 10,518 $ 91,627 26,359 $ 33,769 $ 12,162 $ 96,479 21,662 $ 32,317 12,347 97,516 53,869 (a) Amounts for 2020, 2019 and 2018 include approximately $1.3 million, $1.2 million and $1.1 million, respectively, in employer taxes incurred upon vesting. Amounts for 2020 include $5.4 million, in connection with the Retirement Acceleration as discussed above. Amounts for 2018 include $22.6 million, in connection with the acceleration of amortization on grants to our CEO and CFO as discussed above. Of the total expense recorded, $12.1 million, $9.9 million and $14.3 million for 2020, 2019 and 2018, respectively, was allocated to cost of operations, with the remainder allocated to general and administrative expense. 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 F-28 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 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 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. 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 operations of our tenant reinsurance, merchandise sales and third party management activities. 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 seven 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 tables reconcile NOI (as applicable) and net income of each segment to our consolidated net income (amounts in thousands): F-29 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 Self-Storage Segment Revenue Cost of operations Net operating income Depreciation and amortization Net income Ancillary Segment Revenue Cost of operations Net operating income For the Years Ended December 31, 2019 2020 2018 $ 2,721,630 $ (807,543) 1,914,087 (553,257) 1,360,830 2,684,552 $ (762,416) 1,922,136 (512,918) 1,409,218 193,438 (59,919) 133,519 170,556 (50,736) 119,820 2,597,607 (709,739) 1,887,868 (483,646) 1,404,222 161,916 (47,344) 114,572 Investment in PSB Segment (a) - Equity in earnings of unconsolidated entities 64,835 54,090 89,362 Investment in Shurgard Segment (a) - Equity in earnings of unconsolidated entities Gain due to Shurgard public offering Net income from Investment in Shurgard Segment 15,662 - 15,662 15,457 - 15,457 14,133 151,616 165,749 Total net income allocated to segments 1,574,846 1,598,585 1,773,905 Other items not allocated to segments: General and administrative Interest and other income Interest expense Foreign currency exchange (loss) gain Gain on sale of real estate Net income (83,199) 22,323 (56,283) (97,953) 1,493 1,361,227 $ (62,146) 26,683 (45,641) 7,829 341 1,525,651 $ (104,712) 24,552 (32,542) 18,117 37,903 1,717,223 $ (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. Recent Accounting Pronouncements and Guidance In February 2016, the FASB issued ASU 2016-02, Leases, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new standard requires a modified-retrospective approach to adoption and became effective for interim and annual periods beginning on January 1, 2019. In July 2018, the FASB further amended this standard to allow for a new transition method that offers the option to use the effective date as the date of initial application and not adjust the comparative-period financial information. We adopted the new standard effective January 1, 2019, using the new transition method, recording a total of $38.7 million in right of use assets, reflected in other assets, and substantially the same amount in lease liabilities, reflected in accrued and other liabilities, for leases where we are the lessee (principally ground leases and office leases). We also reclassified related intangible assets totaling $5.6 million to other assets. The lease liabilities are recognized F-30 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 based on the present value of the remaining lease payments for each operating lease using each respective remaining lease term and a corresponding estimated incremental borrowing rate. We estimated the incremental borrowing rate primarily by reference to average yield spread on debt issuances by companies of a similar credit rating as us, and the treasury yields as of January 1, 2019. We had no material amount of leases covered by the standard where we are the lessor (principally our storage leases) because substantially all of such leases are month to month. For leases where we are the lessee or the lessor, we applied (i) the package of practical expedients to not reassess prior conclusions related to contracts that are or that contain leases, lease classification and initial direct costs, (ii) the hindsight practical expedient to determine the lease term and in assessing impairment of the right of use assets, and (iii) the easement practical expedient to not assess whether existing or expired land easements that were not previously accounted for as leases under ASC 840 are or contain a lease under this new standard. In addition, for leases where we are the lessee, we also elected to (a) not apply the new standard to our leases with an original term of 12 months or less, and (b) not separate lease and associated non-lease components. 13. Commitments and Contingencies Contingent Losses We are a party to various legal proceedings and subject to various claims and complaints; however, we believe that the likelihood of these contingencies resulting in a material loss to the Company, either individually or in the aggregate, is remote. Insurance and Loss Exposure We carry property, earthquake, general liability, employee medical insurance and workers compensation coverage through internationally recognized insurance carriers, subject to deductibles. Our deductible for general liability is $2.0 million per occurrence. Our annual deductible for property loss is $25.0 million per occurrence. This deductible decreases to $5.0 million once we reach $35.0 million in aggregate losses for occurrences that exceed $5.0 million. Insurance carriers’ aggregate limits on these policies of $75.0 million for property losses and $102.0 million for general liability losses are higher than estimates of maximum probable losses that could occur from individual catastrophic events determined in recent engineering and actuarial studies; however, in case of multiple catastrophic events, these limits could be exceeded. We reinsure a program that provides insurance to our customers from an independent third-party insurer. This program covers customer claims for losses to goods stored at our facilities as a result of specific named perils (earthquakes are not covered by this program), up to a maximum limit of $5,000 per storage unit. We reinsure all risks in this program, but purchase insurance to cover this exposure for a limit of $15.0 million for losses in excess of $5.0 million per occurrence. We are subject to licensing requirements and regulations in several states. Customers participate in the program at their option. At December 31, 2020, there were approximately 990,000 certificates held by our self-storage customers, representing aggregate coverage of approximately $3.9 billion. F-31 PUBLIC STORAGE NOTES TO FINANCIAL STATEMENTS December 31, 2020 Construction Commitments We have construction commitments representing future expected payments for construction under contract totaling $105.0 million at December 31, 2020. We expect to pay approximately $95.2 million in 2021 and $9.8 million in 2022 for these construction commitments. 14. Subsequent Events Subsequent to December 31, 2020, we acquired or were under contract to acquire 40 self-storage facilities across 18 states with 3.5 million net rentable square feet, for $580.1 million. On January 19, 2021, we completed a public offering of $500 million aggregate principal amount of 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 $3.8 million in costs. On January 20, 2021, we redeemed our 5.4% Series B Preferred Shares, at par, for a total of $300 million in cash before payment of accrued dividends. F-32 E G A R O T S C I L B U P E T A T S E L A E R - I I I E L U D E H C S I N O I T A C E R P E D D E T A L U M U C C A D N A ) s e i t r e p o r p f o r e b m u n t p e c x e , s d n a s u o h t n i s t n u o m A ( d e t a l u m u c c A n o i t a i c e r p e D t n u o m A g n i y r r a C s s o r G 0 2 0 2 , 1 3 r e b m e c e D t A s t s o C t s o C l a i t i n I 0 2 0 2 t e N t n e u q e s b u S & s g n i d l i u B - m u c n E e l b a t n e R f o . o N l a t o T s g n i d l i u B d n a L n o i t i s i u q c A o t s t n e m e v o r p m I d n a L s e c n a r b t e e F . q S s e i t i l i c a F n o i t p i r c s e D 2 0 3 , 8 9 7 9 4 3 , 5 1 3 2 8 4 , 8 8 4 5 1 8 , 6 0 3 9 6 2 , 2 8 3 1 7 5 , 5 5 4 4 8 2 , 9 7 2 4 4 9 , 9 4 3 0 2 5 , 5 3 3 1 4 3 , 7 2 3 9 4 8 , 6 6 1 3 0 8 , 6 5 1 6 5 4 , 1 3 1 4 8 6 , 1 3 1 2 6 5 , 2 3 1 2 9 1 , 7 6 1 6 9 9 , 3 3 1 0 2 2 , 0 2 1 2 1 2 , 2 1 1 2 9 2 , 1 9 2 2 4 , 7 0 1 6 8 3 , 0 8 0 3 4 , 6 6 1 0 8 , 3 9 3 3 0 , 0 7 8 8 2 , 0 7 4 0 8 , 8 4 3 4 3 , 7 2 2 4 0 , 5 7 2 7 7 , 8 4 7 0 4 , 1 0 1 6 9 3 , 3 9 8 4 5 8 , 2 9 9 4 1 6 , 7 4 7 1 9 4 , 2 8 6 5 5 2 , 9 6 0 , 1 4 1 4 , 7 8 5 7 6 3 , 0 4 8 1 6 6 , 5 0 9 0 0 9 , 1 6 7 2 0 3 , 3 5 4 8 2 4 , 5 4 4 2 7 9 , 4 6 3 1 7 6 , 5 7 4 4 1 9 , 6 4 3 4 3 9 , 9 3 3 6 2 7 , 5 4 4 0 7 8 , 9 1 3 7 5 4 , 0 1 3 4 4 8 , 9 5 2 2 6 1 , 3 3 2 5 2 8 , 5 2 1 8 0 6 , 8 8 1 1 9 1 , 4 5 2 9 4 2 , 1 3 1 8 2 7 , 1 0 2 5 2 6 , 9 1 3 1 2 4 , 5 6 1 8 0 0 , 6 2 1 6 1 8 , 1 4 1 9 9 4 , 3 2 1 9 4 5 , 7 0 7 3 1 3 , 8 3 7 2 5 0 , 9 6 5 1 7 9 , 7 3 5 7 9 7 , 5 8 7 3 5 9 , 1 5 4 7 5 6 , 1 4 6 0 8 7 , 9 5 6 1 4 8 , 2 2 5 0 1 4 , 7 0 3 0 6 1 , 5 4 3 6 5 8 , 6 7 2 4 9 3 , 0 6 3 0 3 1 , 1 5 2 2 2 9 , 3 8 2 0 3 2 , 8 8 2 9 5 1 , 2 5 2 1 5 9 , 1 4 2 0 8 2 , 2 9 1 4 3 1 , 8 7 1 0 0 2 , 0 0 1 1 7 2 , 7 3 1 8 6 9 , 7 7 1 5 2 7 , 3 0 1 5 8 8 , 4 5 1 6 1 2 , 8 3 2 1 3 3 , 0 2 1 3 4 7 , 7 8 3 6 8 , 0 9 6 9 2 , 3 1 1 2 6 4 , 4 3 8 , 1 1 0 3 , 7 1 3 , 1 1 6 1 , 7 1 5 7 4 8 , 5 8 1 1 4 5 , 4 5 2 2 6 5 , 8 7 1 0 2 5 , 4 4 1 8 5 4 , 3 8 2 1 6 4 , 5 3 1 0 1 7 , 8 9 1 1 8 8 , 5 4 2 9 5 0 , 9 3 2 2 9 8 , 5 4 1 8 6 2 , 0 0 1 6 1 1 , 8 8 7 7 2 , 5 1 1 4 8 7 , 5 9 2 1 0 , 6 5 6 9 4 , 7 5 1 1 1 7 , 7 6 6 0 5 , 8 6 4 6 5 , 7 6 8 2 0 , 5 5 5 2 6 , 5 2 7 3 3 , 1 5 3 2 2 , 6 7 4 2 5 , 7 2 3 4 8 , 6 4 9 0 4 , 1 8 0 9 0 , 5 4 5 6 2 , 8 3 0 2 5 , 8 2 6 3 6 , 2 3 9 0 7 , 2 7 3 8 3 7 , 7 3 2 6 3 9 , 3 2 2 8 6 7 , 2 3 1 9 5 0 , 2 3 1 2 4 5 , 5 0 2 2 1 8 , 0 9 2 6 5 , 0 1 1 6 1 1 , 9 3 1 6 2 2 , 1 2 1 6 1 5 , 9 5 0 4 2 , 8 9 9 4 3 , 9 7 9 1 7 , 3 9 9 4 3 , 9 4 9 3 8 , 8 5 9 5 4 , 7 6 2 5 1 , 9 3 4 2 2 , 8 2 1 2 8 , 4 4 8 5 1 , 8 2 5 7 2 , 1 3 7 7 6 , 8 3 2 8 6 , 2 4 5 5 6 , 7 2 4 1 0 , 5 2 7 8 2 , 9 2 7 3 4 , 8 2 5 7 7 , 3 1 9 5 5 , 0 2 7 5 6 , 7 1 6 0 2 , 2 4 9 2 3 1 , 9 6 4 7 2 1 , 7 2 5 4 8 8 , 7 3 4 9 4 7 , 8 0 4 2 9 5 , 6 8 5 3 0 5 , 1 6 3 2 4 7 , 1 3 5 7 5 5 , 2 2 5 9 6 7 , 6 0 4 5 7 3 , 3 5 2 1 4 6 , 7 4 2 0 7 3 , 5 0 2 0 4 8 , 6 6 2 3 4 5 , 4 0 2 4 0 1 , 4 2 2 9 7 4 , 1 2 2 7 5 8 , 3 1 2 8 1 7 , 3 1 2 1 8 4 , 9 4 1 4 3 6 , 0 5 1 9 0 4 , 9 6 3 8 5 , 9 9 8 2 0 , 6 7 6 9 7 , 7 3 1 6 8 9 , 8 2 1 5 9 4 , 9 0 2 1 0 0 , 2 9 8 6 9 , 3 7 1 6 8 , 2 9 6 0 2 , 4 7 3 3 - F 7 4 5 , 9 1 5 6 2 5 , 6 8 1 1 9 7 , 1 4 2 2 6 9 , 6 7 1 3 8 6 , 1 4 1 1 2 1 , 7 7 2 9 9 0 , 5 3 1 3 6 0 , 8 9 1 8 8 9 , 3 4 2 5 0 9 , 3 3 2 1 1 4 , 0 4 1 7 4 5 , 9 9 3 5 2 , 0 8 2 1 1 , 5 1 1 2 2 0 , 3 9 1 9 9 , 6 5 8 8 7 , 6 5 1 1 6 8 , 6 6 5 1 5 , 8 6 2 4 5 , 5 6 0 7 3 , 4 5 1 4 1 , 5 2 8 4 3 , 0 5 3 1 7 , 3 7 6 6 5 , 7 2 8 2 7 , 7 4 3 4 8 , 0 8 3 8 9 , 4 4 5 6 2 , 8 3 6 9 3 , 8 2 6 3 6 , 1 3 - - - - - 5 5 4 - - - 3 1 7 , 1 5 2 9 , 8 9 8 5 , 1 1 - 4 7 1 , 2 - - - - - - - - - - - - - - - - - 5 6 2 , 6 1 5 6 6 , 0 1 0 8 9 , 8 9 6 9 , 8 1 8 5 , 8 1 1 0 , 7 8 3 1 , 7 0 9 7 , 6 6 2 1 , 7 5 4 6 , 5 1 5 5 , 4 0 4 7 , 4 0 6 3 , 4 1 2 7 , 4 8 7 8 , 3 4 0 0 , 4 5 4 5 , 3 0 5 3 , 3 1 7 8 , 2 2 6 7 , 2 6 2 4 , 2 9 5 9 , 1 5 7 9 , 1 7 3 0 , 2 1 9 7 , 1 5 1 2 , 2 4 6 9 , 1 5 1 0 , 2 5 4 6 , 1 8 8 5 , 1 7 9 6 , 1 5 2 2 8 2 1 8 3 1 4 2 1 4 3 1 6 9 6 0 1 7 9 6 9 1 9 2 7 4 6 6 5 1 6 7 5 1 6 6 4 7 4 2 4 5 3 5 4 4 3 8 2 2 2 8 2 6 3 8 2 7 2 3 2 4 2 6 2 : t e k r a m y b s e i t i l i c a f e g a r o t s - f l e S s e l e g n A s o L n o t s u o H o c s i c n a r F n a S h t r o W . t F / s a l l a D k r o Y w e N o g a c i h C a t n a l t A a m o c a T / e l t t a e S i m a i M a n o t y a D / o d n a l r O C D n o t g n i h s a W e t t o l r a h C r e v n e D l u a P . t S / s i l o p a e n n i M h c a e B m l a P t s e W a i h p l e d a l i h P a p m a T x i n e o h P t i o r t e D n i t s u A d n a l t r o P o t n e m a r c a S o g e i D n a S h g i e l a R o i n o t n A n a S s u b m u l o C k l o f r o N n o t s o B y t i C a m o h a l k O s i l o p a n a i d n I e r o m i t l a B E G A R O T S C I L B U P E T A T S E L A E R - I I I E L U D E H C S I N O I T A C E R P E D D E T A L U M U C C A D N A ) s e i t r e p o r p f o r e b m u n t p e c x e , s d n a s u o h t n i s t n u o m A ( d e t a l u m u c c A n o i t a i c e r p e D t n u o m A g n i y r r a C s s o r G 0 2 0 2 , 1 3 r e b m e c e D t A s t s o C t s o C l a i t i n I 0 2 0 2 t e N t n e u q e s b u S & s g n i d l i u B - 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F 3 6 4 , 2 2 7 6 5 , 4 1 9 6 1 , 0 2 8 3 0 , 5 2 9 8 1 , 3 1 5 3 1 , 7 1 3 6 5 , 3 2 2 5 2 , 1 1 7 8 7 , 8 1 4 8 1 , 4 5 3 1 4 , 3 1 8 8 5 , 0 1 9 6 5 , 6 8 7 7 , 6 4 9 0 , 3 3 7 4 9 , 6 1 8 9 2 , 3 2 5 0 2 , 9 6 3 0 , 9 7 8 4 , 5 6 1 3 , 6 6 1 3 , 0 1 1 8 5 , 9 1 5 8 7 , 6 2 9 0 , 8 1 3 0 4 , 9 0 7 0 , 4 7 1 0 , 2 5 1 9 , 8 1 6 2 , 8 5 6 4 , 8 9 0 3 , 8 - - - - 4 7 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - 6 8 7 , 1 7 4 6 , 1 5 4 3 , 1 5 5 3 , 1 4 6 9 1 5 0 , 1 6 1 9 1 4 8 8 0 1 , 1 7 0 8 5 4 8 2 9 9 7 9 6 3 9 6 0 0 7 0 5 9 1 6 8 7 2 6 2 2 6 9 5 5 6 0 6 6 6 5 5 4 6 2 6 4 0 5 6 9 3 4 4 3 4 3 3 4 9 2 5 0 3 4 9 2 3 2 4 2 8 2 5 2 3 2 1 2 5 1 8 1 5 1 4 1 7 1 1 1 4 1 4 1 0 1 1 1 2 1 4 1 1 1 9 1 1 7 5 1 9 1 1 9 3 1 7 7 7 1 1 5 7 3 n e e r G g n i l w o B / e l l i v h s a N n e v a H w e N / d r o f t r a H s g n i r p S o d a r o l o C a g o o n a t t a h C s e l p a N / s r e y M t r o F s n a e l r O w e N n o t s e l r a h C h a n n a v a S o r o b s n e e r G u l u l o n o H e l l i v e h s A / g r u b n a t r a p S / e l l i v s n e e r G y t i C s a s n a K s i u o L . t S a i b m u l o C s a g e V s a L e e k u a w l i M i t a n n i c n i C e l l i v s i u o L e l l i v n o s k c a J y t i C e k a L t l a S m a h g n i m r i B s i h p m e M o n e R r e t s e h c o R / o l a f f u B n o r k A / d n a l e v e l C d n o m h c i R n o s c u T s a n i l a S / y e r e t n o M s g n i r p S m l a P a t i h c i W e l i b o M a h a m O E G A R O T S C I L B U P E T A T S E L A E R - I I I E L U D E H C S I N O I T A C E R P E D D E T A L U M U C C A D N A ) s e i t r e p o r p f o r e b m u n t p e c x e , s d n a s u o h t n i s t n u o m A ( 5 3 1 , 2 5 1 , 7 $ 7 2 6 , 2 7 3 , 7 1 $ 9 3 0 , 7 9 9 , 2 1 $ 8 8 5 , 5 7 3 , 4 $ 3 1 9 , 5 5 1 , 3 $ 9 2 4 , 3 0 9 , 9 $ 5 8 2 , 3 1 3 , 4 $ 0 3 2 , 5 2 $ 0 5 0 , 5 7 1 8 4 5 , 2 y l l a r e n e g g n i g n a r s e v i l l u f e s u d e t a m i t s e r e v o s i s a b e n i l - t h g i a r t s a n o d e t a i c e r p e d e r a s t n e m e v o r p m i d n a s g n i d l i u B : e t o N . d e t i d u a n u e r a s e i t i l i c a f r u o f o e g a t o o f e r a u q s d n a r e b m u n e h t f o s e r u s o l c s i d , n o i t i d d a n I . s r a e y 5 2 o t 5 n e e w t e b d e t a l u m u c c A n o i t a i c e r p e D t n u o m A g n i y r r a C s s o r G 0 2 0 2 , 1 3 r e b m e c e D t A s t s o C t s o C l a i t i n I 0 2 0 2 t e N t n e u q e s b u S & s g n i d l i u B - m u c n E e l b a t n e R f o . o N l a t o T s g n i d l i u B d n a L n o i t i s i u q c A o t s t n e m e v o r p m I d n a L s e c n a r b t e e F . q S s e i t i l i c a F n o i t p i r c s e D 8 4 2 , 4 2 2 5 , 7 5 6 7 , 6 2 8 8 , 5 6 6 8 , 6 9 8 0 , 6 1 5 8 , 4 3 1 9 , 4 8 9 0 , 4 7 9 7 , 5 1 8 0 , 3 8 2 4 , 2 1 4 1 , 3 7 6 9 , 1 6 2 6 , 1 2 3 0 , 2 2 6 8 9 8 9 , 7 1 9 9 8 , 4 1 3 7 2 , 6 2 7 3 1 , 7 9 0 2 , 5 1 3 9 6 , 5 2 8 4 1 , 6 8 1 7 , 6 0 0 4 , 5 7 0 3 , 5 1 4 3 7 , 3 4 7 3 , 4 6 5 8 , 6 1 1 7 8 , 3 2 8 1 , 2 0 7 6 , 2 3 3 2 , 1 7 7 6 , 5 1 6 2 8 , 3 1 0 6 0 , 0 2 8 8 7 , 6 4 1 2 , 4 1 5 8 5 , 6 1 7 0 4 , 5 1 9 2 , 5 0 2 4 , 4 4 7 5 , 9 9 0 5 , 3 8 1 8 , 3 9 2 3 , 3 8 1 9 , 1 5 2 1 , 2 0 4 0 , 1 9 0 7 , 4 1 2 1 3 , 2 3 7 0 , 1 3 1 2 , 6 9 4 3 5 9 9 8 0 1 , 9 1 4 7 7 2 4 , 1 0 8 9 3 3 7 , 5 5 2 2 6 5 5 7 4 1 , 2 2 4 5 4 6 2 5 4 5 3 9 1 3 3 3 , 1 0 5 8 , 4 1 8 0 , 4 4 9 1 , 3 8 0 0 , 3 1 5 0 , 3 1 0 3 , 2 0 1 9 , 1 7 0 1 , 2 8 6 4 0 9 0 , 2 6 3 9 8 0 9 0 6 2 6 4 8 3 8 9 4 1 0 , 1 5 7 9 , 8 6 1 3 , 4 1 4 9 5 , 3 9 7 9 , 5 1 6 0 2 , 1 1 1 8 4 , 3 1 0 3 0 , 3 0 8 3 , 3 6 4 2 , 2 6 0 1 , 9 9 1 4 , 1 2 8 8 , 2 8 6 0 , 3 1 0 8 , 3 1 4 0 9 6 0 2 9 7 2 , 1 0 4 3 , 2 4 7 0 , 1 3 1 2 , 6 9 4 3 5 9 9 7 1 8 1 6 1 , 9 8 2 4 , 1 7 4 0 , 1 3 3 7 , 5 5 2 2 6 5 5 7 4 1 , 2 3 4 5 4 6 2 5 4 5 4 4 8 2 7 , 1 4 8 4 1 , 8 7 2 1 3 , 3 6 6 3 8 , 4 1 1 9 5 , 2 4 1 6 7 , 1 2 6 9 7 , 3 1 - - - - - - - - - - - - - - - - - - 6 2 3 4 8 2 2 9 3 8 6 1 5 5 1 8 9 2 0 5 1 4 4 1 9 9 8 9 4 9 8 8 9 5 1 6 5 6 5 5 5 3 3 5 5 7 3 3 5 2 2 2 2 2 2 3 1 1 1 1 r u t a c e D / e l l i v s t n u H t r o p e v e r h S e k o y l o H / d l e i f g n i r p S a r a b r a B a t n a S r e t s e h c o R e l l i v s n a v E n o t y a D a t s u g u A e n y a W t r o F e c n e d i v o r P a k e p o T g n i s n a L e k o n a o R n i l p o J t n i l F e s u c a r y S n o t k c o t S / o n s e r F / o t s e d o M g n i t a r e p o - n o n d n a l a i c r e m m o C e t a t s e l a e r 5 3 - F Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements: (1) (2) (3) (4) Registration Statement on Form S-3ASR (No. 333-231510) and related prospectus, Registration Statement on Form S-8 (No. 333-210937) and related prospectus of Public Storage for the registration of common shares of beneficial interest pertaining to the Public Storage 2016 Equity and Performance-Based Incentive Compensation Plan, Registration Statement on Form S-8 (No. 333-195646) and related prospectus of Public Storage for the registration of common shares of beneficial interest pertaining to the Public Storage 2007 Equity and Performance-Based Incentive Compensation Plan as Amended, and Registration Statement on Form S-8 (No.333-144907) and related prospectus of Public Storage for the registration of common shares of beneficial interest pertaining to the Public Storage 2007 Equity and Performance-Based Incentive Compensation Plan; of our reports dated February 24, 2021, with respect to the consolidated financial statements of Public Storage and the effectiveness of internal control over financial reporting of Public Storage included in this Annual Report (Form 10- K) of Public Storage for the year ended December 31, 2020. /s/ Ernst & Young LLP February 24, 2021 Los Angeles, California RULE 13A – 14(a) CERTIFICATION I, Joseph D. Russell, Jr., certify that: 1. I have reviewed this Annual Report on Form 10-K of Public Storage; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Joseph D. Russell, Jr. Name: Joseph D. Russell, Jr. Title: Chief Executive Officer and President Date: February 24, 2021 Exhibit 31.1 RULE 13A – 14(a) CERTIFICATION I, H. Thomas Boyle, certify that: 1. I have reviewed this Annual Report on Form 10-K of Public Storage; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ H. Thomas Boyle Name: H. Thomas Boyle Title: Chief Financial Officer Date: February 24, 2021 Exhibit 31.2 SECTION 1350 CERTIFICATION In connection with the Annual Report on Form 10-K of Public Storage (the “Company”) for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), Joseph D. Russell, Jr., as Chief Executive Officer and President of the Company and H. Thomas Boyle, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joseph D. Russell, Jr. Name: Joseph D. Russell, Jr. Title: Chief Executive Officer and President Date: February 24, 2021 /s/ H. Thomas Boyle Name: H. Thomas Boyle Title: Chief Financial Officer Date: February 24, 2021 This certification accompanies the Report pursuant to §906 of Sarbanes-Oxley and shall not, except to the extent required by Sarbanes-Oxley, be deemed filed by the Company for purposes of §18 of the Exchange Act. A signed original of this written statement required by §906 of Sarbanes-Oxley has been provided to the Company, and will be retained and furnished to the SEC or its staff upon request. Exhibit 32 CORPORATE DATA (as of February 23, 2021) Trustees Executive Team Ronald L. Havner, Jr. (2002) Chairman of the Board, Retired Chief Executive Officer, Public Storage Joseph D. Russell, Jr. President, Chief Executive Officer H. Thomas Boyle Senior Vice President, Chief Financial Officer Nathaniel A. Vitan Senior Vice President, Chief Legal Officer and Corporate Secretary Natalia N. Johnson Senior Vice President, Chief Administrative Officer Steven H. Lentin Executive Vice President, Operations James J. Shinnick Executive Vice President, Operations Andres M. Friedman Senior Vice President, Development Michael K. McGowan Senior Vice President, Acquisitions Terrance F. Spidell Senior Vice President, Controller Phillip D. Williams, Jr. Senior Vice President, Construction Third Party Management Peter G. Panos President Asset Management John M. Sambuco President PS Insurance Capri L. Haga President Shurgard Self Storage SA (Europe) Marc Oursin Chief Executive Officer PS Business Parks, Inc. John W. Petersen Interim President and Chief Executive Officer and Chief Operating Officer Joseph D. Russell, Jr. (2019) President and Chief Executive Officer, Public Storage Tamara Hughes Gustavson (2008) Real Estate Investor, Philanthropist Leslie S. Heisz (2017) Retired Managing Director, Lazard Frères & Co. Michelle Millstone-Shroff (2021) Former Chief Customer Experience Officer, Bed Bath & Beyond, Inc., and President and Chief Operating Officer, buybuy BABY, Inc. Shankh S. Mitra (2021) Chief Executive Officer and Chief Investment Officer, Welltower, Inc. David J. Neithercut (2021) Retired Chief Executive Officer, Equity Residential Rebecca Owen (2021) Founder and Chairperson, Battery Reef, and Former Chief Legal Officer and Chief Investment Officer, Clark Enterprises, Inc. Kristy M. Pipes (2020) Retired Managing Director and Chief Financial Officer, Deloitte Consulting LLP Avedick B. Poladian (2010) Retired Executive Vice President and Chief Operating Officer, Lowe Enterprises, Inc. John Reyes (2019) Retired Chief Financial Officer, Public Storage Tariq M. Shaukat (2019) President, Bumble Ronald P. Spogli (2010) Co-Founder, Freeman Spogli & Co. Paul S. Williams (2021) President, National Association of Corporate Directors ( ) = Year trustee was elected to the Board Founder and Chairman Emeritus B. Wayne Hughes Corporate Headquarters 701 Western Avenue Glendale, CA 91201-2349 Investor Relations Additional information contact Ryan Burke Vice President, Investor Relations (818) 244-8080 Transfer Agent Computershare Trust Company, N.A. P.O. Box 505000 Louisville, KY 40233-5000 (781) 575-3120 Shareholder website: www.computershare.com/investor Shareholder online inquiries: www.computershare.com/us/investor-inquiries Independent Registered Public Accounting Firm Ernst & Young LLP Los Angeles, CA Annual Meeting of Shareholders The Annual Meeting of Shareholders of Public Storage will be held virtually on April 26, 2021 at 1:00 p.m. Pacific Time at www.virtualshareholdermeeting.com/ PSA2021. Additional Information Sources The Company’s website, PublicStorage.com, contains financial information of interest to shareholders, brokers and others. Public Storage is a member and active supporter of the National Association of Real Estate Investment Trusts. Certifications The most recent certifications by our Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed as exhibits to our Form 10-K. Our Chief Executive Officer’s most recent annual certification to the New York Stock Exchange was submitted on May 20, 2020. Stock Exchange Listing The Company’s Common Shares trade under ticker symbol PSA on the New York Stock Exchange. Public Storage P U B L I C S T O R A G E A N N U A L R E P O R T 2 0 2 0 Public Storage 701 Western Avenue, Glendale, California 91201-2349 (818) 244-8080 • PublicStorage.com 

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