PUBLIC STORAGE
2 0 0 9
A N N U A L
R E P O R T
WA
91
OR
39
MN
44
WI
15
MI
43
CO
59
NV
24
UT
7
AZ
37
CA
374
HI
8
NE
1
KS
22
OK
8
TX
236
IL
123
IN
31
TN
27
AL
22
MS
1
MO
37
LA
9
OH
30
KY
7
NH
2
NY
62
MA
RI
CT
19
2
15
NJ
DE
MD
56
5
56
PA
28
VA
78
NC
69
SC
40
GA
92
FL
191
SWEDEN
30
DENMARK
10
UNITED
KINGDOM
21
NETHERLANDS
39
BELGIUM
21
GERMANY
11
FRANCE
56
P RO PE RT I E S (as of December 31, 2009)
Location
Number
of Properties(1)
Net Rentable
Square Feet
Location
Number
of Properties(1)
Net Rentable
Square Feet
UNITED STATES
Alabama
Arizona
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Nebraska
Nevada
New Hampshire
New Jersey
New York
North Carolina
22
37
374
59
15
5
191
92
8
123
31
22
7
9
56
19
43
44
1
37
1
24
2
56
62
69
890,000
2,259,000
24,158,000
3,713,000
933,000
324,000
12,520,000
5,964,000
555,000
7,800,000
1,926,000
1,310,000
330,000
608,000
3,290,000
1,179,000
2,755,000
2,990,000
63,000
2,136,000
46,000
1,561,000
132,000
3,524,000
4,015,000
4,775,000
UNITED STATES (cont.)
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
30
8
39
28
2
40
27
236
7
78
91
15
1,860,000
428,000
2,006,000
1,867,000
64,000
2,155,000
1,528,000
15,493,000
440,000
4,453,000
6,028,000
968,000
Totals
2,010
127,046,000
EUROPE
Belgium
Denmark
France
Germany
Netherlands
Sweden
United Kingdom
Totals
Grand Totals
21
10
56
11
39
30
21
188
2,198
1,254,000
550,000
2,958,000
552,000
2,078,000
1,614,000
1,119,000
10,125,000
137,171,000
(1) Storage and properties combining self-storage and commercial space.
SELECTED FINANCIAL HIGHLIGHTS
Revenues:
Rental income and ancillary operations
Interest and other income
Expenses:
Cost of operations (excluding depreciation)
Depreciation and amortization
General and administrative
Interest expense
Income from continuing operations before
equity in earnings of real estate entities,
gain (loss) on disposition of real estate
investments, gain on early retirement of
debt, casualty gain or loss, and foreign
currency exchange gain (loss), net
Equity in earnings of real estate entities
Gain on disposition of real estate
investments, early retirement of
debt and casualty gain or loss, net
Foreign currency exchange gain (loss)
Income from continuing operations
Discontinued operations and cumulative
For the year ended December 31,
2009
2008(1)(2)
2007(1)(2)
2006 (1)(2)
2005(2)
(Amounts in thousands, except per share data)
$ 1,597,889 $ 1,687,438 $ 1,775,785 $ 1,317,963 $ 1,012,264
16,447
1,028,711
11,417
1,787,202
36,155
1,723,593
31,799
1,349,762
29,813
1,627,702
522,939
340,233
35,735
29,916
928,823
555,618
411,981
62,809
43,944
1,074,352
631,154
619,598
59,749
63,671
1,374,172
471,725
435,496
84,661
33,062
1,024,944
352,343
193,167
21,115
8,216
574,841
698,879
53,244
649,241
20,391
413,030
12,738
324,818
11,895
453,870
24,883
37,540
9,662
799,325
336,020
(25,362)
980,290
5,212
58,444
489,424
2,177
4,262
343,152
1,182
—
479,935
effect of change in accounting principle
(8,869)
(6,418)
(2,346)
2,757
9,109
Net income
Net income allocated from (to)
noncontrolling equity interests
Net income allocable to Public Storage
shareholders
Per Common Share:
Distributions
Net income - basic
Net income - diluted
Weighted average common shares - basic
Weighted average common shares - diluted
Balance Sheet Data:
Total assets
Total debt
Public Storage shareholders’ equity
Permanent noncontrolling interests’ equity
Cash Flow Information:
Net cash provided by operating activities
Net cash provided by (used in) investing
activities
Net cash used in financing activities
790,456
973,872
487,078
345,909
489,044
44,165
(38,696)
(29,543)
(31,883)
(32,651)
$ 834,621 $
935,176 $
457,535 $
314,026 $ 456,393
$
$
$
2.20 $
3.48 $
3.47 $
2.80(3)$
4.19 $
4.18 $
2.00 $
1.18 $
1.17 $
2.00 $
0.33 $
0.33 $
168,358
168,768
168,250
168,675
169,342
169,850
142,760
143,344
1.90
1.98
1.97
128,159
128,686
518,889 $
$ 9,805,645 $ 9,936,045 $10,643,102 $11,198,473 $ 5,552,486
$
643,811 $ 1,069,928 $ 1,848,542 $ 149,647
$ 8,928,407 $ 8,708,995 $ 8,763,129 $ 8,208,045 $ 4,817,009
499,178 $ 253,970
$
132,974 $
500,127 $
358,109 $
$ 1,112,857 $ 1,076,971 $ 1,047,652 $
769,440 $ 691,327
(91,409) $
$
340,018 $ (261,876) $ (473,630) $ (452,425)
$ (938,401) $ (984,076) $ (1,081,504) $ (244,395) $ (121,146)
(1) The significant increase in our revenues, cost of operations, depreciation and amortization, and interest expense in 2006 and 2007, and the
significant increase in total assets, total debt and shareholders’ equity in 2006, is due to our acquisition of Shurgard Storage Centers in August
2006. The significant decrease in our revenues, cost of operations, depreciation and amortization, and interest expense in 2008, and the
significant decrease in total assets, total debt and other equity in 2008, is due to our disposition of an interest in Shurgard Europe on March 31,
2008. See Note 3 to our December 31, 2009 consolidated financial statements for further information.
(2) As further discussed in Note 2 to our December 31, 2009 consolidated financial statements, certain amounts have been restated as a result of
the application of certain new accounting standards on January 1, 2009, which standards required retroactive application.
(3) Includes a special dividend of $0.60 per common share paid on December 30, 2008. This payout was primarily due to the gain on the sale
of a 51% interest in Shurgard Europe.
TO OUR SHAREHOLDERS
T
his was a year of separation in the REIT industry. Business models were exposed
and the quality of management revealed. As they say, “the tide went out” and
many companies had “no swimsuits.” I am happy to report that Public Storage
and its affiliates, Shurgard Europe and PS Business Parks (PSB), distinguished themselves.
Despite the challenging operating environment, our three portfolios, U.S. self-storage,
European self-storage and commercial properties, outperformed their competitors and
increased their intrinsic value. As discussed later, since we believe the economic
environment will continue to be challenging and capital for privately owned commercial
real estate will remain scarce, we are patiently waiting for opportunities. With $750 million
in cash (nearly $1 billion for Public Storage and PSB combined), we are positioned to
take advantage of acquisition opportunities as they arise.
In last year’s shareholder letter, I discussed recent events in the capital markets and the
rationale for our use of preferred stock and leverage. At the time of the letter, capital
markets–both bond and equity–were “closed” and the market was priced for
“Armageddon.” Since then, capital markets have returned to some degree of normalcy,
albeit at different price levels. Let’s review how we did in 2009 and then evaluate current
conditions and the opportunities ahead of us.
2009 Results
Net income per share in 2009 decreased to $3.47 from $4.18; however, funds from
operations (FFO)(1) per share increased to $5.61 from $5.05.
I will expand on each of these earnings metrics in greater detail, but in summary:
• Our U.S. Same Store revenues and net operating income (NOI) declined 3% and 4%,
respectively, compared to 2008’s growth of 3% in revenues and 4% in NOI.
• In Europe, Same Store revenues and NOI declined by 4% and 7%, respectively,
compared to 2008’s growth of 2% in revenues and 5% in NOI.
• Our commercial property operations (our share of PSB’s operations and our own
commercial properties) realized a decline in revenues and NOI of 3% and 4%,
respectively.
Total revenues decreased to $1.63 billion in 2009 from $1.72 billion in 2008, and net
income to common shareholders declined to $586 million in 2009 from $706 million in
2008.
Our FFO per share increased to $5.61 in 2009 from $5.05 in 2008. As reflected in the
following table, excluding non-core charges, FFO per share decreased from $5.16 in 2008
to $5.03, or about 3%.
(1) See accompanying schedule “Supplemental Non-GAAP Disclosures” for a definition.
Funds From Operations (FFO)
FFO per common share prior to adjustments for the
following items
Foreign currency exchange gain (loss)
Gain on early redemption of debt and preferred securities
Cost associated with the sale of Shurgard Europe
Other
FFO per common share, as reported
Year ended December 31,
2009
2008
$ 5.03
0.06
0.58
—
(0.06)
$ 5.61
$ 5.16
(0.15)
0.21
(0.17)
—
$ 5.05
A couple of significant transactions in 2009 caused our reported results to be better than
our business performance.
First, in both 2008 and 2009, we took advantage of the turbulence in the capital markets.
In 2009, we repurchased $360 million of our own debt and preferred securities at discounts
to par compared to $100 million of these repurchases in 2008. These discounts are
reflected as additions to net income to common shares and FFO.
Second, in 2009, PSB also repurchased almost $100 million of its own preferred stock at discounts
to par, generating gains of over $30 million. Our results reflect our pro rata share of this gain.
Third, in 2009, PSB took advantage of the favorable equity market and issued about
$170 million of common shares. Although Public Storage purchased $18 million of these
shares, our ownership stake in PSB declined to 41%. As a result of our reduced ownership,
the accounting rules compelled us to record a “book gain” of $30 million. We generated
no cash or taxable income from this transaction.
Fourth, in 2009, we recorded a currency gain of about $10 million (compared with a
currency loss of $25 million in 2008) from our 392 million euro denominated loan to
Shurgard Europe. We explored several alternatives for Shurgard Europe to obtain financing
to repay this loan, which was scheduled to mature on March 31, 2010. After an extensive
solicitation of the European bank market, it became apparent to us and our partner, New
York Common Retirement Fund, that Shurgard Europe would be better positioned if
Public Storage extended the loan. Accordingly, the loan was extended by an additional
three years to March 31, 2013, and, effective November 1, 2009, the interest rate was
increased from 7.5% to 9%. The loan can be repaid at any time without penalties.
Offsetting these favorable items, we incurred losses of approximately $3.5 million exiting
the containerized and consumer truck rental operations as neither business was adding
value to our operations.
Businesses
As reflected in the following table, operating earnings(2) were down from $1.24 billion in
2008 to $1.20 billion in 2009, or about 4%.
Operating Earnings(2)
Amounts in millions
U.S. self-storage operations
European self-storage operations
Commercial properties
Ancillary operations
2009
2008
$1,006
$1,034
66
65
62
84
67
59
Operating earnings
$1,199
$1,244
Self-Storage Operations
When evaluating our store operations, we bifurcate our domestic and European properties
into two groups–“Same Store” and other.
Same Store properties have been operated by the Company for the last three years at a
stabilized occupancy level. “Other” properties have been recently acquired or developed or
are being redeveloped. We consider the measurement of Same Store operations a key
barometer of both the fundamental strength of our business and the efficacy of our
personnel and operating strategies.
We use certain metrics to evaluate our performance, the most important being revenue
per available square feet, or “REVPAF,” and gross profit margin.(3) REVPAF measures
how much revenue is generated per foot we have available for lease. To manage growth
in REVPAF, we balance increased pricing with higher customer volumes (occupancy).
Also impacting REVPAF are product quality, customer
local
competition and the local economy. Gross profit margin is a function of our success at
generating more revenue while controlling expenses. Due to 2009’s challenging economic
conditions, both REVPAF and gross profit margin declined across the Same Store
portfolio in the U.S. and Europe, resulting in lower net operating income.
sales and service,
(2) See accompanying schedule “Supplemental Non-GAAP Disclosures” for a definition.
(3) Gross profit margin is the ratio of property net operating income before depreciation divided by total revenues.
Per sq. ft.
U.S. Same Store
Europe Same Store
Other properties–U.S.
Per sq. ft.
U.S. Same Store
Europe Same Store
Other properties–U.S.
U.S. Same Store
Europe Same Store
Other properties–U.S.
Amounts in millions
U.S. Same Store
Europe Same Store (4)
Other properties–U.S.
REVPAF
Weighted Average Occupancy
Gross Profit Margin(3)
Net Operating Income
(Before depreciation)
2009
$11.28
$22.44
$11.46
2009
88.7%
86.1%
84.1%
2009
67.3%
59.5%
67.9%
2009
$935
$ 34
$ 68
2008
$11.71
$23.26
$11.07
2008
89.5%
86.9%
79.0%
2008
67.8%
61.9%
64.3%
2008
$973
$ 47
$ 57
As I discussed in last year’s shareholder letter, we were expecting a challenging 2009,
including rising
and this came true. Lower demand from recessionary pressures,
unemployment, reduced housing sales and reduced moving activity in all markets in which
we operate negatively impacted our U.S. portfolio. To offset the reduction in demand, we
aggressively reduced rental rates, increased promotional discounts to new customers and
expanded our marketing efforts. As a result, we were able to limit the decline in average
occupancy from 2008 to 2009 to only 0.8% and keep year-end occupancies the same at
87.1%. Primarily due to lower rental rates, however, REVPAF was lower by 3.7%. Same
Store operating expenses were modestly lower at 2% as lower repair and maintenance
expenses were partially offset by higher internet advertising and property tax expenses.
Going into 2010, we expect the operating environment to continue to be competitive for
new customers as they remain price sensitive. We intend to aggressively price, promote and
market our product to drive customer volume and to restore occupancies and pricing power
to their historical levels.
(4) Amounts with respect to Europe are on a constant exchange rate basis using the 2009 exchange ratios, and our pro rata share of
their operating results for the period.
Shurgard Europe also experienced similar economic conditions and reduced demand,
resulting in lower 2009 Same Store revenue and NOI. Steven De Tollenaere, Shurgard
Europe’s Chief Executive Officer, and his management team deployed similar strategies of
reducing asking rates, increasing promotional discounts and increasing media spend to
drive move-in activity. Shurgard Europe started 2009 at 84.7% occupancy, about 4%
behind 2008 (a big gap!) and with significantly lower “asking rents.” By year end,
occupancies had been restored to 85.7% and asking rents were higher. In 2010, we expect
positive revenue and NOI comparisons for the European portfolio.
Commercial Properties
Our investment in commercial properties consists of our 41% equity interest in PSB and
our wholly owned properties, which are generally contiguous to our self-storage properties.
We own approximately one million square feet directly and another nine million square feet
indirectly through our investment in PSB.
The Same Store performance metrics used for self-storage are applicable to commercial
properties. Reduced business activity and customer failures in 2009 negatively impacted
our commercial properties’ operating performance. PSB was able to restore some of the
occupancy loss with aggressive leasing, but in-place rents have declined due to lower asking
rents.
Commercial Property
REVPAF / Gross Profit Margin / Occupancy(5)
REVPAF (Per sq. ft.)
Gross profit margin(3)
Weighted average occupancy (Per sq. ft.)
Operating Cash Flow(6)
Amounts in millions
PS Business Parks
Public Storage
Operating earnings
Capital expenditures, tenant improvements, and lease commissions
Operating cash flow
2009
2008
$13.67
67.8%
89.9%
$14.18
68.4%
92.1%
2009
$56
9
65
(12)
$53
2008
$ 58
9
67
(15)
$ 52
(5) Same Store facilities.
(6) Reflects Public Storage’s pro rata share of PS Business Parks and wholly owned Public Storage properties.
We expect the commercial property market to continue to be challenging in 2010 as a result
of lower “asking” rents, increased concessions and more customer failures. We have an
excellent management team led by Joe Russell, PSB’s President and Chief Executive Officer,
to deal with these challenges and expect to once again outperform our competitors.
Summary of Operating Results
Overall, we expected 2009 to be a challenging year. To gain market share, we refined our
marketing, pricing and operating strategies, as well as our personnel. While most real estate
companies had to concentrate on deleveraging their balance sheets and refinancing their
maturing debt, we were able to focus on operating the business. During 2010, we will
continue to focus on improving our operating efficiencies by stepping up our investment in
technology, operating systems and people.
Balance Sheet Management and Dividend Policy
Over the last two years, we have significantly “deleveraged” Public Storage through a
combination of asset sales (an interest in Shurgard Europe), debt and preferred securities
repurchases ($460 million) and retaining cash flow ($740 million). Public Storage has
$750 million in cash to invest (and PSB has an additional $200 million).
Between December 31, 2007 and December 31, 2009, the Company’s net leverage (the
amount by which debt and preferred securities exceeds cash and notes receivable) decreased
from $4.9 billion or 40% of total capitalization to $2.9 billion or 20% of total capitalization.
By reducing the impact of declining earnings, our deleveraged balance sheet benefitted our
common shareholders. For example, at 40% leverage (the level in 2007), 2009’s 4%
decline in NOI would have reduced common shareholder value by 7%. At 20% leverage
(the level in 2009), the impact is only about 5%. Conversely, as property NOI turns
positive, lower leverage produces lower growth in value per common share. While we plan
to always maintain a “fortress balance sheet,” we will probably increase our net leverage in
the coming years.
The significant earnings we’ve retained over the last couple of years and the recent increase
in our common dividend lead me to a few comments regarding our dividend policy.
Unlike many other REITs, we have, since 1990, had a dividend policy of distributing only
our taxable income attributable to common shareholders.
This policy is designed to accomplish two objectives. First, it enhances our “financial
flexibility,” particularly beneficial in time of “stress.” Unlike many other REITs, we have
not had to reduce our common dividend in the current financial crisis, despite declining
operating cash flow. Second, we can create significant shareholder value with the retained
earnings. As reflected in the chart below, each dollar retained has produced multiple
dollars for shareholders.
End of a Decade
For many investors, 2009 was the end of a “lost decade” in terms of shareholder returns.
Not for the owners of Public Storage.
Cumulative Total Return
Public Storage vs. NAREIT Index vs. S&P 500 Index
$100 investment on 12/31/1999
Public Storage
NAREIT Equity Index
S&P 500 Index
$700
$600
$500
$400
$300
$200
$100
$
0
$100
$536
$275
$91
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Public Storage outperformed the REIT industry 2 to 1
and the S&P 500 by over five times.
This chart depicts Public Storage’s cumulative total returns (with dividends reinvested)
compared to the S&P 500 and the NAREIT Equity Index over the last ten years.
Rather impressively, Public Storage outperformed the REIT industry 2 to 1 and the
S&P 500 by over five times with an annual, compound return of 18%. Even if you
didn’t reinvest your dividends, you would have earned an annual, compounded return
of 14% in Public Storage. Owners of the S&P 500, the largest and most significant
companies in the U.S., had a negative return of 0.9% per year during the last ten years,
i.e., “the lost decade!”
We are in a wonderful business with excellent economies, established on a rock-solid financial
structure. What is even more impressive is these returns were accomplished with low leverage
and abundant liquidity. Public Storage and PSB operated at about half the industry average
leverage. A combination of exceptional financial engineering by our talented CFO, John Reyes,
and operational excellence, enabled us to produce results far above the real estate industry.
For most of the decade, the wind was at our back (ours and the commercial real estate
industry). Between 2000 and 2007, conditions could not have been better for owners of
commercial real estate in the United States:
• A relatively low unemployment rate (generally between 4% and 6%) provided a pool of
consumers with stable incomes.
• Previously unimagined low interest rates (ten-year U.S. Treasuries generally at
4%-5%) contributed to lower capitalization rates(7) and promoted home ownership. As
more households became homeowners, they had more “stuff ” that needed to be stored
and moving activity accelerated.
• Increases in home prices (peaking in the summer of 2006) created more buying power
to acquire “stuff ” to store.
The level of commercial debt doubled between 2000 and 2007, reflecting the high demand
for commercial real estate and the availability of low interest rate loans. Commercial
Mortgage Backed Securities (CMBS) issuance accelerated each successive year, with
issuance peaking at $230 billion in 2007. Total outstanding CMBS debt exceeded
$800 billion at year-end 2007, up from $200 billion in 2000. This coincided with the
peaking of commercial property values.
In early 2007, Public Storage common stock
traded about $110 per share at the same time that Blackstone Real Estate Partners (a large
private equity firm) was purchasing Equity Office Properties (then the largest REIT in the
U.S.) for $30 billion. This transaction marked a climax in valuation, as operating
fundamentals and the capital markets quickly began to change.
If you were really smart–you would have sold! But like Cinderella at the ball, most
planned to leave (sell) just before the clock struck midnight.
It is very hard to “stop
dancing” when everyone is having such a good time. The last two years have brought an
end to the festivities and, as Warren Buffett says, “The hangover is proportional to the
binge.” Where are we today?
Current Operating Environment
As the U.S. economy slipped into a recession, the reported unemployment rate rose rapidly
from 6% to 10%. If you include the “shadow” unemployment, the “underemployed rate”
is closer to 20%.
(7) Capitalization rate (cap rate) is the ratio between the net operating income produced by the asset and its capital cost or
alternately its current market value.
U.S. Unemployment Rate
2000 - 2009
10%
13.0%
11.0%
9.0%
7.0%
5.0%
3.0%
4%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: U.S. Labor Department
As the U.S. economy slipped into a recession, unemployment began rising and added to the slow
down in demand impacting moving activity.
Moving activity, which had been relatively stable, began slowing in 2007. The percentage
of Americans moving declined to 12% in 2008, down from 14% in 2006. The number of
people moving in 2008 was the lowest since 1962, when the U.S. had 180 million people,
as compared to over 300 million today.
U.S. Population Mobility Rates
2000 - 2009
Total U.S. Movers in 000’s
Moving as a % of Total U.S. Population
39,007
41,111
40,093
38,995
39,888
39,837
38,681
14%
15%
14%
14%
14%
14%
13%
43,888
16%
50,000
40,000
30,000
20,000
10,000
0
18.0%
35,167
16.0%
14.0%
12.0%
10.0%
12%
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: U.S. Census
Moving activity in 2008 was the lowest since 1962.
In 2006, the housing bubble burst. Home prices began falling from peak levels dropping
nearly 30% nationwide. Some markets, such as Las Vegas, declined over 50%. Refinancing
was not available as many home values fell below loan amounts and credit requirements
tightened. Home sales declined to 374,000 in 2009, the lowest since 1982.
S&P/Case Shiller Composite 20-City Price Index
Indexed at 100 on 12/31/1999
2000 - 2009
300
250
200
150
100
50
100
Peak
July 2006
144
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: S&P – Case Shiller Index
The housing bubble burst, home prices declined 30% from their peaks in 2006 and
many home values fell below loan amounts.
Similar to home values, commercial properties have declined 41% since their peak in late 2007.
Moody’s/REAL Commercial Property Price Index
Indexed at 100 on 12/31/1999
2000 - 2009
200
150
100
50
100
Peak
192
114
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Moody’s Investor Services and Real Capital Analytics
Commercial property values also have fallen 41% since peaking in 2007. Moody’s/REAL
expects prices to decline further in the months ahead.
Declining property values and rising unemployment have severely constrained the issuance
of CMBS debt. CMBS issuance basically stopped in 2008 and 2009, and the outlook for
2010 is not much better.
CMBS Issuance ($ billions)
2000 - 2009
$230
$168
$203
$71
$78
$94
$52
$54
$12
$2
$300
$250
$200
$150
$100
$ 50
$
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Mortgage Bankers Association Q3 2009
Declining property values and rising unemployment have impacted the
issuance of CMBS debt in 2008 and 2009.
Those who used CMBS debt when values were high and loan terms easy face a daunting
maturity schedule. As reflected in the following table, over the next five years, more than
$1 trillion of commercial mortgage debt is coming due. Many loans exceed underlying asset
values. In addition, the commercial banking industry recently reported the largest decline in
total loans outstanding in 67 years. According to the FDIC, the number of banks at risk of
failing hit a 16-year high. More than 5% of all loans were at least three months past due, the
highest level in the 26 years data has been collected.
Commercial Real Estate Debt Maturities ($ billions)
2010 - 2014
$275
$297
$306
$309
$285
$400
$300
$200
$100
$
0
Source: Foresight Analytics LLP
2010E
2011E
2012E
2013E
2014E
Over the next five years, more than $1 trillion of commercial mortgage debt is coming
due. Many loans exceed underlying asset values.
With financing close to unavailable and property income declining, capitalization rates
have increased and transaction volume has declined.
Real Estate Cap Rates vs. Transaction Volumes
2001 - 2009
Transaction Volume
($ billions)
Avg Cap Rate
$80
$60
$40
$20
$ 0
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Real Capital Analytics
Due to the aggressive buying and selling activity from cheap capital, commercial real estate cap
rates fell to its lowest point in 2006-2007 but have been rising ever since. Limited capital,
especially from CMBS, has significantly impacted transaction volume.
Conclusion
Today’s unemployment rate of 10% plus in many markets will result in challenging operating
conditions for owners of commercial real estate during 2010 and possibly into 2011. Declining
property NOIs will continue to impede private owners’ ability both to refinance existing debt and to
leverage up to fund acquisitions.
Public real estate companies have demonstrated an uncanny ability to raise “rescue capital,”
similar to many commercial banks. Last year, REITs raised $24 billion of new common equity
capital, the most since 1997. With new equity capital, REITs can usually refinance existing
obligations on reasonable terms.
In 2009, we purchased no properties. However, with over a $1 trillion of commercial real estate
debt coming due in the next five years, much of which was put in place to fund acquisitions
“at the peak,” there should be abundant opportunity for prudent acquisitions. As the previous
chart reflects, transaction volume is down significantly along with values (rising cap rates). We
have gone from euphoria to fear in the commercial real estate market, and as Warren Buffett
says, “A climate of fear is the best friend for investing.”
Unlike the mall or hotel business, self-storage is highly fragmented. The top ten operators
own about 10% of the estimated 55,000 self-storage facilities. Most of our competitors
used CMBS or bank debt to grow during the past decade. Many will be challenged to
refinance maturing loans. We hope to provide a source of liquidity for our competitors and
their lenders while simultaneously creating value for our shareholders.
U.S. Self-Storage Facilities
2,010
2,500
2,000
1,500
1,000
500
0
1,090
642
381
367
220
111
100
86
70
Public
Storage
U-Haul
International
Extra Space
Storage
Sovran
Self Storage
U-Store-It
Trust
Simply
Self Storage
A-American
Storage
Dahn
Corp.
Metro
Storage
StorageMart
Source: Public companies based on 12/31/2009 SEC filings and other public disclosures; Private companies based on ISS 2009 Top Operators report 2/25/2009
The self-storage industry is highly fragmented.
The top ten operators own about 10% of the estimated 55,000 facilities.
Public Storage is well positioned both to endure a challenging operating environment and to
seize opportunities to deploy significant capital in 2010 and beyond. We are positioning our
company for another decade of meaningful returns to our shareholders.
Ronald L. Havner, Jr.
President and Chief Executive Officer
February 26, 2010
CUMULATIVE TOTAL RETURN
Public Storage, S&P 500 Index and NAREIT Equity Index
December 31, 2004 - December 31, 2009
$250
$200
$150
$100
$ 50
$
0
Public Storage
S&P 500 Index
NAREIT Equity Index
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
Public Storage
S&P 500 Index
$100.00
$125.14
$184.47
$142.40
$159.36
$168.61
$100.00
$104.91
$121.48
$128.16
$ 80.74
$102.11
NAREIT Equity Index
$100.00
$112.17
$151.50
$127.72
$ 79.54
$101.80
The graph set forth above compares the yearly change in the Company’s cumulative total shareholder return on its Common Stock
for the five-year period ended December 31, 2009 to the cumulative total return of the Standard & Poor’s 500 Stock Index (“S&P
500 Index”) and the National Association of Real Estate Investment Trusts Equity Index (“NAREIT Equity Index”) for the same
period (total shareholder return equals price appreciation plus dividends). The stock price performance graph assumes that the value
of the investment in the Company’s Common Stock and each index was $100 on December 31, 2004 and that all dividends were
reinvested. The stock price performance shown in the graph is not necessarily indicative of future price performance.
Supplemental Non-GAAP Disclosures (unaudited)
Funds from operations (“FFO”) is a term defined by the National Association of Real Estate Investment Trusts, generally
defined as net income before depreciation expense and gains and losses on sale of real estate. Operating earnings represents
FFO earned at our consolidated real estate locations, combined with FFO before EITF D-42 benefits from our equity
investments (primarily PSB and Shurgard Europe). We believe that FFO is helpful to investors, because net income includes
the impact of depreciation, which assumes that real estate declines in value predictably over time, while we believe that real
estate values change due to market conditions and inflation. We believe that operating earnings provides investors a better
understanding of the underlying cash flows generated by our real estate investments. These non-GAAP measures are not a
substitute for net income or net cash flow provided from operating activities as a measure of our liquidity, our operating
performance or our ability to pay dividends.
Reconciliation of Net Income to FFO
(Amounts in thousands, except per share amounts)
Net income:
Depreciation and amortization
Depreciation and amortization included in
discontinued operations
Less - depreciation with respect to non-real estate assets
Less - our equity share of PSB’s gain on sale of
real estate
Depreciation from unconsolidated real estate investments
Gain on disposition of real estate investments
Gain on sale of real estate included in discontinued
operations
Net cash provided by operating activities
Preferred unitholders, based upon distributions paid
Preferred unitholders, based upon repurchases
Other noncontrolling equity interests in subsidiaries
Funds from operations
Less - allocations (to) from:
Preferred shareholders, based upon distributions paid
Preferred shareholders, based upon redemptions
Restricted share unitholders
Equity Shares, Series A
For the year ended December 31,
$
2009
790,456
340,233
$
2008
973,872
411,981
$
2007
487,078
619,598
1,894
(160)
(675)
62,471
(33,426)
(6,018)
1,154,775
(9,455)
72,000
(20,231)
2,220
(253)
—
74,918
(336,545)
—
1,126,193
(21,612)
—
(21,904)
3,296
(406)
—
45,307
(2,547)
(4,336)
1,147,990
(21,612)
—
(21,989)
1,197,089
1,082,677
1,104,389
(232,431)
6,218
(3,285)
(20,524)
(239,721)
33,851
(3,263)
(21,199)
(236,757)
—
(3,270)
(21,424)
FFO allocable to our common shareholders
$
947,067
$
852,345
$
842,938
Weighted average shares outstanding:
Common shares
Stock-based compensation dilution
Weighted average common shares for purposes of
computing fully-diluted FFO per common share
FFO per common share
168,358
410
168,250
425
169,342
508
168,768
168,675
169,850
$
5.61
$
5.05
$
4.96
Reconciliation of Operating Earnings to Net Income
(Amounts in thousands)
Operating earnings
Interest and other income
Less - amounts for Shurgard Europe included in operating earnings
Depreciation and amortization
General and administrative expense
Interest expense
Depreciation in equity in earnings
Equity share of EITF D-42 and real estate disposition gain for PS Business Parks
Real estate disposition and early debt retirement gain, and casualty loss
Foreign currency exchange gain (loss)
Discontinued operations
Net income
For the year ended December 31,
2009
2008
$ 1,198,537
29,813
(24,831)
(340,233)
(35,735)
(29,916)
(62,471)
16,959
37,540
9,662
(8,869)
$ 1,243,705
36,155
(18,499)
(411,981)
(62,809)
(43,944)
(74,918)
1,923
336,020
(25,362)
(6,418)
$
790,456
$
973,872
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FORM 10-K
For the fiscal year ended December 31, 2009.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to .
Commission File Number: 001-33519
PUBLIC STORAGE
(Exact name of Registrant as specified in its charter)
Maryland
( State or other jurisdiction of incorporation or organization)
95-3551121
(I.R.S. Employer Identification Number)
701 Western Avenue, Glendale, California 91201-2349
(Address of principal executive offices) (Zip Code)
(818) 244-8080
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange
on which registered
Depositary Shares Each Representing 1/1,000 of a 7.500% Cumulative Preferred Share,
Series V $.01 par value ................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.500% Cumulative Preferred Share,
Series W $.01 par value ...............................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.450% Cumulative Preferred Share,
Series X $.01 par value ................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.250% Cumulative Preferred Share,
Series Z $.01 par value.................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.125% Cumulative Preferred Share,
Series A $.01 par value ................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 7.125% Cumulative Preferred Share,
Series B $.01 par value ................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.600% Cumulative Preferred Share,
Series C $.01 par value ................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.180% Cumulative Preferred Share,
Series D $.01 par value ................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.750% Cumulative Preferred Share,
Series E $.01 par value.................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.450% Cumulative Preferred Share,
Series F $.01 par value .................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 7.000% Cumulative Preferred Share,
Series G $.01 par value ................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.950% Cumulative Preferred Share,
Series H $.01 par value ................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 7.250% Cumulative Preferred Share,
Series I $.01 par value ..................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 7.250% Cumulative Preferred Share,
Series K $.01 par value ................................................................................................
New York Stock Exchange
1
Depositary Shares Each Representing 1/1,000 of a 6.750% Cumulative Preferred Share,
Series L $.01 par value.................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.625% Cumulative Preferred Share,
Series M $.01 par value ...............................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 7.000% Cumulative Preferred Share,
Series N $.01 par value ................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of an Equity Share,
Series A, $.01 par value ..............................................................................................
Common Shares, $.10 par value ..........................................................................................
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None (Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes [X]
No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act.
Yes [ ]
No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]
No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
Yes [X]
No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [X] Accelerated Filer [ ] Non-accelerated Filer [ ] Smaller Reporting Company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]
No [X]
The aggregate market value of the voting and non-voting common shares held by non-affiliates of the Registrant as
of June 30, 2009:
Common Shares, $0.10 Par Value - $8,811,049,000 (computed on the basis of $65.48 per share which was the
reported closing sale price of the Company's Common Shares on the New York Stock Exchange on June 30, 2009).
Depositary Shares Each Representing 1/1,000 of an Equity Share, Series A, $.01 Par Value - $176,548,000
(computed on the basis of $24.94 per share which was the reported closing sale price of the Depositary Shares each
Representing 1/1,000 of an Equity Share, Series A on the New York Stock Exchange on June 30, 2009).
As of February 25, 2010, the number of outstanding Common Shares, $.10 par value, was 169,597,834 shares and
the number of outstanding Depositary Shares Each Representing 1/1,000 of an Equity Share, Series A, $.01 par
value, was 8,377,193 (representing 8,377.193 Equity Shares, Series A).
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed in connection with the Annual Meeting of Shareholders to be
held in 2010 are incorporated by reference into Part III of this Annual Report on Form 10-K.
3
ITEM 1. Business
Forward Looking Statements
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal
securities laws. All statements in this document, other than statements of historical fact, are forward-looking
statements which may be identified by the use of the words "expects," "believes," "anticipates," "plans," "would,"
"should," "may," "estimates" and similar expressions. These forward-looking statements involve known and
unknown risks and uncertainties, which may cause Public Storage's actual results and performance to be materially
different from those expressed or implied in the forward-looking statements. As a result, you should not rely on any
forward-looking statements in this report, or which management may make orally or in writing from time to time, as
predictions of future events nor guarantees of future performance. We caution you not to place undue reliance on
forward-looking statements, which speak only as the date of this report or as of the dates indicated in the statements.
All of our forward-looking statements, including those in this report, are qualified in their entirety by this statement.
We expressly disclaim any obligation to update publicly or otherwise revise any forward-looking statements,
whether as a result of new information, new estimates, or other factors, events or circumstances after the date of this
document, except where expressly required by law. Accordingly, you should use caution in relying on past forward-
looking statements to anticipate future results. Factors and risks that may impact our future results and performance
include, but are not limited to, those described in Item 1A, "Risk Factors" and in our other filings with the Securities
and Exchange Commission (“SEC”).
General
Public Storage was organized in 1980. Effective June 1, 2007, we reorganized Public Storage, Inc. into
Public Storage (referred to herein as “the Company”, “the Trust”, “we”, “us”, or “our”), a Maryland real estate
investment trust (“REIT”). Our principal business activities include the acquisition, development, ownership and
operation of self-storage facilities which offer storage spaces for lease, generally on a month-to-month basis, for
personal and business use. We are the largest owner and operator of self-storage facilities in the United States
(“U.S.”), and we have an equity interest in Shurgard Europe, a private company that we believe is the largest owner
and operator of self-storage facilities in Europe and we have an equity interest in PS Business Parks, Inc. whose
business activities primarily include the ownership and operations of commercial properties. At December 31,
2009, we operate within three reportable segments described below: (i) Domestic Self-Storage, (ii) Europe Self-
Storage and (iii) Commercial. See also Note 11 to our December 31, 2009 consolidated financial statements for
further discussion with respect to our reportable segments.
The Domestic Self-Storage segment, at December 31, 2009, includes our direct and indirect equity interests
in 2,010 self-storage facilities (127 million net rentable square feet of space) located in 38 states within the U.S.
operating under the “Public Storage” brand name.
The Europe Self-Storage segment, at December 31, 2009, comprises our 49% equity interest in Shurgard
Europe which owns 187 self-storage facilities (10 million net rentable square feet of space) located in seven
countries in Europe which operate under the “Shurgard Storage Centers” brand name and manages one facility
located in the United Kingdom that we wholly own.
The Commercial segment, at December 31, 2009, includes direct and indirect equity interests in
approximately 21 million net rentable square feet of commercial space located in 11 states in the U.S., including our
41% ownership interest in PS Business Parks, Inc. (“PSB”), a publicly traded REIT whose common stock trades on
the New York Stock Exchange under the symbol “PSB” (see “Investment in PSB” under “Equity in Earnings of
Real Estate Entities” included in Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” below for further information regarding our investment in PSB). This commercial space is
primarily operated under the “PS Business Parks” brand name.
4
Certain other activities, due to their insignificant scale and dissimilarity in operating characteristics to our
existing segments, are not allocated to any segment. These activities include (i) the reinsurance of policies against
losses to goods stored by tenants in our self-storage facilities, (ii) the sale of merchandise at our self-storage
facilities and (iii) management of self-storage facilities owned by third-party owners and entities that we have an
ownership interest in but are not consolidated. We previously had truck rental and containerized storage operations,
which we ceased operations in 2009.
We significantly increased the scope and scale of our operations on August 22, 2006, when we merged with
Shurgard Storage Centers, Inc. (“Shurgard” and the merger referred to as the “Shurgard Merger”), a REIT which
had an interest in 487 self-storage facilities located in the U.S. and an interest in 160 facilities in Europe. On March
31, 2008, we entered into a transaction with an institutional investor (the transaction referred to as the “Europe
Transaction”) whereby the investor acquired a 51% equity interest in our European operations (“Shurgard Europe”).
Shurgard Europe held substantially all of the operations in which we have an interest in Europe. Since March 31,
2008, we own the remaining 49% interest and are the managing member of Shurgard European Holdings LLC, a
joint venture formed to own Shurgard Europe’s operations.
For all taxable years subsequent to 1980, we qualified and intend to continue to qualify as a REIT, as
defined in Section 856 of the Internal Revenue Code. As a REIT, we do not incur federal or significant state tax on
that portion of our taxable income which is distributed to our shareholders, provided that we meet certain tests. To
the extent that we continue to qualify as a REIT, we will not be subject to tax, with certain limited exceptions, on the
taxable income that is distributed to our shareholders.
We have reported annually to the SEC on Form 10-K, which includes financial statements certified by our
independent registered public accountants. We have also reported quarterly to the SEC on Form 10-Q, which
includes unaudited financial statements with such filings. We expect to continue such reporting.
On our website, www.publicstorage.com, we make available, free of charge, our Annual Reports on Form
10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and all amendments to those reports as
soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the
SEC.
The Impact of Current Economic Factors
The recessionary trends experienced in 2008 and 2009, including the contraction in economic activity and
elevation in unemployment rates experienced in the U.S. and Europe, have had a negative impact upon our business,
and we have responded with what we believe are short-term revisions to our long-term growth strategies.
Operationally, our occupancies and rental rates have come under pressure as demand for self-storage space
has softened. We have responded by reducing rental rates, increasing promotional discounts, and increasing our
marketing activities to stimulate additional demand for our storage space and increase our market share.
We have shut down our development activities, both in the U.S. and Europe due to the current level of risk
inherent in development, uncertain consumer demand for when such facilities open for operation, and to preserve
capital. We have increased our earnings yield or capitalization rate requirements with respect to the acquisition of
existing self-storage facilities. We believe that existing self-storage properties may be marketed, at attractive prices,
due to financial or operating stress of their owners which may create acquisition opportunities for us. We have
taken advantage of capital market dislocations with respect to our own securities through the repurchase of our own
preferred shares and our unsecured debt. While capital markets have improved recently from the severe stress
incurred in late 2008 and early 2009, they are still relatively constrained and in flux compared to historical norms.
We believe under current capital market conditions our ability to issue preferred securities at reasonable rates is
limited. Despite the difficult capital markets, we believe that we are well-positioned with significant cash balances
on hand, have an expectation of continued internally generated cash flow that can be used for reinvestment, and
relatively modest debt maturities as described in Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital Resources.”
5
While we believe that these actions are the appropriate response to the existing economic environment, and
that they will best position us to take advantage of the current environment in the short-term and then resume our
traditional growth strategy in the future, there can be no assurance that we will be able to do so.
See “Growth and Investment Strategies” and “Financing of the Company’s Growth Strategies” below
for more information regarding our traditional long-term strategy to grow the cash flows and equity values of the
Company.
Competition
Self-storage facilities generally draw customers from residents within a three to five mile radius. Many of
our facilities operate within three to five miles of well-located and well-managed competitors that seek the same
group of customers through many of the same marketing channels we use, including yellow page advertising,
Internet advertising, as well as signage and banners. As a result, competition is significant and affects the
occupancy levels, rental rates, rental income and operating expenses of our facilities.
While competition is significant, the self-storage industry remains fragmented in the U.S. We believe that
we own approximately 5% of the aggregate self-storage square footage in the U.S., and that collectively the five
largest self-storage operators in the U.S. own only approximately 10% of the aggregate self-storage space in the
U.S., with the remaining 90% owned by numerous private regional and local operators. This market fragmentation
enhances the advantage of our economies of scale and our brand relative to other operators (see “Business Attributes
– Economies of Scale” below), and could result in potential growth in our platform through acquisitions over the
long term.
In seeking investments, we compete with a wide variety of institutions and other investors. The amount of
funds available for real estate investments greatly influences the competition for ownership interests in facilities and,
by extension, the yields that we can achieve on newly acquired investments.
Business Attributes
We believe that we possess several primary business attributes that permit us to compete effectively:
Centralized information networks: Our facilities are part of comprehensive centralized reporting and
information networks which enable the management team to identify changing market conditions and operating
trends as well as analyze customer data, and quickly change our properties’ pricing and promotional mix on an
automated basis.
National Telephone Reservation System: We operate a centralized telephone reservation system, which
provides added customer service and helps to maximize utilization of available self-storage space. Customers
calling either the toll-free telephone referral system, (800) 44-STORE, or a storage facility, are directed to the
national reservation system. A representative discusses with the customer space requirements, price and location
preferences and also informs the customer of other products and services provided by the Company and its
subsidiaries. We believe that the centralized telephone reservation system enhances our ability to market storage
space in the U.S. relative to handling these calls at individual properties, because it allows us to more effectively
offer all spaces at all facilities in the vicinity of a customer and to provide higher-quality selling efforts through
dedicated sales specialists. We also provide customers the opportunity to review space availability and make
reservations online through our website, www.publicstorage.com.
Economies of scale: We are the largest provider of self-storage space in the U.S. As of December 31,
2009, we operated 2,010 self-storage facilities in which we had an interest and managed 32 self-storage facilities for
third parties. These facilities are generally located in major markets within 38 states in the U.S. At December 31,
2009, we had over one million self-storage spaces rented. The size and scope of our operations have enabled us to
achieve high operating margins and a low level of administrative costs relative to revenues through the
centralization of many functions with specialists, such as facility maintenance, employee compensation and benefits
6
programs, pricing of our product, as well as the development and documentation of standardized operating
procedures. We also believe that our major market concentration provides managerial efficiencies stemming from
having a large number of facilities in close proximity to each other.
We can economically purchase large, prominent, well-placed yellow page ads that allow us to reach the
consumer more effectively than smaller operators. We are also able to purchase and bid aggressively for multiple-
keyword advertising on national Internet search engines. In addition, we are able to market efficiently using
television as a media source. The concentration of most of our properties in major metropolitan centers makes
various promotional and media programs, such as television, yellow pages, and Internet keyword bidding, far more
economical for us than for our competitors.
Brand name recognition: Our operations in the U.S. are conducted under the “Public Storage” brand
name, which we believe is the most recognized and established name in the self-storage industry in the U.S. Our
storage operations within the U.S. are conducted in major markets in 38 states, giving us national recognition and
prominence. Our facilities tend to be highly visible and located in heavily populated areas, improving the local
awareness of our brand. We believe that the “Shurgard” brand, used by Shurgard Europe, is a similarly established
and valuable brand.
Complementary ancillary operations: Through a taxable REIT subsidiary, we sell retail items associated
with the storage business and reinsure policies issued to our tenants against lost or damaged goods stored by tenants
in our storage facilities. We believe these activities supplement and strengthen our existing self-storage business by
further meeting the needs of storage customers.
Growth and Investment Strategies
As described more specifically in “The Impact of Current Economic Factors” above, our growth
strategies have been revised in the short-run to respond to current market conditions.
Over the long-run, our growth strategies have consisted of: (i) improving the operating performance of our
existing self-storage properties, (ii) acquiring properties that are owned or operated by others in the U.S., (iii)
developing or redeveloping existing U.S. real estate facilities, (iv) participating in the growth of commercial
facilities owned primarily by PSB, and (v) capitalizing on the growth of facilities owned by Shurgard Europe in the
European market. In addition to certain revisions to these strategies described below, our strategy has been revised
in the short-run to take advantage of dislocation in current capital markets.
Improve the operating performance of existing properties: Demand for our self-storage facilities has been
negatively impacted over the past two years by the current recessionary trends, and revenue and net operating
income have both declined in 2009. Over the long-run we seek to increase the net cash flow generated by our
existing self-storage properties by a) regularly evaluating our call volume, reservation activity, and move-in/move-
out rates for each of our properties relative to our marketing activities, b) evaluating market supply and demand
factors and, based upon these analyses, adjusting our marketing activities and rental rates, c) attempting to maximize
revenues through evaluating the appropriate balance between occupancy, rental rates, and promotional discounting
and d) controlling expense levels. We believe that our property management personnel and systems, combined with
our national telephone reservation system and media advertising programs will continue to enhance our ability to
meet these goals. See Item 7. “Management’s Discussion and Analysis” below for further information regarding our
expectation in the short-run with respect to our operating results.
Acquire properties owned or operated by others in the U.S.: Our long-run strategy has included acquiring
well-located facilities owned or operated by others in the U.S. that fit well within our geographic profile, at
generally attractive pricing. We believe our presence in and knowledge of substantially all of the major markets in
the U.S. enhances our ability to identify attractive acquisition opportunities and capitalize on the overall
fragmentation in the self-storage industry. Data on the rental rates and occupancy levels of our existing facilities,
which are often located in proximity to potential acquisition candidates, provide us an advantage in evaluating the
potential of acquisition opportunities. In the short-run, we believe that there may be more attractive opportunities
for the acquisition of facilities from distressed sellers who, due to the constrained credit environment and pressure
7
on cash flows due to the current difficult operating environment, face loan covenant violations or cannot refinance
their existing debt as it comes due. The timing and amount of these opportunities will be at least partially dependent
upon whether the banks and other lenders elect to pursue foreclosure, acceleration, or other remedies which would
force a sale of the properties of these distressed owners, rather than extending existing loans or waiving covenant
violations. It is our belief that opportunities in 2009 have been limited due at least in part to lenders’ desire to
extend these loans rather than foreclose. There can be no assurance that any such opportunities may materialize in
the future.
Development of real estate facilities: We believe that in the long-run, development of new storage
locations and expansion of our existing self-storage facilities represent an important part of our growth strategy.
New locations can be developed to meet customer needs and expand our geographic reach, generally within our
existing markets. In addition, existing facilities can be expanded or enhanced to provide additional amenities such
as climate control, to better capitalize on increased population density in certain facilities’ local market area.
However, in light of current capital market conditions, doubt as to the potential lease-up of new storage space in the
face of reduced demand, and the increased potential in the short-run for attractive acquisitions of existing facilities
described above, we substantially curtailed our development pipeline. Accordingly, in 2009 our investment in the
development of real estate facilities was minimal, and we continue to have nominal development pipeline at
December 31, 2009. Shurgard Europe has similarly reduced its development activities (see “Capitalize on the
Potential for Growth in Europe” below).
Participate in the growth of commercial facilities primarily through our ownership in PS Business
Parks, Inc.: At December 31, 2009, we had a 41% common equity interest in PSB and its operating partnership
which consisted of 5,801,606 shares of common stock and 7,305,355 limited partnership units in the Operating
Partnership. 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, 2009, PSB owned and operated approximately 19.6 million net
rentable square feet of commercial space located in eight states in the U.S. During 2009 and 2008, the recession in
the U.S. impacted PSB resulting in a decrease in new rental rates over expiring rents, as well as declining occupancy
levels in 2009 and in the last six months of 2008. It is uncertain what impact the current recessionary trends will
have on PSB’s future occupancy levels and rental rents. PSB may continue to experience downward pressure on its
occupancy levels and rental rates. Due to capital market dislocations and other factors, PSB did not acquire any new
commercial space in 2009 and 2008.
Capitalize on the potential for growth in Europe: On March 31, 2008, we entered into the Europe
Transaction with an institutional investor whereby the investor acquired a 51% interest in Shurgard Europe.
Shurgard Europe held substantially all of our operations in Europe. Since March 31, 2008, we own the remaining
49% interest and are the managing member of Shurgard European Holdings LLC, a new joint venture formed to
own Shurgard Europe’s operations.
We believe that Shurgard Europe is the largest owner and operator of self-storage facilities in Western
Europe. At December 31, 2009, Shurgard Europe’s operations comprise 187 facilities with an aggregate of
approximately 10 million net rentable square feet. The portfolio consists of 115 wholly owned facilities and 72
facilities owned by two joint venture partnerships, in which Shurgard Europe has a 20% equity interest.
Shurgard Europe operates in seven markets in Western Europe: the French market (principally Paris), the
Swedish market (principally Stockholm), the United Kingdom market (principally London), the Dutch market, the
Belgian market, the Danish market (principally Copenhagen) and the German market.
In contrast to the U.S., the European self-storage industry is relatively immature. In each of the markets
that Shurgard Europe operates customer awareness of the product is relatively low and ownership of self-storage
facilities remains fragmented. Although many European consumers are not yet aware of the self-storage concept,
they tend to live in more densely populated areas in smaller living spaces (as compared to the U.S.) that, we believe,
should make self-storage an attractive option as product knowledge and availability of additional self-storage
facilities grows. Most Europeans are familiar with the concept of storage only as an ancillary service provided by
moving companies, and more consumer familiarity could result in a significant increase in demand in the long-term.
8
In the longer term, we believe that there is significant growth potential in Europe to expand the number of
facilities owned either through development, acquisition, and consolidation, even if the density of self-storage in
Europe does not ultimately approach the levels in the U.S. However, ultimately capitalizing on this opportunity will
require a significant amount of capital to develop new self-storage facilities in what could be a process extending
through a few decades in time frame, similar to the trajectory of the U.S. self-storage industry since its inception in
the mid 1960’s.
Shurgard Europe, and its ability and wherewithal to take advantage of these opportunities, has been
impacted by the same economic trends that have negatively impacted our domestic self-storage operations and
capital markets. In addition to the operating uncertainties that we face, Shurgard Europe faces refinancing risk, as
approximately $168 million (€117 million) and $153 million (€107 million) of debt owed by joint ventures matures
in July 2010 and May 2011, respectively, and approximately $561.7 million (€391.9 million) in a loan payable to us
becomes due in March 2013. Accordingly, Shurgard Europe has taken many of the same steps that we have
domestically, by curtailing its development activities. At such time that public market capital or bank debt becomes
available to Shurgard Europe to refinance its existing debt and economic trends improve, development and growth
may recommence; however, there can be no assurance that such development and growth will ultimately
recommence and at what levels.
Take advantage of dislocation in capital markets: At December 31, 2009, we have cash balances on hand
of approximately $763.8 million. On February 12, 2009, in accordance with an “any and all” tender offer, we
acquired $110.2 million (face amount) of our Senior Unsecured Debt. In addition, during the fourth quarter of 2008
and the first quarter of 2009, we acquired $352.7 million (face amount) of our preferred shares and units on the open
market and in privately negotiated transactions for an aggregate acquisition cost of $237.4 million. There could be
opportunities for future acquisition of our own outstanding debt and equity securities, particularly if there were a
return to the same acute turbulence in the credit and equity markets which occurred in late 2008 and early 2009.
Any future such transactions will depend upon our evaluation of the return of such investments relative to our other
investment alternatives. There can be no assurance that any future such transactions will occur or the potential yield
on such transactions.
Financing of the Company’s Growth Strategies
Impact of Current Capital Markets: As described above in “The Impact of Current Economic Factors”,
one of our traditional sources of external capital is, through the issuance of preferred securities and, although we
have not attempted to issue additional preferred securities over the past twelve months, we believe that we could
issue additional preferred securities on a limited basis. While we expect continued improvement in the capital
markets to issue preferred securities, there can be no assurance as to when market conditions will improve for
preferred securities issuances at amounts and at rates that we will find reasonable.
Overview of financing strategy: Over the past three years we have funded substantially all the cash
portion of our acquisition and development activities with permanent capital (predominantly retained cash flow and
the net proceeds from the issuance of preferred securities). We have elected to use preferred securities as a form of
leverage despite the fact that the dividend rates of our preferred securities exceed the prevailing market interest
rates on conventional debt, because of certain benefits described in Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.’’ Our present
intention is to continue to finance substantially all our growth with cash on hand ($763.8 million at December 31,
2009), internally generated cash flows and permanent capital.
Borrowing: We have in the past used our $300 million revolving line of credit as temporary “bridge”
financing, and repaid those amounts with permanent capital. Our debt outstanding currently represents debt that was
assumed either in connection with property acquisitions or in connection with the Shurgard Merger. When we have
assumed such debt in the past, we have generally prepaid such amounts except in cases where the nature of the loan
terms did not allow such prepayment, or where a prepayment penalty made it economically disadvantageous to
prepay. While it is not our present intention to issue additional debt as a long-term financing strategy, we have
broad powers to borrow in furtherance of our objectives without a vote of our shareholders. Our senior debt has an
“A-” credit rating by Standard and Poor’s combined with our low level of debt, we believe we could issue a
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significant amount of unsecured debt, at attractive rates, in the current markets. These powers are subject to a
limitation on unsecured borrowings in our Bylaws described in “Limitations on Debt” below.
Issuance of securities in exchange for property: We have issued both our common and preferred
securities in exchange for real estate and other investments in the past, most notably the issuance of 38,913,187
common shares in connection with the Shurgard Merger in 2006. Future issuances will be dependent upon our
financing needs and capital market conditions at the time, including the market prices of our equity securities.
Joint Venture financing: We have historically formed and may form additional joint ventures to facilitate
the funding of future developments or acquisitions.
Disposition of properties: We historically have disposed of self-storage facilities only because of
condemnation proceedings, which compel us to sell. We do not presently intend to sell any significant number of
self-storage facilities in the future, though there can be no assurance that we will not.
Investments in Real Estate and Real Estate Entities
Investment Policies and Practices with respect to our investments: Following are our investment practices
and policies which, though we do not anticipate any significant alteration, can be changed by our Board of Trustees
without a shareholder vote:
Our investments primarily consist of direct ownership of self-storage properties (the nature of our self-
storage properties is described in Item 2, “Properties”), as well as partial interests in entities that own
self-storage properties.
Our partial ownership interests primarily reflect general and limited partnership interests in entities that
own self-storage facilities that are managed by us under the “Public Storage” brand name in the U.S.,
as well as storage facilities managed in Europe under the “Shurgard Storage Centers” brand name
which are owned by Shurgard Europe.
Additional acquired interests in real estate (other than the acquisition of properties from third parties)
will include common equity interests in entities in which we already have an interest.
To a lesser extent, we have interests in existing commercial properties (described in Item 2,
“Properties”), containing commercial and industrial rental space, primarily through our investment in
PSB.
Facilities Owned by Subsidiaries
In addition to our direct ownership of 1,523 self-storage facilities in the U.S. and one self-storage facility in
London, England at December 31, 2009 with an aggregate of approximately 98 million net rentable square feet, we
have controlling indirect interests in entities that own 468 self-storage facilities in the U.S. with approximately
28 million net rentable square feet. In addition to our self-storage space, we own approximately 1.8 million net
rentable square feet of commercial space primarily located adjacent to our self-storage facilities. Because of our
controlling interest in each of these entities, we consolidate the assets, liabilities, and results of operations of these
entities in our financial statements.
Facilities Owned by Unconsolidated Entities
At December 31, 2009, we had ownership interests in PSB, which owned approximately 19.6 million net
rentable square feet of commercial space at December 31, 2009, Shurgard Europe, which had ownership interests in
187 facilities with approximately 10 million net rentable square feet of storage space, and certain limited
partnerships owning an aggregate of 19 self-storage facilities with approximately 1 million net rentable square feet
of storage space. Collectively these entities are referred to as the “Unconsolidated Entities.”
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PSB, which files financial statements with the SEC, and Shurgard Europe, have debt and other obligations
that are not included in our consolidated financial statements. The limited partnerships have no significant amounts
of debt or other obligations. See Note 5 to our December 31, 2009 consolidated financial statements for further
disclosure regarding the assets, liabilities and operating results of the Unconsolidated Entities.
Limitations on Debt
Without the consent of holders of the various series of Senior Preferred Shares, we may not take any action
that would result in a ratio of ''Debt'' to ''Assets'' (the ''Debt Ratio'') in excess of 50%. As of December 31, 2009, the
Debt Ratio was approximately 4%. ''Debt'' means the liabilities (other than ''accrued and other liabilities'' and
“redeemable noncontrolling interests'') that should, in accordance with U.S. generally accepted accounting
principles, be reflected on our consolidated balance sheet at the time of determination. ''Assets'' means our total
assets before a reduction for accumulated depreciation and amortization that should, in accordance with U.S.
generally accepted accounting principles, be reflected on the consolidated balance sheet at the time of determination.
Our bank and senior unsecured debt agreements contain various customary financial covenants, including
limitations on the level of indebtedness and the prohibition of the payment of dividends upon the occurrence of
defined events of default.
Employees
We have approximately 4,900 employees in the U.S. at December 31, 2009 who render services on behalf
of the Company, primarily personnel engaged in property operations. None of our employees in the U.S. are
covered by a collective bargaining agreement. We believe that our relations with our employees are generally
amicable.
Seasonality
We experience minor seasonal fluctuations in the occupancy levels of self-storage facilities with
occupancies generally higher in the summer months than in the winter months. We believe that these fluctuations
result in part from increased moving activity during the summer months.
Insurance
We have historically carried customary property, earthquake, general liability and workers compensation
coverage through internationally recognized insurance carriers, subject to customary levels of deductibles. The
aggregate limits on these policies of $75 million for property coverage and $102 million for general liability are
higher than estimates of maximum probable loss that could occur from individual catastrophic events determined in
recent engineering and actuarial studies; however, in case of multiple catastrophic events, these limits could be
exhausted.
Our tenant insurance program reinsures a program that provides insurance to certificate holders against
claims for property losses due to specific named perils (earthquakes and floods are not covered by these policies) to
goods stored by tenants at our self-storage facilities for individual limits up to a maximum of $5,000. We have
third-party insurance coverage for claims paid exceeding $1,000,000 resulting from any one individual event, to a
limit of $25,000,000. At December 31, 2009, there were approximately 585,000 certificate holders held by our
tenants, participating in this program representing aggregate coverage of approximately $1.3 billion. Because each
certificate represents insurance of goods held by a tenant at our self-storage facilities, the geographic concentration
of this $1.3 billion in coverage is dispersed throughout all of our U.S. facilities. We rely on a third-party insurance
company to provide the insurance and are subject to licensing requirements and regulations in several states.
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ITEM 1A. Risk Factors
In addition to the other information in our Annual Report on Form 10-K, you should consider the risks
described below that we believe may be material to investors in evaluating the Company. This section contains
forward-looking statements, and in considering these statements, you should refer to the qualifications and
limitations on our forward-looking statements that are described in Forward Looking Statements at the beginning
of Item 1.
Since our business consists primarily of acquiring and operating real estate, we are subject to the risks
related to the ownership and operation of real estate that can adversely impact our business and financial
condition.
The value of our investments may be reduced by general risks of real estate ownership. Since we derive
substantially all of our income from real estate operations, we are subject to the general risks of acquiring and
owning real estate-related assets, including:
•
•
•
•
•
•
•
•
•
•
•
lack of demand for rental spaces or units in a locale;
changes in general economic or local conditions;
natural disasters, such as earthquakes and floods; which could exceed the aggregate limits of our
insurance coverage;
potential terrorist attacks;
changes in supply of or demand for similar or competing facilities in an area;
the impact of environmental protection laws;
changes in interest rates and availability of permanent mortgage funds which may render the sale of a
nonstrategic property difficult or unattractive including the impact of the current turmoil in the credit
markets;
increases in insurance premiums, property tax assessments and other operating and maintenance
expenses;
transactional costs and liabilities, including transfer taxes;
adverse changes in tax, real estate and zoning laws and regulations; and
tenant and employment-related claims.
In addition, we self-insure certain of our property loss, liability, and workers compensation risks for which
other real estate companies may use third-party insurers. This results in a higher risk of losses that are not covered
by third-party insurance contracts, as described in Note 13 under “Insurance and Loss Exposure” to our
December 31, 2009 consolidated financial statements.
There is significant competition among self-storage facilities and from other storage alternatives. Most of
our properties are self-storage facilities, which generated most of our revenue for the year ended December 31,
2009. Local market conditions will play a significant part in how competition will affect us. Competition in the
market areas in which many of our properties are located from other self-storage facilities and other storage
alternatives is significant and has affected the occupancy levels, rental rates and operating expenses of most of our
properties. Any increase in availability of funds for investment in real estate may accelerate competition. Further
12
development of self-storage facilities may intensify competition among operators of self-storage facilities in the
market areas in which we operate.
We may incur significant environmental costs and liabilities. As an owner and operator of real properties,
under various federal, state and local environmental laws, we are required to clean up spills or other releases of
hazardous or toxic substances on or from our properties. Certain environmental laws impose liability whether or not
the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. In some cases,
liability may not be limited to the value of the property. The presence of these substances, or the failure to properly
remediate any resulting contamination, whether from environmental or microbial issues, also may adversely affect
the owner’s or operator’s ability to sell, lease or operate its property or to borrow using its property as collateral.
We have conducted preliminary environmental assessments of most of our properties (and intend to
conduct these assessments in connection with property acquisitions) to evaluate the environmental condition of, and
potential environmental liabilities associated with, our properties. These assessments generally consist of an
investigation of environmental conditions at the property (not including soil or groundwater sampling or analysis),
as well as a review of available information regarding the site and publicly available data regarding conditions at
other sites in the vicinity. In connection with these property assessments, our operations and recent property
acquisitions, we have become aware that prior operations or activities at some facilities or from nearby locations
have or may have resulted in contamination to the soil or groundwater at these facilities. In this regard, some of our
facilities are or may be the subject of federal or state environmental investigations or remedial actions. We have
obtained, with respect to recent acquisitions, and intend to obtain with respect to pending or future acquisitions,
appropriate purchase price adjustments or indemnifications that we believe are sufficient to cover any related
potential liability. Although we cannot provide any assurance, based on the preliminary environmental assessments,
we believe we have funds available to cover any liability from environmental contamination or potential
contamination and we are not aware of any environmental contamination of our facilities material to our overall
business, financial condition or results of operations.
There has been an increasing number of claims and litigation against owners and managers of rental
properties relating to moisture infiltration, which can result in mold or other property damage. When we receive a
complaint concerning moisture infiltration, condensation or mold problems and/or become aware that an air quality
concern exists, we implement corrective measures in accordance with guidelines and protocols we have developed
with the assistance of outside experts. We seek to work proactively with our tenants to resolve moisture infiltration
and mold-related issues, subject to our contractual limitations on liability for such claims. However, we can give no
assurance that material legal claims relating to moisture infiltration and the presence of, or exposure to, mold will
not arise in the future.
Delays in development and fill-up of our properties would reduce our profitability. From January 1, 2005,
through December 31, 2009, we opened 17 newly developed self-storage facilities in the U.S. at a cost of
approximately $142 million. Shurgard Europe has developed and opened 55 facilities since January 1, 2005 at a
cost of approximately $426 million, and has two development projects under construction with total estimated costs
of $24 million. Delays in the rent-up of newly developed storage space as a result of competition or other factors,
including the slowdown in the general economy which has negatively impacted storage demand, would adversely
impact our profitability. If we or Shurgard Europe were to commence significant development of facilities,
construction delays due to weather, unforeseen site conditions, personnel problems, and other factors, as well as cost
overruns, would adversely affect our profitability.
Property taxes can increase and cause a decline in yields on investments. Each of our properties is
subject to real property taxes. These real property taxes may increase in the future as property tax rates change and
as our properties are assessed or reassessed by tax authorities. Recent local government shortfalls in tax revenue
may cause pressure to increase tax rates or assessment levels. Such increases could adversely impact our
profitability.
We must comply with the Americans with Disabilities Act and fire and safety regulations, which can
require significant expenditures. All our properties must comply with the Americans with Disabilities Act and
The ADA has separate compliance requirements for “public
with related regulations (the “ADA”).
13
accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to persons
with disabilities. Various state laws impose similar requirements. A failure to comply with the ADA or similar state
laws could result in government imposed fines on us and could award damages to individuals affected by the failure.
In addition, we must operate our properties in compliance with numerous local fire and safety regulations, building
codes, and other land use regulations. Compliance with these requirements can require us to spend substantial
amounts of money, which would reduce cash otherwise available for distribution to shareholders. Failure to comply
with these requirements could also affect the marketability of our real estate facilities.
We incur liability from tenant and employment-related claims. From time to time we must resolve tenant
claims and employment-related claims by corporate level and field personnel.
Global economic conditions could adversely affect our business, financial condition, growth and access to
capital.
There continues to be global economic uncertainty, elevated levels of unemployment, reduced levels of
economic activity, and it is uncertain as to when economic conditions will improve. These negative economic
conditions in the markets where we operate facilities, and other events or factors that adversely affect disposable
incomes, have and are likely to continue to adversely affect our business.
As a further result of the current global financial crisis, our ability to issue preferred shares or borrow at
reasonable rates has been and may continue to be adversely affected by challenging credit market conditions. The
issuance of perpetual preferred securities historically has been a significant source of capital to grow our business.
While we currently believe that we have sufficient working capital and capacity under our credit facilities and our
retained cash flow from operations to continue to operate our business as usual, long-term continued turbulence in
the credit markets and in the national economy may adversely affect our access to capital and adversely impact
earnings growth that might otherwise result from the acquisition and development of real estate facilities.
We grow our business primarily through acquisitions of existing properties and are subject to risks related to
acquisitions that may adversely affect our growth and financial results.
We grow our business in large part through the acquisition of existing properties, including acquisitions of
businesses owned by other storage operators. In addition to the general risks related to real estate described above
which may also adversely impact operations at acquired properties, we are also subject to the following risks in
connection with property acquisitions and the integration of acquired properties into our operations.
Any failure by us to manage acquisitions and other significant transactions successfully could negatively
impact our financial results. If acquired facilities are not properly integrated into our system, our financial results
may suffer.
Any failure to successfully integrate acquired operations with our existing business could negatively impact
our financial results. To fully realize any anticipated benefits from an acquisition, we must successfully complete
the combination of the businesses of Public Storage and acquired properties in a manner that permits cost savings to
be realized. It is possible that the integration process could result in a decline in occupancy and/or rental rates, the
disruption of ongoing businesses or inconsistencies in standards, controls, procedures, practices, policies and
compensation arrangements that adversely affect our ability to maintain relationships with tenants and employees or
to achieve anticipated benefits, particularly with large acquisitions.
Acquired properties are subject to property tax reappraisals which may increase our property tax expense.
Facilities that we acquire are subject to property tax reappraisal, which can increase property tax expense. There is a
degree of uncertainty involved in estimating the property tax expense of an acquired property. In future acquisitions
of properties, if actual property tax expenses following reappraisal are significantly greater than we expected, our
operating results could be negatively impacted.
14
As a result of our ownership of 49% of the international operations of Shurgard Europe with a book value of
$272.3 million at December 31, 2009, and our loan to Shurgard Europe aggregating $561.7 million at
December 31, 2009, we are exposed to additional risks related to international businesses that may adversely
impact our business and financial results.
We have limited experience in European operations, which may adversely impact our ability to operate
profitably in Europe. In addition, European operations have specific inherent risks, including without limitation the
following:
currency risks, including currency fluctuations, which can impact the fair value of our $272.3 million
book value equity investment in Shurgard Europe, as well as interest payments and the net proceeds to
be received upon repayment of our loan to Shurgard Europe;
unexpected changes in legislative and regulatory requirements;
potentially adverse tax burdens;
burdens of complying with different permitting standards, environmental and labor laws and a wide
variety of foreign laws;
the potential impact of collective bargaining;
obstacles to the repatriation of earnings and cash;
regional, national and local political uncertainty;
economic slowdown and/or downturn in foreign markets;
difficulties in staffing and managing international operations;
reduced protection for intellectual property in some countries;
inability to effectively control less than wholly-owned partnerships and joint ventures; and
the importance of local senior management and the potential negative ramifications of the departure of
key executives.
Based upon current market conditions and recent operating result trends of Shurgard Europe, the following specific
risks apply with respect to our investment in, and loan to, Shurgard Europe:
15
We have an obligation to loan up to an additional €185 million ($265.2 million at December 31, 2009) to
Shurgard Europe, and provide additional equity contributions of up to $66.4 million. We have a
commitment, which expires March 31, 2010, to provide up to €185 million of additional loans to Shurgard
Europe under the same terms as the existing loans, to fund the possible acquisition of Shurgard Europe’s
joint venture partner’s interest in the joint ventures and/or repay Shurgard Europe’s pro-rata share of the
joint venture debt. In addition, we are committed to provide up to $66.4 million of additional equity
contributions to Shurgard Europe to fund certain other investing activities. While the acquisition of the
joint venture partners’ interests are subject to our approval, Shurgard Europe has no obligation to acquire
these interests, and any other investing activities generally require our approval, these commitments may
require us to provide additional funds to Shurgard Europe in amounts or under terms that we may not have
otherwise agreed to.
Joint Ventures that Shurgard Europe has a 20% interest in have significant refinancing requirements.
Shurgard Europe’s two joint ventures collectively had approximately €224 million ($321 million) of
outstanding debt payable to third parties at December 31, 2009. These loans are secured by the joint
ventures’ respective facilities, and are not guaranteed by Public Storage, Shurgard Europe, or any third
party. One of the joint venture loans, totaling €107 million ($153 million), is due May 2011 and the other
joint venture loan, totaling €117 million ($168 million), is due in July 2010.
If Shurgard Europe’s joint ventures were unable to refinance or otherwise repay these loans when due, it is
our expectation that the loans would be repaid with each joint venture partner contributing their pro rata
share towards repayment. Shurgard Europe’s pro rata share, in the aggregate, would be approximately
€50 million ($72 million) which Shurgard Europe fund either from available cash on hand or equity
contributions from Public Storage and our joint venture partner. Further, it is also possible that Shurgard
Europe’s joint venture partner would be unable to contribute its pro rata share to repay the loans and may
trigger, through its rights under the related partnership documents, the liquidation of the partnership, which
could result in Shurgard Europe’s acquisition of its joint venture partner’s interest or the sale of the
properties to third parties, with potential loss or reduction to our investment if the liquidation proceeds were
not sufficient. If Shurgard Europe were to acquire its joint venture partner’s interest by March 31, 2010, it
could borrow on the aforementioned €185 million loan commitment we have provided to fund the purchase
of the joint venture partner’s interest and repayment of the loans.
Shurgard Europe’s ability to refinance its $561.7 million loan from us, which is due in March 2013, may be
limited if current market conditions persist. We have loaned Shurgard Europe €391.9 million
($561.7 million at December 31, 2009), and this loan is due in March 2013. If the currently constrained
capital market and bank loan availability persists, it is likely that Shurgard Europe may be unable to
refinance the entire loan. If Shurgard Europe is unable to obtain financing to raise funds to repay our loan,
we may have to negotiate an equity or debt contribution by our joint venture partner to Shurgard Europe,
extend the loan, or otherwise take steps under our lender rights. Any of these steps could negatively
impact our investment and the liquidity of Shurgard Europe.
Shurgard Europe’s operating trends are negative. Shurgard Europe’s same-store revenue is down 3.6% in
the year ended December 31, 2009 as compared to 2008 on a constant exchange rate basis. Shurgard
Europe may have continued reductions in same-store revenues, which will adversely impact their operating
results and, as a result, the value of our investment in Shurgard Europe. Such reductions may negatively
impact Shurgard Europe’s liquidity and ability to repay its debt, including the debt owed to Public Storage,
due to declining interest coverage ratios and other similar metrics upon which potential lenders typically
base their lending decisions.
We are subject to risks related to our ownership of assets in joint venture structures.
In connection with our 2006 acquisition of Shurgard and the acquisition of a 51% interest in Shurgard
Europe by an institutional investor on March 31, 2008, we have interests in several joint ventures. Joint ventures
may present additional risks, including without limitation, the following:
16
Risks related to the financial strength, common business goals and strategies and cooperation of the
venture partner.
The inability to take some actions with respect to the joint venture activities that we may believe are
favorable, if our joint venture partner does not agree.
The risk that we could lose our REIT status based upon actions of the joint ventures if we are unable
to effectively control these indirect investments.
The risk that we may not control the legal entity that has title to the real estate.
The risk that our investments in these entities may not be easily sold or readily accepted as collateral
by our lenders, or that lenders may view assets held in joint ventures as less favorable as collateral.
The risk that the joint ventures could take actions which may negatively impact our preferred shares
and debt ratings, to the extent that we could not prevent these actions.
The risk that we may be constrained from certain activities of our own that we would otherwise deem
favorable, due to non-compete clauses in our joint venture arrangements.
The risk that we will be unable to resolve disputes with our joint venture partners.
The Hughes Family could control us and take actions adverse to other shareholders.
At December 31, 2009, B. Wayne Hughes, Chairman of the Board of Trustees and his family (the “Hughes
Family”) owned approximately 17.3% of our aggregate outstanding common shares. Our declaration of trust
permits the Hughes Family to own up to 47.66% of our outstanding common shares and also allows for cumulative
voting in the election of trustees. Consequently, the Hughes Family may significantly influence matters submitted
to a vote of our shareholders, including electing trustees, amending our organizational documents, dissolving and
approving other extraordinary transactions, such as a takeover attempt, even though such actions may not be
favorable to other shareholders.
Certain provisions of Maryland law and in our declaration of trust and bylaws may prevent changes in
control or otherwise discourage takeover attempts beneficial to shareholders.
Certain provisions of Maryland law may have the effect of deterring a third party from making a proposal
to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of our
shares with the opportunity to realize a premium over the then-prevailing market price of our shares. Currently, the
Board has opted not to subject the Company to the statutory limitations of either the business combination
provisions or the control share acquisitions provisions of Maryland law, but the Board may change this option as to
either statute in the future. If the Board chooses to make them applicable to us, these provisions could delay, deter
or prevent a transaction or change of control that might involve a premium price for holders of common shares or
might otherwise be in their best interest. Similarly, (1) limitations on removal of trustees in our declaration of trust,
(2) restrictions on the acquisition of our shares of beneficial interest, (3) the power to issue additional common
shares, preferred shares or equity shares, (4) the advance notice provisions of our bylaws and (5) the Board’s ability
under Maryland law, without obtaining shareholder approval, to implement takeover defenses that we may not yet
have and to take, or refrain from taking, other actions without those decisions being subject to any heightened
standard of conduct or standard of review, could have the same effect of delaying, deterring or preventing a
transaction or a change in control that might involve a premium price for holders of the common shares or might
otherwise be in common shareholders’ best interest.
To preserve our status as a REIT under the Code, our declaration of trust contains limitations on the
number and value of shares of beneficial interest that any person may own. These ownership limitations generally
limit the ability of a person, other than the Hughes Family (as defined in our declaration of trust) and other than
17
“designated investment entities” (as defined in our declaration of trust), to own more than 3% of our outstanding
common shares or 9.9% of the outstanding shares of any class or series of preferred or equity shares, in each case, in
value or number of shares, whichever is more restrictive, unless an exemption is granted by our board of trustees.
These limitations could discourage, delay or prevent a transaction involving a change in control of our company not
approved by our board of trustees.
If we failed to qualify as a REIT for income tax purposes, we would be taxed as a corporation, which would
substantially reduce funds available for payment of dividends.
Investors are subject to the risk that we may not qualify as a REIT for income tax purposes. REITs are
subject to a range of complex organizational and operational requirements. As a REIT, we must distribute with
respect to each year at least 90% of our REIT taxable income to our shareholders (which may take into account
certain dividends paid in the subsequent year). Other restrictions apply to our income and assets. Our REIT status
is also dependent upon the ongoing qualification of our affiliate, PSB, as a REIT, as a result of our substantial
ownership interest in that company.
For any taxable year that we fail to qualify as a REIT and are unable to avail ourselves of relief provisions
set forth in the Code, we would be subject to federal income tax at the regular corporate rates on all of our taxable
income, whether or not we make any distributions to our shareholders. Those taxes would reduce the amount of
cash available for distribution to our shareholders or for reinvestment and would adversely affect our earnings. As a
result, our failure to qualify as a REIT during any taxable year could have a material adverse effect upon us and our
shareholders. Furthermore, unless certain relief provisions apply, we would not be eligible to elect REIT status
again until the fifth taxable year that begins after the first year for which we fail to qualify.
We have also assumed, based on Shurgard Storage Center, Inc.’s public filings and due diligence
performed in connection with our acquisition of Shurgard, that Shurgard qualified as a REIT through the date of the
Shurgard Merger on August 22, 2006. However, if Shurgard failed to qualify as a REIT, we generally would have
succeeded to or incurred significant tax liabilities (including the significant tax liability that would have resulted
from the deemed sale of assets by Shurgard to us as part of the Shurgard Merger).
We may pay some taxes, reducing cash available for shareholders.
Even if we qualify as a REIT for federal income tax purposes, we are required to pay some federal, foreign,
state and local taxes on our income and property. Since January 1, 2001, certain corporate subsidiaries of the
Company have elected to be treated as “taxable REIT subsidiaries” of the Company for federal income tax purposes.
A taxable REIT subsidiary is taxable as a regular corporation and may be limited in its ability to deduct interest
payments made to us in excess of a certain amount. In addition, if we receive or accrue certain amounts and the
underlying economic arrangements among our taxable REIT subsidiaries and us are not comparable to similar
arrangements among unrelated parties, we could be subject to a 100% penalty tax on those payments in excess of
amounts the Internal Revenue Service deems reasonable between unrelated parties. To the extent that the Company
is required to pay federal, foreign, state or local taxes, we will have less cash available for distribution to
shareholders.
We have become increasingly dependent upon automated processes, telecommunications, and the Internet
and are faced with system security risks.
We have become increasingly centralized and dependent upon automated information technology
processes, and certain critical components of our operating systems are dependent upon third party providers. As a
result, we could be severely impacted by a catastrophic occurrence, such as a natural disaster or a terrorist attack, or
a circumstance that disrupted operations at our third party providers. Even though we believe we utilize appropriate
duplication and back-up procedures, a significant outage in our third party providers could negatively impact our
operations. In addition, a portion of our business operations are conducted over the Internet, increasing the risk of
viruses that could cause system failures and disruptions of operations. Experienced computer programmers may be
able to penetrate our network security and misappropriate our confidential information, create system disruptions or
18
cause shutdowns. Nearly half of our move-ins comes from sales channels dependent upon telecommunications
(telephone or Internet).
We have no interest in Canadian self-storage facilities owned by the Hughes Family.
The Hughes Family has ownership interests in, and operates, 52 self-storage facilities in Canada under the
name “Public Storage”, which name we license to the Hughes Family for use in Canada on a non-exclusive basis.
We currently do not own any interests in these facilities nor do we own any facilities in Canada. We have a right of
first refusal to acquire the stock or assets of the corporation engaged in the operation of the self-storage facilities in
Canada if the Hughes Family or the corporation agrees to sell them. However, we have no ownership interest in the
operations of this corporation, have no right to acquire their stock or assets unless the Hughes family decides to sell,
and receive no benefit from the profits and increases in value of the Canadian self-storage facilities. Although we
have no current plans to enter the Canadian self-storage market, if we choose to do so without acquiring the Hughes
Family interests in their Canadian self-storage properties, our right to use the Public Storage name in Canada may be
shared with the Hughes Family unless we are able to terminate the license agreement.
Through our subsidiaries, we continue to reinsure risks relating to loss of goods stored by tenants in the
self-storage facilities in Canada in which the Hughes Family has ownership interests. We acquired the tenant
insurance business on December 31, 2001 through our acquisition of PS Insurance Company, or PSICH. For the
years ended December 31, 2009 and 2008, PSICH received $642,000 and $768,000, respectively, in reinsurance
premiums attributable to the Canadian Facilities. Since PSICH’s right to provide tenant reinsurance to the Canadian
Facilities may be qualified, there is no assurance that these premiums will continue.
We are subject to laws and governmental regulations and actions that affect our operating results and
financial condition.
Our business is subject to regulation under a wide variety of U.S. federal, state and local laws, regulations
and policies including those imposed by the SEC, the Sarbanes-Oxley Act of 2002 and New York Stock Exchange,
as well as applicable labor laws. Although we have policies and procedures designed to comply with applicable laws
and regulations, failure to comply with the various laws and regulations may result in civil and criminal liability,
fines and penalties, increased costs of compliance and restatement of our financial statements.
There can also be no assurance that, in response to current economic conditions or the current political
environment or otherwise, laws and regulations will not be implemented or changed in ways that adversely affect
our operating results and financial condition, such as current federal legislative proposals to expand health care
coverage costs or facilitate union activity or otherwise increase operating costs.
Our tenant insurance business is subject to governmental regulation which could reduce our profitability or
limit our growth.
We hold Limited Lines Self Storage Insurance Agent licenses from a number of individual state
Departments of Insurance and are subject to state governmental regulation and supervision. This state governmental
supervision could reduce our profitability or limit our growth by increasing the costs of regulatory compliance,
limiting or restricting the products or services we provide or the methods by which we provide products and
services, or subjecting our businesses to the possibility of regulatory actions or proceedings. Our continued ability
to maintain these Limited Lines Self Storage Insurance Agent licenses in the jurisdictions in which we are licensed
depends on our compliance with the rules and regulations promulgated from time to time by the regulatory
authorities in each of these jurisdictions. Furthermore, state insurance departments conduct periodic examinations,
audits and investigations of the affairs of insurance agents.
In all jurisdictions, the applicable laws and regulations are subject to amendment or interpretation by
regulatory authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and
revoke licenses and approvals and to implement regulations. Accordingly, we may be precluded or temporarily
suspended from carrying on some or all of our activities or otherwise fined or penalized in a given jurisdiction. No
19
assurances can be given that our businesses can continue to be conducted in any given jurisdiction as it has been
conducted in the past. For the year ended December 31, 2009, revenues from our tenant reinsurance business
represented approximately 4% of our revenues.
Terrorist attacks and the possibility of wider armed conflict may have an adverse impact on our business and
operating results and could decrease the value of our assets.
Terrorist attacks and other acts of violence or war could have a material adverse impact on our business and
operating results. There can be no assurance that there will not be further terrorist attacks against the U.S., the
European Community, or their businesses or interests. Attacks or armed conflicts that directly impact one or more
of our properties could significantly affect our ability to operate those properties and thereby impair our operating
results. Further, we may not have insurance coverage for losses caused by a terrorist attack. Such insurance may
not be available, or if it is available and we decide to obtain such terrorist coverage, the cost for the insurance may
be significant in relationship to the risk overall. In addition, the adverse effects that such violent acts and threats of
future attacks could have on the U.S. economy could similarly have a material adverse effect on our business and
results of operations. Finally, further terrorist acts could cause the U.S. to enter into a wider armed conflict, which
could further impact our business and operating results.
Developments in California may have an adverse impact on our business and financial results.
We are headquartered in, and approximately one-fifth of our properties in the U.S. are located in California.
The state of California and many local jurisdictions are facing severe budgetary problems and deficits. Action that
may be taken in response to these problems, such as increases in property taxes on commercial properties, changes
to sales taxes, adoption of a proposed “Business Net Receipts Tax” or other governmental efforts to raise revenues
could adversely impact our business and results of operations. In addition, we could be adversely impacted by
efforts to reenact legislation mandating medical insurance for employees of California businesses and members of
their families.
ITEM 1B. Unresolved Staff Comments
Not applicable.
20
ITEM 2. Properties
At December 31, 2009, we had direct and indirect ownership interests in 2,010 and 188 storage facilities
located in 38 states within the U.S. and seven Western European nations, respectively:
At December 31, 2009
Number of Storage
Facilities (a)
Net Rentable Square Feet
(in thousands)
United States:
California:
Southern ...........................
Northern ...........................
Texas .......................................
Florida .....................................
Illinois .....................................
Washington .............................
Georgia ....................................
North Carolina .........................
Virginia ...................................
New York ................................
Colorado ..................................
New Jersey ..............................
Maryland .................................
Minnesota ................................
Michigan .................................
Arizona ....................................
South Carolina .........................
Missouri ..................................
Oregon .....................................
Indiana .....................................
Pennsylvania ...........................
Ohio .........................................
Nevada ....................................
Tennessee ................................
Kansas .....................................
Massachusetts ..........................
Wisconsin ................................
Other states (12 states) ............
Total – U.S. ......................
Europe (b):
France ......................................
Netherlands .............................
Sweden ....................................
Belgium ...................................
United Kingdom ......................
Germany ..................................
Denmark ..................................
Total - Europe ..................
204
170
236
191
123
91
92
69
78
62
59
56
56
44
43
37
40
37
39
31
28
30
24
27
22
19
15
87
2,010
56
39
30
21
21
11
10
188
14,231
9,927
15,493
12,520
7,800
6,028
5,964
4,775
4,453
4,015
3,713
3,524
3,290
2,990
2,755
2,259
2,155
2,136
2,006
1,926
1,867
1,860
1,561
1,528
1,310
1,179
968
4,813
127,046
2,958
2,078
1,614
1,254
1,119
552
550
10,125
Grand Total ......................
2,198
137,171
(a) See Schedule III: Real Estate and Accumulated Depreciation in the Company’s 2009 financials, for a complete list of
properties consolidated by the Company.
(b) The facilities located in Europe include one facility in the United Kingdom that we wholly own, as well as the facilities
in which Shurgard Europe has an ownership interest.
21
Our facilities are generally operated to maximize cash flow through the regular review and adjustment of
rents charged to our tenants. For the year ended December 31, 2009, the weighted average occupancy level and the
average realized rent per occupied square foot for our self-storage facilities were approximately 88% and $12.77,
respectively, in the U.S. and 79% and $25.43, respectively, in Europe.
At December 31, 2009, 89 of our U.S. facilities were encumbered by an aggregate of $227 million in
secured notes payable.
We have no specific policy as to the maximum size of any one particular self-storage facility. However,
none of our facilities involves, or is expected to involve, 1% or more of our total assets, gross revenues or net
income.
Description of Self-Storage Facilities: Self-storage facilities, which comprise the majority of our
investments, are designed to offer accessible storage space for personal and business use at a relatively low cost. A
user rents a fully enclosed space, securing the space with their own lock, which is for the user's exclusive use and to
which only the user has access on an unrestricted basis during business hours. On-site operation is the responsibility
of property managers who are supervised by district managers. Some self-storage facilities also include rentable
uncovered parking areas for vehicle storage. Storage facility spaces are rented on a month-to-month basis. Rental
rates vary according to the location of the property, the size of the storage space, and other characteristics that affect
the relative attractiveness of each particular space, such as whether the space has drive-up access or its proximity to
elevators. All of our self-storage facilities in the U.S. are operated under the "Public Storage" brand name, while our
facilities in Europe are operated under the “Shurgard Storage Centers” brand name.
Users of space in self-storage facilities include individuals from virtually all demographic groups, as well
as businesses. Individuals usually obtain this space for storage of furniture, household appliances, personal
belongings, motor vehicles, boats, campers, motorcycles and other household goods. Businesses normally employ
this space for storage of excess inventory, business records, seasonal goods, equipment and fixtures.
Our self-storage facilities generally consist of three to seven buildings containing an aggregate of between
350 to 750 storage spaces, most of which have between 25 and 400 square feet and an interior height of
approximately eight to 12 feet.
We experience minor seasonal fluctuations in the occupancy levels of self-storage facilities with
occupancies generally higher in the summer months than in the winter months. We believe that these fluctuations
result in part from increased moving activity during the summer months.
Our self-storage facilities are geographically diversified and are located primarily in or near major
metropolitan markets in 38 states in the U.S. and seven Western European nations. Generally our self-storage
facilities are located in heavily populated areas and close to concentrations of apartment complexes, single family
residences and commercial developments. However, there may be circumstances in which it may be appropriate to
own a property in a less populated area, for example, in an area that is highly visible from a major thoroughfare and
close to, although not in, a heavily populated area. Moreover, in certain population centers, land costs and zoning
restrictions may create a demand for space in nearby less populated areas.
Competition from other self-storage facilities as well as other forms of storage in the market areas in which
most of our properties are located in the U.S., and certain of our properties in Western Europe, is significant and has
affected the occupancy levels, rental rates, and operating expenses of many of our properties.
Since our investments are primarily self-storage facilities, our ability to preserve our investments and
achieve our objectives is dependent in large part upon success in this field. We believe that self-storage facilities,
upon stabilization, have attractive characteristics consisting of high profit margins, a broad tenant base and low
levels of capital expenditures to maintain their condition and appearance. While we have seen a decrease in cash
flow generation at our same-store facilities in 2009 due primarily to the high unemployment, historically, upon
22
stabilization after an initial fill-up period, the U.S. self-storage facilities we have an interest in have generally shown
a high degree of consistency in generating cash flows.
Commercial Properties: In addition to our interests in 2,198 self-storage facilities, we have an interest in
PSB, which, as of December 31, 2009, owns and operates approximately 19.6 million net rentable square feet of
commercial space in eight states. At December 31, 2009, the $326 million book value of our investment in PSB
represents approximately 3% of our total assets. The $656 million market value of our investment in PSB at
December 31, 2009 represents approximately 7% of the book value of our total assets. We also directly own
1.8 million net rentable square feet of commercial space, primarily located at our existing self-storage locations,
comprised primarily of individual retail locations. This space is managed for us by PSB.
The commercial properties owned by PSB consist primarily of flex, multi-tenant office and industrial
space. Flex space is defined as buildings that are configured with a combination of office and warehouse space and
can be designed to fit a wide variety of uses (including office, assembly, showroom, laboratory, light manufacturing
and warehouse space).
Environmental Matters: Our policy is to accrue environmental assessments and estimated remediation
cost when it is probable that such efforts will be required and the related costs can be reasonably estimated. Our
current practice is to conduct environmental investigations in connection with property acquisitions. Although there
can be no assurance, we are not aware of any environmental contamination of any of our facilities, which
individually or in the aggregate would be material to our overall business, financial condition, or results of
operations.
ITEM 3. Legal Proceedings
Brinkley v. Public Storage, Inc. (filed April 2005) (Superior Court of California – Los Angeles County)
The plaintiff sued the Company on behalf of a purported class of California non-exempt employees based
on various California wage and hour laws. Plaintiff sought certification for alleged meal period violations, rest
period violations, failure to pay for travel time, failure to pay for mileage reimbursement, and for wage statement
violations. The Court certified subclasses based only on alleged meal period and wage statement violations. In June
2007, the Court granted the Company’s summary judgment motion as to the causes of action relating to the
subclasses certified and dismissed those claims. Plaintiff appealed. The Court of Appeals sustained the dismissal.
The California Supreme Court granted review but deferred the matter pending disposition of a related issue in
another case.
Other Items
We are a party to various claims, complaints, and other legal actions that have arisen in the normal course
of business from time to time that are not described above. We believe that it is unlikely that the outcome of these
other pending legal proceedings including employment and tenant claims, in the aggregate, will have a material
adverse impact upon our operations or financial position.
23
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
a.
Market Information of the Registrant’s Common Equity:
Our Common Shares (NYSE: PSA), including those of Public Storage, Inc. prior to our
reorganization in June 2007, have been listed on the New York Stock Exchange since October 19, 1984.
Our Depositary Shares each representing 1/1,000 of an Equity Share, Series A (NYSE:PSAA) (see section
c. below), including those of Public Storage, Inc. prior to our reorganization in June 2007 have been listed
on the New York Stock Exchange since February 14, 2000.
The following table sets forth the high and low sales prices of our Common Shares on the New
York Stock Exchange composite tapes for the applicable periods.
Year
2008
2009
Quarter
1st
2nd
3rd
4th
1st
2nd
3rd
4th
High
$94.98
98.01
102.48
105.87
79.88
68.97
79.47
85.10
Range
Low
$65.66
78.85
75.00
52.52
45.35
53.32
61.35
70.76
The following table sets forth the high and low sales prices of our Depositary Shares Each
Representing 1/1,000 of an Equity Share, Series A on the New York Stock Exchange composite tapes for
the applicable periods.
Year
2008
2009
Quarter
1st
2nd
3rd
4th
1st
2nd
3rd
4th
High
$26.00
26.33
26.50
26.05
25.00
25.40
25.68
32.35
Range
Low
$24.14
25.05
24.50
18.12
21.38
21.39
24.17
25.10
As of February 15, 2010, there were approximately 18,788 holders of record of Common Shares
and approximately 9,190 holders of Depositary Shares Each Representing 1/1,000 of an Equity Share,
Series A.
b.
Dividends
We have paid quarterly distributions to our shareholders since 1981, our first full year of
operations. During 2009, we paid distributions to our common shareholders of $0.55 per common share for
each of the quarters ended March 31, June 30, September 30 and December 31. Total distributions on
common shares for 2009 amounted to $370.4 million or $2.20 per share. During 2008, we paid
distributions to our common shareholders of $0.55 per common share for each of the quarters ended
March 31, June 30 and September 30, and a distribution of $1.15 per common share (including a $0.60 per
24
share special dividend) for the quarter ended December 31. Total distributions on common shares for 2008
amounted to $470.8 million or $2.80 per share. Included in these amounts are $101.0 million or $0.60 per
common share with respect to a special cash dividend paid in December 2008. During 2007, we paid
distributions to our common shareholders of $0.50 per common share for each of the quarters ended
March 31, June 30, September 30 and December 31. Total distributions on common shares for 2007
amounted to $338.7 million or $2.00 per share.
Holders of common shares are entitled to receive distributions when and if declared by our Board
of Trustees out of any funds legally available for that purpose. In order to maintain our REIT status for
federal income tax purposes, we are generally required to pay dividends at least equal to 90% of our real
estate investment trust taxable income for the taxable year (for this purpose, certain dividends paid in the
subsequent year may be taken into account). We intend to continue to pay distributions sufficient to permit
us to maintain our REIT status.
For Federal income tax purposes, distributions to shareholders are treated as ordinary income,
capital gains, return of capital or a combination thereof. For 2009, the dividends paid on common shares
($2.20 per share), on all the various classes of preferred shares, and on our Equity Shares, Series A were
classified as follows:
Ordinary Income ................
Long-term Capital Gain ......
Total ...................................
1st Quarter
2nd Quarter
3rd Quarter
100.0000%
0.0000%
100.0000%
100.0000%
0.0000%
100.0000%
98.5716%
1.4284%
100.0000%
4th Quarter
100.0000%
0.0000%
100.0000%
For 2008, the dividends paid on common shares ($2.80 per share), on all the various classes of
preferred shares, and on our Equity Shares, Series A were classified as follows:
Ordinary Income ................
Long-term Capital Gain ......
Total ...................................
1st Quarter
2nd Quarter
3rd Quarter
99.9668%
0.0332%
100.0000%
99.6512%
0.3488%
100.0000%
99.8319%
0.1681%
100.0000%
4th Quarter
100.0000%
0.0000%
100.0000%
c.
Equity Shares
The Company is authorized to issue 100,000,000 Equity Shares. Our declaration of trust provides
that the Equity Shares may be issued from time to time in one or more series and gives the Board of
Trustees broad authority to fix the dividend and distribution rights, conversion and voting rights,
redemption provisions and liquidation rights of each series of Equity Shares.
At December 31, 2009, we had 8,377,193 Depositary Shares outstanding, each representing
1/1,000 of an Equity Share, Series A. The Equity Shares, Series A rank on a parity with our common
shares and junior to the Senior Preferred Shares with respect to distributions and liquidation and has a
liquidation amount which cannot exceed $24.50 per share. Distributions with respect to each depositary
share shall be the lesser of: a) five times the per share dividend on the Common Shares or b) $2.45 per
annum. Except in order to preserve the Company’s Federal income tax status as a REIT, we may not
redeem the depositary shares before March 31, 2010. If the Company fails to preserve its Federal income
tax status as a REIT, each depositary share will be convertible into 0.956 of our common shares. The
depositary shares are otherwise not convertible into common shares. Holders of depositary shares vote as a
single class with our holders of common shares on shareholder matters, but the depositary shares have the
equivalent of one-tenth of a vote per depositary share. We have no obligation to pay distributions on the
depositary shares if no distributions are paid to common shareholders. During 2009, 2008 and 2007, we
paid quarterly distributions to the holders of the Equity Shares, Series A of $0.6125 per share for each of
the quarters ended March 31, June 30, September 30 and December 31. Pursuant to our option to redeem
the security after March 31, 2010, on April 15, 2010, we will be redeeming all of our outstanding shares of
25
Equity Shares, Series A at a cash redemption price of $24.50 per depositary share, or an aggregate of
$205.2 million. Since the initial issuance of these securities, the annual dividend paid has been $2.45 per
depository share, representing an implied yield of 10%.
In November 1999, we sold $100,000,000 (4,289,544 shares) of Equity Shares, Series AAA
(“Equity Shares AAA”) to a newly formed joint venture. The Equity Shares AAA ranks on a parity with
common shares and junior to the Senior Preferred Shares with respect to general preference rights, and has
a liquidation amount equal to 120% of the amount distributed to each common share. Annual distributions
per share are equal to the lesser of (i) five times the amount paid per common share or (ii) $2.1564. We
have no obligation to pay distributions if no distributions are paid to common shareholders. During 2009,
2008 and 2007, we paid quarterly distributions to one of our wholly-owned subsidiaries, which is the
holder of the Equity Shares, Series AAA of $0.5391 per share for each of the quarters ended March 31,
June 30, September 30 and December 31.
d.
Common Share Repurchases
Our Board of Trustees has authorized the repurchase from time to time of up to 35,000,000 of our
common shares on the open market or in privately negotiated transactions. During 2007 and 2009, we did
not repurchase any of our common shares. During 2008, we repurchased 1,520,196 common shares for
approximately $111.9 million. From the inception of the repurchase program through February 26, 2010,
we have repurchased a total of 23,721,916 common shares at an aggregate cost of approximately
$679.1 million. Our common share repurchase program does not have an expiration date and there are
11,278,084 common shares that may yet be repurchased under our repurchase program as of December 31,
2009. During the year ended December 31, 2009, we did not repurchase any of our common shares outside
our publicly announced repurchase program. Future levels of common share repurchases will be dependent
upon our available capital, investment alternatives, and the trading price of our common shares.
26
ITEM 6. Selected Financial Data
Revenues:
Rental income and ancillary operations ..................
Interest and other income ........................................
Expenses:
Cost of operations (excluding depreciation) ...........
Depreciation and amortization ................................
General and administrative .....................................
Interest expense .......................................................
Income from continuing operations before equity in
earnings of real estate entities, gain (loss) on
disposition of real estate investments, gain on early
retirement of debt, casualty gain or loss, and
foreign currency exchange gain (loss) - net ............
Equity in earnings of real estate entities .....................
Gain on disposition of real estate investments, early
retirement of debt and casualty gain or loss, net .....
Foreign currency exchange gain (loss) .......................
Income from continuing operations ............................
Discontinued operations and cumulative effect of
change in accounting principle................................
Net income .................................................................
Net income allocated from (to) noncontrolling equity
interests ...................................................................
Net income allocable to Public Storage shareholders .
2009
For the year ended December 31,
2006 (1)(2)
2007 (1)(2)
2008 (1)(2)
(Amounts in thousands, except per share data)
2005 (2)
$1,597,889
29,813
1,627,702
$1,687,438
36,155
1,723,593
$1,775,785
11,417
1,787,202
$1,317,963
31,799
1,349,762
$1,012,264
16,447
1,028,711
522,939
340,233
35,735
29,916
928,823
555,618
411,981
62,809
43,944
1,074,352
631,154
619,598
59,749
63,671
1,374,172
471,725
435,496
84,661
33,062
1,024,944
698,879
53,244
37,540
9,662
799,325
(8,869)
790,456
649,241
20,391
336,020
(25,362)
980,290
(6,418)
973,872
413,030
12,738
5,212
58,444
489,424
(2,346)
487,078
324,818
11,895
2,177
4,262
343,152
2,757
345,909
352,343
193,167
21,115
8,216
574,841
453,870
24,883
1,182
-
479,935
9,109
489,044
44,165
$834,621
(38,696)
$935,176
(29,543)
$457,535
(31,883)
$314,026
(32,651)
$456,393
Per Common Share:
Distributions ...............................................................
Net income – Basic .....................................................
Net income – Diluted ..................................................
$2.20
$3.48
$3.47
Weighted average common shares – Basic .................
Weighted average common shares – Diluted ..............
168,358
168,768
$2.80
$4.19
$4.18
168,250
168,675
$2.00
$1.18
$1.17
169,342
169,850
$2.00
$0.33
$0.33
142,760
143,344
$1.90
$1.98
$1.97
128,159
128,686
Balance Sheet Data:
Total assets .................................................................
Total debt ....................................................................
Public Storage shareholders’ equity ...........................
Permanent noncontrolling interests’ equity ................
Other Data:
Net cash provided by operating activities ...................
Net cash provided by (used in) investing activities ....
Net cash used in financing activities ...........................
$9,805,645
$518,889
$8,928,407
$132,974
$9,936,045
$643,811
$8,708,995
$358,109
$10,643,102
$1,069,928
$8,763,129
$500,127
$11,198,473
$1,848,542
$8,208,045
$499,178
$5,552,486
$149,647
$4,817,009
$253,970
$1,112,857
$(91,409)
$(938,401)
$1,076,971
$340,018
$(984,076)
$1,047,652
$(261,876)
$(1,081,504)
$769,440
$(473,630)
$(244,395)
$691,327
$(452,425)
$(121,146)
(1) The significant increase in our revenues, cost of operations, depreciation and amortization, and interest expense in 2006 and 2007, and
the significant increase in total assets, total debt and shareholders’ equity in 2006, is due to our acquisition of Shurgard Storage
Centers in August 2006. The significant decrease in our revenues, cost of operations, depreciation and amortization, and interest
expense in 2008, and the significant decrease in total assets, total debt and other equity in 2008, is due to our disposition of an interest
in Shurgard Europe on March 31, 2008. See Note 3 to our December 31, 2009 consolidated financial statements for further
information.
(2) As further discussed in Note 2 to our December 31, 2009 consolidated financial statements, certain amounts have been restated as a
result of the application of certain new accounting standards on January 1, 2009, which standards required retroactive application.
27
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial
statements and notes thereto.
Forward Looking Statements: This Annual Report on Form 10-K contains forward-looking statements
within the meaning of the federal securities laws. All statements in this document, other than statements of
historical fact, are forward-looking statements which may be identified by the use of the words "expects,"
"believes," "anticipates," "plans," "would," "should," "may," "estimates" and similar expressions. These forward-
looking statements involve known and unknown risks and uncertainties, which may cause Public Storage's actual
results and performance to be materially different from those expressed or implied in the forward-looking
statements. As a result, you should not rely on any forward-looking statements in this report, or which management
may make orally or in writing from time to time, as predictions of future events nor guarantees of future
performance. We caution you not to place undue reliance on forward-looking statements, which speak only as the
date of this report or as of the dates indicated in the statements. All of our forward-looking statements, including
those in this report, are qualified in their entirety by this statement. We expressly disclaim any obligation to update
publicly or otherwise revise any forward-looking statements, whether as a result of new information, new estimates,
or other factors, events or circumstances after the date of this document, except where expressly required by law.
Accordingly, you should use caution in relying on past forward-looking statements to anticipate future results.
Factors and risks that may impact our future results and performance include, but are not limited to, those
described in Item 1A, "Risk Factors" and in our other filings with the Securities and Exchange Commission.
(“SEC”).
Critical Accounting Policies
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our
consolidated financial statements, which have been prepared in accordance with United States (“U.S.”) generally
accepted accounting principles (“GAAP”). The preparation of our financial statements and related disclosures in
conformity with GAAP and our discussion and analysis of our financial condition and results of operations requires
management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated
financial statements and accompanying notes. The notes to our December 31, 2009 consolidated financial
statements, primarily Note 2, summarize the significant accounting policies and methods used in the preparation of
our consolidated financial statements and related disclosures.
Management believes the following are critical accounting policies, the application of which has a material
impact on the Company’s financial presentation. That is, they are both important to the portrayal of our financial
condition and results, and they require management to make judgments and estimates about matters that are
inherently uncertain.
Qualification as a REIT – Income Tax Expense: We believe that we have been organized and operated,
and we intend to continue to operate, as a qualifying REIT under the Internal Revenue Code and applicable state
laws. We also believe that Shurgard, prior to merging with us, qualified as a REIT. A REIT generally does not pay
corporate level federal income taxes on its REIT taxable income that is distributed to its shareholders, and
accordingly, we do not pay federal income tax on the share of our REIT taxable income that is distributed to our
shareholders.
We therefore do not estimate or accrue any federal income tax expense for income earned and distributed
related to REIT operations. This estimate could be incorrect, because due to the complex nature of the REIT
qualification requirements, the ongoing importance of factual determinations and the possibility of future changes in
our circumstances, we cannot be assured that we actually have satisfied or will satisfy the requirements for taxation
as a REIT for any particular taxable year. For any taxable year that we fail or have failed to qualify as a REIT and
for which applicable relief provisions did not apply, we would be taxed at the regular corporate rates on all of our
taxable income, whether or not we made or make any distributions to our shareholders. Any resulting requirement
to pay corporate income tax, including any applicable penalties or interest, could have a material adverse impact on
28
our financial condition or results of operations. Unless entitled to relief under specific statutory provisions, we also
would not be eligible to elect REIT status for any taxable year prior to the fifth taxable year which begins after the
first taxable year for which a REIT status was terminated. There can be no assurance that we would be entitled to
any statutory relief. In addition, if Shurgard failed to qualify as a REIT, we would succeed to significant tax
liabilities.
Impairment of Long-Lived Assets: Substantially all of our assets consist of real estate which are long-
lived assets. The evaluation of our long-lived assets for impairment includes determining whether indicators of
impairment exist, which is a subjective process. When any indicators of impairment are found, the evaluation of
such long-lived assets then entails projections of future operating cash flows, which also involves significant
judgment. Future events, or facts and circumstances that currently exist, that we have not yet identified, could cause
us to conclude in the future that our long-lived assets are impaired. Any resulting impairment loss could have a
material adverse impact on our financial condition and results of operations.
Estimated Useful Lives of Long-Lived Assets: Substantially all of our assets consist of depreciable or
amortizable long-lived assets. We record depreciation and amortization expense with respect to these assets based
upon their estimated useful lives. Any change in the estimated useful lives of those assets, caused by functional or
economic obsolescence or other factors, could have a material adverse impact on our financial condition or results of
operations.
Accruals for Contingencies: We are exposed to business and legal liability risks with respect to events that
have occurred, but in accordance with GAAP, we have not accrued for certain potential liabilities because the loss is
either not probable or not estimable or because we are not aware of the event. Future events and the results of
pending litigation could result in such potential losses becoming probable and estimable, which could have a
material adverse impact on our financial condition or results of operations. Significant unaccrued losses that we
have determined are at least reasonably possible are described in Note 13 to our December 31, 2009 consolidated
financial statements.
Accruals for Operating Expenses: Certain of our expenses are estimated based upon assumptions
regarding past and future trends, such as losses for workers compensation and employee health plans, and estimated
claims for our tenant reinsurance program. Our property tax expense, which as a real estate operator represents one
of our largest expenses totaling approximately $150 million in the year ended December 31, 2009, has significant
estimated components. Most notably, in certain jurisdictions we do not receive tax bills for the current fiscal year
until after our earnings are finalized, and as a result, we must estimate tax expense based upon anticipated
implementation of regulations and trends. If these estimates and assumptions were incorrect, our expenses could be
misstated.
Valuation of assets and liabilities acquired in business combinations: We have estimated the fair value of
real estate, intangible assets, debt, and the other assets and other liabilities acquired in business combinations, most
notably the Shurgard Merger. We have acquired these assets, in certain cases, with non-cash assets, most notably
the 38.9 million shares that we issued to the Shurgard shareholders. These estimates are based upon many
assumptions, including interest rates, market values of land and buildings in the U.S. and Europe, estimated future
cash flows from the tenant base in place at the time of the merger, and the recoverability of certain assets. We
believe that the assumptions used were reasonable, however, these assumptions were subject to a significant degree
of judgment, and others could use different assumptions and therefore come to materially different conclusions as to
the estimated values. If estimated values had been different, our depreciation and amortization expense, interest
expense, gain on disposition of an interest in Shurgard Europe, investments in real estate entities, real estate, debt,
and intangible assets could be materially different.
Overview of Management’s Discussion and Analysis of Operations
Our principal business activities include the acquisition, development, ownership and operation of self-
storage facilities which offer storage spaces for lease, generally on a month-to-month basis, for personal and
business use. We are the largest owner and operator of self-storage facilities in the U.S., and we have a 49% interest
in Shurgard Europe, which we believe is the largest owner and operator of self-storage facilities in Europe.
29
We currently operate within three reportable segments: (i) Domestic Self-Storage, (ii) Europe Self-Storage
and (iii) Commercial. The Domestic Self-Storage segment comprises the direct and indirect ownership,
development, and operation of storage facilities in the U.S. Our Europe Self-Storage segment comprises our equity
interest in the self-storage operations in Europe through our 49% ownership in Shurgard Europe and its associated
activities in seven countries in Western Europe. Our Commercial segment includes our commercial property
operations, directly and through our 41% ownership interest in PS Business Parks, Inc. (“PSB”), a publicly traded
REIT whose common stock trades on the New York Stock Exchange under the symbol “PSB” (as of December 31,
2009, PSB owned and operated 19.6 million rentable square feet of commercial space). See “Investment in PSB”
under “Equity in Earnings of Real Estate Entities” below for information regarding transactions related to our
investment in PSB recorded during the year ended December 31, 2009. Our other activities not allocated to any
segment include (i) the reinsurance of policies against losses to goods stored by tenants in our self-storage facilities,
(ii) merchandise sales at our self-storage facilities and (iii) management of self-storage facilities owned by third-
party owners and domestic facilities owned by the affiliated entities that are not consolidated. During 2009, we
decided to terminate our containerized storage and truck rental operations. Accordingly, the related results of
operations have been included in discontinued operations on our consolidated statements of income.
Our self-storage facilities in the U.S. comprise approximately 93% of our operating revenue for the year
ended December 31, 2009, and represent the primary driver of growth in our net income and cash flows from
operations. In addition, most of our ancillary revenues are derived at our self-storage facility locations, either from
our existing self-storage customer base or from the customer traffic within our self-storage facilities. Accordingly, a
large portion of management time and focus is placed upon maximizing revenues and effectively managing
expenses in our self-storage facilities.
The self-storage industry is subject to general economic conditions, particularly those that affect the
disposable income and spending of consumers, as well as those that affect moving trends. Due to the recessionary
pressures in the U.S. and Europe, demand for self-storage space was soft in 2009 and continues to be soft. As a
result, we are experiencing downward pressure on occupancy levels, rental rates, and revenues in our self-storage
facilities.
An important determinant of our long-term growth is the expansion of our asset base and deployment of
capital. Acquisitions of self-storage facilities have been minimal over the past two years as we continue to monitor
seller expectations. However, we believe that there may be more opportunities to acquire facilities from distressed
sellers who, due to the constrained credit environment and pressure on cash flows due to the current difficult
operating environment, face covenant violations or cannot refinance their existing debt as it comes due. The timing
and amount of these opportunities will be at least partially dependent upon whether lenders elect to pursue
foreclosure, acceleration, or other remedies which could force a sale of the properties. It is our belief that
opportunities in 2009 have been limited due at least in part to lenders’ desire to extend loans rather than foreclose or
accelerate. There can be no assurance that any such opportunities will materialize in the future.
Historically we have developed and redeveloped self-storage facilities. Our development activities have
substantially ceased due to the existing economic environment and our belief that our capital can be more effectively
put to use in other ways.
On February 12, 2009, we acquired $110.2 million (face amount) of our senior unsecured debt. In addition,
during the fourth quarter of 2008 and the first quarter of 2009, we acquired $352.7 million (face amount) of our
preferred shares and units on the open market and in privately negotiated transactions for an aggregate acquisition
cost of $237.4 million. There could be opportunities for future acquisition of our own outstanding debt and equity
securities, particularly if there were a return to the same acute turbulence in the credit and equity markets which
occurred in late 2008 and early 2009. Any future such transactions will depend upon our evaluation of the return of
such investments relative to our other investment alternatives. There can be no assurance that any future such
transactions will occur or the potential yield on such transactions.
We have $763.8 million in cash and cash equivalents on hand at December 31, 2009, and continue to
evaluate opportunities to effectively deploy this capital.
30
Results of Operations
Operating results for 2009 as compared to 2008: Net income for the year ended December 31, 2009 was
$790.5 million compared to $973.9 million for the same period in 2008, representing a decrease of $183.4 million.
This decrease is primarily due to (i) a gain of $344.7 million in the year ended December 31, 2008 related to our
disposition of an interest in Shurgard Europe, (ii) a $37.9 million reduction in net operating income with respect to
our Same Store Facilities described below, and (iii) an impairment charge included in discontinued operations with
respect to intangible assets totaling $8.2 million in the year ended December 31, 2009, partially offset by (iv) a
$49.9 million reduction in depreciation and amortization related to our domestic assets, primarily representing
reduced intangible amortization, (v) a foreign exchange gain of $9.7 million during the year ended December 31,
2009 as compared to a loss of $25.4 million during the same period in 2008, (vi) a gain on disposition of
$30.3 million related to an equity offering by PSB, and (vii) a reduction in general and administrative expenses due
to $27.9 million in incentive compensation incurred in the year ended December 31, 2008 related to our disposition
of an interest in Shurgard Europe.
Revenues for the Same Store Facilities decreased 3.2% or $46.1 million in the year ended December 31,
2009 as compared to the same period in 2008, due to a 2.8% reduction in realized rent per occupied square foot,
combined with a 0.9% reduction in average occupancies. Cost of operations for the Same Store Facilities decreased
1.8% or $8.2 million in the year ended December 31, 2009 as compared to the same period in 2008. Net operating
income for our Same Store Facilities decreased 3.9% or $37.9 million for the year ended December 31, 2009 as
compared to the same period in 2008.
For the year ended December 31, 2009, net income allocable to our common shareholders was
$586.0 million or $3.47 per common share on a diluted basis compared to $705.8 million or $4.18 per common
share for the same period in 2008, representing a decrease of $119.8 million or $0.71 per common share on a diluted
basis. These decreases are primarily due to the net impact of the factors described above, offset by a $44.4 million
reduction in earnings allocated to our preferred unitholders and preferred shareholders in the year ended December
31, 2009 as compared to the same period in 2008 associated with the redemption of preferred securities occurring in
both periods.
Operating results for 2008 as compared to 2007: Net income for the year ended December 31, 2008 was
$973.9 million compared to $487.1 million for the same period in 2007, representing an improvement of
$486.8 million. This improvement is primarily due to a gain of $344.7 million recognized on the disposition of a
51% interest in Shurgard Europe on March 31, 2008, improvements in net operating income with respect to our
domestic self-storage facilities and a reduction in amortization of intangible assets, offset by a foreign currency
exchange loss of $25.4 million for the year ended December 31, 2008 as compared to a foreign exchange gain of
$58.4 million in 2007.
Comparisons of our revenues and expenses for the year ended December 31, 2008 to the year ended
December 31, 2007 are significantly impacted by the acquisition by an institutional investor of a 51% interest in
Shurgard Europe on March 31, 2008, which resulted in the deconsolidation of Shurgard Europe. Shurgard Europe’s
revenues and expenses after March 31, 2008 are excluded from our statement of operations and, instead, our 49%
equity share of Shurgard Europe’s operating results are included in the line item “equity in earnings of real estate
entities” and we also record interest and other income with respect to (i) the interest received on our intercompany
loan from Shurgard Europe and (ii) license fee income.
For the year ended December 31, 2008, net income allocable to our common shareholders was
$705.8 million or $4.18 per common share on a diluted basis compared to $199.0 million or $1.17 per common
share for the same period in 2007, representing an increase of $506.8 million or $3.01 per common share on a
diluted basis. These increases are primarily due to the net impact of the factors described above, partially offset by a
$33.9 million reduction in earnings allocated to our preferred shareholders in the year ended December 31, 2008
associated with the repurchase of securities.
31
Real Estate Operations
Self-Storage Operations: Our self-storage operations are by far the largest component of our operating
activities, representing more than 90% of our revenues for the years ended December 31, 2009, 2008 and 2007,
respectively.
To enhance year-over-year comparisons, the table that follows summarizes, and the ensuing discussion
describes, the operating results of three groups of facilities that management analyzes: (i) the Same Store group,
representing the facilities in the Domestic Self-Storage Segment that we have owned and have been operating on a
stabilized basis since January 1, 2007, (ii) all other facilities in the Domestic Self-Storage Segment, which are
primarily those consolidated facilities that we have not owned and operated at a stabilized basis since January 1,
2007 such as newly acquired, newly developed, or recently expanded facilities, and (iii) the facilities operated by
Shurgard Europe which were deconsolidated effective March 31, 2008.
Self-Storage Operations
Summary
Year Ended December 31,
Year Ended December 31,
2009
2008
Percentage
Change
2008
2007
Percentage
Change
(Dollar amounts in thousands)
Rental income:
Same Store Facilities ...............
Other Facilities ........................
Shurgard Europe Facilities (a) .
Total rental income ..............
$ 1,389,515
100,777
-
1,490,292
$ 1,435,630
88,665
54,722
1,579,017
Cost of operations:
Same Store Facilities ...............
Other Facilities ........................
Shurgard Europe Facilities (a) .
Total cost of operations ......
Net operating income (b):
Same Store Facilities ...............
Other Facilities ........................
Shurgard Europe Facilities (a) .
Total net operating income
Total depreciation and
454,613
32,315
-
486,928
934,902
68,462
-
1,003,364
462,796
31,640
24,654
519,090
972,834
57,025
30,068
1,059,927
(3.2)%
13.7%
(100.0)%
(5.6)%
(1.8)%
2.1%
(100.0)%
(6.2)%
(3.9)%
20.1%
(100.0)%
(5.3)%
$ 1,435,630
88,665
54,722
1,579,017
$ 1,396,758
71,039
192,507
1,660,304
462,796
31,640
24,654
519,090
972,834
57,025
30,068
1,059,927
459,568
27,936
91,689
579,193
937,190
43,103
100,818
1,081,111
amortization expense ............
Total net income ......................
(337,275)
666,089
(409,081)
650,846
$
$
(17.6)%
2.3%
(409,081)
650,846
$
(617,028)
464,083
$
2.8%
24.8%
(71.6)%
(4.9)%
0.7%
13.3%
(73.1)%
(10.4)%
3.8%
32.3%
(70.2)%
(2.0)%
(33.7)%
40.2%
Data for Same Store and Other Facilities:
Weighted average square foot
occupancy during the period:
Same Store Facilities ................
Other Facilities .........................
Realized rents per occupied square
88.7%
84.1%
89.5%
79.0%
(0.9)%
6.5%
89.5%
79.0%
89.3%
70.5%
0.2%
12.1%
foot during the period (c):
Same Store Facilities ................
Other Facilities .........................
Number of facilities at period end:
Same Store Facilities ................
Other Facilities .........................
Net rentable square footage at
period end (in thousands):
Same Store Facilities ................
Other Facilities .........................
Square foot occupancy at period
end:
Same Store Facilities ................
Other Facilities .........................
$
$
12.71 $
13.62 $
1,899
92
13.08
14.01
1,899
91
117,462
8,500
117,462
8,360
87.1%
84.9%
87.1%
80.0%
32
-
1.1%
-
1.7%
-
6.1%
(2.8)%
(2.8)%
$
$
13.08 $
14.01 $
12.77
14.35
1,899
82
2.4%
(2.4)%
-
11.0%
1,899
91
117,462
8,360
117,462
7,198
-
16.1%
87.1%
80.0%
87.9%
71.5%
(0.9)%
11.9%
Self-Storage Operations
Summary (Continued)
In place rents per occupied square
foot at period end (d):
Year Ended December 31,
Year Ended December 31,
2009
2008
Percentage
Change
2008
2007
Percentage
Change
Same Store Facilities ................
Other Facilities .........................
$
$
13.46 $
14.65 $
14.02
15.14
(4.0)%
(3.2)%
$
$
14.02 $
15.14 $
13.89
15.62
0.9%
(3.1)%
(a) Represents the results with respect to Shurgard Europe’s properties for the periods consolidated in our financial
statements. As described in Note 3 to our December 31, 2009 consolidated financial statements, effective
March 31, 2008, we deconsolidated Shurgard Europe. See also “Equity in Earnings of Real Estate Entities –
Investment in Shurgard Europe” for further analysis of the historical same store property operations of Shurgard
Europe.
(b) See “Net Operating Income or NOI” below.
(c) Realized annual rent per occupied square foot is computed by annualizing the result of dividing rental income
(which excludes late charges and administrative fees) by the weighted average occupied square feet for period.
Realized annual rent per occupied square foot takes into consideration promotional discounts and other items that
reduce rental income from the contractual amounts due. Late charges and administrative fees are excluded from
the computation of realized annual rent per occupied square foot. Exclusion of these amounts provides a better
measure of our ongoing level of revenue by excluding the volatility of late charges, which are dependent
principally upon the level of tenant delinquency, and administrative fees, which are dependent principally upon
the absolute level of move-ins for a period.
(d) In place annual rent per occupied square foot represents annualized contractual rents per occupied square foot
without reductions for promotional discounts and excludes late charges and administrative fees.
Net income with respect to our self-storage operations increased by $15.2 million during the year ended
December 31, 2009, when compared to the same period in 2008. This was due to a) declining amortization of tenant
intangible assets, b) a 1.8% reduction in cost of operations for the Same Store facilities, and c) a $12.1 million
increase in revenues with respect to the Other Facilities, offset by d) a 3.2% decrease in revenues for our Same Store
facilities and e) the deconsolidation of the facilities owned by Shurgard Europe effective April 1, 2008. Net income
with respect to our self-storage operations increased by $186.8 million during the year ended December 31, 2008,
when compared to 2007 due to decreased amortization of tenant intangible assets and increased revenues for the
Same Store facilities and the Other Facilities, offset partially by the deconsolidation of Shurgard Europe effective
April 1, 2008.
33
Net Operating Income
We refer herein to net operating income (“NOI”) of our self-storage facilities, which is a non-GAAP
(generally accepted accounting principles) financial measure that excludes the impact of depreciation and
amortization expense. Although depreciation and amortization are a component of GAAP net income, we believe
that NOI is a meaningful measure of operating performance, because we utilize NOI in making decisions with
respect to capital allocations, property performance, and comparing period-to-period and market-to-market property
operating results. In addition, we believe the investment community utilizes NOI in determining operating
performance and real estate values, and does not consider depreciation expense as it is based upon historical cost.
NOI is not a substitute for net operating income after depreciation and amortization or net income in evaluating our
operating results. The following reconciles NOI generated by our self-storage and Shurgard Europe segments to our
consolidated net income in our December 31, 2009 consolidated financial statements.
Net operating income:
Same-store facilities .............................
Other facilities ......................................
Shurgard Europe facilities ....................
Total net operating income .............
Ancillary operating revenue .....................
Interest and other income .........................
Ancillary cost of operations ......................
Depreciation and amortization..................
General and administrative expense .........
Interest expense ........................................
Equity in earnings of real estate entities ...
Gains on disposition of real estate
investments and casualty losses, net..
Gain on early debt retirement ...................
Foreign currency exchange gain (loss) .....
Discontinued operations ...........................
Net income of the Company .....................
2009
Year Ended December 31,
2008
(Amounts in thousands)
2007
$ 934,902
68,462
-
1,003,364
107,597
29,813
(36,011)
(340,233)
(35,735)
(29,916)
53,244
33,426
4,114
9,662
(8,869)
$ 790,456
$ 972,834
57,025
30,068
1,059,927
108,421
36,155
(36,528)
(411,981)
(62,809)
(43,944)
20,391
336,020
-
(25,362)
(6,418)
$ 973,872
$ 937,190
43,103
100,818
1,081,111
115,481
11,417
(51,961)
(619,598)
(59,749)
(63,671)
12,738
5,212
-
58,444
(2,346)
$ 487,078
34
Same Store Facilities
The “Same Store Facilities” represents those 1,899 facilities that we have owned, and have been operated
on a stabilized basis, since January 1, 2007 and therefore provide meaningful comparisons for 2007, 2008, and 2009.
The following table summarizes the historical operating results of these 1,899 facilities (117.5 million net rentable
square feet) that represent approximately 93% of the aggregate net rentable square feet of our U.S. consolidated self-
storage portfolio at December 31, 2009.
SAME STORE FACILITIES
Year Ended December 31,
Year Ended December 31,
2009
2008
Percentage
Change
2008
2007
Percentage
Change
Revenues:
Rental income ............................................................. $1,324,747
Late charges and admin fees collected ........................
64,768
1,389,515
Total revenues (a) ..........................................................
(Dollar amounts in thousands, except weighted average amounts)
$ 1,339,637
57,121
1,396,758
$1,375,484
60,146
1,435,630
$1,375,484
60,146
1,435,630
(3.7)%
7.7%
(3.2)%
Cost of operations:
139,776
Property taxes .............................................................
94,262
Direct property payroll ...............................................
19,795
Media advertising .......................................................
20,079
Other advertising and promotion ................................
34,636
Utilities .......................................................................
38,356
Repairs and maintenance ............................................
11,040
Telephone reservation center ......................................
9,761
Property insurance ......................................................
86,908
Other cost of management ..........................................
454,613
Total cost of operations (a) ............................................
934,902
Net operating income (b) ...................................................
Depreciation and amortization expense (c) ........................
(301,647)
Net income ........................................................................ $ 633,255
135,825
94,303
19,853
18,235
36,411
42,696
12,580
11,391
91,502
462,796
972,834
(344,905)
$ 627,929
2.9%
0.0%
(0.3)%
10.1%
(4.9)%
(10.2)%
(12.2)%
(14.3)%
(5.0)%
(1.8)%
(3.9)%
(12.5)%
0.8%
135,825
94,303
19,853
18,235
36,411
42,696
12,580
11,391
91,502
462,796
972,834
(344,905)
$ 627,929
$
132,411
93,152
20,917
18,778
35,094
43,332
12,642
13,498
89,744
459,568
937,190
(447,245)
489,945
2.7%
5.3%
2.8%
2.6%
1.2%
(5.1)%
(2.9)%
3.8%
(1.5)%
(0.5)%
(15.6)%
2.0%
0.7%
3.8%
(22.9)%
28.2%
Gross margin (before depreciation and amortization
expense) .............................................................................
Weighted average for the period:
67.3%
67.8%
(0.7)%
67.8%
67.1%
1.0%
Square foot occupancy (d) .............................................
88.7%
Realized annual rent per occupied square foot (e)(f) ..... $ 12.71
REVPAF (f)(g) .............................................................. $ 11.28
89.5%
$ 13.08
$ 11.71
Weighted average at December 31:
Square foot occupancy ..................................................
87.1%
In place annual rent per occupied square foot (h) .......... $ 13.46
117,462
1,899
Total net rentable square feet (in thousands) .....................
Number of facilities ...........................................................
$
87.1%
14.02
117,462
1,899
(0.9)%
(2.8)%
(3.7)%
-
(4.0)%
-
-
89.5%
$ 13.08
$ 11.71
89.3%
$ 12.77
$ 11.40
$
87.1%
14.02
117,462
1,899
$
87.9%
13.89
117,462
1,899
0.2%
2.4%
2.7%
(0.9)%
0.9%
-
-
(a) Revenues and cost of operations do not include ancillary revenues and expenses generated at the facilities with respect
to tenant reinsurance, retail sales and truck rentals. “Other costs of management” included in cost of operations
principally represents all the indirect costs incurred in the operations of the facilities. Indirect costs principally include
supervisory costs and corporate overhead cost incurred to support the operating activities of the facilities.
(b) See “Net Operating Income” above.
(c) Depreciation and amortization expense for the years ended December 31, 2009 and 2008 decreased, as compared to the
year prior, primarily due to a reduction in amortization expense related to intangible assets that we obtained in the
Shurgard Merger.
(d) Square foot occupancies represent weighted average occupancy levels over the entire period.
(e) Realized annual rent per occupied square foot is computed by annualizing the result of dividing rental income (which
excludes late charges and administrative fees) by the weighted average occupied square feet for the period. Realized
35
annual rent per occupied square foot takes into consideration promotional discounts and other items that reduce rental
income from the contractual amounts due.
(f) Late charges and administrative fees are excluded from the computation of realized annual rent per occupied square
foot and REVPAF. Exclusion of these amounts provides a better measure of our ongoing level of revenue, by
excluding the volatility of late charges, which are dependent principally upon the level of tenant delinquency, and
administrative fees, which are dependent principally upon the absolute level of move-ins for a period.
(g) Realized annual rent per available foot or “REVPAF” is computed by dividing rental income (which excludes late
charges and administrative fees) by the total available net rentable square feet for the period.
(h) In place annual rent per occupied square foot represents annualized contractual rents per occupied square foot without
reductions for promotional discounts and excludes late charges and administrative fees.
Revenues generated by our Same Store facilities decreased approximately 3.2% for the year ended
December 31, 2009 compared to the same period in 2008. This decrease was primarily caused by lower rental
income as a result of lower average realized annual rental rates per occupied square foot combined with lower
average occupancy levels. For 2009, average realized annual rental rates per occupied square foot were 2.8% lower
and average occupancy levels were 0.9% lower as compared to the same period in 2008, resulting in a 3.7%
reduction in rental income.
Revenues generated by our Same Store facilities increased approximately 2.8% for the year ended
December 31, 2008 compared to the same period in 2007. This increase was primarily caused by higher rental
income as a result of higher average realized annual rental rates per occupied square foot combined with higher
average occupancy levels. For 2008, average realized annual rental rates per occupied square foot were 2.4% higher
and average occupancy levels were 0.2% higher as compared to the same period in 2008, resulting in a 2.7%
increase in rental income.
Our operating strategy is to maintain occupancy levels for our Same Store facilities at approximately 90%
throughout the year. In order to achieve this strategy, we adjusted rental rates and promotional discounts offered to
new tenants as well as the frequency of television advertising, increasing or decreasing each, depending on traffic
patterns of new tenants renting space offset by existing tenants vacating. We experience seasonal fluctuations in the
occupancy levels with occupancies generally higher in the summer months than in the winter months.
Consequently, rates charged new tenants are typically higher in the summer months than in the winter months.
Over the past two years, demand for self-storage space has been negatively impacted by recessionary
pressures, including increased unemployment, reduced housing sales, and reduced moving activity, in each of the
markets in which we operate.
As indicated in the table below, during the first three quarters of 2008, we generated relatively strong year-
over-year revenue growth. Beginning in September 2008, we began to experience a notable decline in year-over-
year move-ins that continued through October 2008, which we believe reflected general economic conditions. To
offset the decline in new rentals, we significantly reduced rental rates, increased promotional discounts to new
incoming tenants, and increased marketing efforts. We believe these actions have stabilized move-in volumes on a
year-over-year basis; however, we have not yet been able to restore rental rates to the levels experienced in the prior
year. We believe overall demand for self-storage space in virtually all of our markets in which we operate has
decreased due to current economic conditions, and coupled with an increase in the number of self-storage operators
over the past 10 years, will continue to foster a very difficult operating environment, at least in the near term. In
addition, increased move-out activity beginning in August 2008 exacerbated the downward pressure on occupancy
levels created by reduced demand. In March 2009, the increase in move-out activity began to subside to more
normalized levels.
36
Three Months Ended:
March 31, 2008
June 30, 2008
September 30, 2008
December 31, 2008
For entire year: 2008
March 31, 2009
June 30, 2009
September 30, 2009
December 31, 2009
For entire year: 2009
Same Store Year-over-Year Change
Realized rent
per occupied
square foot
Rental
income
Square foot
occupancy
3.4%
3.4%
2.5%
1.5%
2.7%
(1.2)%
(4.0)%
(5.2)%
(4.3)%
(3.7)%
3.0%
3.0%
1.9%
1.9%
2.4%
(0.2)%
(2.9)%
(4.2)%
(3.8)%
(2.8)%
0.3%
0.4%
0.6%
(0.5)%
0.2%
(1.0)%
(1.1)%
(1.0)%
(0.5)%
(0.9)%
Based upon our evaluation of certain comparative key operating metrics as of December 31, 2009, we
believe that revenue for the three months ending March 31, 2010 will be lower than the same period in 2009. Our
operating strategy will be to continue to focus on maintaining occupancy levels by adjusting rental rates,
promotional discounts and marketing activities. It is unclear to us how much the above mentioned factors will
impact our revenues beyond the first quarter of 2010.
From a geographic standpoint, we are experiencing the greatest year-over-year revenue declines in our
Southeast markets, located in North and South Carolina, Georgia, and Florida, as well as the West Coast, which
includes Seattle, Portland, San Francisco and Los Angeles. See Analysis of Regional Trends table that follows.
Cost of operations (excluding depreciation and amortization) decreased by 1.8% in 2009 as compared to
2008, and increased by 0.7% in 2008 as compared to 2007. The decrease in 2009 as compared to 2008 was due to
reduced utilities, repairs and maintenance, telephone reservation center, property insurance and other cost of
management which were offset in part by increases in property taxes and other advertising and promotion expenses.
The small increase in 2008 as compared to 2007 was due primarily to higher property tax and utilities expenses
which were partially offset by lower property insurance expense.
Property tax expense increased 2.9% in 2009 as compared to 2008, and 2.6% in 2008 as compared to 2007.
These increases are primarily due to increases in assessments of property values and to a lesser degree increases in
tax rates. We expect property tax expense growth of approximately 3.5% in 2010.
Direct property payroll expense was flat in 2009 as compared to 2008 and increased by 1.2% in 2008 as
compared to 2007. The increase in 2008 reflects higher hours incurred due to adjustments in staffing levels, offset
by lower incentive pay and stagnant growth in average wage rates. For 2010, we expect moderate growth trends in
payroll.
Media advertising for the Same Store Facilities was flat in 2009 as compared to 2008 and decreased 5.1%
in 2008 as compared to 2007. Media advertising primarily includes the cost of advertising on television and will
vary depending on a number of factors, including our occupancy levels and demand. Other advertising and
promotion is comprised principally of yellow page and internet advertising, which increased 10.1% during 2009 as
compared to 2008, and decreased 2.9% during 2008 as compared to 2007. Our future spending on yellow page,
media, and internet advertising expenditures will be driven in part by demand for our self-storage spaces, our current
occupancy levels, and the relative efficacy of each type of advertising. Media advertising in particular can be
volatile and increase or decrease significantly in the short-term.
37
Utility expenses decreased 4.9% in 2009 as compared to 2008, and increased 3.8% in 2008 as compared to
2007. The increase in 2008 was due primarily to higher electrical costs, which we believe in part was caused by
rapid increase in energy prices, and in particular oil, used by local utility companies to produce electricity during
2008. Similarly, the decrease utility expense experienced in 2009, was due primarily to reduced year-over-year
energy prices. It is difficult to estimate future utility cost levels because utility costs are dependent upon changes in
demand driven by weather and temperature, as well as fuel prices, both of which are volatile and not predictable.
Repairs and maintenance expenditures decreased 10.2% in 2009 as compared to 2008 and 1.5% in 2008 as
compared to 2007. Repairs and maintenance expenditures are dependent upon several factors, such as weather, the
timing of periodic needs throughout our portfolio, inflation, and random events and accordingly are difficult to
project from year to year. Due to severe weather, we expect snow removal expenses to be approximately $2 million
higher in the three months ending March 31, 2010 as compared to the same period in 2009. However, we expect
overall repairs and maintenance expenditures to grow moderately in 2010.
Telephone reservation center costs decreased 12.2% in 2009 as compared to 2008 and were flat in 2008
compared to 2007. The reduction in 2009 was primarily due to lower call volumes, resulting in less staffing hours,
as well as a shift from our California to our Arizona call center, resulting in lower average compensation rates. We
expect future increases in our telephone reservation center to be based primarily upon general inflation.
Insurance expense decreased 14.3% in 2009 as compared to 2008 and 15.6% in 2008 as compared to 2007.
These declines reflect significant decreases in property insurance resulting primarily from the softer insurance
markets as lack of hurricane activity and additional competition from insurance providers has benefited us. We
expect insurance expense to be down slightly in 2010 as compared to 2009.
38
The following table summarizes selected quarterly financial data with respect to the Same Store Facilities:
For the Quarter Ended
March 31
June 30
September 30
December 31
Entire Year
(Amounts in thousands, except for per square foot amount)
Total revenues:
2009
2008
2007
$ 347,185
$ 349,991
$ 338,454
$ 346,839
$ 359,461
$ 347,468
$ 352,121
$ 368,976
$ 359,627
$ 343,370
$ 357,202
$ 351,209
$ 1,389,515
$ 1,435,630
$ 1,396,758
Total cost of operations:
2009
2008
2007
$ 125,007
$ 123,856
$ 118,916
$ 116,426
$ 120,526
$ 118,985
$ 113,286
$ 113,972
$ 115,176
$
99,894
$ 104,442
$ 106,491
$ 454,613
$ 462,796
$ 459,568
37,137
36,161
34,969
$
$
$
28,218
28,159
28,967
$ 139,776
$ 135,825
$ 132,411
3,430
2,148
4,409
4,942
4,645
4,457
11.41
12.03
11.74
12.73
13.29
13.04
89.6%
90.5%
90.0%
$
$
$
$
$
$
$
$
$
$
$
$
983
922
2,833
4,556
4,137
4,023
11.15
11.65
11.48
12.76
13.27
13.02
87.4%
87.8%
88.2%
$
$
$
$
$
$
$
$
$
$
$
$
19,795
19,853
20,917
20,079
18,235
18,778
11.28
11.71
11.40
12.71
13.08
12.77
88.7%
89.5%
89.3%
Property tax expense:
2009
2008
2007
$
$
$
37,762
36,349
34,793
$
$
$
36,659
35,156
33,682
Media advertising expense:
2009
2008
2007
$
$
$
8,158
6,947
5,287
$
$
$
7,224
9,836
8,388
Other advertising and promotion expense:
$
$
$
4,614
4,426
4,956
2009
2008
2007
$
$
$
5,967
5,027
5,342
REVPAF:
2009
2008
2007
$
$
$
11.29
11.43
11.05
$
$
$
11.27
11.74
11.35
$
$
$
$
$
$
$
$
$
$
$
$
Weighted average realized annual rent per occupied square foot (a):
$
$
$
12.84
12.87
12.49
12.52
12.90
12.53
2009
2008
2007
$
$
$
$
$
$
Weighted average occupancy levels for the period (a):
90.0%
91.0%
90.6%
87.9%
88.8%
88.5%
2009
2008
2007
39
Analysis of Regional Trends
The following table sets forth regional trends in our Same Store Facilities:
Year Ended December 31,
2008
2009
Change
Year Ended December 31,
2007
2008
Change
(Amounts in thousands, except for weighted average data)
Same Store Facilities Operating
Trends by Region
Revenues:
Southern California (176 facilities)
Northern California (167 facilities)
Texas (231 facilities) .....................
Florida (182 facilities) ...................
Illinois (119 facilities) ...................
Washington (88 facilities) ..............
Georgia (86 facilities) ...................
All other states (850 facilities) ......
Total revenues ....................................
Cost of operations:
Southern California ........................
Northern California ........................
Texas ..............................................
Florida ............................................
Illinois ............................................
Washington ....................................
Georgia ..........................................
All other states ...............................
Total cost of operations ......................
Net operating income (a):
Southern California ........................
Northern California ........................
Texas ..............................................
Florida ............................................
Illinois ............................................
Washington ....................................
Georgia ..........................................
All other states ...............................
Total net operating income .................
Weighted average occupancy:
Southern California ........................
Northern California ........................
Texas ..............................................
Florida ............................................
Illinois ............................................
Washington ....................................
Georgia ..........................................
All other states ...............................
Total weighted average occupancy .....
$ 203,794
149,043
139,614
134,104
87,837
71,292
48,466
555,365
1,389,515
$ 212,556
154,064
141,155
141,601
90,283
75,036
51,381
569,554
1,435,630
45,304
39,400
53,657
46,110
39,185
17,749
16,607
196,601
454,613
44,938
40,047
54,827
48,454
37,774
17,743
17,027
201,986
462,796
158,490
109,643
85,957
87,994
48,652
53,543
31,859
358,764
$ 934,902
167,618
114,017
86,328
93,147
52,509
57,293
34,354
367,568
$ 972,834
89.9%
88.9%
88.9%
88.6%
88.0%
88.9%
87.4%
88.6%
88.7%
90.3%
89.8%
90.4%
89.0%
88.8%
89.7%
88.8%
89.3%
89.5%
(4.1)%
(3.3)%
(1.1)%
(5.3)%
(2.7)%
(5.0)%
(5.7)%
(2.5)%
(3.2)%
0.8%
(1.6)%
(2.1)%
(4.8)%
3.7%
0.0%
(2.5)%
(2.7)%
(1.8)%
(5.4)%
(3.8)%
(0.4)%
(5.5)%
(7.3)%
(6.5)%
(7.3)%
(2.4)%
(3.9)%
(0.4)%
(1.0)%
(1.7)%
(0.4)%
(0.9)%
(0.9)%
(1.6)%
(0.8)%
(0.9)%
$ 212,556
154,064
141,155
141,601
90,283
75,036
51,381
569,554
1,435,630
$ 205,142
146,872
135,513
144,071
86,513
73,284
51,008
554,355
1,396,758
44,938
40,047
54,827
48,454
37,774
17,743
17,027
201,986
462,796
45,328
40,786
53,968
48,167
38,410
17,371
16,593
198,945
459,568
167,618
114,017
86,328
93,147
52,509
57,293
34,354
367,568
$ 972,834
159,814
106,086
81,545
95,904
48,103
55,913
34,415
355,410
$ 937,190
90.3%
89.8%
90.4%
89.0%
88.8%
89.7%
88.8%
89.3%
89.5%
90.0%
89.0%
90.2%
88.4%
88.3%
90.6%
90.0%
89.1%
89.3%
3.6%
4.9%
4.2%
(1.7)%
4.4%
2.4%
0.7%
2.7%
2.8%
(0.9)%
(1.8)%
1.6%
0.6%
(1.7)%
2.1%
2.6%
1.5%
0.7%
4.9%
7.5%
5.9%
(2.9)%
9.2%
2.5%
(0.2)%
3.4%
3.8%
0.3%
0.9%
0.2%
0.7%
0.6%
(1.0)%
(1.3)%
0.2%
0.2%
40
Same Store Facilities Operating
Trends by Region (Continued)
Realized annual rent per occupied
square foot (a):
Southern California .........................
Northern California .........................
Texas ...............................................
Florida .............................................
Illinois .............................................
Washington ......................................
Georgia ............................................
All other states .................................
Total realized rent per square foot .......
REVPAF (a):
Southern California .........................
Northern California .........................
Texas ...............................................
Florida .............................................
Illinois .............................................
Washington .....................................
Georgia ...........................................
All other states ................................
Total REVPAF ....................................
Year Ended December 31,
2008
2009
Change
Year Ended December 31,
2007
Change
2008
(Amounts in thousands, except for weighted average data)
$
$
$
$
18.78
16.77
9.95
12.12
12.93
13.67
9.64
11.67
12.71
16.88
14.91
8.85
10.74
11.38
12.15
8.43
10.35
11.28
$
$
$
$
19.52
17.16
9.97
12.87
13.24
14.32
10.16
11.95
13.08
17.62
15.41
9.01
11.46
11.76
12.84
9.03
10.67
11.71
(3.8)%
(2.3)%
(0.2)%
(5.8)%
(2.3)%
(4.5)%
(5.1)%
(2.3)%
(2.8)%
$
$
(4.2)% $
(3.2)%
(1.8)%
(6.3)%
(3.2)%
(5.4)%
(6.6)%
(3.0)%
(3.7)% $
19.52
17.16
9.97
12.87
13.24
14.32
10.16
11.95
13.08
17.62
15.41
9.01
11.46
11.76
12.84
9.03
10.67
11.71
$
$
$
$
18.91
16.49
9.62
13.24
12.75
14.02
9.97
11.69
12.77
17.03
14.68
8.67
11.71
11.26
12.70
8.97
10.42
11.40
3.2%
4.1%
3.6%
(2.8)%
3.8%
2.1%
1.9%
2.2%
2.4%
3.5%
5.0%
3.9%
(2.1)%
4.4%
1.1%
0.7%
2.4%
2.7%
(a) See “Same Store Facilities” table above for further information regarding these measures, which represent or are
derived from non-GAAP measures.
We believe that our geographic diversification and scale provide some insulation from localized economic
effects and add to the stability of our cash flows. It is difficult to predict localized trends in short-term self-storage
demand and operating results. We believe that each market has been negatively impacted to some degree by general
economic trends and may continue to experience negative operating trends until such time that general economic
trends improve.
41
Other Facilities
In addition to the Same Store facilities, at December 31, 2009, we had an additional 92 self-storage
facilities. These facilities include recently acquired facilities, recently developed facilities and facilities that were
recently expanded by adding additional storage units. In general, these facilities are not stabilized with respect to
occupancies or rental rates. As a result of the fill-up process and timing of when the facilities were put into place,
year-over-year changes can be significant.
Rental income, cost of operations, depreciation, net operating income, weighted average square foot
occupancies and realized rents per square foot in the table above represent the operating results following the date
each particular facility began to be included in our consolidated operating results, and in the case of acquired
facilities, do not include any operating results prior to our acquisition of these facilities.
In 2009, we completed one newly developed facility with 64,000 net rentable square feet at a total cost of
$11.9 million and four expansion projects to existing real estate facilities (76,000 net rentable square feet) for an
aggregate cost of $19.1 million, and did not acquire any new properties.
Our acquisitions consist of facilities that have been operating for a number of years as well as newly
constructed facilities that were in the process of filling up to stabilized occupancy levels. In either case, we have
been able to leverage off of our operating strategies and improve the occupancy levels of the facilities or, with
respect to the newly developed facilities, we have been able to accelerate the fill-up pace.
We expect that the Other Facilities will continue to provide earnings growth during 2010, though at a lower
level of growth than that experienced in 2009 and 2008, as these facilities reach stabilization. However, the Other
Facilities are subject to the same occupancy and rate pressures that our Same Store facilities are facing, and
accordingly the pace at which these facilities reach stabilization, and the ultimate level of cash flows to be reached
upon stabilization, may be negatively impacted by the current economic trends.
Because of reduced self-storage demand, and our belief that our capital could be put to use in a more
advantageous manner, our development activities throughout 2009 have been nominal, and we have a nominal
pipeline of new development at December 31, 2009. It is unclear when we might change our strategy with respect
to development activities.
We believe our presence in and knowledge of substantially all of the major markets in the U.S. enhances
our ability to identify attractive acquisition opportunities and capitalize on the overall fragmentation in the storage
industry. We believe that there may be more opportunities for the acquisition of facilities from distressed sellers
who, due to the constrained credit environment and pressure on cash flows due to the current difficult operating
environment, face covenant violations or cannot refinance their existing debt as it comes due. The timing and
amount of these opportunities will be at least partially dependent upon whether the banks and other lenders elect to
pursue foreclosure, acceleration, or other remedies which would force a sale of the properties of these distressed
owners, rather than extending existing loans or waiving covenant violations. It is our belief that opportunities in
2009 have been limited due at least in part to lenders’ desire to extend these loans rather than foreclose or accelerate.
There can be no assurance that any such opportunities will materialize in the future.
42
Equity in earnings of real estate entities
At December 31, 2009, we have equity investments in PSB, Shurgard Europe and five affiliated limited
partnerships. Due to our limited ownership interest and limited control of these entities, we do not consolidate the
accounts of these entities for financial reporting purposes, and account for such investments using the equity
method.
Equity in earnings of real estate entities for the years ended December 31, 2009, 2008 and 2007, consists of
our pro-rata share of the net income of these Unconsolidated Entities based upon our ownership interest for the
period. The following table sets forth the significant components of equity in earnings of real estate entities.
Amounts with respect to PSB, Shurgard Europe, and Other Investments are included in our Commercial segment,
Europe Self-Storage segment, and other items not allocated to segments, respectively, as described in Note 11 to our
December 31, 2009 consolidated financial statements.
Historical summary:
Net operating income (1):
PSB ................................................................
Shurgard Europe ............................................
Other Investments..........................................
Depreciation:
PSB ................................................................
Shurgard Europe ...........................................
Other Investments..........................................
Other:(2):
PSB (3) ..........................................................
Shurgard Europe ............................................
Other Investments .........................................
Total equity in earnings of real estate entities:
PSB ................................................................
Shurgard Europe ...........................................
Other Investments .........................................
Year Ended December 31,
2008
2009
Year Ended December 31,
2007
Change
Change
2008
(Amounts in thousands)
$ 81,525
46,374
2,713
130,612
$ 89,067
38,785
4,626
132,478
$ (7,542)
7,589
(1,913)
(1,866)
$ 89,067
38,785
4,626
132,478
$ 82,279
-
4,878
87,157
$ 6,788
38,785
(252)
45,321
(37,167)
(24,498)
(806)
(62,471)
(9,250)
(5,607)
(40)
(14,897)
(45,422)
(27,578)
(1,918)
(74,918)
(29,320)
(7,073)
(776)
(37,169)
8,255
3,080
1,112
12,447
20,070
1,466
736
22,272
(45,422)
(27,578)
(1,918)
(74,918)
(29,320)
(7,073)
(776)
(37,169)
(43,316)
-
(1,991)
(45,307)
(28,461)
-
(651)
(29,112)
(2,106)
(27,578)
73
(29,611)
(859)
(7,073)
(125)
(8,057)
35,108
16,269
1,867
$ 53,244
14,325
4,134
1,932
$ 20,391
20,783
12,135
(65)
$ 32,853
14,325
4,134
1,932
$ 20,391
10,502
-
2,236
$ 12,738
3,823
4,134
(304)
$ 7,653
(1) These amounts represent our pro-rata share of the net operating income of the Unconsolidated Entities. See also “net
operating income” above for a discussion of this non-GAAP measure.
(2) “Other” reflects our share of general and administrative expense, interest expense, interest income, gains on sale of real
estate assets, and other non-property; non-depreciation related operating results of these entities.
(3) Includes our pro rata share of benefit totaling $16.3 million and $1.9 million from PSB’s preferred stock and preferred unit
repurchases for the years ended December 31, 2009 and 2008, respectively.
Investment in PSB: At December 31, we have a 41% common equity interest in PSB (46% as of
December 31, 2008), comprised of our ownership of 5,801,606 shares of PSB’s common stock and 7,305,355
limited partnership units in PSB’s underlying operating partnership. The limited partnership units are convertible at
our option, subject to certain conditions, on a one-for-one basis into PSB common stock. Our ownership interest
was reduced during 2009 as PSB sold 3,833,333 shares of its common stock, of which we purchased 383,333 shares
or 10% of the shares issued.
43
At December 31 2009, PSB owned and operated 19.6 million rentable square feet of commercial space
located in eight states. PSB also manages commercial space owned by the Company and affiliated entities at
December 31, 2009 pursuant to property management agreements.
Equity in earnings from PSB increased to $35,108,000 in 2009 as compared to $14,325,000 in 2008. This
increase was primarily the result of recognizing our pro rata share, $16.3 million, of the benefit that PSB recognized
during 2009 as a result of PSB’s preferred stock and preferred partnership unit repurchases combined with our
$8.3 million pro rata share of reduced depreciation expense. These items were partially offset by our $7.5 million
pro rata share of reduced property net operating income. The reduction in property net operating income is
primarily the result of reduced property revenues at PSB’s facilities due to a 3.2% decline in the weighted average
occupancy level for 2009 as compared to 2008.
Our future equity income from PSB will be dependent entirely upon PSB’s operating results. Our
investment in PSB provides us with some diversification into another asset type. We have no plans of disposing of
our investment in PSB. PSB’s filings and selected financial information can be accessed through the Securities and
Exchange Commission, and on its website, www.psbusinessparks.com. See Note 5 to our December 31, 2009
consolidated financial statements for additional financial information on PSB.
Investment in Shurgard Europe: As described in Note 3 to our December 31, 2009 consolidated financial
statements, due to our March 31, 2008 disposition of a 51% interest in Shurgard Europe, beginning for periods after
March 31, 2008 we no longer consolidate the revenues and expenses of Shurgard Europe on our consolidated
statements of income, and our pro-rata share of the operating results of Shurgard Europe is included in “equity in
earnings of real estate entities.” Selected financial data for Shurgard Europe for the years ended December 31, 2009,
2008 and 2007 is included in Note 5 to our December 31, 2009 consolidated financial statements.
We originally acquired our 100% interest in Shurgard Europe during our merger with Shurgard, which
occurred in August 2006. Our primary objective for merging with Shurgard was to acquire Shurgard’s U.S.
domestic assets which accounted for approximately 487 facilities in the U.S. as compared to 160 facilities in Europe
at the time of the Shurgard Merger. Subsequent to the Shurgard Merger, management of Public Storage determined
that it was in our best interests to reduce our investment in Shurgard Europe. There were many reasons for that
determination, most relating to the fact that continued growth of Shurgard Europe would require a significant capital
commitment. Movement of capital from Public Storage (in the U.S.) to various European countries would have
exposed Public Storage to currency fluctuation risks and to potential tax burdens when Public Storage wished to
repatriate its capital investment. Accordingly, in March 2008, we sold 51% of our ownership interest in Shurgard
Europe, which helped to limit our capital requirements to continue to grow Shurgard Europe and to limit our
exposure to other risks of owning operations in foreign countries. We do not intend to sell any of our remaining
interest in Shurgard Europe. In the future, we expect Shurgard Europe to function as a stand-alone entity and to
fund its capital requirements primarily with its retained operating cash flow, bank borrowings and, to the extent
available, public or private equity.
This transaction has resulted in the operations of Shurgard Europe having a less significant impact on our
operating results, as we have a 49% interest and a loan receivable from Shurgard Europe upon which we receive
interest income, rather than the 100% equity interest in Shurgard Europe we held prior to the transaction. Our future
operating results will also be impacted by the ultimate returns realized on the reinvestment of the cash proceeds
received in connection with this transaction, including the proceeds from the collection of the loan receivable and
the timing thereof.
At December 31, 2009, Shurgard Europe’s operations comprise 187 facilities with an aggregate of
approximately 10 million net rentable square feet. The portfolio consists of 115 wholly owned facilities and 72
facilities owned by two joint venture partnerships, in which Shurgard Europe has a 20% equity interest.
Our equity in earnings from Shurgard Europe is comprised of our 49% equity share in the net income of
Shurgard Europe, as well as 49% of the interest earned with respect to the note receivable from Shurgard Europe, as
well as 49% of trademark license fees received from Shurgard Europe, which are reclassified in consolidation from
44
interest income to equity in earnings of Shurgard Europe. The amount of interest reclassified was approximately
$23.9 million in 2009, $17.8 million in 2008 and none in 2007.
Equity in earnings from our investment in Shurgard Europe for the year ended December 31, 2009 was
$16,269,000 compared to $4,134,000 for the same period in 2008, representing an increase of $12,135,000. This
increase includes i) a reduction in our pro-rata share of Shurgard Europe’s depreciation expense, primarily due to
declines in tenant intangible amortization, ii) our pro-rata share of a reduction in Shurgard Europe’s third party
interest expense (joint ventures in which Shurgard Europe has a 20% interest recently refinanced their outstanding
debt at substantially lower interest rates), (iii) the timing of our disposition of the 51% interest in Shurgard Europe
as equity in earnings for 2008 only includes amounts for the period of April 1, 2008 through December 31, 2008
while the 2009 includes amounts for the entire year, offset by iv) our pro-rata share of Shurgard Europe’s same-store
properties’ decline in net operating income, on a constant exchange rate basis, and (v) the effect of a change in the
average exchange rate of the Euro relative to the U.S. Dollar to 1.393 for the year ended December 31, 2009 as
compared to 1.470 for the same period in 2008.
We evaluate the performance metrics of Shurgard Europe’s Same Store Facilities in order to evaluate the
performance of our investment in Shurgard Europe, because the Shurgard Europe Same Store Facilities represent the
primary driver of our pro-rata share of earnings of Shurgard Europe.
The Shurgard Europe Same Store Facilities represent those 94 facilities that are stabilized and owned since
January 1, 2007 and therefore provide meaningful comparisons for 2007, 2008, and 2009. The following table
reflects the operating results of these 94 facilities.
Selected Operating Data for the 94 facilities operated
by Shurgard Europe on a stabilized basis since
January 1, 2007 (“Europe Same Store Facilities”):
Year Ended December 31,
Year Ended December 31,
2009
2008
Percentage
Change
2008
2007
Percentage
Change
(Dollar amounts in thousands, except weighted average data,
utilizing constant exchange rates) (a) (b)
Revenues:
Rental income ..............................................................
Late charges and administrative fees collected ............
Total revenues .................................................................
$ 115,785
1,892
117,677
$ 120,030
2,018
122,048
(3.5)%
(6.2)%
(3.6)%
$ 120,030
2,018
122,048
$ 118,578
1,198
119,776
1.2%
68.4%
1.9%
Cost of operations (excluding depreciation and
amortization expense):
Property taxes .............................................................
Direct property payroll ................................................
Advertising and promotion ..........................................
Utilities ........................................................................
Repairs and maintenance .............................................
Property insurance .......................................................
Other costs of management .........................................
Total cost of operations ....................................................
5,661
13,767
4,662
2,849
3,157
711
16,902
47,709
5,659
13,852
3,579
2,846
3,353
760
16,490
46,539
0.0%
(0.6)%
30.3%
0.1%
(5.8)%
(6.4)%
2.5%
2.5%
5,659
13,852
3,579
2,846
3,353
760
16,490
46,539
5,485
14,033
3,772
2,826
3,207
1,131
17,636
48,090
Net operating income (c) .................................................
$ 69,968
$
75,509
(7.3)%
$
75,509
$
71,686
59.5%
61.9%
(3.9)%
61.9%
59.9%
Gross margin .......................................................................
Weighted average for the period:
Square foot occupancy (d) ...........................................
Realized annual rent per occupied square foot (e)(f) ...
REVPAF (f)(g) ............................................................
Weighted average at December 31:
Square foot occupancy .................................................
In place annual rent per occupied square foot (h) ........
Total net rentable square feet (in thousands) .......................
Average Euro to the U.S. Dollar: (a)
Constant exchange rates used herein ...........................
Actual historical exchange rates ..................................
86.1%
$26.06
$22.44
85.7%
$30.03
5,160
1.393
1.393
86.9%
$26.77
$23.26
84.7%
$30.32
5,160
1.393
1.470
(0.9)%
(2.7)%
(3.5)%
1.2%
(1.0)%
-
-
(5.2)%
86.9%
$26.77
$23.26
84.7%
$30.32
5,160
1.393
1.470
45
3.2%
(1.3)%
(5.1)%
0.7%
4.6%
(32.8)%
(6.5)%
(3.2)%
5.3%
3.3%
(3.1)%
4.5%
1.2%
(4.3)%
1.3%
-
89.7%
$25.62
$22.98
88.5%
$29.93
5,160
1.393
1.370
-
7.3%
(a) In order to isolate changes in the underlying operations from the impact of exchange rates, the amounts in this table are
presented on a constant exchange rate basis. The amounts for the years ended December 31, 2008 and 2007 have been
restated using the actual exchange rate for 2009. The exchange rate for the Euro relative to the U.S. Dollar averaged
1.393 during the year ended December 31, 2009, as compared to 1.470 and 1.370 for the same periods in 2008 and
2007, respectively.
(b) Only the amounts for periods before March 31, 2008 are included in our consolidated financial statements. We include
our pro-rata share of these operating results for periods after March 31, 2008 in Equity in Earnings of Real Estate
Entities. The amounts incorporated in our financial statements, either consolidated or equity method amounts, are
based upon the actual weighted average exchange rates for each period.
(c) We present net operating income “NOI” of the Shurgard Europe Same-Store Facilities, which is a non-GAAP financial
measure that excludes the impact of depreciation and amortization expense. Although depreciation and amortization is
a component of GAAP net income, we believe that NOI is a meaningful measure of operating performance, because we
utilize NOI in making decisions with respect to capital allocations, segment performance, and comparing period-to-
period and market-to-market property operating results. In addition, the investment community utilizes NOI in
determining real estate values, and does not consider depreciation expense as it is based upon historical cost. NOI is
not a substitute for net operating income after depreciation and amortization in evaluating our operating results.
(d) Square foot occupancies represent weighted average occupancy levels over the entire period.
(e) Realized annual rent per occupied square foot is computed by annualizing the result of dividing rental income before
late charges and administrative fees by the weighted average occupied square feet for the period. Realized annual rent
per occupied square foot takes into consideration promotional discounts and other items that reduce rental income from
the contractual amounts due.
(f) Late charges and administrative fees are excluded from the computation of realized annual rent per occupied square
foot and REVPAF. Exclusion of these amounts provides a better measure of our ongoing level of revenue, by
excluding the volatility of late charges, which are dependent principally upon the level of tenant delinquency, and
administrative fees, which are dependent principally upon the absolute level of move-ins for a period.
(g) Realized annual rent per available foot or “REVPAF” is computed by dividing rental income before late charges and
administrative fees by the total available net rentable square feet for the period.
(h) In place annual rent per occupied square foot represents annualized contractual rents per occupied square foot without
reductions for promotional discounts and excludes late charges and administrative fees.
Shurgard Europe’s operations have been impacted by the same trends in self-storage demand that our
domestic facilities are facing. However, trends in Europe improved somewhat in the last half of 2009, with year-
over-year revenue declines of 1.9% in the quarter ended December 31, 2009, as compared to 3.2% in the quarter
ended September 30, 2009 and 4.7% in the first half of 2009. Despite the recent improved trends and reduced year-
over year declines in revenues and net operating income, we expect continued year-over-year declines in revenues
during at least the first quarter of 2010.
Shurgard Europe, similar to our Domestic Self-Storage segment, has a nominal development pipeline.
Accordingly, at least in the short-term, we do not expect any significant impact to our earnings from Shurgard
Europe’s development activities.
In Note 5 to our December 31, 2009 consolidated financial statements, we disclose Shurgard Europe’s
consolidated operating results for the years ended December 31, 2009, 2008 and 2007. Shurgard Europe’s
condensed consolidated operating results include additional facilities that are not Europe Same Store Facilities, and
are based upon historical exchange rates rather than constant exchange rates for each of the respective periods.
Other Investments: The “Other Investments” at December 31, 2009 are comprised primarily of our
equity in earnings from various limited partnerships that collectively own 19 self-storage facilities. Amounts
included in the tables above also include our equity in earnings with respect to three facilities owned by the
Unconsolidated Entities, until we acquired the remaining interest we did not own in these entities during 2008, and
commenced consolidating these facilities. Our future earnings with respect to the Other Investments will be
dependent upon the operating results of the facilities that these entities own. See Note 5 to our December 31, 2009
consolidated financial statements for the operating results of these 19 facilities under the “Other Investments.”
46
Ancillary Operations
Ancillary revenues and expenses include amounts associated with (i) the reinsurance of policies against
losses to goods stored by tenants in our self-storage facilities in the U.S., (ii) merchandise sales in the U.S., (iii)
commercial property operations, (iv) merchandise sales and tenant reinsurance operations conducted by Shurgard
Europe, and (v) management of facilities for third parties and facilities owned by the Unconsolidated Entities.
Commercial property operations are included in our Commercial segment, and the merchandise and tenant
reinsurance operations conducted by Shurgard Europe are included in our Europe Self-Storage segment. All other
ancillary revenues and costs of operations are not allocated to any segment. See Note 11 to our December 31, 2009
consolidated financial statements for further information regarding our segments and for a reconciliation of these
ancillary revenues and cost of operations to our net income.
During 2009, we decided to discontinue the operations of our truck rental and containerized businesses.
Accordingly, the revenues and expenses of these operations are included in discontinued operations on our
consolidated statements of income for the years ended December 31, 2009, 2008 and 2007.
The following table sets forth our ancillary operations as presented on our consolidated statements of
income.
Year Ended December 31
2008
2009
Year Ended December 31,
2007
Change
Change
2008
(Amounts in thousands)
Ancillary Revenues:
Tenant reinsurance premiums ................
Commercial .............................................
Merchandise and other ...........................
Shurgard Europe merchandise and tenant
insurance ............................................
Total revenues ...................................
Ancillary Cost of operations:
Tenant reinsurance ..................................
Commercial ............................................
Merchandise and other ............................
Shurgard Europe merchandise and tenant
insurance ............................................
Total cost of operations......................
$
62,644
14,982
29,971
$ 57,280
15,326
30,902
$ 5,364
(344)
(931)
$ 57,280
15,326
30,902
$ 50,861
15,101
32,029
$ 6,419
225
(1,127)
-
107,597
4,913
108,421
(4,913)
(824)
4,913
108,421
17,490
115,481
(12,577)
(7,060)
9,789
5,759
20,463
-
36,011
6,734
6,292
22,093
1,409
36,528
3,055
(533)
(1,630)
(1,409)
(517)
6,734
6,292
22,093
1,409
36,528
15,879
5,722
25,174
(9,145)
570
(3,081)
5,186
51,961
(3,777)
(15,433)
Depreciation – commercial operations:
2,958
2,900
58
2,900
2,570
330
Ancillary net income:
Tenant reinsurance ..................................
Commercial ............................................
Merchandise and other ............................
Shurgard Europe merchandise and tenant
reinsurance .........................................
Total ancillary net income .................
52,855
6,265
9,508
50,546
6,134
8,809
2,309
131
699
50,546
6,134
8,809
34,982
6,809
6,855
15,564
(675)
1,954
-
68,628
3,504
$ 68,993
(3,504)
(365)
$
$
3,504
(8,800)
$ 68,993 $ 60,950 $ 8,043
12,304
Tenant reinsurance operations: We reinsure policies offered through a non-affiliated insurance company
against losses to goods stored by tenants, primarily in our domestic self-storage facilities. The revenues that we
record are based upon premiums that we reinsure. Cost of operations primarily includes claims paid that are not
covered by our outside third-party insurers, as well as claims adjustment expenses. Cost of operations includes
reductions of $2.0 million and $5.8 million for the years ended December 31, 2009 and 2008, respectively,
representing adjustments to accounting estimates that are not expected to recur.
47
The increase in tenant reinsurance revenues over the past year was attributable to higher rates combined
with an increase in the percentage of our existing tenants retaining such policies. Approximately 58% and 53% of
our tenants had such policies at December 31, 2009 and 2008, respectively. We believe that the level of tenant
reinsurance revenues in 2010 may not increase to the same degree as was experienced in 2009 as customer
penetration reaches the percentage of tenants that could be expected to retain such policies.
The future level of tenant reinsurance revenues is largely dependent upon the number of new tenants
electing to purchase policies, the level of premiums charged for such insurance, and the number of tenants that
continue participating in the insurance program. Future cost of operations will be dependent primarily upon the
level of losses incurred, including the level of catastrophic events, such as hurricanes, that occur and affect our
properties thereby increasing tenant insurance claims.
Commercial operations: We also operate commercial facilities, primarily small storefronts and office
space located on or near our existing self-storage facilities that are rented to third parties. We do not expect any
significant changes in revenues or profitability from our commercial operations.
Merchandise sales and other: We sell locks, boxes, and packing supplies at the self-storage facilities that
we operate. The primary factor impacting the level of merchandise sales is the level of customer traffic at our self-
storage facilities, including the level of move-ins. In addition, to a much lesser extent, we also manage self-storage
facilities within our existing management infrastructure, for third party owners as well as for the Unconsolidated
Entities.
Other Income and Expense Items
Interest and other income: Interest and other income was $29,813,000 in 2009, $36,155,000 in 2008, and
$11,417,000 in 2007. The decrease in 2009 as compared to 2008 is principally due to lower interest income on our
cash reserve balances, offset by higher interest income with respect to our loan receivable from Shurgard Europe
(described below). Interest earned on our cash balances totaled $5.0 million in 2009 as compared to $17.7 million in
2008. This reduction was due primarily to significantly lower interest rates in 2009 as compared to 2008. We have
$763.8 million in cash on hand at December 31, 2009 invested primarily in money-market funds. Future interest
income will depend upon the level of interest rates and the timing of when the cash on hand is ultimately invested;
however, based upon current interest rates on our outstanding money-market fund investments of approximately
0.2%, earned interest is expected to be minimal.
We have a loan receivable, denominated in Euros, from Shurgard Europe totaling €391.9 million
($561.7 million) as of December 31, 2009. Effective October 31, 2009, we extended the maturity date to March 31,
2013, and the rate of interest increased from 7.5% to 9.0% per annum (effective November 1, 2009). In addition, we
receive trademark license fees from Shurgard Europe.
We recorded interest income with respect to this loan, representing 51% of the amount earned (the
remaining 49% is recorded as additional equity in earnings) combined with 51% of the trademark license fees
received from Shurgard Europe, aggregating $24.8 million and $18.5 million for the years ended December 31,
2009 and 2008, respectively. No interest income in connection with the loan or trademark fees was recorded prior to
March 31, 2008, as any such income received was fully eliminated in consolidation until March 31, 2008. All other
variances in interest income from our note receivable are attributable principally to changes in average exchange
rates as well as the change in interest rate from 7.5% to 9.0% effective November 1, 2009. Future interest income
recorded in connection with this loan will be dependent upon the average outstanding balance as well as the
exchange rate of the Euro versus the U.S. Dollar. All such interest has been paid currently when due and we expect
the interest to continue to be paid when due with Shurgard Europe’s operating cash flow.
Interest and other income increased in 2008 as compared to 2007 principally as a result of (i) higher
average cash balances invested in interest bearing accounts and (ii) interest income with respect to our loan
receivable from Shurgard Europe.
48
Depreciation and amortization: Depreciation and amortization expense was $340,233,000, $411,981,000
and $619,598,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
The decreases in depreciation and amortization expense in 2009 as compared to 2008, and in 2008 as
compared to 2007, are due principally to declines in amortization of tenant intangible assets that were acquired in
connection with the 2006 Shurgard Merger. Amortization expense with respect to tenant intangible assets was
$5,530,000 in 2009, $51,158,000 in 2008 and $247,844,000 in 2007. We expect minimal amortization expense for
our existing intangibles during 2010, and future intangible amortization will be dependent upon our future level of
acquisition of facilities with existing tenants in place.
Effective March 31, 2008, depreciation and amortization ceased on the facilities owned by Shurgard
Europe, which was deconsolidated effective March 31, 2008. Included in our depreciation and amortization related
to Shurgard Europe’s facilities was $11,192,000 for the three months ended March 31, 2008 and $52,460,000 for the
year ended December 31, 2007.
General and administrative expense: General and administrative expense was $35,735,000, $62,809,000,
and $59,749,000 for the years ended December 31, 2009, 2008 and 2007, respectively. General and administrative
expense principally consists of state income taxes, investor relations expenses, and corporate and executive salaries.
In addition, general and administrative expenses includes expenses that vary depending on our activity levels in
certain areas, such as overhead associated with the acquisition and development of real estate facilities, certain
expenses related to capital raising and merger and acquisition activities, litigation expenditures, employee severance,
share-based compensation, and incentive compensation.
General and administrative expense for the year ended December 31, 2008 includes $2,144,000 in ongoing
general and administrative expense for Shurgard Europe incurred prior to March 31, 2008 and $27,900,000 in
additional incentive compensation incurred related to our disposition of an interest in Shurgard Europe. General and
administrative expense for the year ended December 31, 2007 includes a) $10,691,000 related to Shurgard Europe’s
ongoing operations, b) $9,600,000 in costs incurred by Shurgard Europe associated with a proposed terminated
offering of shares in Shurgard Europe, c) $5,300,000 incurred in connection with the integration of Shurgard and
Public Storage, and d) $2,000,000 in costs associated with reorganizing as a Maryland REIT. Following March 31,
2008, we record no further general and administrative expense incurred by Shurgard Europe’s ongoing operations.
We expect ongoing general and administrative expense to approximate $8 million to $10 million per
quarter.
Interest expense: Interest expense was $29,916,000, $43,944,000 and $63,671,000 for the years ended
December 31, 2009, 2008 and 2007, respectively. The decreases in interest expense in 2009 and 2008 are due
primarily to the deconsolidation of Shurgard Europe effective March 31, 2008, which incurred $6,892,000 and
$22,242,000 in interest expense for the three months ended March 31, 2008 and the year ended December 31, 2007,
respectively. Interest expense was also reduced approximately $6 million in 2009 as compared to 2008 due to our
early retirement in February 2009 of $110.2 million face amount of senior unsecured debt. See Note 6 to our
December 31, 2009 consolidated financial statements for a schedule of our notes payable balances, principal
repayment requirements, and average interest rates.
Capitalized interest expense totaled $718,000, $1,998,000 and $4,746,000 for the years ended
December 31, 2009, 2008 and 2007, respectively, in connection with our development activities.
Foreign Exchange Gain (Loss): Our loan receivable from Shurgard Europe is denominated in Euros and
we have not entered into any hedged agreements to mitigate the impact of currency exchange fluctuations between
the U.S. Dollar and the Euro. As a result, the amount of U.S. Dollars we will receive on repayment will depend
upon the currency exchange rates at that time. In each period where we expect repatriation of these funds within
two years from period end, we record the change in the U.S. Dollar equivalent of the loan balance from the
beginning to the end of the period as a foreign currency gain or loss. We recorded a foreign exchange gain of
$9,662,000, a loss of $25,362,000, and a gain of $58,444,000 in 2009, 2008, and 2007, respectively, representing the
change in the U.S. Dollar equivalent of the loan due to changes in exchange rates from the beginning to the end of
49
each respective period. The U.S. Dollar exchange rate relative to the Euro was approximately 1.433, 1.409, and
1.472 at December 31, 2009, 2008 and 2007, respectively.
Future foreign exchange gains or losses will be dependent primarily upon the movement of the Euro
relative to the U.S. Dollar, the amount owed from Shurgard Europe and our continued expectation with respect to
repaying the loan.
Discontinued Operations: During 2009, we discontinued operations in our truck rental and containerized
storage businesses. In addition, we disposed of one self-storage facility and expect to dispose of one other in
connection with condemnation proceedings. We reclassified all of the historical revenues and expenses of these
operations from revenues and expenses, into “discontinued operations.” Included in discontinued operations in 2009
are $3.5 million in truck disposal expenses, an $8.2 million impairment charge on intangible assets incurred in
connection with an eminent domain proceeding and $6.0 million of gains on the disposition of the self-storage
facilities.
Liquidity and Capital Resources
We have $763.8 million of cash on hand at December 31, 2009, and believe that these funds, together with
our internally generated net cash provided by our operating activities will continue to be sufficient to enable us to
meet our operating expenses, debt service requirements, capital improvements and distributions requirements to our
shareholders for the foreseeable future.
Operating as a REIT, our ability to retain cash flow for reinvestment is restricted. In order for us to
maintain our REIT status, a substantial portion of our operating cash flow must be distributed to our shareholders
(see “Requirement to Pay Distributions” below). However, despite the significant distribution requirements, we
have been able to retain a significant amount of our operating cash flow. The following table summarizes our ability
to fund capital improvements to maintain our facilities, distributions to the noncontrolling interests, capital
improvements to maintain our facilities, and distributions to our shareholders through the use of cash provided by
operating activities. The remaining cash flow generated is available to make both scheduled and optional principal
payments on debt and for reinvestment.
Net cash provided by operating activities (a) ...................................................... $ 1,112,857
2009
For the Year Ended December 31,
2008
(Amount in thousands)
$ 1,076,971
2007
$ 1,047,652
Capital improvements to maintain our facilities .................................................
Remaining operating cash flow available for distributions to equity holders .....
(62,352)
1,050,505
Distributions paid to redeemable noncontrolling interests ..................................
Distribution paid to permanent noncontrolling equity interests ..........................
(1,290)
(26,977)
(76,311)
1,000,660
(1,335)
(37,993)
(69,102)
978,550
(1,092)
(40,567)
Cash from operations allocable to Public Storage shareholders .........................
Distributions paid to Public Storage shareholders:
Preferred shareholders ...................................................................................
Equity Shares, Series A shareholders.............................................................
Common shareholders ($2.20 per share for 2009, $2.20 per share regular
1,022,238
961,332
936,891
(232,431)
(20,524)
(239,721)
(21,199)
(236,757)
(21,424)
dividend and $0.60 special dividend in 2008 and $2.00 per share for 2007) .
(370,404)
(470,823)
(338,689)
Cash from operations available for principal payments on debt and
reinvestment (b) ..............................................................................................
$ 398,879
$ 229,589
$ 340,021
(a) Represents net cash provided by operating activities for each respective year as presented in our December 31, 2009
Consolidated Statements of Cash Flows.
50
(b) We present cash from operations for principal payments on debt and reinvestment because we believe it is an important
measure to evaluate our ongoing liquidity. This measure is not a substitute for cash flows from operations or net cash flows
in evaluating our liquidity, ability to repay our debt, or to meet our distribution requirements.
Our financial profile is characterized by a low level of debt-to-total-capitalization and a conservative
dividend payout ratio with respect to the common shares. We expect to fund our long-term growth strategies and
debt obligations with (i) cash on hand at December 31, 2009, (ii) internally generated retained cash flows, (iii)
depending upon current market conditions, proceeds from the issuance of equity securities, and (iv) in the case of
acquisitions of facilities, the assumption of existing debt. In general, our strategy is to continue to finance our
growth with permanent capital, either retained operating cash flow or capital raised through the issuance of common
or preferred equity to the extent that market conditions are favorable.
Historically, we have funded substantially all of our acquisitions with permanent capital (both common and
preferred securities). We have elected to use preferred securities as a form of leverage despite the fact that the
dividend rates of our preferred securities exceed the prevailing market interest rates on conventional debt. We have
chosen this method of financing for the following reasons: (i) under the REIT structure, a significant amount of
operating cash flow needs to be distributed to our shareholders, making it difficult to repay debt with operating cash
flow alone, (ii) our perpetual preferred shares have no sinking fund requirement or maturity date and do not require
redemption, all of which eliminate future refinancing risks, (iii) after the end of a non-call period, we have the
option to redeem the preferred shares at any time, which enables us to refinance higher coupon preferred shares with
new preferred shares at lower rates if appropriate, (iv) preferred shares do not contain covenants, thus allowing us to
maintain significant financial flexibility, and (v) dividends on the preferred shares can be applied to satisfy our REIT
distribution requirements.
Our credit ratings on each of our series of preferred shares are “Baa1” by Moody’s and “BBB” by Standard
& Poor’s.
Access to Additional Capital: In addition to cash on hand, we also have a revolving line of credit for
borrowings up to $300 million. The line of credit expires in March 2012 and there were no outstanding borrowings
on the line of credit at February 26, 2010. We seldom borrow on the line of credit and generally view borrowings
on the line as a means to bridge capital needs until we are able to refinance them with permanent capital.
Our ability to raise additional capital by issuing our common or preferred securities may not be a viable
option at least in the near term due to unfavorable capital market conditions. We are not dependent, however, on
raising capital to fund our operations or meet our obligations.
Significant requirements on our liquidity and capital resources include: (i) funds to redeem shares of Equity
Shares, Series A on April 15, 2010, (ii) debt service requirements, (iii) capital improvements to maintain our
facilities, (iv) distribution requirements to our shareholders to maintain our REIT status, (v) acquisition and
development commitments and (vi) commitments to provide funding to Shurgard Europe for certain investing and
financing activities.
Redemption of Equity Shares, Series A: On April 15, 2010, we will be redeeming all of our outstanding
shares of Equity Shares, Series A at a cash redemption price of $24.50 per depositary share, or an aggregate of
$205.2 million. Since the initial issuance of these securities, the annual distribution paid has been $2.45 per
depository share, representing an implied yield of 10%.
We plan on using cash on-hand to fund the aggregate redemption amount.
51
Debt Service Requirements: At December 31, 2009, outstanding debt
totaled approximately
$518.9 million. Approximate principal maturities are as follows (amounts in thousands):
2010
2011
2012
2013
2014
Thereafter
$
Unsecured debt
1,673
103,533
-
186,460
-
-
$ 291,666
Secured debt
11,037
$
27,819
55,575
64,961
25,400
42,431
$ 227,223
Total
$
12,710
131,352
55,575
251,421
25,400
42,431
$ 518,889
Our current intention is to repay the debt at maturity and not seek to refinance debt maturities with
additional debt. Alternatively, we may prepay debt and finance such prepayments with cash on-hand or proceeds
from the issuance of preferred or common securities.
On February 12, 2009, we acquired approximately $110 million face amount of our existing senior
unsecured debt pursuant to a tender offer. The amount paid in the tender offer, approximately $110 million, was
substantially less than what would have been paid if we were to repay this debt early subject to the prepayment
premiums under the related debt agreements.
Our portfolio of real estate facilities is substantially unencumbered. At December 31, 2009, we have 1,902
self-storage facilities with an aggregate net book value of approximately $7.0 billion that are unencumbered.
Capital Improvement Requirements: During 2010, we expect to incur approximately $80 million for
capital improvements. Capital improvements include major repairs or replacements to our facilities, which keep the
facilities in good operating condition and maintain their visual appeal to the customer. Capital improvements do not
include costs relating to the development or expansion of facilities that add additional net rentable square footage to
our portfolio. During the year ended December 31, 2009, we incurred capital improvements of approximately
$62.4 million.
Requirement to Pay Distributions: We have operated, and intend to continue to operate, in such a manner
as to qualify as a REIT under the Code, but no assurance can be given that we will at all times so qualify. To the
extent that we continue to qualify as a REIT, we will not be taxed, with certain limited exceptions, on the REIT
taxable income that is distributed to our shareholders, provided that at least 90% of our taxable income is so
distributed. We believe we have satisfied the REIT distribution requirement since 1981. Although we have not
finalized our 2009 taxable income, we believe that the aggregate distributions paid in 2009 to our shareholders
enable us to continue to meet our REIT distribution requirements.
Aggregate distributions paid during 2009 totaled $624.7 million, consisting of the following (amounts in
thousands:
Cumulative preferred shareholders
Equity Shares, Series A shareholders
Common shareholders and restricted share unitholders
Total REIT qualifying distributions
$
$
232,431
20,524
371,710
624,665
Distributions paid in 2009
For 2010, we estimate the annual distribution requirements with respect to our (i) cumulative preferred
shares outstanding at December 31, 2009, to be approximately $232.4 million, assuming no additional preferred
share issuances or redemptions during 2010, and (ii) Equity Shares, Series A shares to be approximately
52
$5.1 million, representing distributions through March 31, 2010. We will be redeeming these securities on April 15,
2010 and no further distributions will be paid for the period subsequent to March 31, 2010.
On February 26, 2010, our Board of Trustees declared a regular common dividend of $0.65 per common
share, representing an increase of $0.10 per share (an 18% increase) from the previous quarter’s distribution. Our
consistent, long-term dividend policy has been to only distribute our taxable income. Taxable income attributable to
our common shareholders has increased due to recent purchases of preferred securities and equity stock, as well as
reduced property depreciation, offset in part, by declines in operating income. Future changes in our dividend will
be impacted by these same factors, as well as property acquisitions. Future 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 operating cash flow.
We are also obligated to pay distributions to non-controlling interests in our consolidated subsidiaries.
During 2009, we paid distributions totaling $9.5 million with respect to preferred partnership units. We expect our
annual distribution requirement based upon preferred partnership units outstanding at December 31, 2009, to be
approximately $7.3 million on a go forward basis. In addition, we are required to pay distributions to other non-
controlling interests in our consolidated subsidiaries based upon the operating cash flows of the respective
subsidiary less any required reserves for capital expenditures or debt repayment. Such non-controlling interests
received a total of $18,812,000 in 2009, $17,716,000 in 2008 and $20,047,000 in 2007, which represents our
expectations with respect to future distribution levels.
Acquisition and Development of Facilities: During 2010, we will continue to seek to acquire self-storage
facilities from third parties; however, it is difficult to estimate the amount of third party acquisitions we will
undertake. We have a minimal development pipeline at December 31, 2009 and have no current plan to expand our
development activities. We plan on financing these activities with available cash on-hand, the assumption of
existing debt, borrowings on our line of credit, or the net proceeds from the issuance of common or preferred
securities.
European Activities: We have a 49% interest in Shurgard Europe and our institutional partner owns the
remaining 51% interest. As of December 31, 2009, Shurgard Europe owed us €391.9 million ($561.7 million at
December 31, 2009) pursuant to a loan agreement. Effective, October 31, 2009, the terms of the loan were modified
to increase the interest rate from 7.5% to 9.0% per annum and the maturity date was extended from March 31, 2010
to March 31, 2013. All other material terms and covenants remain the same. The loan is unsecured and can be
prepaid at anytime without penalty.
Shurgard Europe has a 20% interest in two joint ventures (First Shurgard and Second Shurgard). We are
committed to provide additional financing to Shurgard Europe to facilitate the acquisition of its partner’s 80%
interest in each of these two joint ventures.
If Shurgard Europe acquires its partner’s 80% interest in either First Shurgard and Second Shurgard and is
unable to obtain third-party financing to repay the existing loans of the joint ventures, we have agreed to provide
additional loans to Shurgard Europe, under the same terms as the our €391.9 million loan, for up to €185 million
($265.2 million as of December 31, 2009). This commitment expires on March 31, 2010 and was originally for
€305 million, but was reduced as the result of refinancing one of the joint venture loans. Shurgard Europe has no
obligation to acquire these interests, and the acquisition of these interests is contingent on a number of items,
including whether we assent to the acquisition.
The two joint ventures collectively had approximately €224 million ($321 million) of outstanding debt
payable to third parties at December 31, 2009, which is non-recourse to Shurgard Europe. One of the joint venture
loans, totaling €107 million ($153 million), is due May 2011 and the other joint venture loan, totaling €117 million
($168 million), is due in July 2010. Both joint venture loans are secured by the joint ventures’ respective facilities,
and are not guaranteed by Public Storage, Shurgard Europe or any third party.
53
We also committed to fund up to $88.2 million of additional equity contributions to Shurgard Europe to
fund certain investing activities. Our remaining obligation under this commitment totaled $66.4 million at
December 31, 2009.
Redemption of Preferred Securities: As of December 31, 2009, several series of our preferred securities
were redeemable at our option upon at least 30 days notice. These series have annual dividend rates ranging from
6.125% to 7.5% and have an aggregate redemption value of approximately $873 million. The timing of redemption
of any of these series of preferred securities will depend upon many factors including when, or if, market conditions
improve such that we can issue new preferred shares at a lower cost of capital than the shares that would be
redeemed.
Repurchases of Company’s Equity and Preferred Securities: Dislocations in capital markets have
provided opportunities for the repurchase of our preferred and debt securities. During 2009, we repurchased certain
of our Cumulative Preferred Shares in privately negotiated transactions with a liquidation value of $24.6 million for
approximately $17.5 million, including accrued dividends, reducing our ongoing dividend requirement by
approximately $1.8 million per year. Also during 2009, we repurchased certain of our Preferred Partnership Units in
privately negotiated transactions with a carrying amount of $225 million for approximately $153 million, reducing
our ongoing dividend requirement by approximately $14.4 million per year.
Our Board of Trustees has authorized the repurchase from time to time of up to 35,000,000 of our common
shares on the open market or in privately negotiated transactions. During 2009, we did not repurchase any of our
common shares. From the inception of the repurchase program through February 26, 2010, 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.
These acquisitions were funded with cash on hand. We continue to monitor the existing trading ranges of
all our outstanding debt and equity securities for potential opportunities.
Contractual Obligations
Our significant contractual obligations at December 31, 2009 and their impact on our cash flows and
liquidity are summarized below for the years ending December 31 (amounts in thousands):
Total
2010
2011
2012
2013
2014
Thereafter
Long-term debt (1) ....................
$ 605,557
$ 41,257
$ 154,355
$ 74,722
$ 259,845
$ 28,472
$
46,906
Operating leases (2) ...................
95,745
6,135
5,561
5,269
5,046
4,998
68,736
Construction commitments (3) ..
10,055
10,055
-
-
-
-
-
Total ...........................................
$ 711,357
$ 57,447
$ 159,916
$ 79,991
$ 264,891
$ 33,470
$ 115,642
(1) Amounts include principal and fixed-rate interest payments on our notes payable based on their contractual terms. See
Note 6 to our December 31, 2009 consolidated financial statements for additional information on our notes payable.
(2) We lease land, equipment and office space under various operating leases. Certain leases are cancelable, however,
significant penalties would be incurred upon cancellation. Amounts reflected above consider continuance of the lease
without cancellation.
(3) Includes contractual obligations for development and capital expenditures at December 31, 2009.
We have not included any additional funding requirements that we may be required to make to Shurgard
Europe as a contractual obligation in the table above, since it is uncertain whether or not we will be required to fund
any additional amounts and because such funding is subject to our assent.
54
Subsequent to December 31, 2009, we called for redemption our Equity Shares, Series A. These shares
will be redeemed on April 15, 2010 for an aggregate of $205.2 million or $24.50 per share. These amounts are not
included in the table above as they were not an obligation at December 31, 2009.
Off-Balance Sheet Arrangements: At December 31, 2009 we had no material off-balance sheet
arrangements as defined under Regulation S-K 303(a)(4) and the instructions thereto.
55
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
To limit our exposure to market risk, we principally finance our operations and growth with permanent
equity capital consisting of retained operating cash flow, capital raised through the issuance of common shares and
preferred shares. At December 31, 2009, our debt as a percentage of total equity (based on book values) was 5.7%.
Our preferred shares are not redeemable at the option of the holders. These shares, however, are
redeemable, after a set period of time, at our option. At December 31, 2009, our Series V, Series W, Series X,
Series Y, Series Z, Series A, Series B and Series C preferred shares are currently redeemable by us at our option.
Except under certain conditions relating to the Company’s qualification as a REIT, the preferred shares are not
redeemable by the Company pursuant to its redemption option prior to the dates set forth in Note 8 to our
December 31, 2009 consolidated financial statements.
Our market risk sensitive instruments include notes payable, which totaled $518,889,000 at December 31,
2009.
We have foreign currency exposures related to our investment in Shurgard Europe, which has a book value
of $272.3 million at December 31, 2009. We also have a loan receivable from Shurgard Europe, which is
denominated in Euros, totaling €391.9 million ($561.7 million) at December 31, 2009. We also have an obligation,
in certain circumstances, to loan up to an additional €185 million ($265.2 million) to Shurgard Europe.
The table below summarizes annual debt maturities and weighted-average interest rates on our outstanding
debt at the end of each year and fair values required to evaluate our expected cash-flows under debt agreements and
our sensitivity to interest rate changes at December 31, 2009 (dollar amounts in thousands).
2010
2011
2012
2013
2014
Thereafter
Total
Fair Value
Fixed rate debt.................. $ 12,710
Average interest rate ........
Variable rate debt (1) ....... $
Average interest rate ........
-
5.68%
$131,352
5.69%
$ 55,575
5.70%
$ 251,421
$25,400
5.62%
5.50%
$ 42,431
5.50%
$ 518,889
$ 525,883
$
-
$
-
$
-
$
-
$
-
$
-
$
-
(1) Amounts include borrowings under our line of credit, which expires in March 2012. As of December 31, 2009, we
have no borrowings under our line of credit.
56
ITEM 8. Financial Statements and Supplementary Data
The financial statements of the Company at December 31, 2009 and December 31, 2008 and for each of the
three years in the period ended December 31, 2009 and the report of Ernst & Young LLP, Independent Registered
Public Accounting Firm, thereon and the related financial statement schedule, are included elsewhere herein.
Reference is made to the Index to Financial Statements and Schedules in Item 15.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
ITEM 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in reports we file and submit under the Securities Exchange Act of 1934, as amended, (“Exchange Act”) is
recorded, processed, summarized and reported within the time periods specified in accordance with SEC guidelines
and that such information is communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure based on the definition of "disclosure
controls and procedures" in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives and
management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures in reaching that level of reasonable assurance. We also have investments in certain
unconsolidated entities and because we do not control these entities, our disclosure controls and procedures with
respect to such entities are substantially more limited than those we maintain with respect to our consolidated
subsidiaries.
As of December 31, 2009, we carried out an evaluation, under the supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of
the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of December 31, 2009, at a reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and
with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework
in Internal Control-Integrated Framework issued by the Committee on Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal Control-Integrated Framework, our
management concluded that our internal control over financial reporting was effective as of December 31, 2009.
The effectiveness of internal control over financial reporting as of December 31, 2009, has been audited by
Ernst & Young LLP, independent registered public accounting firm. Ernst & Young LLP’s report on our internal
control over financial reporting appears below.
57
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2009 to which this report relates
that have materially affected, or are reasonable likely to materially affect, our internal control over financial
reporting.
ITEM 9B. Other Information
On February 23, 2010, we filed a certificate of correction to our charter, to correct a scrivener's error by
deleting a sentence, purporting to deny shareholders cumulative voting rights in the election of trustees, that was
inadvertently retained in the version filed with the Maryland department of assessments and taxation on June 1,
2007. A composite version of our charter, reflecting this deletion, is filed with this Annual Report as Exhibit 3.1.
58
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of
Public Storage
We have audited Public Storage’s internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Public Storage’s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Annual Report of Management on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and trustees of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Public Storage maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Public Storage as of December 31, 2009 and 2008, and the related
consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period
ended December 31, 2009 and our report dated February 26, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Los Angeles, California
February 26, 2010
59
ITEM 10. Trustees, Executive Officers and Corporate Governance
PART III
The information required by this item with respect to trustees is hereby incorporated by reference to the
material appearing in the Company’s definitive proxy statement to be filed in connection with the annual
shareholders’ meeting scheduled to be held on May 6, 2010 (the “Proxy Statement”) under the caption “Election of
Trustees.”
The information required by this item with respect to the nominating process, the audit committee and the
audit committee financial expert is hereby incorporated by reference to the material appearing in the Proxy
Statement under the captions “Corporate Governance and Board Matters—Audit Committee”, “Corporate
Governance and Board Matters—Consideration of Candidates for Trustee”.
The information required by this item with respect to Section 16(a) compliance is hereby incorporated by
reference to the material appearing in the Proxy Statement under the caption “Section 16(a) Beneficial Ownership
Reporting Compliance.”
The information required by this item with respect to a code of ethics is hereby incorporated by reference
to the material appearing in the Proxy Statement under the caption “Corporate Governance and Board Matters.”
Any amendments to or waivers of the code of ethics granted to the Company’s executive officers or the controller
will be published promptly on our website or by other appropriate means in accordance with SEC rules and
regulations.
The following is a biographical summary of the current executive officers of the Company:
Ronald L. Havner, Jr., age 52, has been the Vice-Chairman, Chief Executive Officer and a member of the
Board of Public Storage since November 2002 and President since July 1, 2005. Mr. Havner joined Public Storage
in 1986 and held a variety of senior management positions until his appointment as Vice-Chairman and Chief
Executive Officer in 2002. Mr. Havner has been Chairman of Public Storage’s affiliate, PS Business Parks, Inc.
(PSB), since March 1998 and was Chief Executive Officer of PSB from March 1998 until August 2003. He is also
a member of the Board of Governors and the Executive Committee of the National Association of Real Estate
Investment Trusts, Inc. (NAREIT). He is also a director of Business Machine Security, Inc., General Finance
Corporation and a member of the NYU REIT Center Board of Advisors.
John Reyes, age 49, Senior Vice President and Chief Financial Officer, joined Public Storage in 1990 and
was Controller of Public Storage from 1992 until December 1996 when he became Chief Financial Officer. He
became a Vice President of Public Storage in November 1995 and a Senior Vice President of Public Storage in
December 1996. From 1983 to 1990, Mr. Reyes was employed by Ernst & Young as a certified public accountant.
Mark C. Good, age 53, became Senior Vice President and Chief Operating Officer of Public Storage on
September 8, 2008. Before joining Public Storage, Mr. Good was with Sears Holdings Corporation since 1997,
where he was Executive Vice President and General Manager of Sears Home Services, the nation's largest home
appliance repair and home improvement services organization with annual revenues of approximately $3 billion.
Mr. Good also served as a director of Sears Canada, Inc.
David F. Doll, age 51, became Senior Vice President and President, Real Estate Group, in February 2005,
with responsibility for the real estate activities of Public Storage, including property acquisitions, developments,
repackagings, and capital improvements. Before joining Public Storage, Mr. Doll was Senior Executive Vice
President of Development for Westfield Corporation, a major international owner and operator of shopping malls,
where he was employed since 1995.
Candace N. Krol, age 48, became Senior Vice President of Human Resources in September 2005. From
1985 until joining Public Storage, Ms. Krol was employed by Parsons Corporation, a global engineering and
60
construction firm, where she served in various management positions, most recently as Vice President of Human
Resources for the Infrastructure and Technology global business unit.
Steven M. Glick, age 53, became Senior Vice President and Chief Legal Officer of Public Storage on
February 23, 2010. From April 2005 until joining Public Storage, Mr. Glick was Senior Vice President and General
Counsel, Americas for Technicolor (NYSE:TCH), a services, systems and technology company. Immediately
before joining Technicolor (then named Thomson), he was an Executive Vice President at Paramount Pictures with
responsibility for, among other things, legal, business development and licensing for International Home
Entertainment.
ITEM 11. Executive Compensation
The information required by this item is hereby incorporated by reference to the material appearing in the
Proxy Statement under the captions “Corporate Governance and Board Matters,” “Executive Compensation,”
“Corporate Governance and Board Matters--Compensation Committee Interlocks and Insider Participation,” and
“Report of the Compensation Committee.”
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
The information required by this item is hereby incorporated by reference to the material appearing in
the Proxy Statement under the captions “Stock Ownership of Certain Beneficial Owners and Management.”
The following table sets forth information as of December 31, 2009 on the Company’s equity
compensation plans:
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
Weighted
average
exercise price
of outstanding
options,
warrants and
rights
Number of
securities
remaining available
for future issuance
under equity
compensation plans
4,206,921 (b)
$56.49
2,157,952
37,101
$23.58
595,002
Equity
plans
compensation
approved by security holders (a) .
Equity compensation plans not
approved by security holders (c) .
a)
b)
c)
The Company’s stock option and stock incentive plans are described more fully in Note 10 to the
December 31, 2009 consolidated financial statements. All plans other than the 2000 and 2001 Non-
Executive/Non-Director Plans, were approved by the Company’s shareholders.
Includes 548,354 restricted share units that, if and when vested, will be settled in common shares of the
Company on a one for one basis.
The outstanding options granted under plans not approved by the Company’s shareholders were
granted under the Company’s 2000 and 2001 Non-Executive/Non-Director Plan, which does not allow
participation by the Company’s executive officers and trustees. The principal terms of these plans are
as follows: (1) 2,500,000 common shares were authorized for grant, (2) this plan is administered by the
Equity Awards Committee, except that grants in excess of 100,000 shares to any one person requires
approval by the Executive Equity Awards Committee, (3) options are granted at fair market value on
the date of grant, (4) options have a ten year term and (5) options vest over three years in equal
installments, or as indicated by the applicable grant agreement.
61
ITEM 13. Certain Relationships and Related Transactions and Trustee Independence
The information required by this item is hereby incorporated by reference to the material appearing in
the Proxy Statement under the captions “Corporate Governance” and “Certain Relationships and Related
Transactions and Legal Proceedings.”
ITEM 14. Principal Accountant Fees and Services
The information required by this item with respect to fees and services provided by the Company’s
independent auditors is hereby incorporated by reference to the material appearing in the Proxy Statement under the
caption “Ratification of Auditors—Fees Billed to the Company by Ernst & Young LLP for 2009 and 2008”.
62
ITEM 15. Exhibits and Financial Statement Schedules
a.
1. Financial Statements
PART IV
The financial statements listed in the accompanying Index to Financial Statements and Schedules
hereof are filed as part of this report.
2. Financial Statement Schedules
The financial statements schedules listed in the accompanying Index to Financial Statements and
Schedules are filed as part of this report.
3. Exhibits
See Index to Exhibits contained herein.
b.
Exhibits:
See Index to Exhibits contained herein.
c.
Financial Statement Schedules
Not applicable.
63
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
PUBLIC STORAGE
INDEX TO EXHIBITS (1)
(Items 15(a)(3) and 15(c))
Articles of Amendment and Restatement of Declaration of Trust of Public Storage, a
Maryland real estate investment trust. Filed herewith.
Bylaws of Public Storage, a Maryland real estate investment trust. Filed with the Registrant’s
Current Report on Form 8-K dated June 6, 2007 and incorporated by reference herein.
Articles Supplementary for Public Storage Equity Shares, Series A. Filed with the
Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated by reference
herein.
Articles Supplementary for Public Storage Equity Shares, Series AAA. Filed with the
Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated by reference
herein.
Articles Supplementary for Public Storage 7.500% Cumulative Preferred Shares, Series V.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 6.500% Cumulative Preferred Shares, Series W.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 6.450% Cumulative Preferred Shares, Series X.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 6.850% Cumulative Preferred Shares, Series Y.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 6.250% Cumulative Preferred Shares, Series Z.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 6.125% Cumulative Preferred Shares, Series A.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 7.125% Cumulative Preferred Shares, Series B.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 6.600% Cumulative Preferred Shares, Series C.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
64
3.13
3.14
3.15
3.16
3.17
3.18
3.19
3.20
3.21
3.22
4.1
10.1
Articles Supplementary for Public Storage 6.180% Cumulative Preferred Shares, Series D.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 6.750% Cumulative Preferred Shares, Series E.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 6.450% Cumulative Preferred Shares, Series F.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 7.000% Cumulative Preferred Shares, Series G.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 6.950% Cumulative Preferred Shares, Series H.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 7.250% Cumulative Preferred Shares, Series I.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 7.250% Cumulative Preferred Shares, Series K.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 6.750% Cumulative Preferred Shares, Series L.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 6.625% Cumulative Preferred Shares, Series M.
Filed with the Registrant’s Current Report on Form 8-K dated June 6, 2007 and incorporated
by reference herein.
Articles Supplementary for Public Storage 7.000% Cumulative Preferred Shares, Series N.
Filed with the Registrant’s Current Report on Form 8-K dated June 28, 2007 and
incorporated by reference herein.
Master Deposit Agreement, dated as of May 31, 2007. Filed with the Registrant’s Current
Report on Form 8-K dated June 6, 2007 and incorporated by reference herein.
Amended Management Agreement between Registrant and Public Storage Commercial
Properties Group, Inc. dated as of February 21, 1995. Filed with Public Storage Inc.’s
(“PSI”) Annual Report on Form 10-K for the year ended December 31, 1994 (SEC File No.
001-0839) and incorporated herein by reference.
10.2 10.2
10.3 Second Amended and Restated Management Agreement by and among Registrant and
the entities listed therein dated as of November 16, 1995. Filed with PS Partners, Ltd.’s
Annual Report on Form 10-K for the year ended December 31, 1996 (SEC File No. 001-
11186) and incorporated herein by reference.
65
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14*
10.15*
Limited Partnership Agreement of PSAF Development Partners, L.P. Filed with PSI’s
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997 (SEC File No.
001-0839) and incorporated herein by reference.
Agreement of Limited Partnership of PS Business Parks, L.P. Filed with PS Business Parks,
Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 (SEC File
No. 001-10709) and incorporated herein by reference.
Amended and Restated Agreement of Limited Partnership of Storage Trust Properties, L.P.
(March 12, 1999). Filed with PSI’s Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1999 (SEC File No. 001-0839) and incorporated herein by reference.
Limited Partnership Agreement of PSAC Development Partners, L.P. Filed with PSI’s
Current Report on Form 8-K dated November 15, 1999 (SEC File No. 001-0839) and
incorporated herein by reference.
Agreement of Limited Liability Company of PSAC Storage Investors, L.L.C. Filed with
PSI’s Current Report on Form 8-K dated November 15, 1999 (SEC File No. 001-0839) and
incorporated herein by reference.
Amended and Restated Agreement of Limited Partnership of PSA Institutional Partners, L.P.
Filed with PSI’s Annual Report on Form 10-K for the year ended December 31, 1999 (SEC
File No. 001-0839) and incorporated herein by reference.
Amendment to Amended and Restated Agreement of Limited Partnership of PSA
Institutional Partners, L.P. Filed with PSI’s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2000 (SEC File No. 001-0839) and incorporated herein by reference.
Second Amendment to Amended and Restated Agreement of Limited Partnership of PSA
Institutional Partners, L.P. Filed with PSI’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2004 (SEC File No. 001-0839) and incorporated herein by reference.
Third Amendment to Amended and Restated Agreement of Limited Partnership of PSA
Institutional Partners, L.P. Filed with PSI’s Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2004 (SEC File No. 001-0839) and incorporated herein by
reference.
Limited Partnership Agreement of PSAF Acquisition Partners, L.P. Filed with PSI’s Annual
Report on Form 10-K for the year ended December 31, 2003 (SEC File No. 001-0839) and
incorporated herein by reference.
Credit Agreement by and among Registrant, Wells Fargo Bank, National Association and
Wachovia Bank, National Association as co-lead arrangers, and the other financial
institutions party thereto, dated March 27, 2007. Filed with PSI’s Current Report on Form 8-
K on April 2, 2007 (SEC File No. 001-0839) and incorporated herein by reference.
Post-Retirement Agreement between Registrant and B. Wayne Hughes dated as of March 11,
2004. Filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2009 and incorporated herein by reference.
Shurgard Storage Centers, Inc. 1995 Long Term Incentive Compensation Plan. Incorporated
by reference to Appendix B of Definitive Proxy Statement dated June 8, 1995 filed by
Shurgard (SEC File No. 001-11455).
66
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
Shurgard Storage Centers, Inc. 2000 Long-Term Incentive Plan. Incorporated by reference to
Exhibit 10.27 Annual Report on Form 10-K for the year ended December 31, 2000 filed by
Shurgard (SEC File No. 001-11455).
Shurgard Storage Centers, Inc. 2004 Long Term Incentive Compensation Plan. Incorporated
by reference to Appendix A of Definitive Proxy Statement dated June 7, 2004 filed by
Shurgard (SEC File No. 001-11455).
Public Storage, Inc. 1996 Stock Option and Incentive Plan. Filed with PSI’s Annual Report
on Form 10-K for the year ended December 31, 2000 (SEC File No. 001-0839) and
incorporated herein by reference.
Public Storage, Inc. 2000 Non-Executive/Non-Director Stock Option and Incentive Plan.
Filed with PSI’s Registration Statement on Form S-8 (SEC File No. 333-52400) and
incorporated herein by reference.
Public Storage, Inc. 2001 Non-Executive/Non-Director Stock Option and Incentive Plan.
Filed with PSI’s Registration Statement on Form S-8 (SEC File No. 333-59218) and
incorporated herein by reference.
Public Storage, Inc. 2001 Stock Option and Incentive Plan (“2001 Plan”). Filed with PSI’s
Registration Statement on Form S-8 (SEC File No. 333-59218) and incorporated herein by
reference.
Form of 2001 Plan Non-qualified Stock Option Agreement. Filed with PSI’s Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2004 (SEC File No. 001-
0839) and incorporated herein by reference.
Form of 2001 Plan Restricted Share Unit Agreement. Filed with PSI’s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2004 (SEC File No. 001-0839) and
incorporated herein by reference.
Form of 2001 Plan Non-Qualified Outside Director Stock Option Agreement. Filed with
PSI’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004
(SEC File No. 001-0839) and incorporated herein by reference.
Public Storage, Inc. Performance-Based Compensation Plan for Covered Employees. Filed
with PSI’s Current Report on Form 8-K dated May 11, 2005 (SEC File No. 001-0839) and
incorporated herein by reference.
Public Storage 2007 Equity and Performance-Based Incentive Compensation Plan. Filed as
Exhibit 4.1 to Registrant’s Registration Statement on Form S-8 (SEC File No. 333-144907)
and incorporated herein by reference.
Form of 2007 Plan Restricted Stock Unit Agreement. Filed with Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by
reference.
Form of 2007 Plan Stock Option Agreement. Filed with Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference.
Form of Indemnity Agreement. Filed with Registrant’s Amendment No. 1 to Registration
Statement on Form S-4 (SEC File No. 333-141448) and incorporated herein by reference.
67
10.30*
Offer letter/Employment Agreement dated as of July 28, 2008 between Registrant and Mark
Good. Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated September 9,
2008 and incorporated herein by reference.
12
31.1
31.2
32
Statement Re: Computation of Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends. Filed herewith.
Rule 13a – 14(a) Certification. Filed herewith.
Rule 13a – 14(a) Certification. Filed herewith.
Section 1350 Certifications. Filed herewith.
101 .INS**
XBRL Instance Document
101 .SCH**
XBRL Taxonomy Extension Schema
101 .CAL**
XBRL Taxonomy Extension Calculation Linkbase
101 .DEF**
XBRL Taxonomy Extension Definition Linkbase
101 .LAB**
XBRL Taxonomy Extension Label Linkbase
101 .PRE**
XBRL Taxonomy Extension Presentation Link
_
*
(1) SEC File No. 001-33519 unless otherwise indicated.
Denotes management compensatory plan agreement or arrangement.
**
Furnished herewith.
68
PUBLIC STORAGE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(Item 15 (a))
Report of Independent Registered Public Accounting Firm ...............................................................
Consolidated balance sheets as of December 31, 2009 and 2008 .......................................................
For each of the three years in the period ended December 31, 2009:
Page
References
F-1
F-2
Consolidated statements of income ....................................................................................................
F-3
Consolidated statements of equity .....................................................................................................
F-4 – F-5
Consolidated statements of cash flows ...............................................................................................
F-6 – F-7
Notes to consolidated financial statements .........................................................................................
F-8 – F-36
All other schedules have been omitted since the required information is not present or not present in amounts
sufficient to require submission of the schedule, or because the information required is included in the consolidated
financial statements or notes thereto.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Public Storage
We have audited the accompanying consolidated balance sheets of Public Storage as of December 31, 2009 and
2008, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Public Storage at December 31, 2009 and 2008, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended December 31, 2009, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for
noncontrolling interests (formerly minority interests) with the adoption of the guidance originally issued in FASB
Statement No. 160 “Noncontrolling Interests in Consolidated Financial Statements” (codified in FASB ASC
Topic 810, Consolidation) effective January 1, 2009, and retroactively applied.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Public Storage’s internal control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 26, 2010 expressed an unqualified opinion thereon.
Los Angeles, California
February 26, 2010
/s/ ERNST & YOUNG LLP
F-1
PUBLIC STORAGE
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
(Amounts in thousands, except share data)
ASSETS
Cash and cash equivalents ...............................................................................................
Real estate facilities, at cost:
Land .............................................................................................................................
Buildings ......................................................................................................................
Accumulated depreciation............................................................................................
Construction in process ................................................................................................
Investment in real estate entities ......................................................................................
Goodwill, net ...................................................................................................................
Intangible assets, net ........................................................................................................
Loan receivable from Shurgard Europe ...........................................................................
Other assets ......................................................................................................................
Total assets ...............................................................................................
LIABILITIES AND EQUITY
Notes payable...................................................................................................................
Accrued and other liabilities ............................................................................................
Total liabilities .................................................................................................
Redeemable noncontrolling interests in subsidiaries (Note 7) .........................................
Commitments and contingencies (Note 13)
Equity:
Public Storage shareholders’ equity:
December 31,
2009
December 31,
2008
$
763,789
$
680,701
2,717,368
7,575,587
10,292,955
(2,734,449)
7,558,506
3,527
7,562,033
612,316
174,634
38,270
561,703
92,900
9,805,645
518,889
212,253
731,142
13,122
$
$
2,716,254
7,490,768
10,207,022
(2,405,473)
7,801,549
20,340
7,821,889
544,598
174,634
52,005
552,361
109,857
9,936,045
643,811
212,353
856,164
12,777
$
$
Cumulative Preferred Shares of beneficial interest, $0.01 par value, 100,000,000
shares authorized, 886,140 shares issued (in series) and outstanding, (887,122
at December 31, 2008), at liquidation preference .................................................
Common Shares of beneficial interest, $0.10 par value, 650,000,000 shares
authorized, 168,405,539 shares issued and outstanding (168,279,732 at
December 31, 2008) ..............................................................................................
Equity Shares of beneficial interest, Series A, $0.01 par value, 100,000,000 shares
authorized, 8,377.193 shares issued and outstanding ............................................
Paid-in capital ...........................................................................................................
Accumulated deficit ..................................................................................................
Accumulated other comprehensive loss ....................................................................
Total Public Storage shareholders’ equity.......................................................
Equity of permanent noncontrolling interests in subsidiaries (Note 7) .......................
Total equity .............................................................................................................
Total liabilities and equity ........................................................................
$
3,399,777
3,424,327
16,842
16,829
-
5,680,549
(153,759)
(15,002)
8,928,407
132,974
9,061,381
9,805,645
-
5,590,093
(290,323)
(31,931)
8,708,995
358,109
9,067,104
9,936,045
$
See accompanying notes.
F-2
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF INCOME
For each of the three years in the period ended December 31, 2009
(Amounts in thousands, except per share amounts)
Revenues:
Self-storage facilities .........................................................................
Ancillary operations ...........................................................................
Interest and other income ...................................................................
Expenses:
Cost of operations:
Self-storage facilities .....................................................................
Ancillary operations ......................................................................
Depreciation and amortization ............................................................
General and administrative .................................................................
Interest expense ..................................................................................
Income from continuing operations before equity in earnings of real
estate entities, gains on disposition of real estate investments, net,
casualty (loss) gain, gain on early retirement of debt and foreign
currency exchange gain (loss) ............................................................
Equity in earnings of real estate entities .................................................
Gains on disposition of real estate investments, net ...............................
Casualty (loss) gain ................................................................................
Gain on early retirement of debt .............................................................
Foreign currency exchange gain (loss) ...................................................
Income from continuing operations ........................................................
Discontinued operations .........................................................................
Net income .............................................................................................
Net income allocated (to) from noncontrolling interests in subsidiaries:
Based upon income of the subsidiaries...............................................
Based upon repurchases of preferred partnership units ......................
Net income allocable to Public Storage shareholders .............................
Allocation of net income to (from) Public Storage shareholders:
Preferred shareholders based on distributions paid .............................
Preferred shareholders based on repurchases .....................................
Equity Shares, Series A ......................................................................
Restricted share units .........................................................................
Common shareholders ........................................................................
Net income per common share – basic
Continuing operations ........................................................................
Discontinued operations ....................................................................
Net income per common share – diluted
Continuing operations ........................................................................
Discontinued operations ....................................................................
2009
2008
2007
$ 1,490,292
107,597
29,813
1,627,702
$ 1,579,017
108,421
36,155
1,723,593
$ 1,660,304
115,481
11,417
1,787,202
486,928
36,011
340,233
35,735
29,916
928,823
698,879
53,244
33,426
-
4,114
9,662
799,325
(8,869)
790,456
(27,835)
72,000
834,621
232,431
(6,218)
20,524
1,918
585,966
834,621
3.53
(0.05)
3.48
3.52
(0.05)
3.47
$
$
$
$
$
$
$
519,090
36,528
411,981
62,809
43,944
1,074,352
579,193
51,961
619,598
59,749
63,671
1,374,172
649,241
20,391
336,545
(525)
-
(25,362)
980,290
(6,418)
973,872
(38,696)
-
935,176
239,721
(33,851)
21,199
2,304
705,803
935,176
4.23
(0.04)
4.19
4.22
(0.04)
4.18
168,250
168,675
413,030
12,738
2,547
2,665
-
58,444
489,424
(2,346)
487,078
(29,543)
-
457,535
236,757
-
21,424
376
198,978
457,535
1.19
(0.01)
1.18
1.18
(0.01)
1.17
169,342
169,850
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Basic weighted average common shares outstanding .............................
Diluted weighted average common shares outstanding ..........................
168,358
168,768
Equity Shares, Series A (basic and diluted):
Net income per share .....................................................................
$
2.45
$
Weighted average depositary shares ...............................................
8,377
$
2.45
8,652
2.45
8,744
See accompanying notes.
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5
-
F
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the three years in the period ended December 31, 2009
(Amounts in thousands)
2009
2008
2007
$ 790,456
$ 973,872
$ 487,078
Cash flows from operating activities:
Net income......................................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on disposition of real estate investments, including amounts in discontinued
operations.................................................................................................................
Gain on early retirement of debt ..................................................................................
Impairment charge on intangible asset included in discontinued operations ...............
Depreciation and amortization, including amounts in discontinued operations ...........
Distributions received from real estate entities (less than) in excess of equity in
earnings of real estate entities ..................................................................................
Foreign currency exchange (gain) loss ........................................................................
Other ............................................................................................................................
Total adjustments ....................................................................................................
Net cash provided by operating activities ...............................................................
Cash flows from investing activities:
Capital improvements to real estate facilities .............................................................
Construction in process ................................................................................................
Acquisition of real estate facilities ...............................................................................
Acquisition of common stock of PS Business Parks ....................................................
Proceeds from sales of real estate and other real estate investments ............................
Proceeds from the disposition of interest in Shurgard Europe (Note 3) .......................
Deconsolidation of Shurgard Europe (Note 3) .............................................................
Investment in Shurgard Europe ...................................................................................
Sale of real estate investments to affiliates (Note 7) ....................................................
Acquisition of redeemable noncontrolling interests in subsidiaries .............................
Other investing activities .............................................................................................
Net cash (used in) provided by investing activities .................................................
(39,444)
(4,114)
8,205
342,127
(3,836)
(9,662)
29,125
322,401
1,112,857
(62,352)
(14,165)
-
(17,825)
11,596
-
-
-
-
(750)
(7,913)
(91,409)
Cash flows from financing activities:
Principal payments on notes payable ...........................................................................
Redemption of senior unsecured notes payable ...........................................................
Issuance of secured note payable .................................................................................
Net repayments on bank credit facilities ......................................................................
Proceeds from borrowing on debt of Existing European Joint Ventures .....................
Net proceeds from the issuance of common shares .....................................................
Net proceeds from the issuance of cumulative preferred shares ..................................
Repurchases of common shares ...................................................................................
Repurchases of cumulative preferred shares ................................................................
Repurchases of Equity Shares, Series A ......................................................................
Repurchases of permanent noncontrolling interests .....................................................
Distributions paid to Public Storage shareholders .......................................................
Distributions paid to redeemable noncontrolling interests ...........................................
Distributions paid to permanent noncontrolling equity interests ..................................
Net cash used in financing activities .......................................................................
Net increase (decrease) in cash and cash equivalents .........................................................
Net effect of foreign exchange translation on cash .............................................................
Cash and cash equivalents at the beginning of the year ......................................................
Cash and cash equivalents at the end of the year ................................................................
(7,504)
(109,622)
-
-
-
2,192
-
-
(17,535)
-
(153,000)
(624,665)
(1,290)
(26,977)
(938,401)
83,047
41
680,701
$ 763,789
See accompanying notes.
F-6
(336,545)
-
-
414,201
23,064
25,362
(22,983)
103,099
1,076,971
(76,311)
(74,611)
(43,569)
-
2,227
609,059
(34,588)
(54,702)
-
-
12,513
340,018
(62,877)
-
12,750
-
14,654
10,890
-
(111,903)
(66,879)
(7,707)
-
(733,676)
(1,335)
(37,993)
(984,076)
432,913
2,344
245,444
$ 680,701
(6,883)
-
-
622,894
10,868
(58,444)
(7,861)
560,574
1,047,652
(69,102)
(122,320)
(72,787)
-
8,708
-
-
-
4,909
-
(11,284)
(261,876)
(508,942)
-
-
(345,000)
54,081
8,457
651,892
-
(302,150)
-
-
(598,183)
(1,092)
(40,567)
(1,081,504)
(295,728)
5,488
535,684
$ 245,444
PUBLIC STORAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the three years in the period ended December 31, 2009
(Amounts in thousands)
(Continued)
2009
2008
2007
Supplemental schedule of non cash investing and financing activities:
Foreign currency translation adjustment:
Real estate facilities, net of accumulated depreciation ....................................
Construction in process ...................................................................................
Investment in real estate entities ....................................................................
Intangible assets, net .......................................................................................
Loan receivable from Shurgard Europe .........................................................
Other assets .....................................................................................................
Notes payable ..................................................................................................
Accrued and other liabilities ...........................................................................
Permanent noncontrolling equity interests in subsidiaries ..............................
Accumulated other comprehensive income (loss) ...........................................
$ (1,444)
-
(15,764)
-
(9,342)
-
-
-
-
26,591
$ (90,921)
(957)
63,495
(4,528)
66,461
(3,756)
28,912
5,879
7,263
(69,504)
$ (127,456)
(4,623)
-
(6,226)
-
(7,070)
38,116
13,827
9,740
89,180
Real estate disposed of in exchange for other asset ...............................................
Other asset received in exchange for disposal of real estate ..................................
Revaluation of redeemable noncontrolling interests:
Accumulated deficit .......................................................................................
Redeemable noncontrolling interests .............................................................
2,941
(2,941)
(1,392)
1,392
Deconsolidation of real estate entities (2008: Shurgard Europe, Note 3)
Real estate facilities, net of accumulated depreciation ..................................
Construction in process .................................................................................
Investment in real estate entities ....................................................................
Loan receivable from Shurgard Europe .........................................................
Intangible assets, net ......................................................................................
Other assets ...................................................................................................
Notes payable ................................................................................................
Accrued and other liabilities ..........................................................................
Permanent noncontrolling equity interests in subsidiaries .............................
Real estate acquired in exchange for assumption of note payable and
extinguishment of investment .............................................................................
Note payable assumed in connection with the acquisition of real estate .................
Investment extinguished in exchange for real estate ...............................................
Investment in real estate entities disposed in exchange for other asset ...................
Other asset received in connection with disposal of real estate investment ............
Consolidation of entities in connection with the acquisition of an interest in the
Unconsolidated Entities:
Real estate facilities ........................................................................................
Intangible assets ..............................................................................................
Notes payable .................................................................................................
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,469)
6,469
1,693,524
10,886
(588,801)
(618,822)
78,135
68,486
(424,995)
(104,100)
(148,901)
(12,388)
10,250
2,138
5,300
(5,300)
-
-
-
-
41,409
-
(23,079)
-
1,816
344
(19,329)
(544)
(682)
-
-
-
-
-
-
-
-
(14,604)
(1,048)
6,681
See accompanying notes.
F-7
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
1. Description of the Business
Public Storage (referred to herein as “the Company”, “the Trust”, “we”, “us”, or “our”), a
Maryland real estate investment trust, was organized in 1980. Our principal business activities include
the acquisition, development, ownership and operation of self-storage facilities which offer storage
spaces for lease, generally on a month-to-month basis, for personal and business use. Our self-storage
facilities are located primarily in the United States (“U.S.”). We also have interests in self-storage
facilities located in seven Western European countries.
At December 31, 2009, we had direct and indirect equity interests in 2,010 self-storage
facilities located in 38 states operating under the “Public Storage” name, and 188 self-storage facilities
located in Europe which operate under the “Shurgard Storage Centers” name. We also have direct and
indirect equity interests in approximately 21 million net rentable square feet of commercial space
located in 11 states in the U.S. primarily operated by PS Business Parks, Inc. (“PSB”) under the “PS
Business Parks” name.
Any reference to the number of properties, square footage, number of tenant reinsurance
policies outstanding and the aggregate coverage of such reinsurance policies are unaudited and outside
the scope of our independent registered public accounting firm’s review and audit of our financial
statements in accordance with the standards of the Public Company Accounting Oversight Board.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are presented on an accrual basis in accordance with
U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and
our consolidated subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
Certain amounts previously reported in our December 31, 2008 and 2007 financial statements
have been reclassified to conform to the December 31, 2009 presentation, including discontinued
operations, the grouping of the separate captions “cumulative earnings” and “cumulative distributions”
into “accumulated deficit” on our consolidated balance sheet, as well as reclassifications required by
newly implemented accounting standards described below.
Adjustments due to accounting pronouncements becoming effective January 1, 2009
On January 1, 2009, accounting standards promulgated by the Financial Accounting
Standards Board (“FASB”) became effective which affected the classification of ownership interests
other than those in the Company, such as limited partnership interests in entities that are consolidated
in the financial statements of the Company. In accordance with these standards, we have reclassified
the equity interests previously referred to as minority interests on our balance sheet at December 31,
2008 to “equity of permanent noncontrolling interests in subsidiaries” or “redeemable noncontrolling
interests in subsidiaries.” These reclassifications increased equity by $351,640,000, increased
accumulated deficit by $6,469,000, increased redeemable noncontrolling interests in subsidiaries by
$12,777,000, and decreased minority interest by $364,417,000, as compared to the amounts previously
presented as of December 31, 2008. On our consolidated statement of income, income allocations to
the aforementioned equity interests were reclassified from “minority interest in income”, a reduction to
income, to “net income allocated to noncontrolling interests in subsidiaries,” an allocation of net
income in calculating net income allocable to our common shareholders. These adjustments increased
net income $38,696,000 and $29,543,000 for the years ended December 31, 2008 and 2007,
F-8
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
respectively, but had no impact upon net income allocable to our common shareholders or on earnings
per common share, as compared to amounts previously presented.
In addition, FASB accounting standards became effective January 1, 2009 which required the
“two class” method of allocating income with respect to our restricted share units to determine basic
and diluted earnings per common share. Previously, all restricted share units were included in
weighted average diluted shares, using the treasury stock method. This change resulted in a decrease
in income allocable to our common shareholders of approximately $2,304,000 and $376,000, a
decrease in diluted weighted average common shares outstanding of 208,000 and 297,000 and a
decrease of $0.02 and $0.01 in basic and diluted earnings per common share, respectively, for the year
ended December 31, 2008 as compared to amounts previously presented for the year ended
December 31, 2008. These changes had no impact on the basic and diluted earnings per common
share amounts previously presented for the year ended December 31, 2007.
Consolidation Policy
Pursuant to Codification Section 810-10-15-14, any entity where a) the equity is insufficient
to finance its activities without additional subordinated financial support provided by any parties, or b)
the equity holders as a group lack specific characteristics, as defined in the Codification, of a
controlling financial interest, is considered a Variable Interest Entity (“VIE”). VIEs in which we are
the primary beneficiary are consolidated. Entities that are not VIEs that we control are consolidated.
When we are the general partner, we are presumed to control the partnership unless the
limited partners possess either a) the substantive ability to dissolve the partnership or otherwise remove
us as general partner without cause (commonly referred to as “kick-out rights”), or b) the right to
participate in substantive operating and financial decisions of the limited partnership that are expected
to be made in the course of the partnership’s business.
The accounts of the entities we control, along with the accounts of the VIEs for which we are
the primary beneficiary, are included in our consolidated financial statements, and all intercompany
balances and transactions are eliminated. We account for our investment in entities that we do not
consolidate using the equity method of accounting or, if we do not have the ability to exercise
significant influence over an investee, the cost method of accounting. Changes in consolidation status
are reflected effective the date the change of control or determination of primary beneficiary status
occurred, and previously reported periods are not restated. The entities that we consolidate, for the
periods in which the reference applies, are referred to hereinafter as the “Subsidiaries.” The entities
that we have an interest in but do not consolidate, for the periods in which the reference applies, are
referred to hereinafter as the “Unconsolidated Entities.”
Collectively, at December 31, 2009, the Company and the Subsidiaries own a total of 1,999
real estate facilities included in continuing operations, consisting of 1,990 self-storage facilities in the
U.S., one self-storage facility in London, England and eight commercial facilities in the U.S. One
facility owned by the Company is subject to condemnation proceedings and its operating results are
classified as discontinued operations for all periods presented.
At December 31, 2009, the Unconsolidated Entities are comprised of PSB, Shurgard Europe,
and various limited and joint venture partnerships (the partnerships referred to as the “Other
Investments”). At December 31, 2009, PSB owns approximately 19.6 million rentable square feet of
commercial space, Shurgard Europe has interests in 187 self-storage facilities in Europe with
10.1 million net rentable square feet, and the Other Investments own in aggregate 19 self-storage
facilities with 1.1 million net rentable square feet in the U.S.
F-9
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from those estimates.
Income Taxes
For all taxable years subsequent to 1980, the Company has qualified and intends to continue
to qualify as a real estate investment trust (“REIT”), as defined in Section 856 of the Internal Revenue
Code. As a REIT, we do not incur federal or significant state tax on that portion of our taxable income
which is distributed to our shareholders, provided that we meet certain tests. We believe we have met
these tests during 2009, 2008 and 2007 and, accordingly, no provision for federal income taxes has
been made in the accompanying consolidated financial statements on income produced and distributed
on real estate rental operations. We have business operations in taxable REIT subsidiaries that are
subject to regular corporate tax on their taxable income, and such corporate taxes attributable to these
operations are presented in ancillary cost of operations in our accompanying consolidated statements
of income. We also are subject to certain state taxes, which are presented in general and administrative
expense in our accompanying consolidated statements of income. We have concluded that there are no
significant uncertain tax positions requiring recognition in our financial statements with respect to all
tax periods which remain subject to examination by major tax jurisdictions as of December 31, 2009.
Real Estate Facilities
Real estate facilities are recorded at cost. Costs associated with the acquisition, development,
construction, renovation and improvement of properties are capitalized. Interest, property taxes and
other costs associated with development incurred during the construction period are capitalized as
building cost. Costs associated with the sale of real estate facilities or interests in real estate
investments are expensed as incurred. The purchase cost of existing self-storage facilities that we
acquire are allocated based upon relative fair value of the land, building and tenant intangible
components of the real estate facility. Expenditures for repairs and maintenance are expensed when
incurred. Depreciation expense is computed using the straight-line method over the estimated useful
lives of the buildings and improvements, which generally range from 5 to 25 years.
Other Assets
Other assets primarily consist of prepaid expenses, investments in held-to-maturity debt
securities, accounts receivable, interest receivable, and restricted cash.
Accrued and Other Liabilities
Accrued and other liabilities consist primarily of trade payables, property tax accruals, tenant
prepayments of rents, accrued interest payable, accrued payroll, losses and loss adjustment liabilities
for our own exposures, and estimated losses related to our tenant insurance activities. Contingent
losses are accrued when they are determined to be probable, and to the extent that they are estimable.
When it is at least reasonably possible that a significant unaccrued contingent loss has occurred, we
disclose the nature of that potential loss under “Legal Matters” in Note 13 “Commitments and
Contingencies”.
F-10
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
Financial Instruments
We have estimated the fair value of our financial instruments using available market
information and appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop estimates of market value. Accordingly, estimated fair values are
not necessarily indicative of the amounts that could be realized in current market exchanges.
For purposes of financial statement presentation, we consider all highly liquid financial
instruments such as short-term treasury securities, money market funds with daily liquidity and a rating
of at least AAA by Standard and Poor’s, or investment grade (rated A1 by Standard and Poor’s) short-
term commercial paper with remaining maturities of three months or less at the date of acquisition to
be cash equivalents. Any such cash and cash equivalents which are restricted from general corporate
use (restricted cash) due to insurance or other regulations, or based upon contractual requirements, are
included in other assets.
Due to the short maturity and the underlying characteristics of our cash and cash equivalents,
other assets, and accrued and other liabilities, we believe the carrying values as presented on the
consolidated balance sheets are reasonable estimates of fair value.
Financial assets that are exposed to credit risk consist primarily of cash and cash equivalents,
restricted cash which are included in other assets on our accompanying consolidated balance sheets,
accounts receivable and the loan receivable from Shurgard Europe. Cash and cash equivalents and
restricted cash, consisting of short-term investments, including commercial paper, are only invested in
instruments with an investment grade rating. See “Loan Receivable from Shurgard Europe” below for
information regarding our fair value measurement of this instrument.
At December 31, 2009, due primarily to our investment in and loan receivable from Shurgard
Europe, our operations and our financial position are affected by fluctuations in currency exchange
rates between the Euro, and to a lesser extent, other European currencies, against the U.S. Dollar.
We estimate the fair value of our notes payable to be $525,883,000 at December 31, 2009,
based primarily upon discounting the future cash flows under each respective note at an interest rate
that approximates loans with similar credit quality and term to maturity.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of net tangible and
identifiable intangible assets acquired in business combinations, and has an indeterminate life. Each
business combination from which our goodwill arose was for the acquisition of single businesses and
accordingly, the allocation of our goodwill to our business segments is based directly on such
acquisitions. Our goodwill balance of $174,634,000 is reported net of accumulated amortization of
$85,085,000 as of December 31, 2009 and 2008 in our accompanying consolidated balance sheets.
Intangible Assets
We acquire finite-lived intangible assets representing primarily the estimated value of the
tenants in place (a “Tenant Intangible”) at the date of the acquisition of each respective acquired
facility. Tenant Intangibles are amortized relative to the benefit of the tenants in place to each period.
At December 31, 2009, our Tenant Intangibles have a net book value of $19,446,000
($33,181,000 at December 31, 2008). Accumulated amortization with respect to properties where the
related Tenant Intangibles had not yet become fully amortized totaled $14,688,000 at December 31,
F-11
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
2009 ($142,976,000 at December 31, 2008 with respect to properties where the related Tenant
Intangibles had not yet become fully amortized).
Amortization expense of $5,530,000, $51,158,000 and $247,844,000 was recorded for our
Tenant Intangibles for the years ended December 31, 2009, 2008 and 2007, respectively. Also during
the year ended December 31, 2009, we recorded an impairment charge of $8,205,000, reflected under
“discontinued operations” on our consolidated statement of income, in connection with an eminent
domain proceeding at one of our facilities.
We also have an intangible asset representing the value of the “Shurgard” trade name, which
is used by Shurgard Europe pursuant to a licensing agreement, with a book value of $18,824,000 at
December 31, 2009 and 2008. The Shurgard trade name has an indefinite life and, accordingly, we do
not amortize this asset but instead analyze it on an annual basis for impairment. No impairments have
been noted from any of our annual evaluations.
Evaluation of Asset Impairment
We evaluate our real estate and intangibles for impairment on a quarterly basis. We first
evaluate these assets for indicators of impairment, and if any indicators of impairment are noted, we
determine whether the carrying value of such assets is in excess of the future estimated undiscounted
cash flows attributable to these assets. If there is excess carrying value over such future undiscounted
cash flows, an impairment charge is booked for the excess of carrying value over the assets’ estimated
fair value. Any long-lived assets which we expect to sell or otherwise dispose of prior to their
estimated useful life are stated at the lower of their estimated net realizable value (estimated fair value
less cost to sell) or their carrying value. No impairment was identified from our evaluations in any
periods presented in the accompanying consolidated financial statements, other than the impairment
totaling $8,205,000 described above with respect to Tenant Intangibles which impairment was
recorded in 2009.
We evaluate impairment of goodwill annually by comparing the aggregate book value
(including goodwill) of each reporting unit to their respective estimated fair value. No impairment of
our goodwill was identified in our annual evaluation at December 31, 2009.
Revenue and Expense Recognition
Rental income, which is generally earned pursuant to month-to-month leases for storage
space, as well as late charges and administrative fees, are recognized as earned. Promotional discounts
are recognized as a reduction to rental income over the promotional period, which is generally during
the first month of occupancy. Ancillary revenues and interest and other income are recognized when
earned. Equity in earnings of real estate entities is recognized based on our ownership interest in the
earnings of each of the Unconsolidated Entities.
We accrue for property tax expense based upon actual amounts billed for the related time
periods and, in some circumstances due to taxing authority assessment and billing timing and disputes
of assessed amounts, estimates and historical trends. If these estimates are incorrect, the timing and
amount of expense recognition could be affected. Cost of operations, general and administrative
expense, interest expense, as well as television, yellow page, and other advertising expenditures are
expensed as incurred. Casualty losses or gains are recognized in the period the casualty occurs, based
upon the differential between the book value of assets destroyed and estimated insurance proceeds, if
any, that we expect to receive in accordance with our insurance contracts.
F-12
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
Foreign Currency Exchange Translation
The local currency is the functional currency for the foreign operations for which we have an
interest. Assets and liabilities included on our consolidated balance sheets, including our equity
investment in, and our loan receivable from, Shurgard Europe, are translated at end-of-period exchange
rates, while revenues, expenses, and equity in earnings in the related real estate entities, are translated
at the average exchange rates in effect during the period. The Euro, which represents the functional
currency used by a majority of the foreign operations for which we have an interest, was translated at
an end-of-period exchange rate of approximately 1.433 U.S. Dollars per Euro at December 31, 2009
(1.409 at December 31, 2008), and average exchange rates of 1.393, 1.470 and 1.370 for the years
ended December 31, 2009, 2008 and 2007, respectively. Equity is translated at historical rates and the
resulting cumulative translation adjustments, to the extent not included in net income, are included as a
component of accumulated other comprehensive income (loss) until the translation adjustments are
realized. See “Other Comprehensive Income” below for further information regarding our foreign
currency translation gains and losses.
Fair Value Accounting
In 2006, the FASB clarified in accounting pronouncements that “fair value” as the term is
used in GAAP is an exit price, representing the amount that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants, and established a three-tier
fair value hierarchy, which prioritizes the inputs used in measuring fair value. The Company adopted
the provisions of these revised accounting pronouncements on January 1, 2008 with respect to
financial assets and liabilities and on January 1, 2009 with respect to non-financial assets and
liabilities. The adoption of these provisions had no effect on our financial position, operating results or
cash flows. See “Loan Receivable from Shurgard Europe” below and “Financial Instruments” above,
as well as “Redeemable Noncontrolling Interests
in Subsidiaries” and “Other Permanent
Noncontrolling Interests in Subsidiaries” in Note 7 for information regarding our fair value
measurements.
Loan Receivable from Shurgard Europe
As of December 31, 2009, we had a €391.9 million loan receivable from Shurgard Europe
totaling $561,703,000 ($552,361,000 at December 31, 2008). The loan, as amended, bears interest at a
fixed rate of 9.0% per annum and matures March 31, 2013. Prior to being amended on October 31,
2009, the loan bore interest at a fixed rate of 7.5% per annum and matured on March 31, 2010. All
other material terms and conditions remained the same.
As of December 31, 2009, we have a commitment to provide additional loans, up to
€185 million ($265.2 million at December 31, 2009), to Shurgard Europe to assist in financing an
acquisition of its joint venture partners’ interest in affiliated two joint ventures. Shurgard Europe has
no obligation to acquire these interests, and the acquisition of these interests is contingent on a number
of items, including whether we assent to the acquisition. Our commitment expires on March 31, 2010
and any borrowings under this commitment will have the same terms and conditions as the existing
outstanding loan, as amended.
The loan is denominated in Euros and is converted to U.S. Dollars for financial statement
purposes. During each applicable period, because we have expected repayment of the loan within two
years of each respective balance sheet date, we have recognized foreign exchange rate gains or losses
in income as a result of changes in exchange rates between the Euro and the U.S. Dollar.
For the years ended December 31, 2009 and 2008, we recorded interest income of
approximately $24,013,000 and $17,859,000, respectively, related to the loan. These amounts reflect
F-13
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
51% of the aggregate interest on the loans, with the other 49%, reflecting our ownership interest in
Shurgard Europe, classified as equity in earnings of real estate entities. Loan fees collected from
Shurgard Europe are amortized on a straight-line basis as interest income over the applicable term to
which the fee applies.
Although there can be no assurance, we believe that Shurgard Europe has sufficient liquidity
and collateral, and we have sufficient creditor rights, such that credit risk is minimal. In addition, we
believe the interest rate on the loan approximates the market rate for loans with similar credit
characteristics and tenor, and that the carrying value of the loan approximates fair value. The
characteristics of the loan and comparative metrics utilized in our evaluation represent significant
unobservable inputs, which are “Level 3” inputs as the term is utilized in FASB Codification
Section 820-10-35-52.
Other Comprehensive Income
Other comprehensive income consists of foreign currency translation adjustments that are not
already recognized in our net income. Other comprehensive income is reflected as an adjustment to
“Accumulated Other Comprehensive Income” in the equity section of our consolidated balance sheet,
and is added to our net income in determining total comprehensive income for the period as reflected
in the following table:
2009
For the Year Ended December 31,
2008
(Amounts in thousands)
2007
Net income ....................................................... $
Other comprehensive income (loss):
Aggregate foreign currency translation
790,456
$
973,872
$ 487,078
adjustments for the period ......................
26,591
(69,504)
89,180
Less: foreign currency translation
adjustments recognized during the
period and reflected in “Gain (loss) on
disposition of real estate investments” ...
Less: foreign currency translation
adjustments reflected in net income as
“Foreign currency (gain) loss” ...............
Other comprehensive income (loss) income
-
(37,854)
-
(9,662)
25,362
(58,444)
for the period ..........................................
16,929
(81,996)
30,736
Total comprehensive income............................ $
807,385
$
891,876
$ 517,814
Discontinued Operations
Discontinued operations reflect those operations that have or will soon be eliminated from the
ongoing operations of the Company pursuant to a plan. We segregate all of our discontinued
operations that can be distinguished from the rest of the Company and reclassify all historical revenues
and expenses of discontinued operations, for all periods, into “discontinued operations”.
During 2009, we discontinued our truck rental and our containerized storage operations. We
also disposed of real estate facilities in 2009 and in 2007. In addition to the historical revenues and
expenses of these operations, discontinued operations includes $3,500,000 in truck disposal expenses
for the truck operations in 2009, gains on the sale of real estate facilities totaling $6,018,000 and
$4,336,000, respectively, in 2009 and 2007, as well as an $8,205,000 impairment charge on intangible
assets incurred at a discontinued facility in 2009.
F-14
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
Net Income per Common Share
We first allocate net income to our noncontrolling interests in subsidiaries (Note 7) and
preferred shareholders to arrive at net income allocable to our common shareholders and Equity
Shares, Series A. Net income allocated to preferred shareholders or noncontrolling interests in
subsidiaries includes any excess of the cash required to redeem any preferred securities in the period
over the net proceeds from the original issuance of the securities (or, if securities are redeemed for less
than the original issuance proceeds, income allocated to the holders of the redeemed securities is
reduced).
The remaining net income is allocated among our regular common shares, restricted share
units, and our Equity Shares, Series A based upon the dividends declared (or accumulated) for each
security in the period, combined with each security’s participation rights in undistributed earnings.
Net income allocated to our regular common shares from continuing operations is computed
by eliminating the net income or loss from discontinued operations allocable to our regular common
shares, from net income allocated to our regular common shares.
Basic net income per share, basic net income (loss) from discontinued operations per share,
and basic net income from continuing operations per share are computed using the weighted average
common shares outstanding. Diluted net income per share, diluted net income (loss) from
discontinued operations per share, and diluted net income from continuing operations per share are
computed using the weighted average common shares outstanding, adjusted for the impact, if dilutive,
of stock options outstanding (Note 10).
The following table reflects the components of the calculations of our basic and diluted net
income per share, basic and diluted net loss from discontinued operations per share, and basic and
diluted net income from continuing operations per share which are not already otherwise set forth on
the face of our consolidated statements of income:
2009
For the Year Ended December 31,
2008
(Amounts in thousands)
2007
Net income allocable to common shareholders from
continuing operations and discontinued operations:
Net income allocable to common shareholders ..................
$ 585,966
$ 705,803
$ 198,978
Eliminate: Discontinued operations allocable to
common shareholders ....................................................
8,869
6,418
2,346
Net income from continuing operations allocable to
common shareholders .....................................................
$ 594,835
$ 712,221
$ 201,324
Weighted average common shares and equivalents
outstanding:
Basic weighted average common shares outstanding ........
Net effect of dilutive stock options - based on treasury
stock method using average market price .....................
Diluted weighted average common shares outstanding .....
168,358
410
168,768
168,250
425
168,675
169,342
508
169,850
F-15
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
3. Disposition of an Interest in Shurgard Europe
On March 31, 2008, an institutional investor acquired a 51% interest in Shurgard European
Holdings LLC (“Shurgard Holdings”), a newly formed Delaware limited liability company and the
holding company for Shurgard Europe. We own the remaining 49% interest and are the managing
member of Shurgard Holdings.
Our net proceeds from the transaction aggregated $609,059,000, comprised of $613,201,000
paid by the institutional investor less $4,142,000 in legal, accounting, and other expenses incurred in
connection with the transaction. As a result of the disposition, we reduced our investment in Shurgard
Europe by approximately $302,228,000 for the pro rata portion of our March 31, 2008 investment that
was sold, and a total of $344,685,000 was reflected on our consolidated statement of income as “gains
on disposition of real estate investments, net,” representing i) the difference between the net proceeds
received of $609,059,000 and the pro rata portion of our investment sold of $302,228,000, and ii) the
realization of $37,854,000 in foreign exchange gains, representing 51% (the pro rata portion of
Shurgard Europe that was sold) in cumulative foreign exchange gains for Shurgard Europe previously
recognized in Other Comprehensive Income.
The results of operations of Shurgard Europe have been included in our consolidated
statements of income for the year ended December 31, 2007 and the three months ended March 31,
2008. Commencing on April 1, 2008, our pro rata share of operations of Shurgard Europe is reflected
on our consolidated statement of income under equity in earnings of real estate entities.
F-16
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
4.
Real Estate Facilities
Activity in real estate facilities during 2009, 2008 and 2007 is as follows:
2009
2008
(Amounts in thousands)
2007
Operating facilities, at cost:
Beginning balance .....................................................................
Capital improvements................................................................
Acquisition of real estate facilities ............................................
Newly developed facilities opened for operations .....................
Consolidation of real estate entities .........................................
Deconsolidation of real estate entities .......................................
Disposition of an interest in Shurgard Europe (Note 3) .............
Disposition of real estate facilities .............................................
Impact of foreign exchange rate changes ..................................
Ending balance ..........................................................................
$ 10,207,022
62,352
-
30,978
-
-
-
(9,419)
2,022
10,292,955
$ 11,658,807
76,311
52,932
93,416
-
-
(1,766,122)
(1,522)
93,200
10,207,022
$ 11,261,865
69,102
71,258
156,751
14,604
(42,473)
-
(4,202)
131,902
11,658,807
Accumulated depreciation:
Beginning balance .....................................................................
Depreciation expense ................................................................
Disposition of an interest in Shurgard Europe (Note 3) .............
Deconsolidation of real estate entities .......................................
Disposition of real estate facilities .............................................
Impact of foreign exchange rate changes ..................................
Ending balance ..........................................................................
Construction in process:
(2,405,473)
(332,431)
-
-
4,033
(578)
(2,734,449)
(2,128,225)
(347,895)
72,598
-
328
(2,279)
(2,405,473)
(1,754,362)
(371,665)
-
1,064
1,184
(4,446)
(2,128,225)
Beginning balance .....................................................................
Current development .................................................................
Newly developed facilities opened for operation ......................
Disposition of an interest in Shurgard Europe (Note 3) .............
Write off of development costs .................................................
Impact of foreign exchange rate changes ..................................
Ending balance ..........................................................................
Total real estate facilities at December 31, ...................................
20,340
14,165
(30,978)
-
-
-
3,527
$ 7,562,033
51,972
74,611
(93,416)
(10,886)
(2,898)
957
20,340
$ 7,821,889
83,900
122,320
(156,751)
-
(2,120)
4,623
51,972
$ 9,582,554
During 2009, we completed one newly developed facility and various expansion projects to existing facilities at an
aggregate cost of $30,978,000. During 2009, we sold an existing real estate facility as well as disposed of a portion of certain real
estate facilities primarily in connection with condemnation proceedings, for aggregate cash proceeds totaling $11,596,000 and an
other asset valued at $2,941,000. We recorded an aggregate gain of approximately $9,151,000, of which $6,018,000 is included
in discontinued operations and $3,133,000 is included in “gains on disposition of real estate investments, net.”
During 2008, we completed two newly developed facilities at a total cost of $13,431,000, as well as various expansion
projects at a total cost of $46,522,000. During the first quarter of 2008, prior to its deconsolidation, Shurgard Europe opened real
estate facilities at a total cost of $33,463,000. During 2008, we acquired four self-storage facilities in the U.S. from third parties,
and three facilities previously owned by the unconsolidated entities, for an aggregate cost of $55,957,000, consisting of
$43,569,000 in cash, $2,138,000 in existing investments, and assumed mortgage debt totaling $10,250,000. The aggregate cost
was allocated $52,932,000 to real estate facilities and $3,025,000 to intangibles, based upon the estimated relative fair values of
the land, buildings and intangibles. During 2008, we received net proceeds from partial facility disposals as a result of
condemnation proceedings, totaling $2,227,000, and recorded a gain on disposition of $1,283,000. In addition, $250,000,
representing the book value of assets destroyed, was included in the income statement line-item “casualty loss” during 2008.
During 2007, we completed three development and various expansion projects in the U.S. at a total cost of $66,676,000.
Also in 2007, we completed nine development projects in Europe at a total cost of $90,075,000. During 2007, we acquired seven
self-storage facilities in the U.S. from third parties for an aggregate cost of $72,787,000, in cash; $71,258,000 was allocated to
real estate facilities and $1,529,000 was allocated to intangibles, based upon the estimated relative fair values of the land,
F-17
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
buildings and intangibles. During 2007, we received net proceeds from partial and complete facility disposals as a result of
condemnation proceedings, totaling $8,708,000, and recorded a gain on disposition of $5,690,000, of which $4,336,000 in such
gains were included in discontinued operations.
At December 31, 2009, the adjusted basis of real estate facilities for federal tax purposes was approximately $7.3 billion
(unaudited).
5.
Investments in Real Estate Entities
The following table sets forth our investments in the real estate entities at December 31, 2009 and 2008, and our equity
in earnings of real estate entities for each of the three years ended December 31, 2009 (amounts in thousands):
Investments in Real Estate Entities at
December 31,
PSB...........................................
Shurgard Europe .......................
Other Investments ....................
Total ...................................
2009
$ 326,145
272,345
13,826
$ 612,316
2008
$ 265,650
264,145
14,803
$ 544,598
Equity in Earnings of Real Estate Entities for the
2009
$ 35,108
16,269
1,867
$ 53,244
Year Ended December 31,
2008
$ 14,325
4,134
1,932
$ 20,391
$ 10,502
-
2,236
$ 12,738
2007
Included in equity in earnings of real estate entities for the year ended December 31, 2009 is $16,284,000, representing
our share of the earnings allocated from PSB’s preferred shareholders, as a result of PSB’s repurchases of preferred stock and
preferred units for amounts that were less than the related book value, during the period. During 2008, we disposed of one of the
Other Investments in exchange for another asset valued at $5,300,000, and recorded a loss of disposition of real estate
investments for a total of $9,423,000.
During the years ended December 31, 2009, 2008 and 2007, we received cash distributions from our investments in real
estate entities totaling $49,408,000, $43,455,000 and $23,606,000, respectively.
During 2009, in addition to the impact of earnings recognized and cash distributions received, our investments in real
estate entities increased by $63,882,000 due to (i) $15,764,000 in foreign currency translation adjustments, (ii) $17,825,000
representing our acquisition of an additional 383,333 shares of PSB common stock, and (iii) $30,293,000 presented in “gains on
disposition of real estate investments, net” in connection with PSB’s sale of common stock in a public offering described below in
“Investment in PSB.”
Investment in PSB
PSB is a REIT traded on the New York Stock Exchange, which controls an operating partnership (collectively, the REIT
and the operating partnership are referred to as “PSB”). We have a 41% common equity interest in PSB as of December 31, 2009
(46% as of December 31, 2008), comprised of our ownership of 5,801,606 shares of PSB’s common stock and 7,305,355 limited
partnership units in the operating partnership (5,418,273 shares of PSB’s common stock and 7,305,355 limited partnership units at
December 31, 2008). The limited partnership units are convertible at our option, subject to certain conditions, on a one-for-one
basis into PSB common stock. Based upon the closing price at December 31, 2009 ($50.05 per share of PSB common stock), the
shares and units had a market value of approximately $656.0 million as compared to a book value of $326.1 million. We account
for our investment in PSB using the equity method.
During the year ended December 31, 2009, PSB sold 3,450,000 shares of its common stock in a public offering for net
proceeds of $153.6 million. In accordance with FASB ASC Topic 323, Investments – Equity Method and Joint Ventures, we
recognized a gain totaling $30,293,000 on the share issuance by PSB, as if we had sold a proportionate share of our investment in
PSB.
Concurrent with the public offering, we purchased an additional 383,333 shares of PSB common stock from PSB at the
same price per share as the public offering for a total cost of $17,825,000.
F-18
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
The following table sets forth selected financial information of PSB; the amounts represent 100% of PSB’s balances and
not our pro-rata share.
2009
2008
(Amounts in thousands)
2007
For the year ended December 31,
Total revenue ........................................................................
Costs of operations and general and administrative expense
Depreciation and amortization .............................................
Other items ...........................................................................
Net income .......................................................................
As of December 31,
Total assets (primarily real estate) ........................................
Debt ......................................................................................
Other liabilities .....................................................................
Preferred stock and units .......................................................
Common equity.....................................................................
$
$
$
$
$
$
271,655
(92,114)
(84,504)
(698)
94,339
1,564,822
52,887
46,298
699,464
766,173
281,843
(95,281)
(99,317)
(1,898)
85,347
$
$
269,298
(91,162)
(97,998)
1,537
81,675
1,469,323
59,308
46,428
801,000
562,587
Investment in Shurgard Europe
At December 31, 2009, we had a 49% equity investment in Shurgard Europe. As a result of our disposition of an interest
in Shurgard Europe, we deconsolidated Shurgard Europe effective March 31, 2008 (see Note 3) and subsequently account for our
investment in Shurgard Europe using the equity method.
For the years ended December 31, 2009 and 2008, we recorded an aggregate of $16,269,000 and $4,134,000,
respectively, in equity in earnings of Shurgard Europe. During the years ended December 31, 2009 and 2008, our investment in
Shurgard Europe increased by approximately $15,764,000 and decreased by $63,495,000, respectively, due to the impact of
changes in foreign currency exchange rates.
The following table sets forth selected financial information of Shurgard Europe. These amounts are based upon 100%
of Shurgard Europe’s balances, rather than our pro rata share, and are based upon our historical acquired book basis.
Amounts for all periods are presented, notwithstanding that Shurgard Europe was deconsolidated effective March 31,
2008. Accordingly, only the amounts (net of intercompany eliminations) prior to April 1, 2008 are included in our consolidated
financial statements.
F-19
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
2009
2008
(Amounts in thousands)
2007
For the year ended December 31,
Self-storage and ancillary revenues ......................................
Interest and other income (expense) .....................................
Self-storage and ancillary cost of operations ........................
Trademark license fee payable to Public Storage .................
Depreciation and amortization .............................................
General and administrative ...................................................
Interest expense on third party debt .....................................
Interest expense on loan payable to Public Storage ..............
Income (expenses) from foreign currency exchange ...........
Discontinued operations .......................................................
Net loss (a) .......................................................................
As of December 31,
Total assets (primarily self-storage facilities) ......................
Total debt to third parties .....................................................
Total debt to Public Storage .................................................
Other liabilities ....................................................................
Equity ..................................................................................
$
$
$
225,777
515
(100,135)
(1,606)
(59,926)
(9,966)
(15,557)
(47,084)
736
8
(7,238)
1,629,457
328,510
561,703
75,074
664,170
$
$
$
238,842
1,192
(102,658)
(1,894)
(93,915)
(16,098)
(23,937)
(45,528)
(4,214)
(131)
(48,341)
1,615,370
362,352
552,361
82,247
618,410
$
$
209,997
704
(96,875)
-
(123,546)
(20,291)
(22,242)
(38,733)
286
(1,081)
(91,781)
(a) During the years ended December 31, 2009, 2008 and 2007, approximately $8,250,000 in net income and $10,217,000 and $9,387,000
in net loss, respectively, was allocated to permanent noncontrolling equity interests in subsidiaries, of which $9,931,000, $12,752,000
and $11,513,000, respectively, represented depreciation and amortization expense.
Our equity in earnings from our investment in Shurgard Europe for the years ended December 31, 2009 and 2008,
totaling $16,269,000 and $4,134,000, respectively, are comprised of (i) losses of $7,589,000 and $13,640,000, respectively,
representing our 49% pro-rata share of Shurgard Europe’s net loss for the respective periods and (ii) income of $23,858,000 and
$17,774,000, respectively, representing our 49% pro-rata share of the interest income and trademark license fees received from
Shurgard Europe for the respective periods (such amounts are presented as equity in earnings of real estate entities rather than
interest and other income).
Other Investments
At December 31, 2009, the “Other Investments” include an aggregate common equity ownership of approximately 24%
in entities that collectively own 19 self-storage facilities. We account for our investments in these entities using the equity
method.
The following table sets forth certain condensed financial information (representing 100% of these entities’ balances and
not our pro-rata share) with respect to the Other Investments’ 19 facilities that we have an interest in at December 31, 2009:
2009
2008
(Amounts in thousands)
2007
For the year ended December 31,
Total revenue ...........................................
Cost of operations and other expenses .....
Depreciation and amortization.................
Net income ........................................
As of December 31,
Total assets (primarily self-storage
facilities) ............................................
Total accrued and other liabilities ...........
Total Partners’ equity ..............................
$
$
$
$
$
$
16,641
(6,075)
(2,103)
8,463
37,386
876
36,510
17,154
(6,159)
(2,023)
8,972
$
$
16,421
(6,173)
(1,890)
8,358
40,168
888
39,280
F-20
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
6. Line of Credit and Notes Payable
At December 31, 2009, we have a revolving credit agreement (the “Credit Agreement”) which expires on March 27,
2012, with an aggregate limit with respect to borrowings and letters of credit of $300 million. Amounts drawn on the Credit
Agreement bear an annual interest rate ranging from the London Interbank Offered Rate (“LIBOR”) plus 0.35% to LIBOR plus
1.00% depending on our credit ratings (LIBOR plus 0.35% at December 31, 2009). In addition, we are required to pay a quarterly
facility fee ranging from 0.10% per annum to 0.25% per annum depending on our credit ratings (0.10% per annum at
December 31, 2009). We had no outstanding borrowings on our Credit Agreement at December 31, 2009 or at February 26,
2010. At December 31, 2009, we had undrawn standby letters of credit, which reduce our borrowing capability with respect to
our line of credit by the amount of the letters of credit, totaling $18,270,000 ($17,736,000 at December 31, 2008).
The carrying amounts of our notes payable at December 31, 2009 and 2008 consist of the following (dollar amounts in
thousands):
Unsecured Notes Payable:
5.875% effective and stated note rate, interest only and payable semi-
annually, matures in March 2013 ..........................................................
$
186,460
$
183,204
$
200,000
$
197,995
December 31, 2009
December 31, 2008
Carrying
amount
Fair
Value
Carrying
amount
Fair
Value
5.7% effective rate, 7.75% stated note rate, interest only and payable
semi-annually, matures in February 2011 (carrying amount includes
$1,889 of unamortized premium at December 31, 2009 and $7,433
at December 31, 2008) .........................................................................
Secured Notes Payable:
5.5% average effective rate fixed rate mortgage notes payable, secured
by 89 real estate facilities with a net book value of approximately
$562 million at December 31, 2009 and stated note rates between
4.95% and 8.00%, maturing at varying dates between January 2010
and September 2028 (carrying amount includes $3,983 of
unamortized premium at December 31, 2009 and $5,634 at
December 31, 2008) .............................................................................
105,206
104,545
207,433
208,903
227,223
238,134
236,378
243,638
Total notes payable ........................................................................
$
518,889
$
525,883
$
643,811
$
650,536
Substantially all of our debt was acquired in connection with a property or other acquisition, and in such cases an initial
premium or discount is established for any difference between the stated note balance and estimated fair value. This initial
premium or discount is amortized over the remaining term of the notes using the effective interest method. Estimated fair values
are based upon discounting the future cash flows under each respective note at an interest rate that approximates those of loans
with similar credit characteristics and term to maturity. These inputs for fair value represent significant unobservable inputs,
which are “Level 3” inputs as the term is defined in the Codification.
On February 12, 2009, we acquired $110,223,000 face amount ($113,736,000 book value) of our existing unsecured
notes pursuant to a tender offer for an aggregate of $109,622,000 in cash (including costs associated with the tender of $414,000)
plus accrued interest. In connection with this transaction, we recognized a gain of $4,114,000 for the year ended December 31,
2009, representing the difference between the book value of $113,736,000 and the retirement amount paid plus tender offer costs.
Our notes payable and our Credit Agreement each have various customary restrictive covenants, all of which have been
met at December 31, 2009.
F-21
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
At December 31, 2009, approximate principal maturities of our notes payable are as follows (amounts in thousands):
2010 ..........................................
2011 ..........................................
2012 ..........................................
2013 ..........................................
2014 ..........................................
Thereafter .................................
Unsecured
Notes Payable
1,673
103,533
-
186,460
-
-
291,666
$
$
$
$
Weighted average effective rate
5.8%
Secured Notes
Payable
11,037
27,819
55,575
64,961
25,400
42,431
227,223
5.5%
$
$
Total
12,710
131,352
55,575
251,421
25,400
42,431
518,889
5.7%
We incurred interest expense (including interest capitalized as real estate totaling $718,000, $1,998,000 and $4,746,000,
respectively for the years ended December 31, 2009, 2008 and 2007) with respect to our notes payable, capital leases, debt to joint
venture partner and line of credit aggregating $30,634,000, $45,942,000 and $68,417,000 for the years ended December 31, 2009,
2008 and 2007, respectively. These amounts were comprised of $34,316,000, $50,977,000 and $73,278,000 in cash paid for the
years ended December 31, 2009, 2008 and 2007, respectively, less $3,682,000, $5,035,000 and $4,861,000 in amortization of
premium, respectively.
7. Noncontrolling Interests in Subsidiaries
In consolidation, we classify ownership interests in the net assets of each of the Subsidiaries, other than our own, as
“noncontrolling interests in subsidiaries.” Interests that have the ability to require us, except in an entity liquidation, to redeem
the underlying securities for cash, assets, or other securities that would not also be classified as equity are presented on our
balance sheet outside of equity. At the end of each reporting period, if the book value is less than the estimated amount to be paid
upon a redemption occurring on the related balance sheet date, these interests are increased to adjust to their estimated liquidation
value (which approximates fair value), with the offset against retained earnings. All other noncontrolling interests in subsidiaries
are presented as a component of equity, “permanent noncontrolling interests in subsidiaries.”
Redeemable Noncontrolling Interests in Subsidiaries
At December 31, 2009, the Redeemable Noncontrolling Interests in Subsidiaries represent equity interests in three
entities that own in aggregate 14 self-storage facilities. During the years ended December 31, 2009 and 2008, these interests were
increased by $1,392,000 and $6,469,000, respectively, to adjust to their estimated liquidation value (which approximates fair
value). We estimate the amount to be paid upon redemption of these interests by applying the related provisions of the governing
documents to our estimate of the fair value of the underlying net assets (principally real estate assets).
During the years ended December 31, 2009, 2008 and 2007, we allocated a total of $993,000, $1,083,000 and $800,000,
respectively, of income to these interests. During the years ended December 31, 2009, 2008 and 2007, we paid distributions to
these interests totaling $1,290,000, $1,335,000 and $1,092,000, respectively.
During 2009, we acquired for $750,000, a portion of our partner’s interest in certain of our other redeemable
noncontrolling interests in subsidiaries, in connection with the exercise of our partner’s redemption option. The $750,000
represents the fair value of the redemption amount.
Permanent Noncontrolling Interests in Subsidiaries
At December 31, 2009, the Permanent Noncontrolling Interests in Subsidiaries represent (i) equity interests in 28 entities
that own an aggregate of 94 self-storage facilities (the “Other Permanent Noncontrolling Interests in Subsidiaries”) and (ii)
preferred partnership units (the “Preferred Partnership Interests”). These interests are presented as equity because the holders of
the interests do not have the ability to require us to redeem them for cash or other assets, or other securities that would not also be
classified as equity.
F-22
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
Other Permanent Noncontrolling Interests in Subsidiaries
The total carrying amount of the Other Permanent Noncontrolling Interests in Subsidiaries was $32,974,000 at
December 31, 2009 ($33,109,000 at December 31, 2008). During the years ended December 31, 2009, 2008 and 2007, we
allocated a total of $17,387,000, $16,001,000 and $7,131,000, respectively, in income to these interests.
During the years ended December 31, 2009, 2008 and 2007, we paid distributions to these interests totaling $17,522,000,
$16,381,000 and $18,955,000, respectively.
In 2007, we sold an approximately 0.6% common equity interest in Shurgard Europe to various officers of the Company
(the “PS Officers”), other than our chief executive officer. Gross proceeds were $4,909,000 and we recorded a gain on
disposition of $1,194,000. For periods commencing from the sale of the interest through March 31, 2008, the PS Officers’ were
allocated their pro rata share of the earnings of Shurgard Europe, and this was included on our consolidated statements of income
as “Net income allocated (to) from noncontrolling equity interests.” As described in Note 3, on March 31, 2008, we
deconsolidated Shurgard Europe and, as a result, noncontrolling interests in subsidiaries with respect to the PS Officers’
investment was eliminated. See Note 5 under “Investment in Shurgard Europe” for further historical information regarding
Shurgard Europe.
Preferred Partnership Interests
At December 31, 2009, our preferred partnership units outstanding were comprised of 4,000,000 units of our 7.250%
Series J preferred units ($100,000,000 carrying amount, redeemable May 9, 2011). Subject to certain conditions, the Series J
preferred units are convertible into our 7.25% Series J Cumulative Preferred Shares.
At December 31, 2008, our preferred partnership units outstanding were comprised of 8,000,000 units of our 6.400%
Series NN ($200,000,000 carrying amount, redeemable March 17, 2010), 1,000,000 units of our 6.250% Series Z ($25,000,000
carrying amount, redeemable October 12, 2009), and 4,000,000 units of our 7.250% Series J ($100,000,000 carrying amount,
redeemable May 9, 2011) preferred partnership units.
In March 2009, we acquired all of the 6.40% Series NN preferred partnership units from a third party ($200.0 million
carrying amount) for approximately $128.0 million. This transaction resulted in an increase in paid-in capital of approximately
$72.0 million for the year ended December 31, 2009, and an allocation of $72.0 million in income from these interests in
determining net income allocable to Public Storage shareholders based, upon the excess of the carrying amount over the amount
paid.
Also in March 2009, we acquired all of the 6.25% Series Z preferred partnership units from a third party ($25.0 million
carrying amount) for $25.0 million. This resulted in no increase in income allocated to the common shareholders as they were
acquired at par.
During the years ended December 31, 2009, 2008 and 2007, we allocated a total of $9,455,000, $21,612,000 and
$21,612,000, respectively, in income to these interests based upon distributions paid.
F-23
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
8. Shareholders’ Equity
Cumulative Preferred Shares
At December 31, 2009 and 2008, we had the following series of Cumulative Preferred Shares of beneficial interest
outstanding:
Earliest
Redemption
Date
Series
Dividend
Rate
Shares
Outstanding
Liquidation
Preference
Shares
Outstanding
Liquidation
Preference
At December 31, 2009
At December 31, 2008
Series V
Series W
Series X
Series Y
Series Z
Series A
Series B
Series C
Series D
Series E
Series F
Series G
Series H
Series I
Series K
Series L
Series M
Series N
9/30/07
10/6/08
11/13/08
1/2/09
3/5/09
3/31/09
6/30/09
9/13/09
2/28/10
4/27/10
8/23/10
12/12/10
1/19/11
5/3/11
8/8/11
10/20/11
1/9/12
7/2/12
7.500%
6.500%
6.450%
6.850%
6.250%
6.125%
7.125%
6.600%
6.180%
6.750%
6.450%
7.000%
6.950%
7.250%
7.250%
6.750%
6.625%
7.000%
Total Cumulative Preferred Shares
6,200
5,300
4,800
750,900
4,500
4,600
4,350
4,425
5,400
5,650
9,893
4,000
4,200
20,700
16,990
8,267
19,065
6,900
886,140
(Dollar amounts in thousands)
6,900
$ 155,000
5,300
132,500
4,800
120,000
750,900
18,772
4,500
112,500
4,600
115,000
4,350
108,750
4,600
110,625
5,400
135,000
5,650
141,250
10,000
247,325
4,000
100,000
4,200
105,000
20,700
517,500
16,990
424,756
8,267
206,665
19,065
476,634
6,900
172,500
887,122
$ 3,399,777
$ 172,500
132,500
120,000
18,772
112,500
115,000
108,750
115,000
135,000
141,250
250,000
100,000
105,000
517,500
424,756
206,665
476,634
172,500
$ 3,424,327
The holders of our Cumulative Preferred Shares have general preference rights with respect to liquidation and quarterly
distributions. Holders of the preferred shares, except under certain conditions and as noted below, will not be entitled to vote on
most matters. In the event of a cumulative arrearage equal to six quarterly dividends, holders of all outstanding series of preferred
shares (voting as a single class without regard to series) will have the right to elect two additional members to serve on our Board
of Trustees until events of default have been cured. At December 31, 2009, there were no dividends in arrears.
Except under certain conditions relating to the Company’s qualification as a REIT, the Cumulative Preferred Shares are
not redeemable prior the dates indicated on the table above. On or after the respective dates, each of the series of Cumulative
Preferred Shares will be redeemable, at the option of the Company, in whole or in part, at $25.00 per share (or depositary share as
the case may be), plus accrued and unpaid dividends. Holders of the Cumulative Preferred Shares do not have the right to require
the Company to redeem such shares.
Upon issuance of our Cumulative Preferred Shares of beneficial interest, we classify the liquidation value as preferred
equity on our consolidated balance sheet with any issuance costs recorded as a reduction to paid-in capital.
During March 2009, we repurchased certain of our Cumulative Preferred Shares in privately negotiated transactions as
follows: Series V – 700,000 depositary shares, each representing 1/1,000 of a share of our Cumulative Preferred Shares at a total
cost of $13,230,000, Series C – 175,000 depositary shares, each representing 1/1,000 of a share of our Cumulative Preferred
Shares at a total cost of $2,695,000 and Series F – 107,000 depositary shares, each representing 1/1,000 of a share of our
Cumulative Preferred Shares at a total cost of $1,610,000. The carrying value of the shares repurchased totaled $23.8 million
F-24
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
($24.6 million liquidation preference less $0.8 million of original issuance costs), and exceeded the aggregate repurchase cost of
$17.5 million by approximately $6.2 million. For purposes of determining net income per share, income allocated to our
preferred shareholders was reduced by the $6.2 million for the year ended December 31, 2009.
During November and December 2008, we repurchased certain of our Cumulative Preferred Shares in privately
negotiated transactions as follows: Series Y – 849,100 Preferred Shares at a total cost of $14,091,000, Series K – 1,409,756
depositary shares, each representing 1/1,000 of a share of our Cumulative Preferred Shares at a total cost of $23,786,000, Series L
– 933,400 depositary shares, each representing 1/1,000 of a share of our Cumulative Preferred Shares at a total cost of
$14,626,000 and Series M – 934,647 depositary shares, each representing 1/1,000 of a share of our Cumulative Preferred Shares
at a total cost of $14,375,000. The carrying value of the shares repurchased totaled $100.8 million ($103.2 million liquidation
preference less $2.4 million of original issuance costs) exceeded the aggregate repurchase cost of $66.9 million by approximately
$33.9 million. For purposes of determining net income per share, income allocated to our preferred shareholders was reduced by
the $33.9 million for the year ended December 31, 2008.
During 2007, we issued two series of Cumulative Preferred Shares: Series M – issued January 9, 2007, net proceeds
totaling $484,767,000 and Series N – issued July 2, 2007, net proceeds totaling $167,125,000.
In December 2006, we called for redemption our Series T and Series U Cumulative Preferred Shares, at par. The
aggregated redemption value of $302,150,000 of these two series was repaid in January 2007.
Equity Shares, Series A
At December 31, 2009 and 2008, we had 8,377,193 depositary shares outstanding, each representing 1/1,000 of an
Equity Share, Series A. The Equity Shares, Series A rank on parity with our common shares and junior to the Cumulative
Preferred Shares with respect to general preference rights and have a liquidation amount which cannot exceed $24.50 per share.
Distributions with respect to each depositary share shall be the lesser of: (i) five times the per share dividend on our common
shares or (ii) $2.45 per annum. We have no obligation to pay distributions on the depositary shares if no distributions are paid to
common shareholders. During the years ended December 31, 2009, 2008 and 2007, we paid quarterly distributions to the holders
of the Equity Shares, Series A of $0.6125 per share for each of the quarters ended March 31, June 30, September 30 and
December 31.
Except in order to preserve the Company’s Federal income tax status as a REIT, we may not redeem the depositary
shares representing the Equity Shares, Series A before March 31, 2010. On or after March 31, 2010, we may, at our option,
redeem the depositary shares at $24.50 per depositary share. If the Company fails to preserve its Federal income tax status as a
REIT, each of the depositary shares will be convertible at the option of the shareholder into .956 common shares. The depositary
shares are otherwise not convertible into common shares. Holders of depositary shares vote as a single class with holders of our
common shares on shareholder matters, but the depositary shares have the equivalent of one-tenth of a vote per depositary share.
See Note 15 “Subsequent Events” for further discussion regarding the Equity Shares, Series A.
Common Shares
During 2009, 2008 and 2007, activity with respect to the issuance or repurchase of our common shares was as follows:
Employee stock-based
compensation (Note 10) ..............
Repurchases of common shares .........
2009
2008
2007
Shares
Amount
Shares
Amount
Shares
Amount
(Dollar amounts in thousands)
125,807
-
125,807
$
$
2,192
-
2,192
$
10,890
377,453
(1,520,196)
(111,903)
(1,142,743) $ (101,013)
278,008
-
278,008
$
$
8,457
-
8,457
Our Board of Trustees previously authorized the repurchase from time to time of up to 35,000,000 of our common shares
on the open market or in privately negotiated transactions. During the year ended December 31, 2009, we did not repurchase any
F-25
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
of our common shares. Through December 31, 2009, we have repurchased a total of 23,721,916 of our common shares pursuant
to this authorization.
At December 31, 2009 and 2008, we had 4,244,022 and 3,027,544 of common shares reserved in connection with our
share-based incentive plans, respectively, (see Note 10) and 231,978 shares reserved for the conversion of Convertible Partnership
Units, respectively.
Equity Shares, Series AAA
In November 1999, we sold $100,000,000 (4,289,544 shares) of Equity Shares, Series AAA (“Equity Shares AAA”) to a
newly formed joint venture. The Equity Shares AAA ranks on a parity with common shares and junior to the Senior Preferred
Shares with respect to general preference rights, and has a liquidation amount equal to 120% of the amount distributed to each
common share. Annual distributions per share are equal to the lesser of (i) five times the amount paid per common share or (ii)
$2.1564. We have no obligation to pay distributions if no distributions are paid to common shareholders. During the years ended
December 31, 2009, 2008 and 2007, we paid quarterly distributions to the holder of the Equity Shares, Series AAA of $0.5391
per share for each of the quarters ended March 31, June 30, September 30 and December 31. For all periods presented, the Equity
Shares, Series AAA and related dividends are eliminated in consolidation as the shares are held by a Subsidiary.
Dividends
The unaudited characterization of dividends for Federal income tax purposes is made based upon earnings and profits of
the Company, as defined by the Internal Revenue Code. Common share dividends including amounts paid to our restricted share
unitholders totaled $371.7 million ($2.20 per share), $472.8 million ($2.80 per share) and $340.0 million ($2.00 per share), for the
years ended December 31, 2009, 2008 and 2007, respectively. Equity Shares, Series A dividends totaled $20.5 million ($2.45 per
share), $21.2 million ($2.45 per share) and $21.4 million ($2.45 per share), for the years ended December 31, 2009, 2008 and
2007, respectively. Preferred share dividends pay fixed rates from 6.125% to 7.500% with a total liquidation amount of
$3,399,777,000 at December 31, 2009 ($3,424,327,000 at December 31, 2008) and dividends aggregating $232.4 million,
$239.7 million and $236.8 million for the years ended December 31, 2009, 2008 and 2007, respectively.
For the tax year ended December 31, 2009, distributions for the common shares, Equity Shares, Series A, and all the
various series of preferred shares were classified as follows:
Ordinary Income
Long-Term Capital Gain
Total
2009 (unaudited)
1st Quarter
100.00%
0.00%
2nd Quarter
100.00%
0.00%
3rd Quarter
98.57%
1.43%
4th Quarter
100.00%
0.00%
100.00%
100.00%
100.00%
100.00%
The ordinary income dividends distributed for the tax year ended December 31, 2009 do not constitute qualified dividend
income.
9. Related Party Transactions
Mr. Hughes, Public Storage’s Chairman of the Board of Trustees, and his family (collectively the “Hughes Family”)
have ownership interests in, and operate approximately 52 self-storage facilities in Canada using the “Public Storage” brand name
(“PS Canada”) pursuant to a royalty-free trademark license agreement with Public Storage. We currently do not own any
interests in these facilities nor do we own any facilities in Canada. The Hughes Family owns approximately 17.3% of our
common shares outstanding at December 31, 2009. We have a right of first refusal to acquire the stock or assets of the
corporation that manages the 52 self-storage facilities in Canada, if the Hughes Family or the corporation agrees to sell them.
However, we have no interest in the operations of this corporation, we have no right to acquire this stock or assets unless the
Hughes Family decides to sell and we receive no benefit from the profits and increases in value of the Canadian self-storage
facilities.
F-26
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
We reinsure risks relating to loss of goods stored by tenants in the self-storage facilities in Canada. During the years
ended December 31, 2009, 2008 and 2007, we received $642,000, $768,000 and $906,000 (based upon historical exchange rates
between the U.S. Dollar and Canadian Dollar in effect as the revenues were earned), respectively, in reinsurance premiums
attributable to the Canadian facilities. Since our right to provide tenant reinsurance to the Canadian facilities may be qualified,
there is no assurance that these premiums will continue.
Public Storage and Mr. Hughes are co-general partners in certain consolidated partnerships and affiliated partnerships of
Public Storage that are not consolidated. The Hughes Family owns 47.9% of the voting stock and Public Storage holds 46% of
the voting and 100% of the nonvoting stock (representing substantially all the economic interest) of a private REIT. The private
REIT owns limited partnership interests in five affiliated partnerships. The Hughes Family also owns limited partnership interests
in certain of these partnerships and holds securities in PSB. PS Canada holds approximately a 1.2% interest in Stor-RE, a
consolidated entity that provides liability and casualty insurance for PS Canada, Public Storage and certain affiliates of Public
Storage, for occurrences prior to April 1, 2004 as described below. Public Storage and the Hughes Family receive distributions
from these entities in accordance with the terms of the partnership agreements or other organizational documents.
From time to time, the Company and the Hughes Family have acquired limited partnership units from limited partners of
the Company’s consolidated partnerships. In connection with the acquisition in 1998 and 1999 of a total of 638 limited
partnership units by Tamara Hughes Gustavson and H-G Family Corp., a company owned by Hughes Family members, the
Company was granted an option to acquire the limited partnership units acquired at cost, plus expenses. During the fourth quarter
of 2008, the Company exercised its option to acquire the units for a total purchase price of approximately $239,000. The
transaction was approved by the independent members of the Board of Trustees after considering that the value of the units had
appreciated significantly since 1998 and 1999 and that the exercise price for the Company was substantially below the prices paid
to acquire similar limited partner units in third party transactions. The acquisition was effective January 1, 2009.
10. Share-Based Compensation
Stock Options
We have various stock option plans (collectively referred to as the “PS Plans”). Under the PS Plans, the Company has
granted non-qualified options to certain trustees, officers and key employees to purchase the Company’s common shares at a price
equal to the fair market value of the common shares at the date of grant. Options granted after December 31, 2002 vest generally
over a five-year period and expire between eight years and ten years after the date they became exercisable. The PS Plans also
provide for the grant of restricted shares (see below) to officers, key employees and service providers on terms determined by an
authorized committee of our Board.
We recognize compensation expense for stock options based upon their estimated fair value on the date of grant
amortized over the applicable vesting period (the “Fair Value Method”), net of estimates for future forfeitures. We estimate the
fair value of our stock options based upon the Black-Scholes option valuation model.
Outstanding stock options are included on a one-for-one basis in our diluted weighted average shares, less a reduction for
the treasury stock method applied to a) the average cumulative measured but unrecognized compensation expense during the
period and b) the strike price proceeds expected from the employee upon exercise.
The stock options outstanding at December 31, 2009 have an aggregate intrinsic value of approximately $62,893,000,
and remaining average contractual lives of approximately eight years. The aggregate intrinsic value of exercisable stock options at
December 31, 2009 amounted to approximately $23,832,000. Intrinsic value includes only those stock options whose exercise
price is less than the market value.
Additional information with respect to stock options during 2009, 2008 and 2007 is as follows:
F-27
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
2009
2008
2007
Number
of
Options
2,397,332
1,495,000
(53,164)
(143,500)
Weighted
Average
Exercise
Price
Per Share
$73.42
50.86
40.98
68.28
Weighted
Average
Exercise
Price
Per Share
$60.72
83.71
36.97
62.21
Number
of
Options
1,689,474
1,025,000
(292,309)
(24,833)
Weighted
Average
Exercise
Price
Per Share
$52.08
91.64
40.58
53.67
Number
of
Options
1,602,934
323,333
(200,793)
(36,000)
Options outstanding January 1
Granted
Exercised
Cancelled
Options outstanding December 31
3,695,668
$64.96
2,397,332
$73.42
1,689,474
$60.72
Options exercisable at December 31
1,217,110
$64.03
889,905
$55.49
911,709
$45.60
Aggregate options outstanding at period
end:
With exercise price less than $45 .......
With exercise price from $45 to $65 ..
With exercise price higher than $65...
Range of exercise prices ....................
Stock option expense for the year
(in 000’s) ...............................................
Aggregate exercise date intrinsic value of
options exercised during the year
(in 000’s) .................................................
Assumptions used in valuing options
with the Black-Scholes method:
Expected life of options in years,
based upon historical experience.
Risk-free interest rate .....................
Expected volatility, based upon
historical volatility ......................
Expected dividend yield .................
Average estimated value of options
granted during the year .............................
Restricted Share Units
2009
2008
2007
247,088
1,758,912
1,689,668
$23.06 to $97.47
270,925
388,319
1,738,088
$22.94 to $97.47
491,320
447,916
750,238
$22.94 to $97.47
$3,432
$1,851
5
1.9%
15.6%
6.7%
$2.05
$3,038
$1,347
$14,183
$11,326
5
2.8%
22.5%
7.0%
$7.21
5
4.6%
22.8%
7.0%
$9.46
Outstanding restricted share units vest ratably over a five or eight-year period from the date of grant. The employee
receives additional compensation equal to the per-share dividends received by common shareholders with respect to restricted
share units outstanding. Such compensation is accounted for as dividends paid. Any dividends paid on units which are
subsequently forfeited are expensed. Upon vesting, the employee receives common shares equal to the number of vested
restricted share units in exchange for the units.
The total value of each restricted share unit grant, based upon the market price of our common shares at the date of grant,
is amortized over the service period, net of estimates for future forfeitures, as compensation expense. The related employer
portion of payroll taxes is expensed as incurred.
F-28
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
Cash compensation paid to employees in lieu of the issuance of common shares based upon the market value of the
shares at the date of vesting is used to settle the employees’ tax liability generated by the vesting and is charged against paid in
capital.
The fair value of restricted share units outstanding at December 31, 2009 was approximately $44,663,000 and had a
grant-date aggregate fair market value of approximately $44,312,000. This $44,312,000, net of expected forfeitures, is expected
to be recognized as compensation expense over the next eight years (three years on average). The following table sets forth
relevant information with respect to restricted shares (dollar amounts in thousands):
Restricted share units outstanding January 1
Granted .....................................................
Vested .......................................................
Forfeited ....................................................
Restricted share units outstanding
December 31 .................................................
For vestings occurring during the year
(in 000’s):
Fair value of vested shares on vesting
date ......................................................
Cash paid in lieu of common shares
issued ...................................................
Common shares issued upon vesting ...
Restricted share unit expense for the year
(in 000’s) .......................................................
2009
2008
2007
Number Of
Restricted
Share Units
630,212
112,550
(115,723)
(78,685)
Grant Date
Aggregate
Fair Value
$53,132
7,428
(8,783)
(7,465)
Number Of
Restricted
Share Units
608,768
234,975
(129,399)
(84,132)
Grant Date
Aggregate
Fair Value
$48,578
19,070
(8,576)
(5,940)
Number Of
Restricted
Share Units
616,470
187,925
(112,684)
(82,943)
Grant Date
Aggregate
Fair Value
$43,421
18,860
(6,871)
(6,832)
548,354
$44,312
630,212
$53,132
608,768
$48,578
2009
2008
2007
$7,443
$3,103
72,643
$9,383
$10,307
$3,591
85,144
$9,553
$10,192
$3,317
77,215
$7,164
Restricted share expense includes amortization of the grant-date fair value of the units reflected as an increase to paid-in
capital, as well as payroll taxes we incurred upon each respective vesting.
See also “net income per common share” in Note 2 for further discussion regarding the impact of restricted share units
on our net income per common and income allocated to common shareholders.
11. Segment Information
Our reportable segments reflect significant operating activities that are evaluated separately by management, and are
organized based upon their operating characteristics. Each of our segments is evaluated by management based upon net segment
income. Net segment income represents net income in conformity with GAAP and our significant accounting policies as denoted
in Note 2.
We had previously grouped our Commercial Segment with other ancillary activities such as reinsurance of policies
against losses to goods stored by tenants in our self-storage facilities, merchandise sales, truck rentals, and containerized storage.
Due to the termination of our containerized storage and truck rental operations, these other ancillary activities as a group have
become less significant and as a result no longer represent a reportable segment either individually or as a group. We have
adjusted the classification of the “Presentation of Segment Information” below with respect to prior periods to be consistent with
our current segment definition.
Following is the description of and basis for presentation for each of our segments.
F-29
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
Domestic Self-Storage Segment
The Domestic Self-Storage Segment comprises our domestic self-storage rental operations, and is our predominant
segment. It includes the operations of the 1,991 self storage facilities owned by the Company and the Subsidiaries, as well as our
equity share of the 19 self-storage facilities that we account for on the equity method. None of our interest and other income,
interest expense or the related debt, general and administrative expense, or gains and losses on the sale of self-storage facilities is
allocated to our Domestic Self-Storage segment because management does not consider these items in evaluating the results of
operations of the Domestic Self-Storage segment. At December 31, 2009, the assets of the Domestic Self-Storage segment are
comprised principally of our self-storage facilities with a book value of $7.6 billion ($7.8 billion at December 31, 2008), Tenant
Intangibles with a book value of approximately $19.4 million ($33.2 million at December 31, 2008), and the Other Investments
with a net book value of $13.8 million ($14.8 million at December 31, 2008). Substantially all of our other assets totaling
$92.9 million, and our accrued and other liabilities totaling $212.3 million, ($109.9 million and $212.4 million, respectively, at
December 31, 2008) are directly associated with the Domestic Self-Storage segment.
Europe Self-Storage Segment
The Europe Self-Storage segment comprises our interest in Shurgard Europe, which has a separate management team
that makes the financing, capital allocation, and other significant decisions for this operation. The Europe Self-Storage segment
presentation includes all of the revenues, expenses, and operations of Shurgard Europe to the extent consolidated in our financial
statements, and for periods following the deconsolidation of Shurgard Europe, includes our equity share of Shurgard Europe’s
operations, the interest and other income received from Shurgard Europe, as well as specific general and administrative expense,
disposition gains, and foreign currency exchange gains and losses that management considers in evaluating our investment in
Shurgard Europe. At December 31, 2009, our consolidated balance sheet includes an investment in Shurgard Europe with a book
value of $272.3 million ($264.1 million at December 31, 2008) and a loan receivable from Shurgard Europe totaling
€391.9 million ($561.7 million) ($552.4 million at December 31, 2008).
Commercial Segment
The Commercial segment comprises our investment in PSB, a self-managed Real Estate Investment Trust with a separate
management team that makes the financing, capital allocation and other significant decisions. The Commercial segment also
includes our direct interest in certain commercial facilities, substantially all of which are managed by PSB. The Commercial
segment presentation includes our equity income from PSB, as well as the revenues and expenses of our commercial facilities. At
December 31, 2009, the assets of the Commercial segment are comprised principally of our investment in PSB which has a book
value of $326.1 million ($265.7 million at December 31, 2008).
Presentation of Segment Information
The following table reconciles the performance of each segment, in terms of segment income, to our consolidated net
income (amounts in thousands):
F-30
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
For the year ended December 31, 2009
Domestic
Self-Storage
Europe
Self Storage
Other Items
Not Allocated to
Segments
Commercial
(Amounts in thousands)
Total
Consolidated
Revenues:
Self-storage facilities .............................................. $ 1,490,292
-
Ancillary operations ................................................
-
Interest and other income ........................................
1,490,292
$
-
-
24,832
24,832
$
Expenses:
Cost of operations:
Self-storage facilities .........................................
Ancillary operations ..........................................
Depreciation and amortization.................................
General and administrative ......................................
Interest expense .......................................................
Income from continuing operations before equity
in earnings of real estate entities, gains on
disposition of real estate investments, net, gain
on early retirement of debt and foreign currency
exchange gain .........................................................
Equity in earnings of real estate entities ......................
Gains on disposition of real estate investments, net ....
Gain on early retirement debt ......................................
Foreign currency exchange gain .................................
Income from continuing operations ............................
Discontinued operations ..............................................
Net income .................................................................. $
486,928
-
337,275
-
-
824,203
666,089
1,867
-
-
-
667,956
-
667,956
-
-
-
-
-
-
24,832
16,269
-
-
9,662
50,763
-
50,763
$
$
-
14,982
-
14,982
-
5,759
2,958
-
-
8,717
6,265
35,108
30,293
-
-
71,666
-
71,666
$
-
92,615
4,981
97,596
$ 1,490,292
107,597
29,813
1,627,702
-
30,252
-
35,735
29,916
95,903
1,693
-
3,133
4,114
-
8,940
(8,869)
71
$
486,928
36,011
340,233
35,735
29,916
928,823
698,879
53,244
33,426
4,114
9,662
799,325
(8,869)
790,456
$
F-31
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
For the year ended December 31, 2008
Domestic
Self-Storage
Europe
Self Storage
Other Items
Not Allocated to
Segments
Commercial
(Amounts in thousands)
Total
Consolidated
Revenues:
Self-storage facilities .............................................. $ 1,524,295
-
Ancillary operations ................................................
-
Interest and other income ........................................
1,524,295
$
Expenses:
Cost of operations:
Self-storage facilities .........................................
Ancillary operations ..........................................
Depreciation and amortization.................................
General and administrative ......................................
Interest expense .......................................................
Income (loss) from continuing operations before
equity in earnings of real estate entities, gains on
disposition of real estate investments, net,
casualty loss and foreign currency exchange loss ...
Equity in earnings of real estate entities ......................
Gain (loss) on disposition of real estate
investments, net.......................................................
Casualty loss ...............................................................
Foreign currency exchange loss ..................................
Income (loss) from continuing operations ...................
Discontinued operations ..............................................
Net income (loss) ........................................................ $
494,436
-
387,210
-
-
881,646
642,649
1,932
-
-
-
644,581
-
644,581
$
54,722
4,913
18,496
78,131
24,654
1,409
21,871
30,044
6,597
84,575
(6,444)
4,134
344,685
-
(25,362)
317,013
-
317,013
$
$
-
15,326
-
15,326
-
6,292
2,900
-
-
9,192
6,134
14,325
-
-
-
20,459
-
20,459
$
-
88,182
17,659
105,841
$ 1,579,017
108,421
36,155
1,723,593
-
28,827
-
32,765
37,347
98,939
6,902
-
(8,140)
(525)
-
(1,763)
(6,418)
(8,181)
519,090
36,528
411,981
62,809
43,944
1,074,352
649,241
20,391
336,545
(525)
(25,362)
980,290
(6,418)
973,872
$
$
F-32
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
For the year ended December 31, 2007
Domestic
Self-Storage
Europe
Self Storage
Other Items
Not Allocated to
Segments
Commercial
(Amounts in thousands)
Total
Consolidated
-
15,101
-
15,101
-
5,722
2,570
-
-
8,292
6,809
10,502
-
-
-
17,311
-
17,311
$
-
82,890
10,713
93,603
$ 1,660,304
115,481
11,417
1,787,202
-
41,053
-
39,458
41,429
121,940
(28,337)
-
2,547
-
-
(25,790)
(1,265)
(27,055)
579,193
51,961
619,598
59,749
63,671
1,374,172
413,030
12,738
2,547
2,665
58,444
489,424
(2,346)
487,078
$
$
Revenues:
Self-storage facilities .............................................. $ 1,467,797
-
Ancillary operations ................................................
-
Interest and other income ........................................
1,467,797
$
Expenses:
Cost of operations:
Self-storage facilities .........................................
Ancillary operations ..........................................
Depreciation and amortization.................................
General and administrative ......................................
Interest expense .......................................................
Income (loss) from continuing operations before
equity in earnings of real estate entities, gains on
disposition of real estate investments, net,
casualty gain and foreign currency exchange
gain .........................................................................
Equity in earnings of real estate entities ......................
Gains on disposition of real estate investments, net ....
Casualty gain...............................................................
Foreign currency exchange gain .................................
Income (loss) from continuing operations ...................
Discontinued operations ..............................................
Net income (loss) ........................................................ $
487,504
-
493,482
-
-
980,986
486,811
2,236
-
2,665
-
491,712
-
491,712
$
192,507
17,490
704
210,701
91,689
5,186
123,546
20,291
22,242
262,954
(52,253)
-
-
-
58,444
6,191
(1,081)
5,110
$
$
F-33
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
12. Recent Accounting Pronouncements and Guidance
In June 2009, the FASB issued accounting pronouncements which become effective in our fiscal year ending
December 31, 2010, and require restatement of previously reported financial statements on the new accounting basis. We have
not yet determined whether these pronouncements will have an effect on our financial statements. One pronouncement affects
accounting for Variable Interest Entities, by (i) eliminating the concept of a qualifying special purpose entity, (ii) replacing the
quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable
interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity, and (iii) providing
for additional disclosures about an entity’s involvement with a variable interest entity. Another pronouncement affects the
accounting for transfers of financial assets, by (i) eliminating the concept of a qualifying special purpose entity, (ii) amending the
derecognition criteria for a transfer to be accounted for as a sale, and (iii) requiring additional disclosure over transfers accounted
for as a sale.
13. Commitments and Contingencies
Legal Matters
Brinkley v. Public Storage, Inc. (filed April 2005) (Superior Court of California – Los Angeles County)
The plaintiff sued the Company on behalf of a purported class of California non-exempt employees based on various
California wage and hour laws. Plaintiff sought certification for alleged meal period violations, rest period violations, failure to
pay for travel time, failure to pay for mileage reimbursement, and for wage statement violations. The Court certified subclasses
based only on alleged meal period and wage statement violations. In June 2007, the Court granted the Company’s summary
judgment motion as to the causes of action relating to the subclasses certified and dismissed those claims. Plaintiff appealed. The
Court of Appeals sustained the dismissal. The California Supreme Court granted review but deferred the matter pending
disposition of a related issue in another case.
Other Items
We are a party to various claims, complaints, and other legal actions that have arisen in the normal course of business
from time to time that are not described above. We believe that it is unlikely that the outcome of these other pending legal
proceedings including employment and tenant claims, in the aggregate, will have a material adverse impact upon our operations
or financial position.
Insurance and Loss Exposure
We have historically carried customary property, earthquake, general liability and workers compensation coverage
through internationally recognized insurance carriers, subject to customary levels of deductibles. The aggregate limits on these
policies of $75 million for property coverage and $102 million for general liability are higher than estimates of maximum
probable loss that could occur from individual catastrophic events determined in recent engineering and actuarial studies;
however, in case of multiple catastrophic events, these limits could be exhausted.
Our tenant insurance program reinsures a program that provides insurance to certificate holders against claims for
property losses due to specific named perils (earthquakes and floods are not covered by these policies) to goods stored by tenants
at our self-storage facilities for individual limits up to a maximum of $5,000. We have third-party insurance coverage for claims
paid exceeding $1,000,000 resulting from any one individual event, to a limit of $25,000,000. At December 31, 2009, there were
approximately 585,000 certificate holders held by our tenants, participating in this program representing aggregate coverage of
approximately $1.3 billion. Because each certificate represents insurance of goods held by a tenant at our self-storage facilities,
the geographic concentration of this $1.3 billion in coverage is dispersed throughout all of our U.S. facilities. We rely on a third-
party insurance company to provide the insurance and are subject to licensing requirements and regulations in several states.
F-34
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
Operating Lease Obligations
We lease land, equipment and office space under various operating leases. At December 31, 2009, the approximate
future minimum rental payments required under our operating leases for each calendar year is as follows: $6 million per year in
2010 and 2011, $5 million per year in 2012 – 2014 and an aggregate of $69 million in payments thereafter.
Expenses under operating leases were approximately $5.3 million, $5.3 million and $7.2 million for each of the three
years ended December 31, 2009, respectively.
14. Supplementary Quarterly Financial Data (unaudited)
Three Months Ended
March 31,
2009
June 30,
2009
September 30,
2009
December 31,
2009
(Amounts in thousands, except per share data)
Revenues (a) .......................................
$ 404,707
$ 407,252
$ 412,864
$ 402,879
Cost of operations (excluding
depreciation expense) (a) ....................
$ 143,127
$ 134,852
$ 128,754
$ 116,206
Depreciation expense (a) .....................
$
84,966
$
83,796
$
85,908
$
85,563
Income from continuing operations (a)
$ 158,807
$ 173,117
$ 182,259
$ 184,696
Net income ..........................................
$ 153,429
$ 205,387
$ 243,951
$ 187,689
Per Common Share (Note 2):
Net income - Basic .........................
Net income - Diluted ......................
$
$
0.95
0.95
$
$
0.80
0.80
$
$
1.03
1.03
$
$
0.70
0.70
Three Months Ended
March 31,
2008
June 30,
2008
September 30,
2008
December 31,
2008
(Amounts in thousands, except per share data)
Revenues (a) .......................................
$ 457,154
$ 418,494
$ 431,169
$ 416,776
Cost of operations (excluding
depreciation expense) (a) ....................
$ 167,959
$ 140,188
$ 125,335
$ 122,136
Depreciation expense (a) .....................
$ 122,240
$
94,829
$
91,084
$ 103,828
Gain on disposition of an interest in
Shurgard Europe (b) ............................
$ 344,685
$
-
$
-
$
-
Income from continuing operations (a)(b)
$ 135,552
$ 140,703
$ 196,772
$ 176,214
Net income (b) ....................................
$ 519,941
$ 143,955
$ 147,942
$ 162,034
Per Common Share (Note 2):
Net income - Basic .........................
Net income - Diluted ......................
$
$
2.64
2.64
$
$
0.40
0.40
$
$
0.43
0.42
$
$
0.72
0.72
(a) Revenues, cost of operations, depreciation expense and income from continuing operations as presented in this table differ from those
amounts as presented in our quarterly reports due to the impact of discontinued operations accounting as described in Note 2.
(b) Gain on disposition of an interest in Shurgard Europe, income from continuing operations, net income, and net income per common share
differ from the amounts previously presented in our March 31, 2008 financial statements. We recorded a $2,820,000 increase to gain on
disposition of an interest in Shurgard Europe in the quarter ended December 31, 2008, which was for the quarter ended March 31, 2008.
F-35
PUBLIC STORAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
15. Subsequent Events (unaudited)
We are calling for redemption all outstanding depositary shares, each representing 1/1,000 of an Equity Share, Series A
(NYSE: PSAA) on April 15, 2010 at $24.50 per share. The aggregate redemption amount to be paid to all holders of the
depositary shares is approximately $205.2 million.
F-36
PUBLIC STORAGE
EXHIBIT 12 – STATEMENT RE: COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
Net income ............................................................. $ 790,456
Less: Income allocated to noncontrolling
2009
interests in subsidiaries which do not have
fixed charges ..................................................
Less: Equity in earnings of investments .............
Add: Cash distributions from investments .........
Less: Impact of discontinued operations ............
Adjusted net income ...............................................
Interest expense ..................................................
(17,203)
(53,244)
49,408
8,869
778,286
29,916
Total earnings available to cover fixed charges ..... $ 808,202
Total fixed charges - interest expense (a) ............... $
30,634
Cumulative preferred share cash dividends ............ $ 232,431
9,455
Preferred partnership unit cash distributions ..........
(78,218)
Allocations pursuant to EITF Topic D-42 ..............
Total preferred distributions ................................... $ 163,668
Total combined fixed charges and preferred share
distributions .........................................................
$ 194,302
2008
For the Year Ended December 31,
2007
(Amounts in thousands)
$ 487,078
2006
$ 345,909
$ 973,872
2005
$ 489,044
(17,668)
(20,391)
43,455
6,418
985,686
43,944
$ 1,029,630
(16,527)
(12,738)
23,606
2,346
483,765
63,671
$ 547,436
(16,014)
(11,895)
17,699
(2,179)
333,520
33,062
$ 366,582
(15,161)
(24,883)
23,112
(9,109)
463,003
8,216
$ 471,219
$
45,942
$
68,417
$
35,778
$
11,036
$ 239,721
21,612
(33,851)
$ 227,482
$ 236,757
21,612
-
$ 258,369
$ 214,218
19,055
31,493
$ 264,766
$ 173,017
16,147
8,412
$ 197,576
$ 273,424
$ 326,786
$ 300,544
$ 208,612
Ratio of earnings to fixed charges ..........................
26.38x
22.41x
8.00
10.25x
42.70x
Ratio of earnings to fixed charges and preferred
share distributions ...............................................
4.16x
3.77x
1.68x
1.22x
2.26x
(a) “Total fixed charges – interest expense” includes interest expense plus capitalized interest and includes $13,217,000 in
interest expense incurred by Shurgard Europe for the period from August 23, 2006 through December 31, 2006,
$24,819,000 in interest expense for the year ended December 31, 2007, and $7,737,000 for the year ended
December 31, 2008. As described in Note 3 to the Company’s December 31, 2009 consolidated financial statements,
Shurgard Europe was deconsolidated as of March 31, 2008. No further interest expense for Shurgard Europe is
reflected in our financial statements after March 31, 2008.
Exhibit - 12
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1)
(2)
(3)
Registration Statement on Form S-3 (No. 333-144026) and related prospectus,
Registration Statement on Form S-8 (No.333-144907) and related prospectus of Public
Storage for the registration of common shares of beneficial interest pertaining to the
Public Storage 2007 Equity and Performance-Based Incentive Compensation Plan.
Post-effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement (No.
333-141448) for the registration of common shares of beneficial interest pertaining to the
Public Storage, Inc. 2001 Stock Option and Incentive Plan, Public Storage, Inc. 2001
Non-Executive/Non-Director Stock Option and Incentive Plan, Public Storage, Inc. 2000
Non-Executive/Non-Director Stock Option and Incentive Plan, Public Storage, Inc. 1996
Stock Option and Incentive Plan, PS 401(k) Profit Sharing Plan, Shurgard Storage
Centers, Inc. 2004 Long Term Incentive Plan, Shurgard Storage Centers, Inc. 2000 Long
Term Incentive Plan, Shurgard Storage Centers, Inc. 1995 Long Term Incentive
Compensation Plan.
of our reports dated February 26, 2010, with respect to the consolidated financial statements and related
financial statement schedule of Public Storage and the effectiveness of internal control over financial
reporting of Public Storage, included in this Annual Report (Form 10-K) of Public Storage for the year
ended December 31, 2009.
February 26, 2010
Los Angeles, California
/s/ Ernst & Young LLP
Exhibit 23
RULE 13A – 14(a) CERTIFICATION
I, Ronald L. Havner, Jr., certify that:
1.
I have reviewed this Annual Report on Form 10-K of Public Storage;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of
internal controls over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal controls over financial reporting.
/s/ Ronald L. Havner, Jr.
Name: Ronald L. Havner, Jr.
Title: Chief Executive Officer & President
Date: February 26, 2010
Exhibit 31.1
RULE 13A – 14(a) CERTIFICATION
I, John Reyes, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Public Storage;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of
internal controls over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal controls over financial reporting.
/s/ John Reyes
Name: John Reyes
Title: Chief Financial Officer
Date: February 26, 2010
Exhibit 31.2
SECTION 1350 CERTIFICATION
In connection with the Annual Report on Form 10-K of Public Storage (the “Company”) for the year ended
December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), Ronald L. Havner, Jr., as Chief Executive Officer and President of the Company and John
Reyes, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as
adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of
1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ Ronald L. Havner, Jr.
Name: Ronald L. Havner, Jr.
Title: Chief Executive Officer & President
Date:
February 26, 2010
/s/ John Reyes
Name: John Reyes
Title: Chief Financial Officer
Date:
February 26, 2010
This certification accompanies the Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall
not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for
purposes of §18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by §906 of the Sarbanes-Oxley Act of 2002 has been
provided to the Company, and will be retained and furnished to the SEC or its staff upon request.
Exhibit 32
CO R P O R AT E D ATA (as of February 26, 2010)
Trustees
Executive Officers
B. Wayne Hughes (1980)
Chairman of the Board
Ronald L. Havner, Jr. (2002)
Vice-Chairman of the Board, Chief Executive
Officer and President
Dann V. Angeloff (1980)
President of The Angeloff Company
William C. Baker (1991)
Principal, Baker Investments
Ronald L. Havner, Jr.
Vice-Chairman of the Board, Chief Executive
Officer and President
John Reyes
Senior Vice President and Chief Financial Officer
Mark C. Good
Senior Vice President and Chief Operating Officer
David F. Doll
Senior Vice President
John T. Evans (2003)
Retired Partner, Osler, Hoskin & Harcourt LLP
Steven M. Glick
Senior Vice President and Chief Legal Officer
Tamara Hughes Gustavson (2008)
Private Investor
Uri P. Harkham (1993)
President and Chief Executive Officer
Harkham Industries
B. Wayne Hughes, Jr. (1998)
Vice President of American Commercial
Equities, LLC
Harvey Lenkin (1991)
Retired President and Chief Operating Officer
Candace N. Krol
Senior Vice President, Human Resources
Corporate Secretary
Stephanie G. Heim
Vice President, Corporate Counsel and Secretary
U.S. Self-Storage Operations
John M. Sambuco
Executive Vice President—Operations
Avedick B. Poladian (2010)
Executive Vice President and Chief Operating
Officer of Lowe Enterprises, Inc.
PS Insurance
Obren B. Gerich
President
Corporate Headquarters
701 Western Avenue
Glendale, CA 91201-2349
Investor Relations
Additional information contact
Clemente Teng
Vice President of Investor Services
(818) 244-8080
Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
(781) 575-3120
www.computershare.com
Independent Registered Public
Accounting Firm
Ernst & Young LLP
Los Angeles, CA
Annual Meeting of Shareholders
The Annual Meeting of Shareholders of
Public Storage will be held on May 6, 2010
at 1:00 p.m. at the Hilton Glendale,
100 West Glenoaks Boulevard, Glendale, CA.
Gary E. Pruitt (2006)
Chairman of Univar N.V.
Ronald P. Spogli (2010)
President of Freeman Spogli & Co.
Daniel C. Staton (1999)
Chairman of Staton Capital
(
) = date trustee was elected to the Board
Certifications
The most recent certifications by our Chief
Executive Officer and Chief Financial
Officer pursuant to Sections 302 and 906 of
the Sarbanes-Oxley Act of 2002 are filed as
exhibits to our Form 10-K. Our Chief
Executive Officer’s most recent annual certi-
fication to the New York Stock Exchange
was submitted on May 29, 2009.
Shurgard Self Storage S.C.A. (Europe)
Steven De Tollenaere
Chief Executive Officer
PS Business Parks, Inc.
Joseph D. Russell, Jr.
President and Chief Executive Officer
Stock Exchange Listing
The Company’s Common Shares trade under
ticker symbol PSA on the New York Stock
Exchange.
Additional Information Sources
The Company’s website, www.publicstorage.com,
contains financial information of interest to
shareholders, brokers and others.
Public Storage is a member and active
supporter of the National Association of Real
Estate Investment Trusts.
PUBLIC STORAGE
701 Western Avenue, Glendale, California 91201-2349
(818) 244-8080 • www.publicstorage.com
(SKU 002CS-1A437)