# Public Storage (PSA) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Public Storage's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1393311/000139331122000010/psa-20211231.htm
Accession: 0001393311-22-000010
Filing date: 2022-02-22
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/PSA/
All MD&A years: /company/PSA/mda/
Next year: /company/PSA/mda/fy2022/ (FY 2022)

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 consolidated financial statements and notes thereto.

Critical Accounting Estimates

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

We believe the following are our critical accounting estimates, because they are reasonably likely to 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 involve a significant level of uncertainty.

Impairment of Long-Lived Assets: The analysis of impairment of our long-lived assets, including our real estate facilities, involves identification of indicators of impairment, including unfavorable operational results and significant cost overruns on construction, projections of future operating cash flows, and estimates of fair values, all of which require significant judgment and subjectivity. In particular, these estimates are sensitive to significant assumptions, such as the projections of future rental rates, stabilized occupancy level, future profit margin, discount rates and capitalization rates, all of which could be affected by our expectations about future market or economic conditions. 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.

Allocating Purchase Price for Acquired Real Estate Facilities: We estimate the fair values of the assets and liabilities of acquired real estate facilities, which consist principally of land and buildings, for purposes of allocating the aggregate purchase price of acquired real estate facilities. We estimate the fair value of land based upon price per square foot derived from observable transactions involving comparable land in similar locations as adjusted for location quality, parcel size, and date of sale associated with the acquired facilities. The fair value estimate of land is sensitive to the adjustments made to the land market transactions used in the estimate, particularly when there is a lack of recent

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comparable land market data. For large portfolio acquisitions, we estimate the fair value of buildings primarily using the income approach by estimating the fair value of hypothetical vacant acquired facilities and adjusting for the estimated fair value of land. For individual and small portfolio acquisitions, we estimate the fair value of buildings primarily based upon the estimated current replacement cost, which we calculate by estimating the replacement cost of new purpose-built self-storage facilities in similar geographic regions and adjusting for age, quality, amenities, and configuration associated with the buildings acquired. The fair value estimate of buildings is sensitive to assumptions used in both the income approach, such as lease-up period, future stabilized operating cash flows, capitalization rate and discount rate, and in the replacement cost approach, such as current cost adjustment, soft cost and developer profit estimate. Others could come to materially different conclusions as to the estimated fair values of land and buildings, 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 consolidated balance sheet.

Overview

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

During the year ended December 31, 2021, revenues generated by our Same Store Facilities increased by 10.5%, as compared to the previous year, while Same Store cost of operations decreased by 2%. Demand and operating trends have continued to improve, leading to increases in our self-storage rental rates and reduction in advertising expense in all markets while maintaining high levels of occupancy.

In addition to managing our existing facilities for organic growth, we have grown and plan to continue to grow through the acquisition and development of new facilities and expansion of our existing self-storage facilities. During 2021, we acquired a near-record high of 232 facilities with 21.8 million net rentable square feet for $5.1 billion. In addition, we developed and expanded self-storage space for a total cost of $218.0 million, adding 1.6 million net rentable square feet. During the year ended December 31, 2021, revenue generated by our acquired and newly developed and expanded facilities increased by 112.9% as compared to the previous year.

Our strong financial profile continues to enable effective access to capital markets in order to support our growth. During 2021, we raised an aggregate of $5.1 billion in four public debt offerings, resulting in aggregate notes payable of $7.5 billion with a weighted average rate of 1.8% at December 31, 2021. Additionally, during 2021, we issued $1.2 billion in three public offerings of our preferred shares offset by $1.2 billion in redemptions of our preferred shares, reducing our weighted average dividend rate from 4.8% at December 31, 2020 to 4.5% at December 31, 2021.

In order to enhance the competitive position of certain of our facilities relative to local competitors (including newly developed facilities) and execute on our climate initiatives and long-term sustainability strategies, we have embarked on our multi-year Property of Tomorrow program to (i) rebrand our properties through more pronounced, attractive, and clearly identifiable color schemes and signage, (ii) enhance the energy efficiency of our properties, and (iii) upgrade the configuration and layout of the offices and other customer zones to improve the customer experience. We expect to complete the program by the end of 2025. We spent approximately $130 million on the program in 2021 and expect to spend approximately $180 million in 2022.

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Results of Operations

Operating Results for 2021 and 2020

In 2021, net income allocable to our common shareholders was $1,732.4 million or $9.87 per diluted common share, compared to $1,098.3 million or $6.29 per diluted common share in 2020 representing an increase of $634.1 million or $3.58 per diluted common share. The increase is due primarily to (i) a $437.4 million increase in self-storage net operating income, (ii) a $209.7 million increase in foreign currency exchange gains associated with our Euro denominated notes payable, and (iii) our $149.0 million equity share of gains on sale of real estate recorded by PS Business Parks in 2021, partially offset by (iv) a $160.2 million increase in depreciation and amortization expense.

The $437.4 million increase in self-storage net operating income in 2021 as compared to 2020 is a result of a $276.9 million increase in our Same Store Facilities, and a $160.5 million increase in our Non-Same Store Facilities (as defined below). Revenues for the Same Store Facilities increased 10.5% or $262.7 million in 2021 as compared to 2020, due primarily to higher realized annual rent per available square foot and weighted average square foot occupancy. Cost of operations for the Same Store Facilities decreased by 2.0% or $14.2 million in 2021 as compared to 2020, due primarily to (i) a 36.1% ($22.4 million) decrease in marketing expenses and (ii) an 11.2% ($14.4 million) decrease in on-site property manager payroll. The increase in net operating income of $160.5 million for the Non-Same Store Facilities is due primarily to the impact of facilities acquired in 2021 and 2020 and the fill-up of recently developed and expanded facilities.

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 increase in foreign currency exchange losses associated with our Euro denominated notes payable, (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 $39.4 million decrease in our Same Store Facilities, offset partially by a $31.4 million increase in our non-Same Store Facilities. Revenues for the Same Store Facilities decreased 0.8% or $20.7 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 $18.8 million in 2020 as compared to 2019, due primarily to a 22.6% ($11.4 million) increase in marketing expenses, a 3.0% ($7.6 million) increase in property tax expense, and a 2.3% ($2.9 million) increase in on-site property manager payroll expense. The increase in net operating income of $31.4 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.

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 activities presented on our consolidated statements of cash flows. In addition, other REITs may compute these measures differently, so comparisons among REITs may not be helpful.

For the year ended December 31, 2021, FFO was $13.36 per diluted common share, as compared to $9.75 and $10.58 per diluted common share for the years ended December 31, 2020 and 2019, respectively, representing an increase in 2021 of 37.0% or $3.61 per diluted common share, as compared to 2020.

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["","(Amounts in thousands, except per share data)"],["Reconciliation of Diluted Earnings per Share to FFO per Share:"],["Diluted Earnings per Share","$","9.87","","","$","6.29","","","$","7.29"],["Eliminate amounts per share excluded from FFO:"],["Depreciation and amortization","4.44","","","3.53","","","3.32"],["Gains on sale of real estate investments, including our equity share from investments","(0.95)","","","(0.07)","","","(0.03)"],["FFO per share","$","13.36","","","$","9.75","","","$","10.58"],["Computation of FFO per Share:"],["Net income allocable to common shareholders","$","1,732,444","","","$","1,098,335","","","$","1,272,767"],["Eliminate items excluded from FFO:"],["Depreciation and amortization","709,349","","","549,975","","","511,413"],["Depreciation from unconsolidated real estate investments","73,729","","","70,681","","","71,725"],["Depreciation allocated to noncontrolling interests and restricted share unitholders","(4,415)","","","(3,850)","","","(4,208)"],["Gains on sale of real estate investments, including our equity share from investments","(165,272)","","","(12,791)","","","(5,896)"],["FFO allocable to common shares","$","2,345,835","","","$","1,702,350","","","$","1,845,801"],["Diluted weighted average common shares","175,568","","","174,642","","","174,530"],["FFO per share","$","13.36","","","$","9.75","","","$","10.58"]]
[[/GREPCENT_TABLE]]

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

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The following table reconciles FFO per share to Core FFO per share and FFO to Core FFO, respectively:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Year Ended December 31,"],["","2021","","2020","","Percentage Change","","2020","","2019","","Percentage Change"],["","(Amounts in thousands, except per share data)"],["Reconciliation of FFO per Share to Core FFO per Share:"],["FFO per share","$","13.36","","","$","9.75","","","37.0","%","","$","9.75","","","$","10.58","","","(7.8)","%"],["Eliminate the per share impact of items excluded from Core FFO, including our equity share from investments:"],["Foreign currency exchange (gain) loss","(0.64)","","","0.56","","","","","0.56","","","(0.04)"],["Preferred share redemption charge (a)","0.18","","","0.28","","","","","0.28","","","0.21"],["Property losses and tenant claims due to casualties (b)","0.03","","","\u2014","","","","","\u2014","","","\u2014"],["Other items","\u2014","","","0.02","","","","","0.02","","","\u2014"],["Core FFO per share","$","12.93","","","$","10.61","","","21.9","%","","$","10.61","","","$","10.75","","","(1.3)","%"],["Reconciliation of FFO to Core FFO:"],["FFO allocable to common shares","$","2,345,835","","","$","1,702,350","","","37.8","%","","$","1,702,350","","","$","1,845,801","","","(7.8)","%"],["Eliminate the impact of items excluded from Core FFO, including our equity share from investments:"],["Foreign currency exchange (gain) loss","(111,787)","","","97,953","","","","","97,953","","","(7,829)"],["Preferred share redemption charge (a)","31,604","","","48,265","","","","","48,265","","","37,246"],["Property losses and tenant claims due to casualties (b)","4,909","","","\u2014","","","","","\u2014","","","\u2014"],["Other items","(543)","","","4,412","","","","","4,412","","","255"],["Core FFO allocable to common shares","$","2,270,018","","","$","1,852,980","","","22.5","%","","$","1,852,980","","","$","1,875,473","","","(1.2)","%"],["Diluted weighted average common shares","175,568","","","174,642","","","","","174,642","","","174,530"],["Core FFO per share","$","12.93","","","$","10.61","","","21.9","%","","$","10.61","","","$","10.75","","","(1.3)","%"]]
[[/GREPCENT_TABLE]]

(a)Preferred share redemption charge was presented in allocation of net income to preferred shareholders - redemption and equity in earnings of unconsolidated real estate entities on the Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019.

(b)Property losses and tenant claims due to casualties was presented in general and administrative expenses and ancillary cost of operations on the Consolidated Statement of Income for the year ended December 31, 2021.

Analysis of Net Income - Self-Storage Operations

Our self-storage operations are analyzed in four groups: (i) the 2,274 facilities that we have owned and operated on a stabilized basis since January 1, 2019 (the “Same Store Facilities”), (ii) 338 facilities we acquired after December 31, 2019 (the “Acquired facilities”), (iii) 142 facilities that have been newly developed or expanded, or that had commenced expansion by December 31, 2021 (the “Newly developed and expanded facilities”), and (iv) 33 other facilities, which are otherwise not stabilized with respect to occupancies or rental rates since January 1, 2019 (the “Other non-same store facilities”). See Note 13 to our December 31, 2021 consolidated financial statements “Segment Information,” for a reconciliation of the amounts in the tables below to our total net income.

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[[GREPCENT_TABLE]]
[["Self-Storage Operations"],["Summary","Year Ended December 31,","","Year Ended December 31,"],["","2021","","2020","","Percentage Change","","2020","","2019","","Percentage Change"],["","(Dollar amounts and square footage in thousands)"],["Revenues:"],["Same Store facilities","$","2,767,577","","","$","2,504,919","","","10.5","%","","$","2,504,919","","","$","2,525,572","","","(0.8)","%"],["Acquired facilities","203,331","","","42,699","","","376.2","%","","42,699","","","12,704","","","236.1","%"],["Newly developed and expanded facilities","205,068","","","149,086","","","37.6","%","","149,086","","","121,378","","","22.8","%"],["Other non-same store facilities","27,590","","","24,926","","","10.7","%","","24,926","","","24,898","","","0.1","%"],["","3,203,566","","","2,721,630","","","17.7","%","","2,721,630","","","2,684,552","","","1.4","%"],["Cost of operations:"],["Same Store facilities","697,244","","","711,451","","","(2.0)","%","","711,451","","","692,656","","","2.7","%"],["Acquired facilities","71,407","","","20,065","","","255.9","%","","20,065","","","5,178","","","287.5","%"],["Newly developed and expanded facilities","73,617","","","66,444","","","10.8","%","","66,444","","","55,049","","","20.7","%"],["Other non-same store facilities","9,762","","","9,583","","","1.9","%","","9,583","","","9,533","","","0.5","%"],["","852,030","","","807,543","","","5.5","%","","807,543","","","762,416","","","5.9","%"],["Net operating income (a):"],["Same Store facilities","2,070,333","","","1,793,468","","","15.4","%","","1,793,468","","","1,832,916","","","(2.2)","%"],["Acquired facilities","131,924","","","22,634","","","482.9","%","","22,634","","","7,526","","","200.7","%"],["Newly developed and expanded facilities","131,451","","","82,642","","","59.1","%","","82,642","","","66,329","","","24.6","%"],["Other non-same store facilities","17,828","","","15,343","","","16.2","%","","15,343","","","15,365","","","(0.1)","%"],["Total net operating income","2,351,536","","","1,914,087","","","22.9","%","","1,914,087","","","1,922,136","","","(0.4)","%"],["Depreciation and amortization expense:"],["Same Store facilities","(447,599)","","","(445,756)","","","0.4","%","","(445,756)","","","(434,150)","","","2.7","%"],["Acquired facilities","(183,086)","","","(32,939)","","","455.8","%","","(32,939)","","","(12,883)","","","155.7","%"],["Newly developed and expanded facilities","(61,645)","","","(53,621)","","","15.0","%","","(53,621)","","","(46,340)","","","15.7","%"],["Other non-same store facilities","(21,098)","","","(20,941)","","","0.7","%","","(20,941)","","","(19,545)","","","7.1","%"],["Total depreciation and amortization expense","(713,428)","","","(553,257)","","","29.0","%","","(553,257)","","","(512,918)","","","7.9","%"],["Net income (loss):"],["Same Store facilities","1,622,734","","","1,347,712","","","20.4","%","","1,347,712","","","1,398,766","","","(3.6)","%"],["Acquired facilities","(51,162)","","","(10,305)","","","396.5","%","","(10,305)","","","(5,357)","","","92.4","%"],["Newly developed and expanded facilities","69,806","","","29,021","","","140.5","%","","29,021","","","19,989","","","45.2","%"],["Other non-same store facilities","(3,270)","","","(5,598)","","","(41.6)","%","","(5,598)","","","(4,180)","","","33.9","%"],["Total net income","$","1,638,108","","","$","1,360,830","","","20.4","%","","$","1,360,830","","","$","1,409,218","","","(3.4)","%"],["Number of facilities at period end:"],["Same Store facilities","2,274","","","2,274","","","\u2014","","2,274","","","2,274","","","\u2014"],["Acquired facilities","338","","","106","","","218.9","%","","106","","","44","","","140.9","%"],["Newly developed and expanded facilities","142","","","134","","","6.0","%","","134","","","131","","","2.3","%"],["Other non-same store facilities","33","","","34","","","(2.9)","%","","34","","","34","","","\u2014"],["","2,787","","","2,548","","","9.4","%","","2,548","","","2,483","","","2.6","%"],["Net rentable square footage at period end:"],["Same Store facilities","148,695","","","148,695","","","\u2014","","148,695","","","148,695","","","\u2014"],["Acquired facilities","30,059","","","8,229","","","265.3","%","","8,229","","","3,133","","","162.7","%"],["Newly developed and expanded facilities","17,407","","","15,891","","","9.5","%","","15,891","","","14,797","","","7.4","%"],["Other non-same store facilities","2,158","","","2,236","","","(3.5)","%","","2,236","","","2,283","","","(2.1)","%"],["","198,319","","","175,051","","","13.3","%","","175,051","","","168,908","","","3.6","%"]]
[[/GREPCENT_TABLE]]

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(a)Net operating income or “NOI” is a non-GAAP financial measure that excludes the impact of depreciation and amortization expense, which is based upon historical real estate costs and assumes that building values diminish ratably over time, while we believe that real estate values fluctuate due to market conditions. We utilize NOI in determining current property values, evaluating property performance, and in evaluating property operating trends. We believe that investors and analysts utilize NOI in a similar manner. NOI is not a substitute for net income, operating cash flow, or other related financial measures, in evaluating our operating results. See Note 13 to our December 31, 2021 consolidated financial statements for a reconciliation of NOI to our total net income for all periods presented.

Same Store Facilities

The Same Store Facilities consist of facilities we have owned and operated on a stabilized level of occupancy, revenues, and cost of operations since January 1, 2019. The composition of our Same Store Facilities allows us more effectively to evaluate the ongoing performance of our self-storage portfolio in 2019, 2020, and 2021 and exclude the impact of fill-up of unstabilized facilities, which can significantly affect operating trends. We believe investors and analysts use Same Store information in a similar manner. However, because other REITs may not compute Same Store Facilities in the same manner as we do, may not use the same terminology or may not present such a measure, Same Store Facilities may not be comparable among REITs.

The following table summarizes the historical operating results of these 2,274 facilities (148.7 million net rentable square feet) that represent approximately 75% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at December 31, 2021. It includes various measures and detail that we do not include in the analysis of the developed, acquired, and other non-same store facilities, due to the relative magnitude and importance of the Same Store Facilities relative to our other self-storage facilities.

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Selected Operating Data for the Same Store Facilities (2,274 facilities)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Year Ended December 31,"],["","2021","","2020","","Percentage Change","","2020","","2019","","Percentage Change"],["","(Dollar amounts in thousands, except for per square foot data)"],["Revenues (a):"],["Rental income","$","2,685,532","","","$","2,421,295","","","10.9%","","$","2,421,295","","","$","2,415,746","","","0.2%"],["Late charges and administrative fees","82,045","","","83,624","","","(1.9)%","","83,624","","","109,826","","","(23.9)%"],["Total revenues","2,767,577","","","2,504,919","","","10.5%","","2,504,919","","","2,525,572","","","(0.8)%"],["Direct cost of operations (a):"],["Property taxes","266,996","","","257,759","","","3.6%","","257,759","","","250,154","","","3.0%"],["On-site property manager payroll","114,437","","","128,879","","","(11.2)%","","128,879","","","125,991","","","2.3%"],["Repairs and maintenance","52,619","","","50,763","","","3.7%","","50,763","","","52,985","","","(4.2)%"],["Utilities","40,401","","","41,201","","","(1.9)%","","41,201","","","45,225","","","(8.9)%"],["Marketing","39,639","","","62,017","","","(36.1)%","","62,017","","","50,583","","","22.6%"],["Other direct property costs","73,621","","","68,294","","","7.8%","","68,294","","","67,083","","","1.8%"],["Total direct cost of operations","587,713","","","608,913","","","(3.5)%","","608,913","","","592,021","","","2.9%"],["Direct net operating income (b)","2,179,864","","","1,896,006","","","15.0%","","1,896,006","","","1,933,551","","","(1.9)%"],["Indirect cost of operations (a):"],["Supervisory payroll","(36,984)","","","(40,931)","","","(9.6)%","","(40,931)","","","(39,061)","","","4.8%"],["Centralized management costs","(55,316)","","","(49,054)","","","12.8%","","(49,054)","","","(50,873)","","","(3.6)%"],["Share-based compensation","(17,231)","","","(12,553)","","","37.3%","","(12,553)","","","(10,701)","","","17.3%"],["Net operating income","2,070,333","","","1,793,468","","","15.4%","","1,793,468","","","1,832,916","","","(2.2)%"],["Depreciation and amortization expense","(447,599)","","","(445,756)","","","0.4%","","(445,756)","","","(434,150)","","","2.7%"],["Net income","$","1,622,734","","","$","1,347,712","","","20.4%","","$","1,347,712","","","$","1,398,766","","","(3.6)%"],["Gross margin (before indirect costs, depreciation and amortization expense)","78.8%","","75.7%","","4.1%","","75.7%","","76.6%","","(1.2)%"],["Gross margin (before depreciation and amortization expense)","74.8%","","71.6%","","4.5%","","71.6%","","72.6%","","(1.4)%"],["Weighted average for the period:"],["Square foot occupancy","96.3%","","94.5%","","1.9%","","94.5%","","93.3%","","1.3%"],["Realized annual rental income per (c):"],["Occupied square foot","$","18.75","","$","17.24","","8.8%","","$","17.24","","$","17.41","","(1.0)%"],["Available square foot","$","18.06","","$","16.29","","10.9%","","$","16.29","","$","16.25","","0.2%"],["At December 31:"],["Square foot occupancy","94.8%","","94.2%","","0.6%","","94.2%","","91.6%","","2.8%"],["Annual contract rent per occupied square foot (d)","$","20.02","","$","17.90","","11.8%","","$","17.90","","$","17.95","","(0.3)%"]]
[[/GREPCENT_TABLE]]

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

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

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

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

Analysis of Same Store Revenue

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

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

Revenues generated by our Same Store Facilities increased 10.5% in 2021 and decreased 0.8% in 2020, in each case as compared to the previous year. The increase in 2021 is due primarily to (i) an 8.8% increase in realized annual rent per occupied square foot for 2021 as compared to 2020 and, to a lesser extent, (ii) a 1.9% increase in average occupancy for 2021 as compared to 2020. 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 declared state of emergency, reduced late charges and administrative fees, as well as the continued impact of increased new supply from new developments.

Our growth in revenues, weighted average square foot occupancy, realized annual rent per occupied square foot, and REVPAF for 2021 as compared to 2020 was evident in substantially all of our markets including each of our top 15 markets.

Realized annual rent per occupied square foot increased 8.8% in 2021 as compared to 2020. The increase of realized annual rent per occupied square foot in 2021 as compared to 2020 was due to (i) a 25.8% year over year increase in average rates per square foot charged to new tenants moving in as a result of strong customer demand across all markets, combined with (ii) rate increases to existing tenants in 2021 as compared to the curtailed increases in 2020. At December 31, 2021, annual contract rent per occupied square foot was 11.8% higher as compared to December 31, 2020.

We experienced high occupancy levels throughout 2021. Our average square foot occupancy levels increased 1.9% on a year over year basis during 2021 and at December 31, 2021, our square foot occupancy was 94.8%. The improvement in occupancy trends was due primarily to improved trends in move-outs, with year over year move-outs down 7.9% in 2021. This resulted in an increased average length of stay for 2021, which supports revenue growth through rate increases to long-term tenants and a reduced requirement to replace vacating tenants with new tenants, leading to reduced promotional costs and increased pricing leverage. This reduced requirement to replace vacating tenants with new tenants resulted in lower move-in volumes throughout 2021. With higher occupancy and pricing trends, we reduced promotional discounts given to new move-in customers for 2021 by 49.8% as compared to 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

29

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.

We expect continued revenue growth in 2022 supported by consistently high customer demand and a stable tenant base that will enable us to continue to raise rates to our existing tenants while maintaining a high level of occupancy.

Late Charges and Administrative Fees

Late charges and administrative fees decreased 1.9% year over year for 2021, 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 (ii) reduced move-in administrative fees due to lower move-ins.

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, 2021, 2020, and 2019. 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.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Year Ended December 31,"],["","2021","","2020","","Change","","2020","","2019","","Change"],["","(Amounts in thousands, except for per square foot amounts)"],["Tenants moving in during the period:"],["Average annual contract rent per square foot","$","17.08","","","$","13.58","","","25.8%","","$","13.58","","","$","13.57","","","0.1%"],["Square footage","93,684","","","104,426","","","(10.3)%","","104,426","","","109,173","","","(4.3)%"],["Contract rents gained from move-ins","$","1,600,123","","","$","1,418,105","","","12.8%","","$","1,418,105","","","$","1,481,478","","","(4.3)%"],["Promotional discounts given","$","37,950","","","$","75,568","","","(49.8)%","","$","75,568","","","$","82,144","","","(8.0)%"],["Tenants moving out during the period:"],["Average annual contract rent per square foot","$","17.56","","","$","15.58","","","12.7%","","$","15.58","","","$","16.01","","","(2.7)%"],["Square footage","92,585","","","100,548","","","(7.9)%","","100,548","","","108,434","","","(7.3)%"],["Contract rents lost from move-outs","$","1,625,793","","","$","1,566,538","","","3.8%","","$","1,566,538","","","$","1,736,028","","","(9.8)%"]]
[[/GREPCENT_TABLE]]

Analysis of Same Store Cost of Operations

Cost of operations (excluding depreciation and amortization) decreased 2.0% in 2021 as compared to 2020 due primarily to decreased marketing and on-site property manager payroll expense. Cost of operations (excluding depreciation and amortization) increased 2.7% in 2020 as compared to 2019 due primarily to increased marketing and property tax expense.

Property tax expense increased 3.6% in 2021 as compared to 2020 and increased 3.0% in 2020 as compared to 2019 as a result of higher assessed values. We expect property tax expense growth of approximately 5.0% in 2022 due primarily to higher assessed values and, to a lesser extent, increased tax rates.

On-site property manager payroll expense decreased 11.2% in 2021 as compared to 2020 and increased 2.3% in 2020 as compared to 2019. The decrease in 2021 is primarily due to (i) a year-over-year decline in hours worked due to staffing reductions from reduced move-in and move-out activity and revisions to other operational processes and (ii) a temporary $3.00 hourly incentive increase and enhancement of paid time off benefits to all of our property managers between April 1, 2020 and June 30, 2020 in response to the COVID Pandemic, partially offset by wage increases in response to competitive labor conditions experienced in most geographical markets since the second quarter of 2021. On October 1, 2021, we increased the wages of all of our property employees by an average of 7.5%, bringing our average pay for non-resident property employees (i.e. those not receiving rent and utility free housing) to $15 per hour. We expect on-

30

site property manager payroll expense to increase in 2022 driven by increased wage rates, partially offset by expected reduction in labor hours.

Our utility expenses consist primarily of electricity costs, which are dependent upon energy prices, subject to fluctuations due to market conditions, and usage levels. Changes in usage levels are driven primarily by weather and temperature. Utility expense decreased 1.9% in 2021 as compared to 2020 and 8.9% in 2020 as compared to 2019. The decreases experienced in 2021 and 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.

Marketing expense includes Internet advertising and the operating costs of our telephone reservation center. Internet advertising expense, comprising keyword search fees assessed on a “per click” basis, varies based upon demand for self-storage space, the quantity of people inquiring about self-storage through online search, occupancy levels, the number and aggressiveness of bidding competitors, and other factors. These factors are volatile; accordingly, Internet advertising can increase or decrease significantly in the short-term. We decreased marketing expense by 36.1% in 2021 as compared to 2020 due primarily to lower volume of paid search programs we utilized in 2021 given strong demand and high occupancies in many of our same store properties. Marketing expense increased 22.6% in 2020 as compared to 2019, due primarily to both higher volume of paid search programs we utilized 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.

Other direct property costs include administrative expenses specific to each self-storage facility, such as property insurance, telephone and data communication lines, business license costs, bank charges related to processing the facilities’ cash receipts, tenant mailings, credit card fees, eviction costs, and the cost of operating each property’s rental office. These costs increased 7.8% in 2021 as compared to 2020 and 1.8% in 2020 as compared to 2019. 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.

Supervisory payroll expense, which represents cash compensation paid to the management personnel who directly and indirectly supervise the on-site property managers, decreased 9.6% in 2021 as compared to 2020, due primarily to lower headcount in 2021 and incentives related to the COVID Pandemic in 2020. Supervisory payroll increased 4.8% in 2020 as compared to 2019 due to higher headcount.

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 increased 12.8% in 2021 as compared to 2020 and decreased 3.6% in 2020 as compared to 2019. The increase in 2021 was due primarily to an increase in technology and data team costs that support property operations. We expect increases in centralized management costs in 2022 due to continued investment in our technology and data platforms that support our property operations.

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 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. Share-based compensation expense increased 37.3% in 2021 as compared to 2020 and 17.3% in 2020 as compared to 2019. The increase in 2021 is due primarily to the absence of comparable performance-based share-based compensation expense in 2020 and the accelerated compensation costs recognized in 2021 associated with modifying our share-based compensation plans in July 2020, to allow immediate vesting upon retirement.

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Analysis of Market Trends

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

Same Store Facilities Operating Trends by Market

[[GREPCENT_TABLE]]
[["","As of December 31, 2021","Year Ended December 31,"],["","Number of Facilities","Square Feet (millions)","Realized Rent per Occupied Square Foot","Average Occupancy","Realized Rent per Available Square Foot"],["","2021","2020","Change","2021","2020","Change","2021","2020","Change"],["Los Angeles","213","15.2","$","27.48","","$","25.98","","5.8","%","98.2","%","96.6","%","1.7","%","$","26.99","","$","25.10","","7.5","%"],["San Francisco","130","8.1","27.96","","26.46","","5.7","%","97.2","%","96.0","%","1.3","%","27.17","","25.40","","7.0","%"],["New York","90","6.4","27.44","","25.86","","6.1","%","96.3","%","95.1","%","1.3","%","26.43","","24.58","","7.5","%"],["Miami","83","5.8","22.41","","19.75","","13.5","%","97.1","%","94.4","%","2.9","%","21.75","","18.64","","16.7","%"],["Seattle-Tacoma","87","5.9","22.02","","20.31","","8.4","%","95.4","%","94.1","%","1.4","%","21.01","","19.12","","9.9","%"],["Washington DC","89","5.5","22.70","","21.11","","7.5","%","95.3","%","94.4","%","1.0","%","21.62","","19.93","","8.5","%"],["Chicago","129","8.1","16.63","","14.96","","11.2","%","95.7","%","93.8","%","2.0","%","15.92","","14.04","","13.4","%"],["Atlanta","98","6.4","14.53","","13.18","","10.2","%","96.0","%","92.9","%","3.3","%","13.95","","12.24","","14.0","%"],["Dallas-Ft. Worth","102","6.6","14.72","","13.40","","9.9","%","95.9","%","93.0","%","3.1","%","14.12","","12.47","","13.2","%"],["Houston","92","6.4","13.69","","12.64","","8.3","%","94.3","%","92.1","%","2.4","%","12.91","","11.64","","10.9","%"],["Orlando-Daytona","70","4.5","14.86","","13.55","","9.7","%","95.7","%","94.3","%","1.5","%","14.21","","12.79","","11.1","%"],["Philadelphia","56","3.5","18.55","","16.86","","10.0","%","97.1","%","96.1","%","1.0","%","18.02","","16.20","","11.2","%"],["West Palm Beach","40","2.9","20.87","","18.09","","15.4","%","96.8","%","94.7","%","2.2","%","20.21","","17.14","","17.9","%"],["Tampa","52","3.5","15.51","","13.70","","13.2","%","96.2","%","93.4","%","3.0","%","14.92","","12.80","","16.6","%"],["Charlotte","50","3.8","12.46","","11.10","","12.3","%","95.9","%","92.9","%","3.2","%","11.95","","10.31","","15.9","%"],["All other markets","893","56.1","15.55","","14.14","","10.0","%","96.2","%","94.5","%","1.8","%","14.96","","13.36","","12.0","%"],["Totals","2,274","148.7","$","18.75","","$","17.24","","8.8","%","96.3","%","94.5","%","1.9","%","$","18.06","","$","16.29","","10.9","%"]]
[[/GREPCENT_TABLE]]

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Same Store Facilities Operating Trends by Market (Continued)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","Revenues ($000's)","Direct Expenses ($000's)","Indirect Expenses ($000's)","Net Operating Income ($000's)"],["","2021","2020","Change","2021","2020","Change","2021","2020","Change","2021","2020","Change"],["Los Angeles","$","416,955","","$","388,613","","7.3","%","$","58,558","","$","62,562","","(6.4)","%","$","11,022","","$","10,365","","6.3","%","$","347,375","","$","315,686","","10.0","%"],["San Francisco","224,439","","209,941","","6.9","%","34,926","","36,094","","(3.2)","%","6,847","","6,496","","5.4","%","182,666","","167,351","","9.2","%"],["New York","174,251","","162,637","","7.1","%","42,982","","43,849","","(2.0)","%","5,450","","4,881","","11.7","%","125,819","","113,907","","10.5","%"],["Miami","130,210","","112,128","","16.1","%","25,863","","26,173","","(1.2)","%","4,173","","4,113","","1.5","%","100,174","","81,842","","22.4","%"],["Seattle-Tacoma","126,925","","116,054","","9.4","%","23,138","","23,917","","(3.3)","%","4,160","","4,154","","0.1","%","99,627","","87,983","","13.2","%"],["Washington DC","121,757","","112,739","","8.0","%","26,287","","26,695","","(1.5)","%","4,033","","3,629","","11.1","%","91,437","","82,415","","10.9","%"],["Chicago","133,771","","118,560","","12.8","%","51,764","","50,338","","2.8","%","5,797","","5,473","","5.9","%","76,210","","62,749","","21.5","%"],["Atlanta","94,159","","83,120","","13.3","%","18,466","","19,080","","(3.2)","%","4,731","","4,236","","11.7","%","70,962","","59,804","","18.7","%"],["Dallas-Ft. Worth","96,392","","85,545","","12.7","%","22,521","","23,884","","(5.7)","%","4,425","","4,146","","6.7","%","69,446","","57,515","","20.7","%"],["Houston","85,436","","77,318","","10.5","%","26,034","","26,737","","(2.6)","%","4,238","","3,988","","6.3","%","55,164","","46,593","","18.4","%"],["Orlando-Daytona","65,864","","59,573","","10.6","%","13,708","","14,779","","(7.2)","%","3,330","","2,954","","12.7","%","48,826","","41,840","","16.7","%"],["Philadelphia","66,000","","59,666","","10.6","%","15,105","","15,461","","(2.3)","%","2,730","","2,633","","3.7","%","48,165","","41,572","","15.9","%"],["West Palm Beach","59,466","","50,623","","17.5","%","12,523","","12,549","","(0.2)","%","2,168","","2,057","","5.4","%","44,775","","36,017","","24.3","%"],["Tampa","53,608","","46,216","","16.0","%","12,070","","12,723","","(5.1)","%","2,454","","2,203","","11.4","%","39,084","","31,290","","24.9","%"],["Charlotte","47,411","","41,106","","15.3","%","9,113","","9,627","","(5.3)","%","2,208","","2,027","","8.9","%","36,090","","29,452","","22.5","%"],["All other markets","870,933","","781,080","","11.5","%","194,655","","204,445","","(4.8)","%","41,765","","39,183","","6.6","%","634,513","","537,452","","18.1","%"],["Totals","$","2,767,577","","$","2,504,919","","10.5","%","$","587,713","","$","608,913","","(3.5)","%","$","109,531","","$","102,538","","6.8","%","$","2,070,333","","$","1,793,468","","15.4","%"]]
[[/GREPCENT_TABLE]]

33

Same Store Facilities Operating Trends by Market (Continued)

[[GREPCENT_TABLE]]
[["","As of December 31, 2021","Year Ended December 31,"],["","Number of Facilities","Square Feet (millions)","Realized Rent per Occupied Square Foot","Average Occupancy","Realized Rent per Available Square Foot"],["","2020","2019","Change","2020","2019","Change","2020","2019","Change"],["Los Angeles","213","15.2","$","25.98","","$","25.95","","0.1","%","96.6","%","95.1","%","1.6","%","$","25.10","","$","24.67","","1.7","%"],["San Francisco","130","8.1","26.46","","26.47","","\u2014","%","96.0","%","94.1","%","2.0","%","25.40","","24.92","","1.9","%"],["New York","90","6.4","25.86","","26.25","","(1.5)","%","95.1","%","94.0","%","1.2","%","24.58","","24.67","","(0.4)","%"],["Miami","83","5.8","19.75","","20.33","","(2.9)","%","94.4","%","93.0","%","1.5","%","18.64","","18.90","","(1.4)","%"],["Seattle-Tacoma","87","5.9","20.31","","20.39","","(0.4)","%","94.1","%","93.0","%","1.2","%","19.12","","18.97","","0.8","%"],["Washington DC","89","5.5","21.11","","21.45","","(1.6)","%","94.4","%","93.4","%","1.1","%","19.93","","20.03","","(0.5)","%"],["Chicago","129","8.1","14.96","","15.15","","(1.3)","%","93.8","%","92.1","%","1.8","%","14.04","","13.95","","0.6","%"],["Atlanta","98","6.4","13.18","","13.59","","(3.0)","%","92.9","%","93.2","%","(0.3)","%","12.24","","12.66","","(3.3)","%"],["Dallas-Ft. Worth","102","6.6","13.40","","13.64","","(1.8)","%","93.0","%","92.1","%","1.0","%","12.47","","12.57","","(0.8)","%"],["Houston","92","6.4","12.64","","13.23","","(4.5)","%","92.1","%","89.9","%","2.4","%","11.64","","11.90","","(2.2)","%"],["Orlando-Daytona","70","4.5","13.55","","13.91","","(2.6)","%","94.3","%","94.2","%","0.1","%","12.79","","13.10","","(2.4)","%"],["Philadelphia","56","3.5","16.86","","16.65","","1.3","%","96.1","%","95.3","%","0.8","%","16.20","","15.86","","2.1","%"],["West Palm Beach","40","2.9","18.09","","18.33","","(1.3)","%","94.7","%","93.3","%","1.5","%","17.14","","17.10","","0.2","%"],["Tampa","52","3.5","13.70","","14.10","","(2.8)","%","93.4","%","92.6","%","0.9","%","12.80","","13.06","","(2.0)","%"],["Charlotte","50","3.8","11.10","","11.33","","(2.0)","%","92.9","%","91.7","%","1.3","%","10.31","","10.39","","(0.8)","%"],["All other markets","893","56.1","14.14","","14.26","","(0.8)","%","94.5","%","93.4","%","1.2","%","13.36","","13.32","","0.3","%"],["Totals","2,274","148.7","$","17.24","","$","17.41","","(1.0)","%","94.5","%","93.3","%","1.3","%","$","16.29","","$","16.25","","0.2","%"]]
[[/GREPCENT_TABLE]]

34

Same Store Facilities Operating Trends by Market (Continued)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","Revenues ($000's)","Direct Expenses ($000's)","Indirect Expenses ($000's)","Net Operating Income ($000's)"],["","2020","2019","Change","2020","2019","Change","2020","2019","Change","2020","2019","Change"],["Los Angeles","$","388,613","","$","385,426","","0.8","%","$","62,562","","$","59,487","","5.2","%","$","10,365","","$","9,969","","4.0","%","$","315,686","","$","315,970","","(0.1)","%"],["San Francisco","209,941","","206,860","","1.5","%","36,094","","34,881","","3.5","%","6,496","","6,041","","7.5","%","167,351","","165,938","","0.9","%"],["New York","162,637","","165,230","","(1.6)","%","43,849","","43,341","","1.2","%","4,881","","5,076","","(3.8)","%","113,907","","116,813","","(2.5)","%"],["Miami","112,128","","114,980","","(2.5)","%","26,173","","25,755","","1.6","%","4,113","","3,888","","5.8","%","81,842","","85,337","","(4.1)","%"],["Seattle-Tacoma","116,054","","116,133","","(0.1)","%","23,917","","21,723","","10.1","%","4,154","","3,921","","5.9","%","87,983","","90,489","","(2.8)","%"],["Washington DC","112,739","","114,483","","(1.5)","%","26,695","","26,130","","2.2","%","3,629","","3,649","","(0.5)","%","82,415","","84,704","","(2.7)","%"],["Chicago","118,560","","119,281","","(0.6)","%","50,338","","50,295","","0.1","%","5,473","","5,667","","(3.4)","%","62,749","","63,319","","(0.9)","%"],["Atlanta","83,120","","87,134","","(4.6)","%","19,080","","18,550","","2.9","%","4,236","","4,327","","(2.1)","%","59,804","","64,257","","(6.9)","%"],["Dallas-Ft. Worth","85,545","","87,157","","(1.8)","%","23,884","","23,404","","2.1","%","4,146","","4,177","","(0.7)","%","57,515","","59,576","","(3.5)","%"],["Houston","77,318","","79,969","","(3.3)","%","26,737","","26,799","","(0.2)","%","3,988","","3,927","","1.6","%","46,593","","49,243","","(5.4)","%"],["Orlando-Daytona","59,573","","61,654","","(3.4)","%","14,779","","14,226","","3.9","%","2,954","","2,927","","0.9","%","41,840","","44,501","","(6.0)","%"],["Philadelphia","59,666","","59,120","","0.9","%","15,461","","14,782","","4.6","%","2,633","","2,746","","(4.1)","%","41,572","","41,592","","\u2014","%"],["West Palm Beach","50,623","","51,213","","(1.2)","%","12,549","","11,954","","5.0","%","2,057","","1,812","","13.5","%","36,017","","37,447","","(3.8)","%"],["Tampa","46,216","","47,706","","(3.1)","%","12,723","","12,141","","4.8","%","2,203","","2,144","","2.8","%","31,290","","33,421","","(6.4)","%"],["Charlotte","41,106","","41,880","","(1.8)","%","9,627","","9,740","","(1.2)","%","2,027","","2,098","","(3.4)","%","29,452","","30,042","","(2.0)","%"],["All other markets","781,080","","787,346","","(0.8)","%","204,445","","198,813","","2.8","%","39,183","","38,266","","2.4","%","537,452","","550,267","","(2.3)","%"],["Totals","$","2,504,919","","$","2,525,572","","(0.8)","%","$","608,913","","$","592,021","","2.9","%","$","102,538","","$","100,635","","1.9","%","$","1,793,468","","$","1,832,916","","(2.2)","%"]]
[[/GREPCENT_TABLE]]

35

Acquired Facilities

The Acquired Facilities represent 338 facilities that we acquired in 2019, 2020, and 2021. As a result of the stabilization process and timing of when these facilities were acquired (and resulting reclassification to Same-Store Facilities), year-over-year changes can be significant. The following table summarizes operating data with respect to the Acquired Facilities:

[[GREPCENT_TABLE]]
[["ACQUIRED FACILITIES","Year Ended December 31,","","Year Ended December 31,"],["","2021","","2020","","Change (a)","","2020","","2019","","Change (a)"],["","($ amounts in thousands, except for per square foot amounts)"],["Revenues (b):"],["2019 Acquisitions","$","41,967","","$","31,334","","$","10,633","","$","31,334","","$","12,704","","$","18,630"],["2020 Acquisitions","54,890","","11,365","","43,525","","11,365","","\u2014","","11,365"],["2021 Acquisitions","106,474","","\u2014","","106,474","","\u2014","","\u2014","","\u2014"],["Total revenues","203,331","","42,699","","160,632","","42,699","","12,704","","29,995"],["Cost of operations (b):"],["2019 Acquisitions","13,486","","13,323","","163","","13,323","","5,178","","8,145"],["2020 Acquisitions","25,216","","6,742","","18,474","","6,742","","\u2014","","6,742"],["2021 Acquisitions","32,705","","\u2014","","32,705","","\u2014","","\u2014","","\u2014"],["Total cost of operations","71,407","","20,065","","51,342","","20,065","","5,178","","14,887"],["Net operating income:"],["2019 Acquisitions","28,481","","18,011","","10,470","","18,011","","7,526","","10,485"],["2020 Acquisitions","29,674","","4,623","","25,051","","4,623","","\u2014","","4,623"],["2021 Acquisitions","73,769","","\u2014","","73,769","","\u2014","","\u2014","","\u2014"],["Net operating income","131,924","","22,634","","109,290","","22,634","","7,526","","15,108"],["Depreciation and amortization expense","(183,086)","","(32,939)","","(150,147)","","(32,939)","","(12,883)","","(20,056)"],["Net loss","$","(51,162)","","$","(10,305)","","$","(40,857)","","$","(10,305)","","$","(5,357)","","$","(4,948)"],["At December 31:"],["Square foot occupancy:"],["2019 Acquisitions","92.4%","","91.7%","","0.8%","","91.7%","","73.6%","","24.6%"],["2020 Acquisitions","88.2%","","63.5%","","38.9%","","63.5%","","\u2014","","\u2014"],["2021 Acquisitions","79.9%","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014"],["","82.6%","","74.4%","","11.0%","","74.4%","","73.6%","","1.1%"],["Annual contract rent per occupied square foot:"],["2019 Acquisitions","$","15.65","","$","11.93","","31.2%","","$","11.93","","$","12.27","","(2.8)%"],["2020 Acquisitions","14.82","","12.50","","18.6%","","12.50","","\u2014","","\u2014"],["2021 Acquisitions","15.62","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014"],["","$","15.48","","$","12.23","","26.6%","","$","12.23","","$","12.27","","(0.3)%"],["Number of facilities:"],["2019 Acquisitions","44","","44","","\u2014","","44","","44","","\u2014"],["2020 Acquisitions","62","","62","","\u2014","","62","","\u2014","","62"],["2021 Acquisitions","232","","\u2014","","232","","\u2014","","\u2014","","\u2014"],["","338","","106","","232","","106","","44","","62"],["Net rentable square feet (in thousands):"],["2019 Acquisitions","3,154","","3,154","","\u2014","","3,154","","3,133","","21"],["2020 Acquisitions","5,075","","5,075","","\u2014","","5,075","","\u2014","","5,075"],["2021 Acquisitions","21,830","","\u2014","","21,830","","\u2014","","\u2014","","\u2014"],["","30,059","","8,229","","21,830","","8,229","","3,133","","5,096"]]
[[/GREPCENT_TABLE]]

36

ACQUIRED FACILITIES (Continued)

[[GREPCENT_TABLE]]
[["","As of December 31, 2021"],["Costs to acquire (in thousands):"],["2019 Acquisitions","$","429,850"],["2020 Acquisitions","796,065"],["2021 Acquisitions","5,115,276"],["","$","6,341,191"]]
[[/GREPCENT_TABLE]]

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

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

During 2021, we acquired the ezStorage portfolio, consisting of 48 properties (4.1 million net rentable square feet) for acquisition cost of $1.8 billion, which includes 47 self-storage facilities and one property that is under construction. Included in the 2021 Acquisition results in the table above are revenues of $61.7 million, NOI of $48.5 million (including Direct NOI of $50.2 million) and square footage occupancy of 92.2% for 2021 since the acquisition on April 28, 2021.

During 2021, we acquired the All Storage portfolio consisting of 56 properties (7.5 million net rentable square feet) for $1.5 billion, with 55 properties closed in the fourth quarter of 2021 and one property expected to close in early 2022.

Subsequent to December 31, 2021, we are under contract to acquire 15 self-storage facilities across 10 states with 1.2 million net rentable square feet, for $212.4 million.

37

Developed and Expanded Facilities

The developed and expanded facilities include 70 facilities that were developed on new sites since January 1, 2016, and 72 facilities subject to expansion of their net rentable square footage. Of these expansions, 43 were completed at January 1, 2020, 23 were completed in the 24 months ended December 31, 2021, and 6 are currently in process at December 31, 2021. The following table summarizes operating data with respect to the Developed and Expanded Facilities:

[[GREPCENT_TABLE]]
[["DEVELOPED AND EXPANDED"],["FACILITIES","Year Ended December 31,","","Year Ended December 31,"],["","2021","","2020","","Change (a)","","2020","","2019","","Change (a)"],["","($ amounts in thousands, except for per square foot amounts)"],["Revenues (b):"],["Developed in 2016","$","35,016","","$","28,476","","$","6,540","","$","28,476","","$","25,532","","$","2,944"],["Developed in 2017","27,593","","21,541","","6,052","","21,541","","17,826","","3,715"],["Developed in 2018","28,308","","20,163","","8,145","","20,163","","13,510","","6,653"],["Developed in 2019","11,921","","6,455","","5,466","","6,455","","1,720","","4,735"],["Developed in 2020","3,405","","301","","3,104","","301","","\u2014","","301"],["Developed in 2021","1,602","","\u2014","","1,602","","\u2014","","\u2014","","\u2014"],["Expansions completed before 2020","59,465","","41,311","","18,154","","41,311","","30,766","","10,545"],["Expansions completed in 2020 or 2021","32,922","","23,649","","9,273","","23,649","","24,294","","(645)"],["Expansions in process","4,836","","7,190","","(2,354)","","7,190","","7,730","","(540)"],["Total revenues","205,068","","149,086","","55,982","","149,086","","121,378","","27,708"],["Cost of operations (b):"],["Developed in 2016","9,358","","9,739","","(381)","","9,739","","9,163","","576"],["Developed in 2017","9,932","","9,625","","307","","9,625","","9,164","","461"],["Developed in 2018","9,983","","10,364","","(381)","","10,364","","9,367","","997"],["Developed in 2019","5,240","","4,685","","555","","4,685","","1,915","","2,770"],["Developed in 2020","1,679","","383","","1,296","","383","","\u2014","","383"],["Developed in 2021","1,546","","\u2014","","1,546","","\u2014","","\u2014","","\u2014"],["Expansions completed before 2020","23,277","","22,052","","1,225","","22,052","","17,103","","4,949"],["Expansions completed in 2020 or 2021","11,300","","7,897","","3,403","","7,897","","6,729","","1,168"],["Expansions in process","1,302","","1,699","","(397)","","1,699","","1,608","","91"],["Total cost of operations","73,617","","66,444","","7,173","","66,444","","55,049","","11,395"],["Net operating income (loss):"],["Developed in 2016","25,658","","18,737","","6,921","","18,737","","16,369","","2,368"],["Developed in 2017","17,661","","11,916","","5,745","","11,916","","8,662","","3,254"],["Developed in 2018","18,325","","9,799","","8,526","","9,799","","4,143","","5,656"],["Developed in 2019","6,681","","1,770","","4,911","","1,770","","(195)","","1,965"],["Developed in 2020","1,726","","(82)","","1,808","","(82)","","\u2014","","(82)"],["Developed in 2021","56","","\u2014","","56","","\u2014","","\u2014","","\u2014"],["Expansions completed before 2020","36,188","","19,259","","16,929","","19,259","","13,663","","5,596"],["Expansions completed in 2020 or 2021","21,622","","15,752","","5,870","","15,752","","17,565","","(1,813)"],["Expansions in process","3,534","","5,491","","(1,957)","","5,491","","6,122","","(631)"],["Net operating income","131,451","","82,642","","48,809","","82,642","","66,329","","16,313"],["Depreciation and amortization expense","(61,645)","","(53,621)","","(8,024)","","(53,621)","","(46,340)","","(7,281)"],["Net income","$","69,806","","$","29,021","","","$","40,785","","","$","29,021","","$","19,989","","","$","9,032"]]
[[/GREPCENT_TABLE]]

38

[[GREPCENT_TABLE]]
[["DEVELOPED AND EXPANDED FACILITIES (Continued)"],["","As of December 31,","","As of December 31,"],["","2021","","2020","","Change (a)","","2020","","2019","","Change (a)"],["","($ amounts in thousands, except for per square foot amounts)"],["Square foot occupancy:"],["Developed in 2016","91.6%","","90.4%","","1.3%","","90.4%","","79.6%","","13.6%"],["Developed in 2017","91.4%","","88.7%","","3.0%","","88.7%","","77.3%","","14.7%"],["Developed in 2018","88.6%","","86.5%","","2.4%","","86.5%","","65.4%","","32.3%"],["Developed in 2019","87.3%","","84.6%","","3.2%","","84.6%","","38.1%","","122.0%"],["Developed in 2020","88.9%","","34.0%","","161.5%","","34.0%","","\u2014","","\u2014"],["Developed in 2021","48.8%","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014"],["Expansions completed before 2020","88.9%","","81.8%","","8.7%","","81.8%","","57.8%","","41.5%"],["Expansions completed in 2020 or 2021","78.6%","","66.1%","","18.9%","","66.1%","","87.3%","","(24.3)%"],["Expansions in process","59.2%","","79.3%","","(25.3)%","","79.3%","","88.6%","","(10.5)%"],["","85.5%","","81.4%","","5.0%","","81.4%","","67.2%","","21.1%"],["Annual contract rent per occupied square foot:"],["Developed in 2016","19.00","","15.22","","24.8%","","15.22","","15.18","","0.3%"],["Developed in 2017","16.03","","12.64","","26.8%","","12.64","","12.11","","4.4%"],["Developed in 2018","17.08","","12.73","","34.2%","","12.73","","12.54","","1.5%"],["Developed in 2019","14.58","","9.69","","50.5%","","9.69","","10.13","","(4.3)%"],["Developed in 2020","17.67","","10.08","","75.3%","","10.08","","\u2014","","\u2014"],["Developed in 2021","15.41","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014"],["Expansions completed before 2020","13.47","","10.05","","34.0%","","10.05","","10.80","","(6.9)%"],["Expansions completed in 2020 or 2021","17.65","","16.86","","4.7%","","16.86","","17.70","","(4.7)%"],["Expansions in process","20.33","","21.14","","(3.8)%","","21.14","","22.81","","(7.3)%"],["","15.94","","12.56","","26.9%","","12.56","","13.29","","(5.5)%"],["Number of facilities:"],["Developed in 2016","16","","16","","\u2014","","16","","16","","\u2014"],["Developed in 2017","16","","16","","\u2014","","16","","16","","\u2014"],["Developed in 2018","18","","18","","\u2014","","18","","18","","\u2014"],["Developed in 2019","11","","11","","\u2014","","11","","11","","\u2014"],["Developed in 2020","3","","3","","\u2014","","3","","\u2014","","3"],["Developed in 2021","6","","\u2014","","6","","\u2014","","\u2014","","\u2014"],["Expansions completed before 2020","43","","43","","\u2014","","43","","43","","\u2014"],["Expansions completed in 2020 or 2021","23","","21","","2","","21","","21","","\u2014"],["Expansions in process","6","","6","","\u2014","","6","","6","","\u2014"],["","142","","134","","8","","134","","131","","3"],["Net rentable square feet (in thousands) (c):"],["Developed in 2016","2,141","","2,141","","\u2014","","2,141","","2,141","","\u2014"],["Developed in 2017","2,040","","2,040","","\u2014","","2,040","","2,040","","\u2014"],["Developed in 2018","2,069","","2,069","","\u2014","","2,069","","2,069","","\u2014"],["Developed in 2019","1,057","","1,057","","\u2014","","1,057","","1,057","","\u2014"],["Developed in 2020","347","","347","","\u2014","","347","","\u2014","","347"],["Developed in 2021","681","","\u2014","","681","","\u2014","","\u2014","","\u2014"],["Expansions completed before 2020","5,629","","5,629","","\u2014","","5,629","","5,627","","2"],["Expansions completed in 2020 or 2021","3,156","","2,232","","924","","2,232","","1,487","","745"],["Expansions in process","287","","376","","(89)","","376","","376","","\u2014"],["","17,407","","15,891","","1,516","","15,891","","14,797","","1,094"]]
[[/GREPCENT_TABLE]]

39

[[GREPCENT_TABLE]]
[["","As of December 31, 2021"],["Costs to develop (in thousands):"],["Developed in 2016","$","257,585"],["Developed in 2017","239,871"],["Developed in 2018","262,187"],["Developed in 2019","150,387"],["Developed in 2020","42,063"],["Developed in 2021","115,632"],["Expansions completed before 2020 (d)","381,940"],["Expansions completed in 2020 or 2021 (d)","200,839"],["","$","1,650,504"]]
[[/GREPCENT_TABLE]]

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

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

(c)The facilities included above have an aggregate of approximately 17.4 million net rentable square feet at December 31, 2021, including 6.0 million in Texas, 2.6 million in Florida, 2.2 million in California, 1.5 million in Colorado, 1.1 million in Minnesota, 0.9 million in North Carolina, 0.6 million in Washington, 0.4 million in each of Missouri and Virginia, 0.3 million in each of Georgia, Michigan, New Jersey and South Carolina and 0.5 million in other states.

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

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

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

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

At December 31, 2021, we had 22 additional facilities in development, which will have a total of 1.8 million net rentable square feet of storage space and have an aggregate development cost totaling approximately $331.0 million. We expect these facilities to open over the next 18 to 24 months.

The facilities under “expansions completed” represent those facilities where the expansions have been completed at December 31, 2021. We incurred a total of $582.8 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 5.6 million net rentable square feet of new storage space.

The facilities under "expansion in process" represent those facilities where construction is in process at December 31, 2021, and together with additional expansion activities primarily related to our Same Store Facilities at December 31, 2021, we expect to add a total of 2.8 million net rentable square feet of storage space by expanding existing self-storage facilities for an aggregate direct development cost of $469.0 million.

40

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, 2019, due primarily to casualty events such as hurricanes, floods, and fires.

The other non-same store facilities have an aggregate of 2.2 million net rentable square feet, including 0.6 million in Texas, 0.3 million in California, 0.2 million in each of Georgia, Ohio and Tennessee, and 0.7 million in other states.

Depreciation and amortization expense

Depreciation and amortization expense for Self-Storage Operations increased $160.2 million in 2021 as compared to 2020 and increased $40.3 million in 2020 as compared to 2019, primarily due to acquired, developed and expanded facilities. We expect continued increases in depreciation expense in 2022 as a result of elevated levels of capital expenditures and new facilities that are acquired, developed or expanded in 2022.

41

The following discussion and analysis of the components of net income present a comparison for the year ended December 31, 2021 to the year ended December 31, 2020. The results of these components for the years ended December 31, 2020 compared to December 31, 2019 was included in our Annual Report on Form 10-K for the year ended December 31, 2020 on page 24, under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed with the SEC on February 24, 2021.

Ancillary Operations

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Change"],["","(Amounts in thousands)"],["Revenues:"],["Tenant reinsurance premiums","$","166,585","","$","149,286","","$","17,299"],["Merchandise","28,466","","29,702","","(1,236)"],["Third party property management","17,207","","14,450","","2,757"],["Total revenues","212,258","","193,438","","18,820"],["Cost of operations:"],["Tenant reinsurance","33,932","","28,486","","5,446"],["Merchandise","17,274","","17,609","","(335)"],["Third party property management","17,362","","13,824","","3,538"],["Total cost of operations","68,568","","59,919","","8,649"],["Net operating income (loss):"],["Tenant reinsurance","132,653","","120,800","","11,853"],["Merchandise","11,192","","12,093","","(901)"],["Third party property management","(155)","","626","","(781)"],["Total net operating income","$","143,690","","$","133,519","","$","10,171"]]
[[/GREPCENT_TABLE]]

Tenant reinsurance operations: Tenant reinsurance premium revenue increased $17.3 million or 11.6% in 2021 over 2020 as a result of higher average premiums and an increase in our tenant base with respect to acquired, newly developed, and expanded facilities and the third party properties we manage. Tenant reinsurance premium revenue generated from tenants at our Same-Store Facilities were $133.8 million and $128.0 million in 2021 and 2020, respectively, representing a 4.5% year over year increase in 2021.

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

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

Merchandise sales: Sales of locks, boxes, and packing supplies at our self-storage facilities are primarily impacted by the level of move-ins and other customer traffic at our self-storage facilities. We do not expect any significant changes in revenues or profitability from our merchandise sales in 2022.

Third-party property management: At December 31, 2021, we managed 93 facilities for unrelated third parties, and were under contract to manage 59 additional facilities including 54 facilities that are currently under construction. During 2021, we added 79 facilities to the program, acquired 25 facilities from the program, and had 19 properties exit the program due to sales to other buyers. While we expect this business to increase in scope and size, we do not expect any

42

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.

Analysis of items not allocated to our Reportable Segments

Equity in earnings of unconsolidated real estate entities

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

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[[/GREPCENT_TABLE]]

Investment in PSB: Throughout all periods presented, we owned 7,158,354 shares of PS Business Parks, Inc. (“PSB”) common stock and 7,305,355 limited partnership units in an operating partnership controlled by PSB, representing an approximate 41% common equity interest as of December 31, 2021 (42% as of December 31, 2020). 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, 2021, PSB wholly-owned approximately 28 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 is our equity share of gains on sale of real estate totaling $149.0 million and $11.3 million in 2021 and 2020, respectively. PSB’s filings and selected financial information, including discussion of the factors that affect its earnings, 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.

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

At December 31, 2021, Shurgard owned 253 self-storage facilities with approximately 14 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, 2021 consolidated financial statements.

Equity in earnings from Shurgard increased $8.7 million in 2021 as compared to 2020, primarily due to the impact of improved same store operating income. Shurgard’s public filings and publicly reported information, including discussion of the factors that affect its earnings, 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 1.134 U.S. Dollars per Euro at December 31, 2021 (1.226 at December 31, 2020), and average exchange rates of 1.183 for 2021 and 1.141 for 2020.

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Change"],["","(Amounts in thousands)"],["Share-based compensation expense","$","37,760","","$","18,586","","$","19,174"],["Development and acquisition costs","8,403","","10,839","","(2,436)"],["Tax compliance costs and taxes paid","11,530","","8,317","","3,213"],["Legal costs","6,194","","8,063","","(1,869)"],["Corporate management costs","19,189","","18,088","","1,101"],["Other costs","18,178","","19,306","","(1,128)"],["Total","$","101,254","","$","83,199","","$","18,055"]]
[[/GREPCENT_TABLE]]

Share-based compensation expense includes the amortization of restricted share units and stock options granted to certain corporate employees and trustees.

Share-based compensation expense 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 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.

In 2021, share-based compensation expense increased $19.2 million as compared to 2020, primarily due to (i) the absence of comparable performance-based share-based compensation expense in 2020 and (ii) the accelerated compensation costs recognized in 2021 associated with modifying our share-based compensation plans in July 2020, to allow immediate vesting upon retirement.

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 $14.6 million and $11.8 million in 2021 and 2020, respectively, in development costs that were capitalized to newly developed and redeveloped self-storage facilities. During 2020, we incurred $3.2 million in costs associated with the write-off of cancelled development projects.

Tax compliance costs and taxes paid include taxes paid to various state and local authorities, the costs of filing tax returns, and other costs associated with complying with federal and state tax laws. Such costs vary primarily based upon the tax rates and the level of our operations in the various states in which we do business. State income tax increased $2.9 million from 2020 to 2021, due to rising taxable income in certain states where there are differences between federal and state tax laws.

Interest and other income: Interest and other income is comprised of the revenue and cost associated with our commercial operations, 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. For 2021 and 2020, we recognized $12.3 million and $22.3 million interest and other income, respectively. Amounts attributable to commercial operations was $8.1 million and $8.6 million in 2021 and 2020, respectively. Excluding the aforementioned amounts attributable to our commercial operations, interest and other income decreased $9.5 million from 2020 to 2021, primarily due to $5.5 million other income recognized in 2020 related to litigation settlements and early repayment of notes receivable and $3.4 million decrease of interest earned on cash balances from 2020 to 2021.

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Interest expense: For 2021 and 2020, we incurred $94.3 million and $59.7 million, respectively, of interest on our outstanding notes payable. In determining interest expense, these amounts were offset by capitalized interest of $3.5 million and $3.4 million during 2021 and 2020, respectively, associated with our development activities. The increase of interest expense in 2021 as compared to 2020 is due to our issuances of debt. At December 31, 2021, we had $7.5 billion of notes payable outstanding, with a weighted average interest rate of approximately 1.8%, compared to $2.5 billion of notes payable outstanding at December 31, 2020.

Foreign Currency Exchange Gain (Loss): For 2021, we recorded foreign currency gains of $111.8 million representing the changes in the U.S. Dollar equivalent of our Euro-denominated unsecured notes due to fluctuations in exchange rates (losses of $98.0 million for 2020). The Euro was translated at exchange rates of approximately 1.134 U.S. Dollars per Euro at December 31, 2021 and 1.226 at December 31, 2020. Future gains and losses on foreign currency will be dependent upon changes in the relative value of the Euro to the U.S. Dollar and the level of Euro-denominated notes payable outstanding.

Gain on Sale of Real Estate: In 2021 and 2020, we recorded gains on sale of real estate totaling $13.7 million, and $1.5 million, respectively, primarily in connection with the partial or complete sale of real estate facilities pursuant to eminent domain proceedings.

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Liquidity and Capital Resources

Overview

Our expected material cash requirements for the twelve months ended December 31, 2022 and thereafter comprised (i) contractually obligated expenditures, including payments of principal and interest; (ii) other essential expenditures, including property operating expenses, maintenance capital expenditures and dividends paid in accordance with REIT distribution requirements; and (iii) opportunistic expenditures, including acquisitions and developments and repurchases of our securities. We expect to satisfy these cash requirements through operating cash flow and opportunistic debt and equity financing.

Sources of Capital

While operating as a REIT allows us to minimize the payment of U.S. federal corporate income tax expense, we are required to distribute at least 90% of our taxable income to our shareholders. Notwithstanding this requirement, we are nonetheless able to retain operating cash flow to the extent that our tax depreciation exceeds our maintenance capital expenditures. Retained operating cash flow represents our expected cash flow provided by operating activities, less shareholder distributions and capital expenditures. Our annual operating retained cash flow increased from $200 million to $300 million per year in recent years to approximately $700 million in 2021. We anticipate retained operating cash flow will remain similar in 2022 as compared to 2021.

The REIT distribution requirement limits cash flow from operations that can be retained and reinvested in the business, increasing our reliance upon raising capital to fund growth. Capital needs in excess of retained cash flow are met with: (i) medium and long-term debt, (ii) preferred equity, and (iii) common equity. We select among these sources of capital based upon relative cost, availability, the desire for leverage, and considering potential constraints caused by certain features of capital sources, such as debt covenants. We view our line of credit, as well as any short-term bank loans, as bridge financing.

Because raising capital is important to our growth, we endeavor to maintain a strong financial profile characterized by strong credit metrics, including low leverage relative to our total capitalization and operating cash flows. We are one of the highest rated REITs, as rated by major rating agencies Moody’s and Standard & Poor’s. Our senior notes payable 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 enable us to effectively access both the public and private capital markets to raise capital.

We have a $500.0 million revolving line of credit which we are able to use as temporary “bridge” financing until we are able to raise longer term capital. As of December 31, 2021 and February 22, 2022, there were no borrowings outstanding on the revolving line of credit; however, we do have approximately $21.2 million of outstanding letters of credit which limits our borrowing capacity to $478.8 million. Our line of credit matures on April 19, 2024.

We believe that we have significant financial flexibility to adapt to changing conditions and opportunities. Currently, market rates of interest for our debt, and market coupon rates for our preferred equity, are at historically low levels and we have significant access to these sources of capital. 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.

We believe that our cash provided by our operating activities will continue to be sufficient to enable us to meet our ongoing cash requirements for interest payments on debt, maintenance capital expenditures and distributions to our shareholders for the foreseeable future.

Our expected capital resources include: (i) $734.6 million of cash as of December 31, 2021, (ii) $242.8 million in net proceeds from the issuance of our Series S Preferred Shares on January 13, 2022 and (iii) approximately $700.0 million of expected retained operating cash flow over the next twelve months. Over the long term, to the extent that our capital needs exceed our capital resources, we believe we have a variety of possibilities to raise additional capital including issuing common or preferred securities, issuing debt, or entering into joint venture arrangements to acquire or develop facilities.

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Cash Requirements

The following summarizes our expected material cash requirements which comprise (i) contractually obligated expenditures, (ii) other essential expenditures, and (iii) opportunistic expenditures. We expect our capital needs to increase over the next year as we add projects to our development pipeline and acquire additional properties.

Required Debt Repayments: As of December 31, 2021, the principal outstanding on our debt totaled approximately $7.5 billion, consisting of $23.3 million of secured notes payable, $1.7 billion of Euro-denominated unsecured notes payable and $5.8 billion of U.S. Dollar denominated unsecured notes payable. Approximate principal maturities and interest payments are as follows (amounts in thousands):

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[[/GREPCENT_TABLE]]

We plan to refinance our 2022 unsecured notes when they come due in 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 $284.2 million in 2021 and are expected to approximate $300 million in 2022. 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. We spent approximately $130 million in 2021 and expect to spend $180 million in 2022 on this effort. In addition, we have made investments in LED lighting and the installation of solar panels, which approximated $41 million for the year ended December 31, 2021 and we expect to spend $30 million in 2022.

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

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

On February 18, 2022, 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 2022. Our consistent, long-term dividend policy has been to distribute our taxable income. Future quarterly distributions with respect to the common shares will continue to be determined based upon our REIT distribution requirements after taking into consideration distributions to the preferred shareholders and will be funded with cash flows from operating activities.

The annual distribution requirement with respect to our Preferred Shares outstanding at December 31, 2021 and our Series S Preferred Shares issued on January 13, 2022 is approximately $194.7 million per year.

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Real Estate Investment Activities: We continue to seek to acquire additional self-storage facilities from third parties. Subsequent to December 31, 2021, we acquired or were under contract to acquire 15 self-storage facilities for a total purchase price of $212.4 million. Seven of these properties are under construction and expected to close as they are completed in 2022.

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, 2021, we had development and expansion projects at a total cost of approximately $800.0 million. Costs incurred through December 31, 2021 were $272.5 million, with the remaining cost to complete of $527.5 million expected to be incurred primarily in the next 18 to 24 months. Some of these projects are subject to contingencies such as entitlement approval. We expect to continue to seek to add projects to maintain and increase our robust pipeline. Our ability to do so continues to be challenged by various constraints such as difficulty in finding projects that meet our risk-adjusted yield expectations, and challenges in obtaining building permits for self-storage facilities in certain municipalities.

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

Redemption of Preferred Securities: Historically, we have taken advantage of refinancing higher coupon preferred securities with lower coupon preferred securities. In the future, we may also elect to finance the redemption of preferred securities with proceeds from the issuance of debt. As of February 22, 2022, we have no series of preferred securities that are eligible for redemption, at our option and with 30 days’ notice. See Note 9 to our December 31, 2021 consolidated financial statements for the redemption dates of all of our series of preferred shares. Redemption of such preferred shares will depend upon many factors, including the rate at which we could issue replacement preferred securities. None of our preferred securities are redeemable at the option of the holders.

Repurchases of Common Shares: Our Board has authorized management to repurchase up to 35,000,000 of our common shares on the open market or in privately negotiated transactions. During 2021, we did not repurchase any of our common shares. From the inception of the repurchase program through February 22, 2022, 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.

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