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ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A) should be read in conjunction with our financial statements and notes thereto. Critical Accounting Policies Our MD&A discusses our financial statements, which have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP"), and are affected by our judgments, assumptions and estimates. The notes to our December 31, 2018 financial statements, primarily Note 2, summarize our significant accounting policies. We believe the following are our critical accounting policies, because they have a material impact on the portrayal of our financial condition and results, and they require us to make judgments and estimates about matters that are inherently uncertain Income Tax Expense: We have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended (the "Code). As a REIT, we do not incur federal income tax on our REIT taxable income that is fully distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we meet certain organizational and operational rules. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no federal income tax expense related to our REIT taxable income. Our evaluation that we have met the REIT requirements could be incorrect, because compliance with the tax rules requires factual determinations, and circumstances we have not identified could result in noncompliance with the tax requirements in current or prior years. For any taxable year that we fail to qualify as a REIT and for which applicable statutory relief provisions did not apply, we would be taxed at the regular corporate rates on all of our taxable income for at least that year and the ensuing four years, we could be subject to penalties and interest, and our net income would be materially different from the amounts estimated in our financial statements. In addition, certain of our consolidated corporate subsidiaries have elected to be treated as "taxable REIT subsidiaries" for federal income tax purposes, which are taxable as regular corporations and subject to certain limitations on intercompany transactions. If tax authorities determine that amounts paid by our taxable REIT subsidiaries to us are not reasonable compared to similar arrangements among unrelated parties, we could be subject to a 100% penalty tax on the excess payments. Such a penalty tax could have a material adverse impact on our net income. Impairment of Long-Lived Assets: The analysis of impairment of our long-lived assets involves identification of indicators of impairment, projections of future operating cash flows, and estimates of fair values, all of which require significant judgment and subjectivity. Others could come to materially different conclusions. In addition, we may not have identified all current facts and circumstances that may affect impairment. Any unidentified impairment loss, or change in conclusions, could have a material adverse impact on our net income. Accrual for Uncertain and Contingent Liabilities: We accrue for certain contingent and other liabilities that have significant uncertain elements, such as property taxes, workers compensation claims, tenant reinsurance claims, as well as other legal claims and disputes involving customers, employees, governmental agencies and other third parties. We estimate such liabilities based upon many factors such as assumptions of past and future trends and our evaluation of likely outcomes. However, the estimates of known liabilities could be incorrect or we may not be aware of all such liabilities, in which case our accrued liabilities and net income could be misstated. Accounting for Acquired Real Estate Facilities: We estimate the fair values of the land, buildings and intangible assets acquired for purposes of allocating the purchase price. Such estimates are based upon many assumptions and judgments, including (1) market rates of return and capitalization rates on real estate and intangible assets, (11) building and material cost levels, (111) comparisons of the acquired underlying land parcels to recent land 25 transactions, and (iv) future cash flows from the real estate and the existing tenant base. Others could come to materially different conclusions as to the estimated fair values, which would result in different depreciation and amortization expense, gains and losses on sale of real estate assets, and real estate and intangible assets. Overview Our self-storage operations generate most of our net income, and we believe that our earnings growth is most impacted by the level of organic growth in our existing self-storage portfolio. Accordingly, a significant portion of management's time is devoted to maximizing cash flows from our existino self-storage facilities Our self-storage operations generate most of our net income, and we believe that our earnings growth is most impacted by the level of organic growth in our existing self-storage portfolio. Accordingly, a significant portion of management's time is devoted to maximizing cash flows from our existing self-storage facilities. Most of our facilities compete with other well-managed and well-located competitors and we are subject to general economic conditions, particularly those that affect the spending habits of consumers and moving trends. We believe that our centralized information networks, national telephone and online reservation system, the brand name Public Storage," and our economies of scale enable us to meet such challenges effectively. In the last three years, there has been a marked increase in development of new self-storage facilities in many of the markets we operate in, due to the favorable economics of development which we have also taken advantage of. These newly developed facilities compete with many of the facilities we own, negatively impacting our occupancies, rental rates, and rental growth. This increase in supply has been most notable in Atlanta, Austin, Charlotte, Chicago, Dallas, Denver, Houston, New York, and Portland. We plan on growing organically as well as through the acquisition and development of new facilities and expanding our existing self-storage facilities. Since the beginning of 2013 through December 31, 2018, we acquired a total of 296 facilities with 20.6 million net rentable square feet from third parties for approximately $2.7 billion, and we opened newly developed and expanded self-storage space for a total cost of $1.2 billion, adding approximately 11.3 million net rentable square feet Subsequent to December 31, 2018, we acquired or were under contract to acquire (subject to customary closing conditions) 14 self-storage facilities for $102.4 million. We will continue to seek to acquire properties; however, there is significant competition to acquire existing facilities and there can be no assurance as to the level of facilities we may acquire. As of December 31, 2018, we had additional development and redevelopment projects to build approximately 5.2 million net rentable square feet at a total cost of approximately $607.4 million. We expect to continue to seek additional development projects; however, the level of such activity may be limited due to various constraints such as difficulty in finding available sites that meet our risk-adjusted yield expectations, as well as challenges in obtaining building permits for self-storage activities in certain municipalities. We believe that our development and redevelopment activities are beneficial to our business over the long run. However, in the short run, such activities dilute our earnings due to the three to four year period that it takes to fill up newly developed and redeveloped storage facilities and reach a stabilized level of cash flows offset by the cost of capital to fund the cost, combined with related overhead expenses flowing through general and administrative expense. We believe the level of dilution incurred in 2018 will continue at similar levels in 2019 and beyond, assuming realization of our current expectation of maintaining our current level of development for the foreseeable future. On July 13, 2018, we received a cash distribution from Shurgard Self Storage SA ("Shurgard Europe) totaling $145.4 million. On September 18, 2017, we completed a public offering of $1.0 billion in aggregate principal amount of unsecured notes in two equal tranches (collectively, the "U.S. Dollar Notes"), one maturing in September 2022 bearing interest at 2.370%, and another maturing in September 2027 bearing interest at 3.094%. This was our first public offering of debt, which should also serve to facilitate future offerings. 26 On October 15, 2018, Shurgard Europe completed an initial global offering (the "Offering) of its common shares, and its shares commenced trading on Euronext Brussels under the "SHUR symbol. In the Offering, Shurgard Europe issued 25.0 million of its common shares to third parties at a price of 23 per share, for 575 million in gross proceeds. The gross proceeds were used to repay short-term borrowings, invest in real estate assets, and for other corporate purposes. Our equity interest, comprised of a direct and indirect pro-rata ownership interest in 31.3 million shares, decreased from 49% to 35.2% as a result of the Offering. While we did not sell any of our shares in the Offering, we did record a gain on disposition in 2018 of $151.6 million, as if we had sold a proportionate share of our investment in Shurgard Europe. See Investment in Shurgard Europe" below for more information. On October 18, 2018, we sold our property in West London to Shurgard Europe for $42.1 million and recorded a related gain on sale of real estate of approximately $31.5 million. As of December 31, 2018, our capital resources over the next year are expected to be approximately $1.1 billion which exceeds our current planned capital needs over the next year of approximately $711.4 million. Our capital resources include: (1) $361.2 million of cash as of December 31, 2018 (11) $483.8 million of available borrowing capacity on our revolving line of credit, and (111) approximately $200 million to $250 million of expected retained operating cash flow for the next twelve months. Retained operating cash flow represents our expected cash flow provided by operating activities, less shareholder distributions and capital expenditures to maintain our real estate facilities. Our planned capital needs over the next year consist of (1) $322.1 million of remaining spend on our current development pipeline, (11) $102.4 million in property acquisitions currently under contract, (111) $285.0 million for the redemption of our Series Y Preferred Shares on March 28, 2019, and (iv) $1.9 million in principal repayments on existing debt. Our capital needs may increase over the next year as we expect to add projects to our development pipeline and acquire additional properties. In addition to other investment activities, we may also redeem outstanding preferred securities or repurchase shares of our common stock in the future. B D G H 1 Public Storage Projected 2 Statement of Cash Flows 3 As of December 31, 2021, December 31, 2022, and December 31, 2023 4 (Amounts in Thousands) 5 6 Decmber 31, 2021 Decmber 31, 2022 Decmber 31, 2023 7 Cash Flows from Operating Activities: 8 Net Income $ 1,746,885 $ (2,590,335) $ 23,332,335 Adjustments to Reconcile Net Income to Net Cash Flows 9 from Operating Activities: 10 Gain Due to Shurgard Public Offering (50,539) (53,167) (55,932) 11 Gain on Real Estate Investment Sales (13,246) (13,935) (14,659) 12 Depreciation and Amortization 516,607 543,470 571,731 13 Equity in Earnings of Unconsolidated Real Estate Entities (84,513) (88,908) ) (93,531) Distribution from Cumulative Equity in Earnings of 14 Unconsolidated Real Estate Entities 85,037 89,459 94,111 15 Foreign Currency Exchange Loss (Gain) 24,002 25,250 26,563 16 Share-Based Compensation Expense 43,044 45,282 47,637 17 Other 2,967 3,121 3,284 18 Total Adjustments $ 573,898 $ 603,740 $ 635,135 19 Net Cash Flows from Operating Activities $ 2,320,783 $ (1,986,594) $ 23,967,470 20 21 Cash Flows from Investing Activities: 22 Capital Expenditures to Maintain Real Estate Facilities (166,094) (174,731) (183,817) 23 Development and Expansion of Real Estate Facilities (271,376) (285,487) (300,333) 24 Acquisition of Real Estate Facilities and Intangible Assets (470,348) (494,806) (520,536) Distribution in Excess of Cummulative Equity in Earnings 25 from Unconsolidated Real Estate Entries 42.738 44,961 47,298 26 Repayment of Note Receivables 2,503 2,633 2,770 27 Proceeds from Sales of Real Estate Investments 18,914 19,897 20,932 28 Net Cash Flows Used in Investing Activities $ (843,663) $ (887,534) $ (933,685) 29 30 Cash Flows from Financing Activities: 31 Repayments on Notes Payable (1,908) (2,007) (2,112) 32 Issurance of Notes Payable, Net of Issurance Costs 347,350 365,412 384,414 33 Issurance of Preferred Shares 755,787 795,088 836,433 34 Issurance of Common Shares 19,584 20,603 21,674 35 Redemption of Preferred Shares (756,667) (796,014) (837,406) HorizontalAnalysisincomeStatmnt Projected Income Statements Projected Balance Sheets Projected StatementOfCashFI C - C81 X fx kk D E F G (843,663) $ (887,534) $ (933,685) (1,908) 347,350 755,787 19,584 (756,667) (11,676) (11,678) 2,832 (2,007) 365,412 795,088 20,603 (796,014) (12,283) (12,285) 2,979 (2,112) 384,414 836,433 21,674 (837,406) (12,922) (12,924) 3,134 (1,609,286) (6,354) (1,272,015) (1,692,969) (6,684) (1,338,160) (1,781,003) (7,031) (1,407,744) $ $ (57,615) (60,610) (63,762) B 28 Net Cash Flows Used in Investing Activities $ 29 30 Cash Flows from Financing Activities: 31 Repayments on Notes Payable 32 Issurance of Notes Payable, Net of Issurance Costs 33 Issurance of Preferred Shares 34 Issurance of Common Shares 35 Redemption of Preferred Shares 36 Cash Paid Upon Vesting of Restricted Share Units 37 Acquisition of Noncontrolling Interests 38 Contributions by Noncontrolling Interests Distrbutions paid to Preferred Shareholders, Common 39 Shareholders and Restricted Share Unitholders 40 Distributions Paid to Noncontrolling Interests 41 Net Cash Flows Used In Financing Activities $ 42 Net Cash Flows (Used In) from Operating, Investing, and 43 Financing Activities Net Effect of Foreign Exchange Impact on cash and Equivalents, 44 Including Restricted Cash (Decrease) Increase in Cash and Equivalents, Including 45 Restricted Cash $ 46 47 Cash and Equivalents, including Restricted Cash at Beginning of 48 the Period: 49 Cash and Equivalents $ 50 Restricted Cash Included in Other Assets 51 $ Cash and Equivalents, including Restricted Cash at End of the 52 Period: 53 Cash and Equivalents $ 54 Restricted Cash Included in Other Assets 55 $ 56 Supplemental Schedule of Non-Cash Investing and Financing 57 Activities: 58 (204) (214) (225) (57,818) $ (60,825) $ (63,987) S $ 401,445 23,096 424,542 422,321 24,297 446,618 444,281 25,561 469,842 $ $ $ $ 342,840 23,884 366.724 360,668 25,126 385,794 379,423 26,432 405,855 $ $ G H 444 281 25,561 469,842 379,423 26,432 405,855 (14,144) 6,069 8,075 B c D E F 49 Cash and Equivalents $ 401,445 $ 422,321 $ 50 Restricted Cash Included in Other Assets 23,096 24,297 51 $ 424,542 $ 446,618 $ Cash and Equivalents, including Restricted Cash at End of the 52 Period: : 53 Cash and Equivalents $ 342,840 S 360,668 $ 54 Restricted Cash Included in Other Assets 23,884 25,126 55 $ 366,724 $ 385,794 $ 56 Supplemental Schedule of Non-Cash Investing and Financing 57 Activities: 58 Caosts Incurred During the Period Remaining Unpaid at Period 59 End For: 60 Capital Expenditures to Maintain Real Estate Facilities $ (12,780) $ (13,444) $ 61 Construction or Expansion of Real Estate Facilities 5,484 5,769 62 Accrued and Other Liabilities $ 7,296 $ 7,675 63 64 Real Estate Acquired in Exchange for Assumption of a Liability (1,872) (1,970) 65 Liability Assumed in Connection with Acquisition of Real Estate 1,266 1,332 Notes Payable Assumed in Connection with Acquisition of Real 66 Estate $ (606) $ 3,302 $ Preferred Shares Called for Redemption and Reclassified to 67 Liabilities 100,000 105,200 Preferred Shares Called for Redemption and Reclassified to 68 Equity (100,000) (105,200) 69 70 Other Disclosures: 71 72 Foreign Currency Translation Adjustment: 73 Real Estate Facilities, Net of Accumulated Depreciation 67 71 74 Investment in Unconsolidated Real Estate Entities (1,554) (1,635) 75 Notes Payable (8,709) (9,162) 76 Accumuated other comprehensive Gain 10,134 10,661 77 78 Ending Cash Balance $ 8,942,398 $ 9,432,357 $ 79 80 HorizontalAnalysisIncomeStatmnt Projected Income Statements Projected Balance Sheets (2,072) 1,401 3,473 110,670 (110,671) 75 (1,720) (9,639) 11,215 9,953,612 Projected State 3 As of December 31, 2020, December 31, 2019, and December 31, 2018 4 $s in the thousands, except per share amounts 5 6 Decmber 31, 2020 $ Change % Change Decmber 31, 2019 $ Change % Change Decmber 31, 2018 7 Revenues: 8 Self-storage Facilities $ 2,721,630 $ 37,078 1% $ 2,684,552 $ 86,945 3% $ 2,597,607 9 Ancillary Operations 193,438 22,882 13% 170,556 8,640 5% 161,916 10 Total Revenues $ 2,915,068 59,960 2% $ 2,855,108 $ 95,585 3% $ 2,759,523 11 12 Expenses: 13 Self-Storage Cost of Operations 807,543 45,127 6% 762,416 52,677 7% 709,739 14 Ancillary Cost of Operations 59,919 9,183 18% 50,736 3,392 7% 47,344 15 Depreciation and Amortization 553,257 40,339 8% 512.918 29,272 6% 483,646 16 General and Administrative 83,199 21,053 34% 62,146 (42,566) -41% 104,712 17 Interest Expense 56,283 10,642 23% 45,641 13,099 40% 32,542 18 Total Expenses S 1,560,201$ 126,344 9% $ 1,433,857 $ 55,874 4% $ 1,377,983 19 20 Other Increases (Decreases) to Net Income: 21 Interest and Other Income 22,323 (4,360) -16% 26,683 2,131 9% 24,552 22 Equity in Earnings of Unconsolidated Real Estate Entities 80,497 10,950 16% 69,547 (33,948) -33% 103,495 23 Foreign Currency Exchange (Loss) Gain (97,953) (105,782) -1351% 7,829 (10,288) -57% 18,117 24 Gain on Sale of Real Estate 1,493 1,152 338% 341 (37,562) -99% 37,903 25 Gain Due to Shurgard Public Offering (151,616) -100% 151,616 26 Net Income $ 1,361,227 $ (164,424) -11% S 1,525,651 $ (191,572) -11% S 1,717,223 27 Allocation to Noncontrolling Interests (4,014) 1,103 -22% (5,117) 1,075 -17% (6,192) 28 Net Income Allocable to Public Storage Shareholders $ 1,357,213 S (163,321) -11% S 1,520,534 S (190,497) -11% $ 1,711,031 29 Allocation og Net Income to: 30 Preferred Shareholders - distributions (207,068) 3,111 -1% (210,179) 6,137 -3% (216,316) 31 Preferred Shareholders - redemptions (Note 8) (48,265) (15,572) 48% (32,693) (32,693) 0% 32 Restricted Share Units (3,545) 1,350 -28% (4,895) 920 -16% (5,815) 33 Net Income Allocable to Common Shareholders $ 1,098,335 $ (174,432) -14% S 1,272,767 $ (216,133) -15% S 1,488,900 34 Net Income Per Common Share: 35 Basic $ 6.29 $ (1.01) -14% $ 7.30 $ (1) -15% $ 8.56 36 Diluted $ 6.29 $ (1.00) -14% $ 7.29 $ (1) -15% $ 8.54 37 38 Basic Weighted Average Common Shares Outstanding 174,494 207 0% 174,287 318 0% 173,969 39 Diluted Weighted Average Common Shares Outstanding 174,642 112 0% 174,530 233 0% 174,297 40 Treasure Stock 148 (95) -39% 243 (85) -26% 328 Historical and Competitor Ratio Common Sized Balance Sheets Common Sized Income Statements Common Sized Income Statements HorizontalAnalysis Balance Sheets HorizontalAnalysisIncomeStatmnt Pro 1 2 Public Storage Historical Ratios As of December 31, 2020, December 31, 2019, and December 31, 2018 3 4 5 Public Storage, 2020 Public Storage, 2019 Public Storage, 2018 1.89 0.89 0.62 2.09 1.33 1.52 0.27 0.38 0.30 35.02 0.20 0.25 0.21 45.67 0.16 0.20 0.15 68.63 5 6 7 8 Liquidity Ratios 9 Current Ratio 10 Quick Ratio 11 12 Leverage Ratios 13 Debt to Total Assets Ratio 14 Debt Equity Ratio 15 Long-Term Debt to Equity 16 Times Interest Earned Ratio 17 18 Activity Ratios 19 Inventory Turnover 20 Fixed Assets Turnover 21 Total Assets Turnover 22 Accounts Receivable Turnove 23 Average Collection Period 24 25 Profitability Ratios 26 Gross Profit Margin 27 Operating Profit Margin 28 Net Profit Margin 29 Return on Total Assets (ROA) 30 Return on Stockholders' equi 31 Earnings Per Share (EPS) 32 Price Earnings Ratio 0.06 0.05 3.73 3.98 0.10 3.68 3.84 4.05 0.06 21.69 3.96 0.05 0.06 22.29 17.34 70.24% 46.48% 46.70% 11.52% 15.87% 6.29 23.51 71.52% 49.78% 53.44% 13.42% 16.80% 7.30 33.28 72.56% 50.06% 62.23% 15.71% 18.78% 8.56 38.32 23 ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A) should be read in conjunction with our financial statements and notes thereto. Critical Accounting Policies Our MD&A discusses our financial statements, which have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP"), and are affected by our judgments, assumptions and estimates. The notes to our December 31, 2018 financial statements, primarily Note 2, summarize our significant accounting policies. We believe the following are our critical accounting policies, because they have a material impact on the portrayal of our financial condition and results, and they require us to make judgments and estimates about matters that are inherently uncertain Income Tax Expense: We have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended (the "Code). As a REIT, we do not incur federal income tax on our REIT taxable income that is fully distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we meet certain organizational and operational rules. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no federal income tax expense related to our REIT taxable income. Our evaluation that we have met the REIT requirements could be incorrect, because compliance with the tax rules requires factual determinations, and circumstances we have not identified could result in noncompliance with the tax requirements in current or prior years. For any taxable year that we fail to qualify as a REIT and for which applicable statutory relief provisions did not apply, we would be taxed at the regular corporate rates on all of our taxable income for at least that year and the ensuing four years, we could be subject to penalties and interest, and our net income would be materially different from the amounts estimated in our financial statements. In addition, certain of our consolidated corporate subsidiaries have elected to be treated as "taxable REIT subsidiaries" for federal income tax purposes, which are taxable as regular corporations and subject to certain limitations on intercompany transactions. If tax authorities determine that amounts paid by our taxable REIT subsidiaries to us are not reasonable compared to similar arrangements among unrelated parties, we could be subject to a 100% penalty tax on the excess payments. Such a penalty tax could have a material adverse impact on our net income. Impairment of Long-Lived Assets: The analysis of impairment of our long-lived assets involves identification of indicators of impairment, projections of future operating cash flows, and estimates of fair values, all of which require significant judgment and subjectivity. Others could come to materially different conclusions. In addition, we may not have identified all current facts and circumstances that may affect impairment. Any unidentified impairment loss, or change in conclusions, could have a material adverse impact on our net income. Accrual for Uncertain and Contingent Liabilities: We accrue for certain contingent and other liabilities that have significant uncertain elements, such as property taxes, workers compensation claims, tenant reinsurance claims, as well as other legal claims and disputes involving customers, employees, governmental agencies and other third parties. We estimate such liabilities based upon many factors such as assumptions of past and future trends and our evaluation of likely outcomes. However, the estimates of known liabilities could be incorrect or we may not be aware of all such liabilities, in which case our accrued liabilities and net income could be misstated. Accounting for Acquired Real Estate Facilities: We estimate the fair values of the land, buildings and intangible assets acquired for purposes of allocating the purchase price. Such estimates are based upon many assumptions and judgments, including (1) market rates of return and capitalization rates on real estate and intangible assets, (11) building and material cost levels, (111) comparisons of the acquired underlying land parcels to recent land 25 transactions, and (iv) future cash flows from the real estate and the existing tenant base. Others could come to materially different conclusions as to the estimated fair values, which would result in different depreciation and amortization expense, gains and losses on sale of real estate assets, and real estate and intangible assets. Overview Our self-storage operations generate most of our net income, and we believe that our earnings growth is most impacted by the level of organic growth in our existing self-storage portfolio. Accordingly, a significant portion of management's time is devoted to maximizing cash flows from our existino self-storage facilities Our self-storage operations generate most of our net income, and we believe that our earnings growth is most impacted by the level of organic growth in our existing self-storage portfolio. Accordingly, a significant portion of management's time is devoted to maximizing cash flows from our existing self-storage facilities. Most of our facilities compete with other well-managed and well-located competitors and we are subject to general economic conditions, particularly those that affect the spending habits of consumers and moving trends. We believe that our centralized information networks, national telephone and online reservation system, the brand name Public Storage," and our economies of scale enable us to meet such challenges effectively. In the last three years, there has been a marked increase in development of new self-storage facilities in many of the markets we operate in, due to the favorable economics of development which we have also taken advantage of. These newly developed facilities compete with many of the facilities we own, negatively impacting our occupancies, rental rates, and rental growth. This increase in supply has been most notable in Atlanta, Austin, Charlotte, Chicago, Dallas, Denver, Houston, New York, and Portland. We plan on growing organically as well as through the acquisition and development of new facilities and expanding our existing self-storage facilities. Since the beginning of 2013 through December 31, 2018, we acquired a total of 296 facilities with 20.6 million net rentable square feet from third parties for approximately $2.7 billion, and we opened newly developed and expanded self-storage space for a total cost of $1.2 billion, adding approximately 11.3 million net rentable square feet Subsequent to December 31, 2018, we acquired or were under contract to acquire (subject to customary closing conditions) 14 self-storage facilities for $102.4 million. We will continue to seek to acquire properties; however, there is significant competition to acquire existing facilities and there can be no assurance as to the level of facilities we may acquire. As of December 31, 2018, we had additional development and redevelopment projects to build approximately 5.2 million net rentable square feet at a total cost of approximately $607.4 million. We expect to continue to seek additional development projects; however, the level of such activity may be limited due to various constraints such as difficulty in finding available sites that meet our risk-adjusted yield expectations, as well as challenges in obtaining building permits for self-storage activities in certain municipalities. We believe that our development and redevelopment activities are beneficial to our business over the long run. However, in the short run, such activities dilute our earnings due to the three to four year period that it takes to fill up newly developed and redeveloped storage facilities and reach a stabilized level of cash flows offset by the cost of capital to fund the cost, combined with related overhead expenses flowing through general and administrative expense. We believe the level of dilution incurred in 2018 will continue at similar levels in 2019 and beyond, assuming realization of our current expectation of maintaining our current level of development for the foreseeable future. On July 13, 2018, we received a cash distribution from Shurgard Self Storage SA ("Shurgard Europe) totaling $145.4 million. On September 18, 2017, we completed a public offering of $1.0 billion in aggregate principal amount of unsecured notes in two equal tranches (collectively, the "U.S. Dollar Notes"), one maturing in September 2022 bearing interest at 2.370%, and another maturing in September 2027 bearing interest at 3.094%. This was our first public offering of debt, which should also serve to facilitate future offerings. 26 On October 15, 2018, Shurgard Europe completed an initial global offering (the "Offering) of its common shares, and its shares commenced trading on Euronext Brussels under the "SHUR symbol. In the Offering, Shurgard Europe issued 25.0 million of its common shares to third parties at a price of 23 per share, for 575 million in gross proceeds. The gross proceeds were used to repay short-term borrowings, invest in real estate assets, and for other corporate purposes. Our equity interest, comprised of a direct and indirect pro-rata ownership interest in 31.3 million shares, decreased from 49% to 35.2% as a result of the Offering. While we did not sell any of our shares in the Offering, we did record a gain on disposition in 2018 of $151.6 million, as if we had sold a proportionate share of our investment in Shurgard Europe. See Investment in Shurgard Europe" below for more information. On October 18, 2018, we sold our property in West London to Shurgard Europe for $42.1 million and recorded a related gain on sale of real estate of approximately $31.5 million. As of December 31, 2018, our capital resources over the next year are expected to be approximately $1.1 billion which exceeds our current planned capital needs over the next year of approximately $711.4 million. Our capital resources include: (1) $361.2 million of cash as of December 31, 2018 (11) $483.8 million of available borrowing capacity on our revolving line of credit, and (111) approximately $200 million to $250 million of expected retained operating cash flow for the next twelve months. Retained operating cash flow represents our expected cash flow provided by operating activities, less shareholder distributions and capital expenditures to maintain our real estate facilities. Our planned capital needs over the next year consist of (1) $322.1 million of remaining spend on our current development pipeline, (11) $102.4 million in property acquisitions currently under contract, (111) $285.0 million for the redemption of our Series Y Preferred Shares on March 28, 2019, and (iv) $1.9 million in principal repayments on existing debt. Our capital needs may increase over the next year as we expect to add projects to our development pipeline and acquire additional properties. In addition to other investment activities, we may also redeem outstanding preferred securities or repurchase shares of our common stock in the future. B D G H 1 Public Storage Projected 2 Statement of Cash Flows 3 As of December 31, 2021, December 31, 2022, and December 31, 2023 4 (Amounts in Thousands) 5 6 Decmber 31, 2021 Decmber 31, 2022 Decmber 31, 2023 7 Cash Flows from Operating Activities: 8 Net Income $ 1,746,885 $ (2,590,335) $ 23,332,335 Adjustments to Reconcile Net Income to Net Cash Flows 9 from Operating Activities: 10 Gain Due to Shurgard Public Offering (50,539) (53,167) (55,932) 11 Gain on Real Estate Investment Sales (13,246) (13,935) (14,659) 12 Depreciation and Amortization 516,607 543,470 571,731 13 Equity in Earnings of Unconsolidated Real Estate Entities (84,513) (88,908) ) (93,531) Distribution from Cumulative Equity in Earnings of 14 Unconsolidated Real Estate Entities 85,037 89,459 94,111 15 Foreign Currency Exchange Loss (Gain) 24,002 25,250 26,563 16 Share-Based Compensation Expense 43,044 45,282 47,637 17 Other 2,967 3,121 3,284 18 Total Adjustments $ 573,898 $ 603,740 $ 635,135 19 Net Cash Flows from Operating Activities $ 2,320,783 $ (1,986,594) $ 23,967,470 20 21 Cash Flows from Investing Activities: 22 Capital Expenditures to Maintain Real Estate Facilities (166,094) (174,731) (183,817) 23 Development and Expansion of Real Estate Facilities (271,376) (285,487) (300,333) 24 Acquisition of Real Estate Facilities and Intangible Assets (470,348) (494,806) (520,536) Distribution in Excess of Cummulative Equity in Earnings 25 from Unconsolidated Real Estate Entries 42.738 44,961 47,298 26 Repayment of Note Receivables 2,503 2,633 2,770 27 Proceeds from Sales of Real Estate Investments 18,914 19,897 20,932 28 Net Cash Flows Used in Investing Activities $ (843,663) $ (887,534) $ (933,685) 29 30 Cash Flows from Financing Activities: 31 Repayments on Notes Payable (1,908) (2,007) (2,112) 32 Issurance of Notes Payable, Net of Issurance Costs 347,350 365,412 384,414 33 Issurance of Preferred Shares 755,787 795,088 836,433 34 Issurance of Common Shares 19,584 20,603 21,674 35 Redemption of Preferred Shares (756,667) (796,014) (837,406) HorizontalAnalysisincomeStatmnt Projected Income Statements Projected Balance Sheets Projected StatementOfCashFI C - C81 X fx kk D E F G (843,663) $ (887,534) $ (933,685) (1,908) 347,350 755,787 19,584 (756,667) (11,676) (11,678) 2,832 (2,007) 365,412 795,088 20,603 (796,014) (12,283) (12,285) 2,979 (2,112) 384,414 836,433 21,674 (837,406) (12,922) (12,924) 3,134 (1,609,286) (6,354) (1,272,015) (1,692,969) (6,684) (1,338,160) (1,781,003) (7,031) (1,407,744) $ $ (57,615) (60,610) (63,762) B 28 Net Cash Flows Used in Investing Activities $ 29 30 Cash Flows from Financing Activities: 31 Repayments on Notes Payable 32 Issurance of Notes Payable, Net of Issurance Costs 33 Issurance of Preferred Shares 34 Issurance of Common Shares 35 Redemption of Preferred Shares 36 Cash Paid Upon Vesting of Restricted Share Units 37 Acquisition of Noncontrolling Interests 38 Contributions by Noncontrolling Interests Distrbutions paid to Preferred Shareholders, Common 39 Shareholders and Restricted Share Unitholders 40 Distributions Paid to Noncontrolling Interests 41 Net Cash Flows Used In Financing Activities $ 42 Net Cash Flows (Used In) from Operating, Investing, and 43 Financing Activities Net Effect of Foreign Exchange Impact on cash and Equivalents, 44 Including Restricted Cash (Decrease) Increase in Cash and Equivalents, Including 45 Restricted Cash $ 46 47 Cash and Equivalents, including Restricted Cash at Beginning of 48 the Period: 49 Cash and Equivalents $ 50 Restricted Cash Included in Other Assets 51 $ Cash and Equivalents, including Restricted Cash at End of the 52 Period: 53 Cash and Equivalents $ 54 Restricted Cash Included in Other Assets 55 $ 56 Supplemental Schedule of Non-Cash Investing and Financing 57 Activities: 58 (204) (214) (225) (57,818) $ (60,825) $ (63,987) S $ 401,445 23,096 424,542 422,321 24,297 446,618 444,281 25,561 469,842 $ $ $ $ 342,840 23,884 366.724 360,668 25,126 385,794 379,423 26,432 405,855 $ $ G H 444 281 25,561 469,842 379,423 26,432 405,855 (14,144) 6,069 8,075 B c D E F 49 Cash and Equivalents $ 401,445 $ 422,321 $ 50 Restricted Cash Included in Other Assets 23,096 24,297 51 $ 424,542 $ 446,618 $ Cash and Equivalents, including Restricted Cash at End of the 52 Period: : 53 Cash and Equivalents $ 342,840 S 360,668 $ 54 Restricted Cash Included in Other Assets 23,884 25,126 55 $ 366,724 $ 385,794 $ 56 Supplemental Schedule of Non-Cash Investing and Financing 57 Activities: 58 Caosts Incurred During the Period Remaining Unpaid at Period 59 End For: 60 Capital Expenditures to Maintain Real Estate Facilities $ (12,780) $ (13,444) $ 61 Construction or Expansion of Real Estate Facilities 5,484 5,769 62 Accrued and Other Liabilities $ 7,296 $ 7,675 63 64 Real Estate Acquired in Exchange for Assumption of a Liability (1,872) (1,970) 65 Liability Assumed in Connection with Acquisition of Real Estate 1,266 1,332 Notes Payable Assumed in Connection with Acquisition of Real 66 Estate $ (606) $ 3,302 $ Preferred Shares Called for Redemption and Reclassified to 67 Liabilities 100,000 105,200 Preferred Shares Called for Redemption and Reclassified to 68 Equity (100,000) (105,200) 69 70 Other Disclosures: 71 72 Foreign Currency Translation Adjustment: 73 Real Estate Facilities, Net of Accumulated Depreciation 67 71 74 Investment in Unconsolidated Real Estate Entities (1,554) (1,635) 75 Notes Payable (8,709) (9,162) 76 Accumuated other comprehensive Gain 10,134 10,661 77 78 Ending Cash Balance $ 8,942,398 $ 9,432,357 $ 79 80 HorizontalAnalysisIncomeStatmnt Projected Income Statements Projected Balance Sheets (2,072) 1,401 3,473 110,670 (110,671) 75 (1,720) (9,639) 11,215 9,953,612 Projected State 3 As of December 31, 2020, December 31, 2019, and December 31, 2018 4 $s in the thousands, except per share amounts 5 6 Decmber 31, 2020 $ Change % Change Decmber 31, 2019 $ Change % Change Decmber 31, 2018 7 Revenues: 8 Self-storage Facilities $ 2,721,630 $ 37,078 1% $ 2,684,552 $ 86,945 3% $ 2,597,607 9 Ancillary Operations 193,438 22,882 13% 170,556 8,640 5% 161,916 10 Total Revenues $ 2,915,068 59,960 2% $ 2,855,108 $ 95,585 3% $ 2,759,523 11 12 Expenses: 13 Self-Storage Cost of Operations 807,543 45,127 6% 762,416 52,677 7% 709,739 14 Ancillary Cost of Operations 59,919 9,183 18% 50,736 3,392 7% 47,344 15 Depreciation and Amortization 553,257 40,339 8% 512.918 29,272 6% 483,646 16 General and Administrative 83,199 21,053 34% 62,146 (42,566) -41% 104,712 17 Interest Expense 56,283 10,642 23% 45,641 13,099 40% 32,542 18 Total Expenses S 1,560,201$ 126,344 9% $ 1,433,857 $ 55,874 4% $ 1,377,983 19 20 Other Increases (Decreases) to Net Income: 21 Interest and Other Income 22,323 (4,360) -16% 26,683 2,131 9% 24,552 22 Equity in Earnings of Unconsolidated Real Estate Entities 80,497 10,950 16% 69,547 (33,948) -33% 103,495 23 Foreign Currency Exchange (Loss) Gain (97,953) (105,782) -1351% 7,829 (10,288) -57% 18,117 24 Gain on Sale of Real Estate 1,493 1,152 338% 341 (37,562) -99% 37,903 25 Gain Due to Shurgard Public Offering (151,616) -100% 151,616 26 Net Income $ 1,361,227 $ (164,424) -11% S 1,525,651 $ (191,572) -11% S 1,717,223 27 Allocation to Noncontrolling Interests (4,014) 1,103 -22% (5,117) 1,075 -17% (6,192) 28 Net Income Allocable to Public Storage Shareholders $ 1,357,213 S (163,321) -11% S 1,520,534 S (190,497) -11% $ 1,711,031 29 Allocation og Net Income to: 30 Preferred Shareholders - distributions (207,068) 3,111 -1% (210,179) 6,137 -3% (216,316) 31 Preferred Shareholders - redemptions (Note 8) (48,265) (15,572) 48% (32,693) (32,693) 0% 32 Restricted Share Units (3,545) 1,350 -28% (4,895) 920 -16% (5,815) 33 Net Income Allocable to Common Shareholders $ 1,098,335 $ (174,432) -14% S 1,272,767 $ (216,133) -15% S 1,488,900 34 Net Income Per Common Share: 35 Basic $ 6.29 $ (1.01) -14% $ 7.30 $ (1) -15% $ 8.56 36 Diluted $ 6.29 $ (1.00) -14% $ 7.29 $ (1) -15% $ 8.54 37 38 Basic Weighted Average Common Shares Outstanding 174,494 207 0% 174,287 318 0% 173,969 39 Diluted Weighted Average Common Shares Outstanding 174,642 112 0% 174,530 233 0% 174,297 40 Treasure Stock 148 (95) -39% 243 (85) -26% 328 Historical and Competitor Ratio Common Sized Balance Sheets Common Sized Income Statements Common Sized Income Statements HorizontalAnalysis Balance Sheets HorizontalAnalysisIncomeStatmnt Pro 1 2 Public Storage Historical Ratios As of December 31, 2020, December 31, 2019, and December 31, 2018 3 4 5 Public Storage, 2020 Public Storage, 2019 Public Storage, 2018 1.89 0.89 0.62 2.09 1.33 1.52 0.27 0.38 0.30 35.02 0.20 0.25 0.21 45.67 0.16 0.20 0.15 68.63 5 6 7 8 Liquidity Ratios 9 Current Ratio 10 Quick Ratio 11 12 Leverage Ratios 13 Debt to Total Assets Ratio 14 Debt Equity Ratio 15 Long-Term Debt to Equity 16 Times Interest Earned Ratio 17 18 Activity Ratios 19 Inventory Turnover 20 Fixed Assets Turnover 21 Total Assets Turnover 22 Accounts Receivable Turnove 23 Average Collection Period 24 25 Profitability Ratios 26 Gross Profit Margin 27 Operating Profit Margin 28 Net Profit Margin 29 Return on Total Assets (ROA) 30 Return on Stockholders' equi 31 Earnings Per Share (EPS) 32 Price Earnings Ratio 0.06 0.05 3.73 3.98 0.10 3.68 3.84 4.05 0.06 21.69 3.96 0.05 0.06 22.29 17.34 70.24% 46.48% 46.70% 11.52% 15.87% 6.29 23.51 71.52% 49.78% 53.44% 13.42% 16.80% 7.30 33.28 72.56% 50.06% 62.23% 15.71% 18.78% 8.56 38.32 23