What changed in this filing

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Item 1A. Risk Factors

2022-02-28 compared with 2021-02-26 · 70 added, 42 removed, 208 unchanged (35% of the section changed)

23 unchanged sentences

Our tenant reinsurance business is subject to significant governmental regulation.

The regulatory authorities generally have broad discretion to grant, renew and revoke licenses and approvals, to promulgate, interpret and implement regulations, and to evaluate compliance with regulations through periodic examinations, audits and investigations of the affairs of insurance

As a result of regulatory or private action in any jurisdiction, we may be temporarily or permanently suspended from continuing some or all of our reinsurance activities, or otherwise fined or penalized or suffer an adverse judgment, which could adversely affect our business and results of operations.

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Our ability to expand through acquisitions is integral to our business strategy and requires us to identify suitable acquisition candidates or investment opportunities that meet our criteria and are compatible with our growth strategy.

We may not be successful in identifying suitable stores or other assets that meet our acquisition criteria or in consummating acquisitions or investments on satisfactory terms or at all.

We may not be successful in identifying suitable stores or other assets that meet our acquisition criteria or in consummating acquisitions

or investments on satisfactory terms or at all.

Failure to identify or consummate acquisitions will slow our growth, which could in turn adversely affect our stock price.

4 unchanged sentences

• we may acquire stores subject to liabilities without any recourse, or with only limited recourse, with respect to unknown liabilities such as liabilities for clean-up of undisclosed environmental contamination, claims by persons dealing with the former owners of the stores and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the stores.

We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

We and our vendors rely on information technology, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personally identifiable information, and tenant and lease data.

We purchase some of our information technology from vendors, on whom our systems depend.

We rely on commercially available systems, software, tools and monitoring to provide security for

processing, transmission and storage of confidential tenant and other sensitive information.

We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential tenant and other sensitive information.

Our information technology systems and those of our third-party service providers, strategic partners and other contractors or consultants are vulnerable to attack and damage or interruption from computer viruses and malware (e.g.

ransomware), malicious code, natural disasters, terrorism, war, telecommunication and electrical failures, hacking, cyberattacks, phishing attacks and other social engineering schemes, employee theft or misuse, human error (e.g., social engineering, phishing), fraud, denial or degradation of service attacks, sophisticated nation-state and nation-state-supported actors or unauthorized access or use by persons inside our organization, or persons with access to systems inside our organization.

Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks.

Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information.

We and certain of our service providers are from time to time, subject to cyberattacks and security incidents.

While to date, we have not experienced a material security breach, this risk has generally increased as the number, intensity and sophistication of such breaches and attempted breaches from around the world have increased.

Furthermore, because the technologies used to obtain unauthorized access to, or to sabotage or disrupt, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures.

We may also experience security breaches that may remain undetected for an extended period.

Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence.

As a result of the COVID-19 pandemic, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our, as well as our service providers’, employees who are (and may continue to be) working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.

Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, divert significant management attention and resources to remedy any damages that result, subject us to liability claims or regulatory penalties and have a material adverse effect on our business and results of operations.

Failure to comply with laws and regulations relating to data privacy and protection, could adversely affect our business and our financial condition.

In the United States, both federal and various state governments have adopted, or are considering, laws, guidelines or rules for the collection, distribution, use and storage of information collected from or about consumers or their devices.

For example, the California Consumer Privacy Act of 2018 (CCPA) went into effect on January 1, 2020, and creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information.

The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.

Further, the California Privacy Rights Act (CPRA) recently passed in California.

The CPRA significantly

amends the CCPA and will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.

It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement.

The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required.

Similar laws have passed in Virginia and Colorado, and have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States.

The enactment of such laws could have potentially conflicting requirements that would make compliance challenging.

Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply.

Any failure or perceived failure by us or our employees, representatives, contractors, consultants, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation, and adversely affect our business and results of operations.

Our property taxes could increase due to reassessment or property tax rate changes.

Real property taxes on our properties may increase as our properties are reassessed by taxing authorities or as property tax rates change.

For example, a current California law commonly referred to as Proposition 13 generally limits annual real estate tax increases on California properties to 2% of assessed value.

However, under Proposition 13, property tax reassessment generally occurs as a result of a "change in ownership" of a property, as specially defined for purposes of those rules.

Because the property taxing authorities may not determine whether there has been a "change in ownership" or the actual reassessed value of a property for a period of time after a transaction has occurred, we may not know the impact of a potential reassessment for a considerable amount of time following a particular transaction.

Therefore, the amount of property taxes we are required to pay could increase substantially from the property taxes we currently pay or have paid in the past, including on a retroactive basis.

In addition from time to time voters and lawmakers have announced initiatives to repeal or amend Proposition 13 to eliminate its application to commercial and industrial property and/or introduce split tax roll legislation.

Such initiatives, if successful, could increase the assessed value and/or tax rates applicable to commercial property in California, including our stores.

If our property taxes we pay increase, our cash flow would be adversely impacted, and our ability to pay any expected dividends to our stockholders and unitholders could be adversely affected.

The COVID-19 pandemic or other pandemics could adversely affect our results of operations.

During 2020, the United States and other countries around the world have been experiencing a major health pandemic related to COVID-19, which has created considerable instability and disruption in the U.S.

During 2021, the United States and other countries around the world have continued to experience a major health pandemic related to COVID-19, which has created considerable instability and disruption in the U.S.

and world economies.

Governmental authorities in impacted regions are taking varied and sometimes dramatic action in an effort to slow the spread of COVID-19.

Federal, state and local jurisdictions have issued varying forms of states of emergency orders.

We are working to comply within the framework of local, county, state and federal laws as they evolve.

In that regard, we have implemented a wide range of practices to protect and support our employees and customers.

Such measures include instituting “work from home” measures at our corporate offices and call center, instituting a contactless rental process that allows our on-site employees to continue to rent storage units without physical interaction, and providing personal protective equipment to on-site employees providing essential functions so that hygiene and “social distancing” standards can be effectively managed and applied.

We have transitioned many of our interactions between customers and leasing and support staff to on-line and telephonic communications.

Due to the COVID-19 pandemic, our customers may be impacted, including through unemployment, which may impact their ability to pay rent or renew their leases.

Our business has been impacted by COVID-19 in several ways, including reductions in new rentals and vacates due to stay-at home orders and other restrictions, lower achieved rental rates from new customers, fewer existing customer rent increases, reduced late fee collection and impaired ability to hold auctions resulting in higher accounts receivable and bad debt.

These impacts from COVID-19 were especially prevalent during the second quarter of 2020.

As restrictions began to lessen during the second half of 2020, we saw some return toward normalcy, including higher achieved rates, accounts receivable and collections less than 60 days returning to historical norms, and auctions being held in most locations.

As a result of the reductions in vacates, we saw record occupancy levels in the latter half of 2020.

In 2020, federal, state and local jurisdictions issued varying forms of states of emergency orders.

While many of these states of emergency orders have expired or been removed, we continue to monitor existing states of emergency and prepare for any additional states of emergency orders.

We have updated many of our safety and working practices so that we are prepared to address any future states of emergency orders should they continue or be reinstated.

Our business was impacted by COVID-19 in 2020 in several ways, including reductions in new rentals and vacates due to stay-at home orders and other restrictions, lower achieved rental rates from new customers, fewer existing customer rent increases, reduced late fee collection and impaired ability to hold auctions resulting in higher accounts receivable and bad debt.

During 2021 we largely saw a return toward normalcy, including higher achieved rates, accounts receivable and collections less than 60 days returning to historical norms, and auctions being held in most locations.

As a result of the reductions in vacates, we saw record occupancy levels during 2021.

Although the self-storage industry has historically been resilient to ordinary market downturns, the impact of the COVID-19 pandemic on the U.S.

and world economies generally, and on our future results in particular, could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted.

This includes new information which may emerge concerning the severity of COVID-19, the success of actions taken to contain or treat COVID-19 and reactions by consumers, companies, governmental entities and capital markets.

This includes new information which may emerge concerning the severity of COVID-19 variants, the success of actions taken to contain or treat COVID-19 and reactions by consumers, companies, governmental entities and capital markets.

Risks Related to Our Organization and Structure

76 unchanged sentences

Failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of operations and ability to make cash distributions to our stockholders.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR may affect our financial results.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after June 30, 2021.

The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR.

ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR.

In November 2020, the Federal Reserve Board along with various independent groups announced the potential for certain USD LIBOR tenors to continue to be published until June 2023.

This change would allow most legacy USD LIBOR contracts to mature before disruptions occur in the USD LIBOR market, without the need to transition those contracts to SOFR.

We are not able to predict when LIBOR may be limited or discontinued or when there will be sufficient liquidity in the SOFR market.

We have outstanding debt and hedge contracts indexed to LIBOR.

Due to the extension noted above, we currently expect that all of our then-outstanding contracts indexed to LIBOR will be required to be transitioned to an alternative rate by June 30, 2023.

However, it is possible that LIBOR may be discontinued or our contracts may be transitioned to an alternative rate (which may or may not be a SOFR-based rate) prior to then.

We are monitoring industry transition plans and evaluating the risks related to our debt and hedge contracts indexed to LIBOR.

If a published U.S.

dollar LIBOR rate is unavailable after 2021, the interest rates on these instruments which are indexed to LIBOR will be determined using alternative methods, which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S.

dollar LIBOR was available in its current form.

Further, the same costs and risks that may lead to the unavailability of U.S.

dollar LIBOR may make one or more of the alternative methods impossible or impracticable to

Any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition, operating results and cash flows.

Changes in the method pursuant to which the London Interbank Offered Rate (“LIBOR”) is determined and the transition to other benchmarks may adversely affect our financial results.

LIBOR and certain other “benchmarks” have been the subject of continuing national, international and other regulatory guidance and proposals for reform.

In July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, publicly announced that it intends to phase out LIBOR, and on March 5, 2021, the FCA announced that USD LIBOR will no longer be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of one week and two month USD settings, and immediately after June 30, 2023, in the case of the remaining USD settings.

Additionally, banking regulators, including the U.S.

Federal Reserve, have encouraged banks to discontinue new LIBOR debt issuances after December 31, 2021.

This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to the Secured Overnight Financing Rate ("SOFR").

SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S.

Treasury securities, and is based on directly observable U.S.

Treasury-backed repurchase transactions.

Although SOFR appears to be the preferred replacement rate for U.S.

dollar LIBOR, it is unclear if other benchmarks may emerge or if other rates will be adopted outside of the United States.

We anticipate that the most commonly used tenors of LIBOR will continue to be available at least until June 30, 2023.

Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR.

If that were to occur, our interest payments could change.

In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

We have contracts that are indexed to LIBOR and are monitoring and evaluating the related risks, which include interest on loans and amounts received and paid on derivative instruments.

These risks arise in connection with transitioning contracts to an alternative rate, including any resulting value transfer that may occur, and are likely to vary by contract.

The value of loans, securities, or derivative instruments tied to LIBOR, as well as interest rates on our current or future indebtedness, may also be impacted if LIBOR is limited or discontinued.

For some instruments the method of transitioning to an alternative reference rate may be challenging, especially if we cannot agree with the respective counterparty about how to make the transition.

While we expect LIBOR to be available in substantially its current form until at least the end of June 30, 2023, it is possible that LIBOR will become unavailable prior to that point.

This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator.

In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.

Alternative rates and other market changes related to the replacement of LIBOR, including the introduction of financial products and changes in market practices, may lead to risk modeling and valuation challenges, such as adjusting interest rate accrual calculations and building a term structure for an alternative rate.

The introduction of an alternative rate also may create additional basis risk and increased volatility as alternative rates are phased in and utilized in parallel with LIBOR.

Adjustments to systems and mathematical models to properly process and account for alternative rates will be required, which may have a material adverse effect on our financing costs, and as a result, our financial condition, operating results and cash flows.

Our existing indebtedness contains covenants that limit our operating flexibility and failure to comply with all covenants in our debt agreements could materially and adversely affect us.

Our debt agreements, including our credit agreement governing the revolving credit facility and term loans and the indentures governing our public traded notes, contain various financial and other covenants that we and our operating partnership must comply with including total debt to asset ratios, secured debt to total asset ratios, adjusted EBITDA to fixed charged ratios and minimum ratios of unencumbered assets to unsecured debt which we must maintain.

These covenants may limit our operating flexibility and could prevent us from taking advantage of business opportunities as they arise, growing our business or competing effectively.

Our ability to meet these covenants may be affected by events beyond our control, and we may be unable to maintain compliance with these covenants.

If we fail to meet these requirements, we may be unable to obtain waivers from the lenders or indenture trustee, as applicable, or amend the covenants.

A breach of any of the covenants or other provisions in our debt agreements could result in an event of default, which if not cured or waived, could result in such debt becoming due and payable, either automatically or after an election to accelerate by the required percentage of the holders of the indebtedness or by an agent for the holders of the indebtedness.

This, in turn, could cause our other debt, including the notes and our revolving credit facility, to become due and payable as a result of cross-default or cross-acceleration provisions contained in the agreements governing the other debt and permit certain of our lenders to foreclose on our assets, if any, that secure this debt.

In the event that some or all of our debt is accelerated and becomes immediately due and payable, we may not have the funds to repay, or the ability to refinance our debt.

Risks Related to Qualification and Operation as a REIT

39 unchanged sentences

Our ability to satisfy the income tests depends on the sources and amounts of our gross income, which we may not be able to control.

Also, we must

make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains, and we will be subject to U.S.

Also, we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains, and we will be subject to U.S.

federal corporate income tax to the extent we distribute less than 100% of our REIT taxable income, without regard to the dividends paid deduction and including net capital gains.

5 unchanged sentences

federal income tax purposes or the desirability of an investment in a REIT relative to other investments.

Although we believe that we have been organized and have operated in a manner that is intended to allow us to qualify for taxation as a REIT, we can give no assurance that we have qualified or will continue to qualify as a REIT for U.S.

REIT for U.S.

federal income tax purposes.

19 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors