®
Public Storage
2 0 1 3
A n n u a l
R e p o r t
WA
91/3
OR
39/3
NV
27
CA
417/49
HI
11
CO
63
UT
7
AZ
40/4
MN
43
MO
37
NE
1
KS
22
OK
8
TX
254/23
LA
10
WI
15
MI
43
IL
126
IN OH
31
31
KY
7
TN
27
AL
22
GA
107
MS
1
NH
2
NY
65
PA
29
VA
87/17
NC
77
SC
52
FL
247/3
UNITED
KINGDOM
21
MA
RI
CT
25
3
15
NJ
DE
MD
56
5
57/6
SWEDEN
30
DENMARK
10
NETHERLANDS
40
BELGIUM
21
GERMANY
11
FRANCE
55
P R O P E RT I E S (as of December 31, 2013)
Number
of Properties
Net Rentable
Square Feet
Number
of Properties
Net Rentable
Square Feet
Public Storage
Alabama
Arizona
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Nebraska
Nevada
New Hampshire
New Jersey
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
22
40
417
63
15
5
247
107
11
126
31
22
7
10
57
25
43
43
1
37
1
27
2
56
65
77
31
8
39
29
3
52
890,000
2,470,000
27,502,000
3,980,000
966,000
324,000
16,344,000
7,049,000
801,000
7,904,000
1,926,000
1,310,000
330,000
703,000
3,404,000
1,691,000
2,755,000
2,931,000
63,000
2,136,000
46,000
1,818,000
132,000
3,549,000
4,527,000
5,272,000
1,922,000
428,000
2,006,000
1,993,000
155,000
2,867,000
Public Storage (cont.)
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
27
254
7
87
91
15
1,528,000
16,715,000
440,000
5,110,000
6,064,000
968,000
2,200
141,019,000
Shurgard Europe
Belgium
Denmark
France
Germany
Netherlands
Sweden
United Kingdom
Self-storage totals
21
10
55
11
40
30
21
188
2,388
PS Business Parks, Inc.
Arizona
California
Florida
Maryland
Oregon
Texas
Virginia
Washington
4
49
3
6
3
23
17
3
Grand Totals
108
2,496
1,270,000
571,000
2,886,000
565,000
2,180,000
1,623,000
1,025,000
10,120,000
151,139,000
679,000
11,481,000
3,717,000
2,352,000
1,314,000
4,678,000
4,040,000
1,479,000
29,740,000
180,879,000
SELECTED FINANCIAL HIGHLIGHTS
For the year ended December 31,
2013
2012
2011
2010
2009
(Amounts in thousands, except per share data)
Operating Revenue
$ 1,981,746 $ 1,842,504 $ 1,735,888 $ 1,631,294 $ 1,607,395
Operating Expenses:
Cost of operations
Depreciation and amortization
General and administrative
Asset impairment charges
Operating income
Interest and other income
Interest expense
Equity in earnings of unconsolidated
real estate entities
Foreign currency exchange gain (loss)
Gain on real estate sales and debt retirement
Income from continuing operations
Discontinued operations
Net income
Allocation (to) from noncontrolling
565,161
387,402
66,679
—
555,904
357,781
56,837
—
560,509
357,969
52,410
2,186
545,921
353,245
38,487
994
1,019,242
970,522
973,074
938,647
536,555
339,003
35,735
—
911,293
962,504
22,577
(6,444)
871,982
22,074
(19,813)
762,814
32,333
(24,222)
692,647
29,017
(30,225)
696,102
29,813
(29,916)
57,579
17,082
4,233
1,057,531
—
1,057,531
45,586
8,876
1,456
58,704
(7,287)
10,801
930,161
12,874
943,035
833,143
3,316
836,459
38,352
(42,264)
827
688,354
7,760
696,114
53,244
9,662
37,540
796,445
(5,989)
790,456
equity interests
(5,078)
(3,777)
(12,617)
(24,076)
44,165
Net income allocable to Public Storage
shareholders
$ 1,052,453 $ 939,258 $ 823,842 $
672,038 $
834,621
Per Common Share:
Distributions
Net income - diluted
Weighted average common shares - diluted
Balance Sheet Data:
Total assets
Total debt
Total preferred equity
Public Storage shareholders’ equity
Permanent noncontrolling equity interests
Cash Flow Information:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
$
$
5.15 $
4.89 $
172,688
4.40 $
3.90 $
171,664
3.65 $
3.29 $
170,750
3.05 $
2.35 $
169,772
2.20
3.47
168,768
839,053 $ 468,828 $ 398,314 $
$ 9,876,266 $ 8,793,403 $ 8,932,562 $ 9,495,333 $ 9,805,645
$
518,889
$ 3,562,500 $ 2,837,500 $ 3,111,271 $ 3,396,027 $ 3,399,777
$ 8,791,730 $ 8,093,756 $ 8,288,209 $ 8,676,598 $ 8,928,407
132,974
$
568,417 $
27,125 $
29,108 $
22,718 $
32,336 $
$ 1,430,339 $ 1,285,659 $ 1,203,452 $ 1,093,221 $ 1,112,857
(91,409)
$ (1,412,393) $ (290,465) $
(938,401)
$
(266,605) $
(16,160) $ (1,117,305) $ (1,438,546) $ (1,132,709) $
(81,355) $
1
PUBLIC STORAGE
To the Shareholders of Public Storage:
We had an exceptional year in 2013! Our businesses expanded by ten million sq. ft. or 6% and we achieved solid
operating results. Most importantly, our intrinsic or business value per share increased.
Your Investment in Public Storage
Our goal is to grow free cash flow1 per share on a long-term, sustainable basis. Free cash flow is revenues, less all operating
and administrative expenses, maintenance capital expenditures, preferred dividends and interest expense, and for our
commercial properties, tenant improvements, broker commissions and “straight-lined rent.” It represents the owner’s cash
available for dividends, investments, share repurchases or other future use. We refer to it as “grocery money,” like the real cash
you spend at the grocery store, only we use it to grow the business or distribute to shareholders.
We believe free cash flow per share is the best measure of our intrinsic or business value. Size and scale are important. Having
the best brand and the largest, most diversified, and arguably the best portfolio of properties in the industry help us in a variety
of ways. However, they mean little to shareholders unless they lead to growth in free cash flow per share.
Over the past five, ten and 20 years, free cash flow, dividends and funds from operations1 per share have grown over 8%
per year.
Free cash flow
Dividends
Earnings
Funds from operations
2013
2008
2003
1993
$
$
$
$
7.18
5.15
4.89
7.53
$
$
$
$
4.61
2.20
4.19
5.05
$
$
$
$
2.67
1.80
1.28
2.84
$
$
$
$
1.19
0.84
0.98
1.42
2013 Operating Environment and Outlook for 2014
Each of our businesses grew in 2013. Total revenues increased to $2.0 billion from $1.8 billion. Net operating income1
increased 9% to $1.6 billion.
U.S. self-storage
European self-storage
Commercial properties
Ancillary businesses
Total
Free cash flow per share
Dividends per share
Net Operating Income
(Amounts in millions, except per share)
2013
$
$
$
$
1,326
61
110
93
1,590
7.18
5.15
U.S. Self-Storage
2012
2011
$
$
$
$
1,201
61
105
87
1,454
6.41
4.40
$
$
$
$
1,099
61
89
78
1,327
5.64
3.65
The U.S. self-storage industry enjoyed another banner year. Improving economic conditions led to increased product
usage and modest pricing power. The absence of new supply enhanced our ability to reduce marketing costs and
promotional discounts as well as increase the prices to new customers. We operated at record high occupancies in 2013.
Exceptional revenue management skills and solid operational execution at the store level helped achieve outstanding “Same
Store” revenue growth of 5.3%, our best in 12 years. In 2014, we expect modest growth in occupancies and improved
pricing power.
(1) See accompanying schedule “Supplemental Non-GAAP Disclosures.”
1
Operating expenses declined 1%. Lower marketing and repairs and maintenance costs were partially offset by substantially
higher property taxes. We have enjoyed three years of modest expense growth due to substantially reduced marketing, better
management of R&M and modest wage growth. We expect 2014 will return to a more normalized expense growth rate.
Net Operating Income
(Amounts in millions)
Same Store
Acquired/redeveloped properties
Total
Total assets (before depreciation reserves)
2013
2012
$
$
$
1,224
102
1,326
12,176
$
$
$
1,131
70
1,201
11,016
2011
1,048
51
1,099
10,722
$
$
$
European Self-Storage
Our European operations continue to be challenged by a tough economic climate (Netherlands, one of our larger European
markets, is in its third recession in the past five years), higher VAT taxes on self-storage and persistently high unemployment.
In 2013, aggressive marketing and reduced rates stabilized occupancies. Expense growth has also been modest as we have
streamlined corporate functions, including marketing, and used the savings to invest in field personnel.
We expect a return to positive growth in 2014 consistent with better demand.
Net Operating Income
(Amounts in millions)
Same Store
Acquired/developed properties
Total
Public Storage’s share
Total assets (before depreciation reserves)
2013
2012
2011
$
$
$
$
110
15
125
61
1,709
$
$
$
$
114
14
128
61
1,643
$
$
$
$
113
12
125
61
1,596
Commercial Properties
Our commercial properties, primarily our investment in PS Business Parks (PSB), showed continued improvement, with positive
Same Park net operating income growth for the second consecutive year. Joe Russell and his team have done an excellent
job navigating PSB through the great recession and positioning it for accelerated growth as the economy improves. During
the year, PSB acquired $115 million of properties with 1.5 million net rentable sq. ft., expanding the portfolio to 30 million
sq. ft. We also invested $75 million in PSB’s secondary common offering, maintaining our equity ownership at 42%. PSB
continues to be an excellent long-term investment.
Net Operating Income
(Amounts in millions)
PSB’s Same Park operations
Acquired/developed properties
Owned commercial properties
Total
Public Storage’s share
Total assets (before depreciation reserves)
2013
2012
2011
$
$
$
$
202
39
9
250
110
3,284
$
$
$
$
199
33
9
241
105
3,131
$
$
$
$
193
2
9
204
89
3,032
2
Ancillary Businesses
Our ancillary businesses continued to benefit from strong self-storage operations and exceptional execution. The largest
of these businesses, our U.S. tenant re-insurance business, is managed by John Reyes and Capri Haga. They have done an
exceptional job with new products, pricing and solid cost control, while also delivering excellent customer service.
Net Operating Income
(Amounts in millions)
2013
2012
2011
$
$
$
$
2
12
68
23
105
93
10
$
$
$
$
2
11
64
23
100
87
10
$
$
$
$
2
7
58
23
90
78
10
Third party management
Merchandise
Tenant reinsurance
European ancillary businesses
Total
Public Storage’s share
Total assets
Capital Allocation
During 2013, we acquired 121 self-storage properties for approximately $1.2 billion, our largest expansion since the
2006 Shurgard merger. The properties are in the major markets of California, Colorado, Florida, Georgia, North Carolina,
Massachusetts, South Carolina, Texas and Virginia, enhancing our presence and market share.
We also made progress with our development and redevelopment activities, investing $85 million. At year end our
development pipeline was 1.8 million net rentable sq. ft. with an estimated cost of $200 million.
David Doll, who manages our real estate acquisition and development group, has built the best team in the industry. They
created a significant amount of value in 2013 which will become evident over the next couple of years.
The table below reflects some relevant metrics:
Third party acquisitions
Newly developed properties
Redeveloped properties
Minority interest properties
Total
Third party acquisitions
Newly developed properties
Redeveloped properties
Total
Net Rentable Sq. Ft. Acquired
(Amounts in millions)
2012
1.9
—
0.1
0.1
2.1
2011
0.9
0.1
0.2
2.8
4.0
Units Added
2012
18,840
—
1,580
20,420
2011
9,020
—
3,890
12,910
2010
2.7
—
0.2
—
2.9
2010
27,870
—
1,600
29,470
2013
8.0
0.1
0.5
—
8.6
2013
74,050
1,500
7,600
83,150
3
Given our significant investment activity in 2013, a review of capital allocation is important. In the 2006 annual report,
I described “intrinsic value” in the context of our merger with Shurgard. Intrinsic value applies to all capital allocation
decisions. I often cite Warren Buffet’s definition and philosophy:
“Intrinsic value is the discounted value of the cash that can be taken out of a business during its lifetime. Calculating
intrinsic value is highly subjective and varies both as estimates for future cash flows are revised and as interest rates move.
Intrinsic value is the only logical way to evaluate the relative attractiveness of investments. Understanding intrinsic
value is as important for managers as it is for owners. When management makes capital allocation decisions, it is vital
that decisions are made to increase intrinsic value rather than destroy it. Many companies tend to focus on whether
a transaction is immediately accretive or dilutive to earnings per share [in the case of REITs, generally FFO] rather
than evaluate its impact on intrinsic value. Over time, the skill with which managers allocate capital will have an
enormous impact on a company’s intrinsic value.”
How acquisitions are funded also has an enormous impact on how much value is created or destroyed. An over-valued
acquisition funded with under-valued common stock results in a double whammy to shareholders, i.e., buying dollar bills
for $2 with stock valued at $0.50 cents. The converse is also true and results in the ideal transaction, i.e., buying dollar
bills for $0.50 cents with common stock valued at $2.
For most forms of real estate, the yard stick for intrinsic value is replacement costs, i.e., what it would cost to build a
new property, with some adjustments for obsolescence, location, customer base and building quality. Replacement costs
estimates can vary greatly. A simpler, often used metric is the “cap rate,” or the capitalized value of the property’s net
operating income.
In theory, the historical income from a property reflects its age, location, features and market rent. Cap rates vary greatly
by market. For example, a property in midtown Manhattan (whether self-storage, apartment, retail or office) sells for
a much lower cap rate, say 4%, than a similar type property in Reno, Nevada, say 8%. Land values and rental rates
are generally driven by three factors: per capita income of the potential customers, density of the customer base and
barriers to entry. Developing new property in midtown Manhattan is difficult because of the absence of empty space, the
tremendous density of people, their relatively high incomes and their strong and consistent need for space. It is very
easy to develop property in Reno for the opposite reasons, i.e., lots of empty space and few people with relatively low
incomes. The Manhattan property will have somewhat of a “moat” around it, preventing new competition and enabling
it to maintain high occupancies at rates that continually increase over time. A property in Reno will constantly face new
competition and an extremely price-sensitive customer. Both can be good or bad investments, depending on the price
paid, i.e., you can over pay for Manhattan (think Harry Macklowe in 2007) and find bargains in Reno (we paid about 60%
of replacement cost for five Reno properties acquired in 2011 which have generated excellent returns).
Many buyers of real estate frequently rationalize a low cap rate and a high multiple of replacement costs with the
irreplaceable location, higher barrier to entry nature of the market or the availability of cheap short-term financing.
While not totally irrational, this often overlooks some simple math. A property acquired at a 4% cap rate will take
18 years to grow to an 8% cap rate at an annual compounded growth rate of 4% per year (uninterrupted). In the world of
real estate, 4% annual compounded growth is rare. There usually needs to be “something else,” i.e., below market leases,
redevelopment opportunity, poor management, or a highly valued common stock, to justify such a low cap rate.
Our 2013 acquisitions for the most part fall in between the “Manhattans” and “Renos.” Many have additional
opportunities to create value. Overall, we paid a “fair” price for some excellent properties. In addition, we significantly
enhanced our competitive position in a number of leading markets as shown in the table below.
4
Public Storage’s Market Share Estimate
in the Top Ten Metropolitan Statistical Areas (MSA)
Rank
MSA
PSA’s
Current
Market Share
Percentage
Change
from 2012
Estimated Annual
Population Growth
2013-2018
1 New York
2 Los Angeles
3 Chicago
4 Dallas-Fort Worth
5 Houston
6
Philadelphia
7 Washington DC
8 Miami–West Palm Beach
9 Atlanta
10 Boston
10.3%
21.8%
16.8%
11.0%
11.7%
12.9%
20.1%
24.6%
15.6%
7.1%
0.5%
0.6%
0.0%
0.2%
1.6%
0.0%
1.2%
6.3%
1.4%
1.5%
1.0%
1.0%
0.8%
1.4%
1.4%
0.7%
1.5%
1.1%
1.3%
0.8%
Scale is important to our business for many reasons. It enhances our brand recognition in a market (customers drive by
and see our orange doors), greatly improves the efficacy of our internet and television marketing programs, enhances our
operational efficiency and our ability to recruit, train and develop people within a market. Scale generally lowers our operating
costs and improves our competitive position.
Financing
To fund our growth, we obtained a one-year $700 million term loan from our long-time relationship bank, Wells Fargo.
I have often written about the adroit skills of our CFO, John Reyes, especially with respect to the capital markets. Given
the short-term nature of the $700 million loan, John will be busy in 2014 applying his skills to procure longer term
financing while creating significant shareholder value in the process.
Conclusion
The fundamentals of our businesses today, higher demand and modest new supply, provide a nice tailwind for solid
growth over the next couple of years. Our recent acquisition and newly developed properties will also provide another
source of growth.
Our success could not be achieved without the 5,000 plus employees who work hard to provide value and service
to our over one million customers. They are a competitive advantage that enhances our industry leading position.
Ronald L. Havner, Jr.
Chairman and CEO
February 28, 2014
5
CUMULATIVE TOTAL RETURN
Public Storage, S&P 500 Index and NAREIT Equity Index
December 31, 2008 - December 31, 2013
$ 250
$225
$ 200
$ 175
$ 150
$ 125
$ 100
Public Storage
S&P 500 Index
NAREIT Equity Index
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
Public Storage
S&P 500 Index
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
$ 100.00
$ 105.81
$ 136.06
$ 186.07
$ 206.90
$ 222.22
$ 100.00
$ 126.46
$ 145.51
$ 148.59
$ 172.37
$ 228.19
NAREIT Equity Index
$ 100.00
$ 127.99
$ 163.76
$ 177.32
$ 212.26
$ 218.32
The graph set forth above compares the yearly change in the Company’s cumulative total shareholder return on its Common
Shares for the five-year period ended December 31, 2013 to the cumulative total return of the Standard & Poor’s 500 Stock Index
(“S&P 500 Index”) and the National Association of Real Estate Investment Trusts Equity Index (“NAREIT Equity Index”) for the
same period (total shareholder return equals price appreciation plus dividends). The stock price performance graph assumes that the
value of the investment in the Company’s Common Shares and each index was $100 on December 31, 2008 and that all dividends
were reinvested. The share price performance shown in the graph is not necessarily indicative of future price performance.
Supplemental Non-GAAP Disclosures (unaudited)
Funds from Operations (“FFO”), Free Cash Flow and Net Operating Income (“NOI”) are non-GAAP measures. FFO
represents net income before real estate depreciation, gains, losses and impairment charges and is considered a helpful
measure of Real Estate Investment Trust (“REIT”) performance, because it excludes depreciation, which assumes that
real estate values diminish predictably over time, while we believe that real estate values fluctuate in response to market
conditions and inflation. Free Cash Flow (often referred to by other REITs as “Funds Available for Distribution” or
“FAD”) represents FFO, prior to non-cash items less capital expenditures. NOI represents revenues less cost of
operations (before depreciation) earned directly at the real estate locations we have an interest in. We believe that Free
Cash Flow is an important supplemental measure of REIT performance and liquidity and that NOI helps investors to
understand the cash flow generated by the operation of our properties. Such measures are not a substitute for net income,
cash flows or other GAAP measures in evaluating our performance, liquidity or ability to pay dividends. Other REITs
may compute these measures on a different basis and therefore may not be comparable to our measures. The tables
below reconcile from net income to these measures and calculate FFO and Free Cash Flow on a per-share basis.
Reconciliation of Net Income to FFO and Free Cash Flow
(Amounts in millions, except per share amounts)
Net income
Eliminate:
Depreciation
Real estate gains and impairment charges
Allocation to other equity interests
FFO allocable to common shareholders
Eliminate non-cash items included in FFO, such as
share-based compensation expense, foreign
currency exchange and application of EITF D-42
Less – capital expenditures
Free cash flow available to common shareholders
Common shares outstanding
FFO per common share
Free cash flow per common share
For the year ended December 31,
2013
2012
2011
2008
2003
1993
$ 1,058
$ 943
$ 836 $ 974
$ 380
$
35
463
(4)
1,517
(217)
1,300
434
(15)
1,362
(278)
1,084
423
(12)
1,247
(279)
968
489
(337)
1,126
(274)
852
210
(6)
584
(225)
359
25
—
60
(35)
25
11
(71)
$ 1,240
85
(68)
$ 1,101
66
(70)
2
(76)
$ 964 $ 778
9
(30)
$ 338
—
(4)
21
$
172.7
171.7
170.8
168.7
126.5
17.6
$ 7.53 $ 6.31 $ 5.67 $ 5.05
$ 5.64 $ 4.61
$ 7.18
$ 6.41
$ 2.84
$ 2.67
$ 1.42
$ 1.19
Reconciliation of Net Income to Net Operating Income
(Amounts in millions)
For the year ended December 31,
2012
2013
2011
Net income
Eliminate amounts included in net income but not included in
net operating income:
Interest and other income
Depreciation and amortization, general and administrative and
interest expense
Loss (gain) on foreign currency exchange, real estate disposition
and debt retirement, discontinued operations, asset
impairment charges, net
Our equity share of PSB’s and Shurgard Europe’s depreciation,
interest and other income, disposition gains, general
and administrative expense, interest expense, preferred
dividends and other equity income
Net operating income
$ 1,058
$
943
$
836
(23)
461
(22)
434
(32)
435
(21)
(23)
(5)
115
$ 1,590
122
$ 1,454
93
$ 1,327
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, 2013.
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 6.875% Cumulative Preferred Share, Series
O $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.500% Cumulative Preferred Share, Series
P $.01 par value ..........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.500% Cumulative Preferred Share, Series
Q $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 6.350% Cumulative Preferred Share, Series
R $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.900% Cumulative Preferred Share, Series
S $.01 par value ..........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.750% Cumulative Preferred Share, Series
T $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.625% Cumulative Preferred Share, Series
U $.01 par value ...........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.375% Cumulative Preferred Share, Series
V $.01 par value ...........................................................................................................
New York Stock Exchange
1
Depositary Shares Each Representing 1/1,000 of a 5.200% Cumulative Preferred Share, Series
W $.01 par value ..........................................................................................................
New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a 5.200% Cumulative Preferred Share, Series
X $.01 par value ...........................................................................................................
New York Stock Exchange
Common Shares, $.10 par value ..........................................................................................
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 (§229.405) 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. [X]
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, 2013:
Common Shares, $0.10 Par Value – $22,171,992,000 (computed on the basis of $153.33 per share which was the
reported closing sale price of the Company's Common Shares on the New York Stock Exchange on June 30, 2013).
2
As of February 21, 2014, there were 172,120,701 outstanding Common Shares, $.10 par value.
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 2014 are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described
therein.
3
PART I
ITEM 1.
Business
Forward Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements in this document, other than statements
of historical fact, are 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 are based on current expectations and assumptions that are
subject to risks and uncertainties, which may cause our actual results and performance to be materially
different from those expressed or implied in the forward-looking statements. Factors and risks that may
impact 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”) including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
general risks associated with the ownership and operation of real estate, including
changes in demand, risks related to development of self-storage facilities, potential
liability for environmental contamination, natural disasters and adverse changes in laws
and regulations governing property tax, real estate and zoning;
risks associated with downturns in the national and local economies in the markets in
which we operate, including risks related to current economic conditions and the
economic health of our customers;
the impact of competition from new and existing self-storage and commercial facilities
and other storage alternatives;
difficulties in our ability to successfully evaluate, finance, integrate into our existing
operations, and manage acquired and developed properties;
risks associated with international operations including, but not limited to, unfavorable
foreign currency rate fluctuations, refinancing risk of affiliate loans from us, and local
and global economic uncertainty that could adversely affect our earnings and cash flows;
risks related to our participation in joint ventures;
the impact of the regulatory environment as well as national, state, and local laws and
regulations including, without limitation, those governing environmental, taxes and
tenant insurance matters and real estate investment trusts (“REITs”), and risks related to
the impact of new laws and regulations;
risk of increased tax expense associated either with a possible failure by us to qualify as a
REIT, or with challenges to intercompany transactions with our taxable REIT
subsidiaries;
changes in federal or state tax laws related to the taxation of REIT’s, which could impact
our status as a REIT;
disruptions or shutdowns of our automated processes, systems and the Internet or
breaches of our data security;
4
(cid:120)
(cid:120)
(cid:120)
risks associated with the self-insurance of certain business risks, including property and
casualty insurance, employee health insurance and workers compensation liabilities;
difficulties in raising capital at a reasonable cost; and
economic uncertainty due to the impact of terrorism or war.
These forward looking statements speak only as of the date of this report or as of the dates
indicated in the statements. All of our forward-looking statements, including those in this report, are
qualified in their entirety by this statement. We expressly disclaim any obligation to update publicly or
otherwise revise any forward-looking statements, whether as a result of new information, new estimates, or
other factors, events or circumstances after the date of these forward looking statements, except as required
by law. Given these risks and uncertainties, you should not rely on any forward-looking statements in this
report, or which management may make orally or in writing from time to time, as predictions of future
events nor guarantees of future performance.
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”).
At December 31, 2013, our principal business activities are as follows:
(i) Domestic Self-Storage: We acquire, develop, own, and operate self-storage facilities
which offer storage spaces for lease on a month-to-month basis, for personal and business
use. We are the largest owner and operator of self-storage facilities in the United States
(“U.S.”). We have direct and indirect equity interests in 2,200 self-storage facilities
(141 million net rentable square feet of space) located in 38 states within the U.S.
operating under the “Public Storage” brand name.
(ii) European Self-Storage: We have a 49% equity interest in Shurgard Europe, with an
institutional investor owning the remaining 51% interest. Shurgard Europe owns 187
self-storage facilities (10 million net rentable square feet of space) located in seven
countries in Western Europe which operate under the “Shurgard” brand name and
manages one facility we own in the United Kingdom. We believe Shurgard Europe is the
largest owner and operator of self-storage facilities in Western Europe.
(iii) Commercial: We have a 42% equity interest in PS Business Parks, Inc. (“PSB”), a
publicly held REIT which owns and operates 29.7 million net rentable square feet of
commercial space. We also wholly-own 1.4 million net rentable square feet of
commercial space, substantially all of which is managed by PSB.
In addition, we reinsure policies against losses to goods stored by customers in our self-storage
facilities, sell merchandise at our self-storage facilities and manage self-storage facilities owned by third-
party owners.
For all periods presented herein, we have elected to be treated as a REIT, as defined in the Internal
Revenue Code. As a REIT, we do not incur federal income tax on our REIT taxable income (generally, net
rents and gains from real property, dividends, and interest) that is fully distributed each year (for this
purpose, certain distributions paid in a subsequent year may be considered), and if we meet certain
organizational and operational rules. We believe we met these requirements in all periods presented herein,
and we expect to continue to elect and qualify as a REIT.
5
We report 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, 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.
Competition
We believe that storage customers generally store their goods within a five mile radius of their
home or business. Most of our facilities compete with other nearby self-storage facilities that use the same
marketing channels and offer the same service as us. Generally, our competitors attract customers using
the same marketing channels we use, including Internet advertising, 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 6% 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 approximately 12%, with all other self-
storage space owned by numerous private regional and local operators. We believe this market
fragmentation enhances the advantage of our brand name, as well as the economies of scale we enjoy with
approximately 71% of our 2013 same-store revenues in the 20 Metropolitan Statistical Areas (“MSA’s”, as
defined by the U.S. Census Bureau) with the highest population levels.
Such fragmentation also provides opportunities for us to acquire additional facilities; however, we
compete with a wide variety of institutions and other investors who also view self-storage facilities as
attractive investments. The amount of capital 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 centralized reporting and information network enables us
to identify changing market conditions and operating trends as well as analyze customer data and quickly
change each of our individual properties’ pricing and promotions on an automated basis.
Convenient shopping experience: Customers can conveniently shop the space available at our
facilities, reviewing attributes such as facility location, size, amenities such as climate-control, as well as
pricing, and learn about ancillary businesses through the following marketing channels:
(cid:120) Our Website: The online marketing channel continues to grow in prominence, with
approximately 55% of our move-ins in 2013 sourced through our website, as compared to
36% in 2010. In addition, we believe that many of our customers who directly call our
call center, or who move-in to a facility on a walk-in basis, have already reviewed our
pricing and space availability through our website. We invest extensively in advertising
on the Internet to attract potential customers, primarily through the use of search engines,
and we regularly update and improve our website to enhance its productivity.
(cid:120) Our Call Center: Our call center is staffed by skilled sales specialists. Customers reach
our call center by calling our advertised toll-free telephone referral number, (800) 44-
6
STORE, or telephone numbers provided on the Internet. We believe giving customers
the option to interact with a call center agent, despite the higher marginal cost relative to
an internet reservation, enhances our ability to close sales with potential storage
customers.
(cid:120) Our Properties: Customers can also shop at any one of our facilities. Property managers
access the same information that is available on our website and to our call center agents,
and can inform the customer of storage alternatives at that site or our other nearby storage
facilities. Property managers are extensively trained to maximize the conversion of such
“walk in” shoppers into customers.
Economies of scale: We are the largest provider of self-storage space in the U.S. As of
December 31, 2013, we operated 2,200 self-storage facilities with over one million self-storage spaces.
These facilities are generally located in major markets within 38 states in the U.S. The size and scope of
our operations have enabled us to achieve high operating margins and a low level of administrative costs
relative to revenues through the centralization of many functions, such as facility maintenance, employee
compensation and benefits programs, revenue management, as well as the development and documentation
of standardized operating procedures. 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 believe our market share and concentration in major metropolitan centers makes various
promotional and media programs more cost-beneficial for us than for our competitors. As noted above,
approximately 71% of our same-store revenues for 2013 were in the 20 MSA’s with the highest population
levels. Our large market share and well-recognized brand name increases the likelihood that our facilities
will appear prominently in unpaid search results for “self-storage” on major online search engines, and
enhances the efficiency of our bidding for paid multiple-keyword advertising. We can use television
advertising in many markets, while most of our competitors cannot do so cost-effectively.
Brand name recognition: We believe that the “Public Storage” brand name is the most
recognized and established name in the self-storage industry in the U.S, due to our national reach in major
markets in 38 states, and our highly visible facilities, with their distinct orange colored doors and signage.
We believe the “Public Storage” name is one of the most frequently used search terms used by customers
using Internet search engines for self-storage. We believe that the “Shurgard” brand, used by Shurgard
Europe, is a similarly established and valuable brand in Europe. We believe that the awareness of our
brand name results in a high percentage of potential storage customers considering our facilities, relative to
other operators.
Growth and Investment Strategies
Our growth strategies consist of: (i) improving the operating performance of our existing self-
storage facilities, (ii) acquiring more facilities, (iii) developing new self-storage space, (iv) participating in
the growth of commercial facilities, primarily through our investment in PSB, and (v) participating in the
growth of Shurgard Europe. While our long-term strategy includes each of these elements, in the short run
the level of growth in our asset base in any period is dependent upon the cost and availability of capital, as
well as the relative attractiveness of investment alternatives.
Improve the operating performance of existing facilities: We seek to increase the net cash flow
of our existing self-storage facilities by a) regularly analyzing our call volume, reservation activity, Internet
activity, move-in/move-out rates and other market supply and demand factors and responding by adjusting
our marketing activities and rental rates, b) attempting to maximize revenues through evaluating the
appropriate balance between occupancy, rental rates, and promotional discounting and c) controlling
operating costs. We believe that our property management personnel, systems, our convenient shopping
options for the customer, and our media and Internet advertising programs will continue to enhance our
ability to meet these goals.
7
Acquire properties owned or operated by others in the U.S.: We seek to capitalize on the
fragmentation of the self-storage business through acquiring attractively priced, well-located existing self-
storage facilities. We believe our presence in and knowledge of substantially all of the major markets in
the U.S. enhances our ability to identify attractive acquisition opportunities. Data on the rental rates and
occupancy levels of our existing facilities provide us an advantage in evaluating the potential of acquisition
opportunities. The level of third-party acquisition opportunities available depends upon many factors, such
as the motivation of potential sellers to liquidate their investments, as well as the financing available to
self-storage owners. We decide whether to pursue acquisition opportunities based upon many factors
including our opinion as to the potential for future growth, the quality of construction and location, the cash
flow we expect from the facility when operated on our platform and our yield expectations.
During 2013, we acquired 121 facilities from third parties for approximately $1.2 billion,
primarily through large portfolio acquisitions. This volume was higher than in the preceding six years
combined. We will continue to seek to acquire properties in 2014. While there were more sellers of self-
storage facilities in 2013 due at least in part, we believe, to higher values and robust cash flows of self-
storage facilities, it is uncertain as to the level of third party acquisitions we will complete in 2014.
Develop new self-storage space: The development of new self-storage locations and the
expansion of existing self-storage facilities has been an important source of growth. Since the beginning
of 2013, we have expanded our development efforts due in part to the significant increase in prices being
paid for existing facilities, in many cases well above the cost of developing new facilities. At
December 31, 2013, we had a development pipeline of projects to expand existing self-storage facilities and
develop new self-storage facilities, which will add approximately 1.8 million net rentable square feet of
self-storage space. The aggregate cost of these projects is estimated at $196 million, of which $52 million
had been incurred at December 31, 2013, and the remaining costs will be incurred principally in 2014.
Some of these projects are subject to significant contingencies such as entitlement approval. We expect to
continue to seek additional development projects; however, due to the difficulty in finding projects that
meet our risk-adjusted yield expectations, as well as the difficulty in obtaining building permits for self-
storage activities in certain municipalities, it is uncertain as to how much additional development we will
undertake in the future.
Participate in the growth of commercial facilities primarily through our ownership in PS
Business Parks, Inc.: Our investment in PSB provides us diversification into another asset type. PSB is a
stand-alone public company traded on the New York Stock Exchange. During the year ended
December 31, 2013, we increased our investment in PSB by acquiring 1,356,748 shares of PSB common
stock in open-market transactions and directly from PSB, for an aggregate cost of $105.0 million.
Over the past three years, PSB has been able to grow its portfolio through acquisitions. In 2011
and 2012, PSB acquired an aggregate total of 6.8 million net rentable square feet of commercial space for
an aggregate purchase price of approximately $605.0 million. In 2013, PSB acquired 1.5 million net
rentable square feet for an aggregate purchase price of $115.6 million. As of December 31, 2013, PSB
owned and operated approximately 29.7 million net rentable square feet of commercial space, and had an
enterprise value of approximately $3.9 billion (based upon the trading price of PSB’s common stock
combined with the liquidation value of its debt and preferred stock as of December 31, 2013).
Participate in the growth of European self-storage through ownership in Shurgard Europe:
We believe Shurgard Europe is the largest self-storage company in Western Europe. It owns and operates
187 facilities with approximately 10 million net rentable square feet in: France (principally Paris), Sweden
(principally Stockholm), the United Kingdom (principally London), the Netherlands, Denmark (principally
Copenhagen), Belgium and Germany. We own 49% of Shurgard Europe, with the other 51% owned by a
large U.S. institutional investor.
Customer awareness and availability of self-storage is significantly lower in Europe than in the
U.S. However, with more awareness and product supply, we believe there is potential for increased
demand for storage space in Europe. In the long run, we believe Shurgard Europe could capitalize on
8
potential increased demand through the development of new facilities or, to a lesser extent, acquiring
existing facilities.
Financing of the Company’s Growth Strategies
Overview of financing strategy: In order to grow our asset base, access to capital is important. In
general, we seek to finance our investment activities with retained cash flow and the issuance of preferred
and common securities when market conditions are favorable, using bank debt as bridge financing when
market conditions are not favorable.
Permanent capital: We have generally been able to raise capital through the issuance of preferred
securities at an attractive cost of capital relative to the issuance of our common shares and, as a result,
issuances of common shares have been minimal over the past several years. During the years ended
December 31, 2013 and 2012, we issued approximately $725.0 million and $1.7 billion, respectively, of
preferred securities. Currently, market conditions are much less favorable, with market coupon rates for
our most recently issued series of preferred securities trading at approximately 6.5% (as compared to 5.2%
for the preferred securities we issued in the first quarter of 2013). We believe that market coupon rates for
a new issuance of our preferred securities would need to be in the area of 6.5% and the amount of capital
we could raise would most likely be much lower than what we raised in the first quarter of 2013.
Bridge financing: We have in the past used our $300 million revolving line of credit as
temporary “bridge” financing and repaid such borrowings with permanent capital. At December 31, 2013,
we had approximately $50.1 million outstanding on our line of credit (none as of February 25, 2014). On
December 2, 2013, we borrowed $700 million from Wells Fargo pursuant to a term loan due in one year, in
order to fund our acquisitions of self-storage facilities in the fourth quarter of 2013. See Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources” for more information.
Borrowing through mortgage loans or senior debt: Even though preferred securities have a
higher coupon rate than long-term debt, we have generally not issued conventional debt due to refinancing
risk associated with debt and other benefits of preferred securities described in more detail in Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources.”
We have broad powers to borrow in furtherance of our objectives without a vote of our
shareholders. These powers are subject to a limitation on unsecured borrowings in our Bylaws described in
“Limitations on Debt” below. Our senior debt has an “A” credit rating by Standard and Poor’s.
Notwithstanding our desire to continue to meet our capital needs with permanent capital, we believe this
high rating, combined with our low level of debt, could allow us to issue a significant amount of unsecured
debt at lower interest rates than the coupon on preferred securities if we chose to.
Assumption of Debt: Substantially all of our mortgage debt outstanding was assumed in
connection with real estate acquisitions. When we have assumed debt in the past, we did so because the
nature of the loan terms did not allow prepayment, or a prepayment penalty made it economically
disadvantageous to prepay.
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. 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 used joint ventures with institutional investors and we may
form additional joint ventures in the future.
9
Disposition of properties: Generally, we have disposed of self-storage facilities only when
compelled to do so through condemnation proceedings. 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 Unconsolidated 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:
(cid:120) Our investments primarily consist of direct ownership of self-storage facilities (the nature of
our self-storage facilities is described in Item 2, “Properties”), as well as partial interests in
entities that own self-storage facilities.
(cid:120) 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”
brand name which are owned by Shurgard Europe.
(cid:120) 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.
(cid:120) 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 2,172 self-storage facilities in the U.S. and one self-storage
facility in London, England at December 31, 2013, we have controlling indirect interests in entities that
own 14 self-storage facilities in the U.S. Due to 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 Real Estate Entities
At December 31, 2013, we also had ownership interests in entities that we do not control or
consolidate. These entities include PSB, Shurgard Europe (discussed above), and various limited
partnerships that own an aggregate of 14 self-storage facilities. These entities are referred to collectively as
the “Unconsolidated Real Estate Entities.”
PSB, which files financial statements with the SEC, and Shurgard Europe, have debt and other
obligations that we do not consolidate in our financial statements. None of the other Unconsolidated Real
Estate Entities have significant amounts of debt or other obligations. See Note 4 to our December 31, 2013
financial statements for further disclosure regarding the assets, liabilities and operating results of the
Unconsolidated Real Estate 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 our “Debt Ratio” exceeding 50%. “Debt Ratio”, as defined in the related
governing documents, represents generally the ratio of debt to total assets before accumulated depreciation
and amortization on our balance sheet, in accordance with U.S. generally accepted accounting principles.
As of December 31, 2013, the Debt Ratio was approximately 6%.
10
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. We believe we were in compliance with each of these covenants
as of December 31, 2013.
Employees
We have approximately 5,200 employees in the U.S. at December 31, 2013 which are engaged
primarily in property operations.
Seasonality
We experience minor seasonal fluctuations in the demand for self-storage space, with demand and
rates generally higher in the summer months than in the winter months. We believe that these fluctuations
result in part from increased moving activity during the summer months.
Insurance
We have historically carried customary property, earthquake, general liability, employee medical
insurance and workers compensation coverage through internationally recognized insurance carriers,
subject to customary levels of deductibles. The aggregate limits on these policies of approximately
$75 million for property losses and $102 million for general liability losses are higher than estimates of
maximum probable losses that could occur from individual catastrophic events determined in recent
engineering and actuarial studies; however, in case of multiple catastrophic events, these limits could be
exhausted.
We reinsure a program that provides insurance to our customers from an independent third-party
insurer. This program covers tenant claims for losses to goods stored at our facilities as a result of specific
named perils (earthquakes are not covered by this program), up to a maximum limit of $5,000 per storage
unit. We reinsure all risks in this program, but purchase insurance from an independent third party
insurance company for aggregate claims between $5.0 million and $15.0 million per occurrence. We are
subject to licensing requirements and regulations in several states. At December 31, 2013, there were
approximately 759,000 certificates held by our self-storage customers, representing aggregate coverage of
approximately $1.7 billion.
11
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.
We have significant exposure to real estate risk.
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. These risks include the following:
Natural disasters or terrorist attacks could cause damage to our facilities, resulting in increased
costs and reduced revenues. Natural disasters, such as earthquakes, hurricanes and floods, or terrorist
attacks could cause significant damage and require significant repair costs, and make facilities temporarily
uninhabitable, reducing our revenues. Damage and business interruption losses could exceed the aggregate
limits of our insurance coverage. In addition, because we self-insure a portion of our risks, losses below a
certain level may not be covered by insurance. See Note 13 to our December 31, 2013 financial statements
for a description of the risks of losses that are not covered by third-party insurance contracts. We may not
have sufficient insurance coverage for losses caused by a terrorist attack, or such insurance may not be
maintained, available or cost-effective. In addition, significant natural disasters, terrorist attacks, threats of
future terrorist attacks, or resulting wider armed conflicts could have negative impacts on the U.S.
economy, reducing storage demand and impairing our operating results.
Operating costs could increase. We could be subject to increases in insurance premiums,
increased or new property tax assessments or other taxes, repair and maintenance costs, payroll, utility
costs, workers compensation, and other operating expenses due to various factors such as inflation, labor
shortages, commodity and energy price increases.
The acquisition of existing properties is subject to risks that may adversely affect our growth and
financial results. We have acquired material amounts of self-storage facilities from third parties in the past,
and we expect to continue to do so in the future. We face significant competition for suitable acquisition
properties from other real estate investors. As a result, we may be unable to acquire additional properties
we desire or the purchase price for desirable properties may be significantly increased. Failures or
unexpected circumstances in integrating newly acquired properties into our operations or circumstances we
did not detect during due diligence, such as environmental matters, needed repairs or deferred maintenance,
or the effects of increased property tax following reassessment of a newly-acquired property, as well as the
general risks of real estate investment, could jeopardize realization of the anticipated earnings from an
acquisition.
Development of self-storage facilities can subject us to risks. At December 31, 2013, we have a
pipeline of development projects totaling $196 million (subject to contingencies), and we expect to
continue to seek additional development projects. There are significant risks involved in developing self-
storage facilities, such as delays or cost increases due to changes in or failure to meet government or
regulatory requirements, weather issues, unforeseen site conditions, or personnel problems. Self-storage
space is generally not pre-leased, and rent-up of newly developed space can be delayed or ongoing cash
flow yields can be reduced due to competition, reductions in storage demand, or other factors.
There
is significant competition among self-storage
from other storage
alternatives. Most of our properties are self-storage facilities, which generated most of our revenue for the
year ended December 31, 2013. Competition in the local market areas in which many of our properties are
located is significant and has affected our occupancy levels, rental rates and operating expenses. If
development of self-storage facilities by other operators were to increase, due to increases in availability of
funds for investment or other reasons, competition with our facilities could intensify.
facilities and
12
liabilities
We may
incur significant
from environmental contamination or moisture
infiltration. Existing or future laws impose or may impose liability on us to clean up environmental
contamination on or around properties that we currently or previously owned or operated, even if we were
not responsible for or aware of the environmental contamination or even if such environmental
contamination occurred prior to our involvement with the property. We have conducted preliminary
environmental assessments on most of our properties, which have not identified material liabilities. These
assessments, commonly referred to as “Phase 1 Environmental Assessments,” include an investigation
(excluding soil or groundwater sampling or analysis) and a review of publicly available information
regarding the site and other nearby properties.
We are also subject to potential liability relating to moisture infiltration, which can result in mold
or other damage to our or our customers’ property, as well as potential health concerns. When we receive a
complaint or otherwise become aware that an air quality concern exists, we implement corrective measures
and seek to work proactively with our customers to resolve issues, subject to our contractual limitations on
liability for such claims.
We are not aware of any environmental contamination or moisture infiltration related liabilities
that could be material to our overall business, financial condition, or results of operation. However, we
may not have detected all material liabilities, we could acquire properties with material undetected
liabilities, or new conditions could arise or develop in the future. Settling any such liabilities could
negatively impact our earnings and cash available for distribution to shareholders, and could also adversely
affect our ability to sell, lease, operate, or encumber affected facilities.
We incur liability from tenant and employment-related claims. From time to time we have to
make monetary settlements or defend actions or arbitration (including class actions) to resolve tenant or
employment-related claims and disputes.
Economic conditions can adversely affect our business, financial condition, growth and access to
capital.
Our revenues and operating cash flow can be negatively impacted by reductions in employment
and population levels, household and disposable income, and other general economic factors that lead to a
reduction in demand for rental space in each of the markets in which we operate our properties.
Our ability to issue preferred shares or access other sources of capital, such as borrowing, has been
in the past, and may in the future be, adversely affected by challenging market conditions. The issuance of
perpetual preferred securities historically has been a significant source of capital to grow our business. If
we were unable to issue preferred shares or borrow at reasonable rates, prospective earnings growth
through expanding our asset base could be limited.
We have exposure to European operations through our ownership in Shurgard Europe.
As a result of our ownership of 49% of the equity in Shurgard Europe’s equity with a book value
of $424.1 million at December 31, 2013, and our loan to Shurgard Europe totaling $428.1 million at
December 31, 2013, we are exposed to additional risks related to the ownership and operation of
international businesses that may adversely impact our business and financial results, including the
following:
(cid:120) Currency risks: Currency fluctuations can impact the fair value of our equity investment in,
and loan to Shurgard Europe, as well as the related income we receive as well as future
repatriation of cash.
(cid:120) Legislative, tax, and regulatory risks: We are subject to complex foreign laws and regulations
related to permitting and land use, the environment, labor, and other areas, as well as income,
property, sales, value added and employment tax laws. These laws can be difficult to apply or
13
interpret and can vary in each country or locality, and are subject to unexpected changes in
their form and application due to regional, national, or local political uncertainty and other
factors. Such changes, or Shurgard’s failure to comply with these laws, could subject it to
penalties or other sanctions, adverse changes in business processes, as well as potentially
adverse income tax, property tax, or other tax burdens.
(cid:120)
Impediments to capital repatriation could negatively impact the realization of our investment
in Shurgard Europe: Laws in Europe and the U.S. may create, impede or increase our cost to
repatriate capital or earnings from Shurgard Europe.
(cid:120) Risks of collective bargaining and intellectual property: Collective bargaining, which is
prevalent in certain areas in Europe, could negatively impact Shurgard Europe’s labor costs or
operations.
(cid:120) Potential operating and individual country risks: Economic slowdowns or extraordinary
political or social change in the countries in which it operates have posed, and could continue
to pose, challenges or result in future reductions of Shurgard Europe’s operating cash flows.
(cid:120)
Impediments of Shurgard Europe’s joint venture structure: Shurgard Europe’s significant
decisions, involving activities such as borrowing money, capital contributions, raising capital
from third parties, as well as selling or acquiring significant assets, require the consent of our
joint venture partner. As a result, Shurgard Europe may be precluded from taking advantage of
opportunities that we would find attractive. In addition, we could be unable to separately
pursue such opportunities due to certain market exclusivity provisions of the Shurgard Europe
joint venture agreement, and our 49% equity investment may not be easily sold or readily
accepted as collateral by potential lenders to Public Storage due to the joint venture structure.
(cid:120) Risks related to Shurgard Europe’s Debt: Shurgard Europe has a term loan from a bank (the
“Bank Loan”) with a balance of approximately €107.5 million ($148.0 million) at
December 31, 2013 maturing in November 2014 and a loan due to us (the “Shareholder Loan”)
totaling €311.0 million ($428.1 million) at December 31, 2013. On January 28, 2014, our joint
venture partner in Shurgard Europe acquired 51% of the Shareholder Loan at face value, using
the proceeds from a bank loan (the “JV Partner Loan”), and the maturity date of the
Shareholder Loan was extended to April 2019. The JV Partner Loan matures in two years and
is collateralized with our joint venture partner’s interests in the Shareholder Loan and their
interest in Shurgard Europe. Shurgard Europe will seek to refinance the Bank Loan. If
Shurgard Europe is not able to refinance its debt due to a constrained credit market, negative
operating trends or other reasons, our equity investment in Shurgard Europe could be
negatively impacted.
The Hughes Family could control us and take actions adverse to other shareholders.
At December 31, 2013, B. Wayne Hughes, our former Chairman, and his family, which includes
two members of the board of trustees (the “Hughes Family”) owned approximately 15.8% of our aggregate
outstanding common shares. Our declaration of trust permits the Hughes Family to own up to 35.66% of
our outstanding common shares while it generally restricts the ownership by other persons and entities to
3% of our outstanding common shares. 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, resulting
in an outcome that may not be favorable to other shareholders.
Takeover attempts or changes in control could be thwarted, even if beneficial to shareholders.
14
In certain circumstances, shareholders might desire a change of control or acquisition of us, in
order to realize a premium over the then-prevailing market price of our shares or for other reasons.
However, the following could prevent, deter, or delay such a transaction:
(cid:120) Provisions of Maryland law may impose limitations that may make it more difficult for a
third party to negotiate or effect a business combination transaction or control share
acquisition with Public Storage. Currently, the Board has opted not to subject the
Company to these provisions of Maryland law, but it could choose to do so in the future
without shareholder approval.
(cid:120) To protect against the loss of our REIT status due to concentration of ownership levels,
our declaration of trust generally limits the ability of a person, other than the Hughes
Family or “designated investment entities” (each as defined in our declaration of trust), to
own, actually or constructively, more than 3% of our outstanding common shares or 9.9%
of the outstanding shares of any class or series of preferred or equity shares, in either case
unless a specific exemption is granted by our board of trustees. These limits could
discourage, delay or prevent a transaction involving a change in control of our company
not approved by our board of trustees.
(cid:120) Similarly, current provisions of our declaration of trust and powers of our Board of
Trustees could have the same effect, including (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 on terms approved by the Board without obtaining shareholder approval, (4) the
advance notice provisions of our bylaws and (5) the Board’s ability under Maryland law,
without obtaining shareholder approval, to implement takeover defenses that we may not
yet have and to take, or refrain from taking, other actions that could have the effect of
delaying, deterring or preventing a transaction or a change in control.
If we failed to qualify as a REIT, we would have to pay substantial income taxes.
REITs are subject to a range of complex organizational and operational requirements. A
qualifying REIT does not generally incur federal income tax on its net income that is distributed to its
shareholders. Our REIT status is also dependent upon the ongoing REIT qualification of our affiliate, PSB,
as a REIT, as a result of our substantial ownership interest in that company. We believe that we are
organized and have operated as a REIT and we intend to continue to operate to maintain our REIT status.
There can be no assurance that we qualify or will continue to qualify as a REIT. The highly
technical nature of the REIT rules, the ongoing importance of factual determinations, the possibility of
unidentified issues in prior periods or changes in our circumstances, all could adversely affect our ability to
comply. For any taxable year that we fail to qualify as a REIT and statutory relief provisions did not apply,
we would be taxed at the regular federal corporate rates on all of our taxable income and we also could be
subject to penalties and interest. We would generally not be eligible to seek REIT status again until the
fifth taxable year after the first year of our failure to qualify. Any taxes, interest and penalties incurred
would reduce the amount of cash available for distribution to our shareholders or for reinvestment and
would adversely affect our earnings, which could have a material adverse effect.
We may pay some taxes, reducing cash available for shareholders.
Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal,
foreign, state and local taxes on our income and property. Since January 1, 2001, certain corporate
subsidiaries of the Company have elected to be treated as “taxable REIT subsidiaries” for federal income
tax purposes, and are taxable as regular corporations and subject to certain limitations on intercompany
transactions. If tax authorities determine that amounts paid by our taxable REIT subsidiaries to us are
greater than what would be paid under similar arrangements among unrelated parties, we could be subject
15
to a 100% penalty tax on the excess payments, and ongoing intercompany arrangements could have to
change, resulting in higher ongoing tax payments. To the extent the Company is required to pay federal,
foreign, state or local taxes or federal penalty taxes due to existing laws or changes thereto, we will have
less cash available for distribution to shareholders.
We are heavily dependent on computer systems, telecommunications and the Internet to process
transactions, summarize results and manage our business and security breaches or a failure of such
networks, systems or technology could adversely impact our business and customer relationships.
We are heavily dependent upon automated information technology and Internet commerce, with
approximately half of our new customers coming from the telephone or over the Internet, and the nature of
our business involves the receipt and retention of personal information about our customers. We centrally
manage significant components of our operations with our computer systems, including our financial
information, and we also rely extensively on third-party vendors to retain data, process transactions and
provide other systems services. These systems are subject to damage or interruption from power outages,
computer and telecommunications failures, computer worms, viruses and other destructive or disruptive
security breaches and catastrophic events.
As a result, our operations could be severely impacted by a natural disaster, terrorist attack or
other circumstance that resulted in a significant outage at our systems or those of our third party providers,
despite our use of back up and redundancy measures. Further, viruses and other related risks could
negatively impact our information technology processes. Our or our customers’ confidential information
could be compromised or misappropriated, due to a breach of our network security. Such data security
breaches as well as system disruptions and shutdowns could result in additional costs to repair or replace
such networks or information systems and possible legal liability, including government enforcement
actions and private litigation. In addition, our customers could lose confidence in our ability to protect their
personal information, which could cause them to discontinue leasing our self-storage facilities. Such
events could lead to lost future revenues and adversely affect our results of operations.
We have no ownership interest in Canadian self-storage facilities owned or operated by the Hughes
Family.
At December 31, 2013, the Hughes Family had ownership interests in, and operated, 54 self-
storage facilities in Canada (the “Canadian Self-Storage Facilities”). These facilities are operated under the
“Public Storage” tradename, which we license to the Hughes Family for use in Canada on a royalty-free,
non-exclusive basis. We have a right of first refusal, subject to limitations, to acquire the stock or assets of
the corporation engaged in the operation of the Canadian Self-Storage Facilities if the Hughes Family or
the corporation agrees to sell them. However, we do not benefit from profits or potential appreciation in
value of the Canadian Self-Storage Facilities because we have no ownership interest in these facilities. We
do not operate in the Canadian self-storage market, and have no plans to do so. However, if we choose to
do so without acquiring the Hughes Family interests in the Canadian Self-Storage Facilities, we may have
to share the use of the “Public Storage” name in Canada with the Hughes Family, unless we are able to
terminate the license agreement.
Through our subsidiaries, we reinsure risks relating to loss of goods stored by customers in the
Canadian Self-Storage Facilities. During the years ended December 31, 2013, 2012 and 2011, we received
$0.5 million, $0.6 million and $0.6 million, respectively, in reinsurance premiums attributable to the
Canadian Self-Storage Facilities. Because our right to earn these premiums may be qualified, there is no
assurance that these premiums will continue.
16
We are subject to laws and governmental regulations and actions that require us to incur compliance
costs affecting 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, the Dodd-
Frank Wall Street Reform and Consumer Protection Act 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, restatement of our financial statements and
could also affect the marketability of our real estate facilities.
The Patient Protection and Affordable Care Act as well as other healthcare reform legislation
recently passed or being considered by Congress and state legislatures (collectively, the “Healthcare
Legislation”) are expected to impact our business beginning in 2014. Based on its current form, we believe
that the Healthcare Legislation will at least moderately increase our costs; however, there could be a
significant further negative impact to our costs and business depending upon how the various governmental
agencies design and implement the specific regulations to implement the Patient Protection and Affordable
Care Act, the nature of further legislation that may be passed at the national and local level, and other
factors.
In response to current economic conditions or the current political environment or otherwise, laws
and regulations could be implemented or changed in ways that adversely affect our operating results and
financial condition, such as legislation that could facilitate union activity or that would otherwise increase
operating costs.
All our properties must comply with the Americans with Disabilities Act and with related
regulations and similar state law requirements, as well as various real estate and zoning laws and
regulations, which are subject to change and could become more costly to comply with in the future.
Compliance with these requirements can require us to incur significant expenditures, which would reduce
cash otherwise available for distribution to shareholders. A failure to comply with these laws could lead to
fines or possible awards of damages to individuals affected by the non-compliance. Failure to comply with
these requirements could also affect the marketability of our real estate facilities.
Our tenant insurance business is subject to governmental regulation which could reduce our
profitability or limit our growth.
We hold Limited Lines Self-Service Storage Insurance Agent licenses from a number of
individual state Departments of Insurance and are subject to state governmental regulation and
supervision. Our continued ability to maintain these Limited Lines Self-Service Storage Insurance Agent
licenses in the jurisdictions in which we are licensed depends on our compliance with related rules and
regulations. The regulatory authorities in each jurisdiction generally have broad discretion to grant, renew
and revoke licenses and approvals, to promulgate, interpret, and implement regulations, and to evaluate
compliance with regulations through periodic examinations, audits and investigations of the affairs of
insurance agents. As a result of regulatory or private action in any jurisdiction, we may be temporarily or
permanently suspended from continuing some or all of our reinsurance activities, or otherwise fined or
penalized or suffer an adverse judgment. For the year ended December 31, 2013, we recorded a total of
$67.8 million in net income from our tenant reinsurance activities.
ITEM 1B. Unresolved Staff Comments
None.
17
ITEM 2.
Properties
At December 31, 2013, we had direct and indirect ownership interests in 2,200 self-storage facilities
located in 38 states within the U.S. and 188 storage facilities located in seven Western European nations:
At December 31, 2013
Number of Storage
Facilities (a)
Net Rentable Square Feet
(in thousands)
U.S.:
California:
Southern ...........................
Northern ...........................
Texas .......................................
Florida .....................................
Illinois .....................................
Georgia ....................................
Washington .............................
North Carolina .........................
Virginia ...................................
New York ................................
Colorado ..................................
New Jersey ..............................
Maryland .................................
Minnesota ................................
South Carolina .........................
Michigan .................................
Arizona ....................................
Missouri ..................................
Oregon .....................................
Pennsylvania ...........................
Indiana .....................................
Ohio .........................................
Nevada ....................................
Massachusetts ..........................
Tennessee ................................
Kansas .....................................
Wisconsin ................................
Other states (12 states) ............
244
173
254
247
126
107
91
77
87
65
63
56
57
43
52
43
40
37
39
29
31
31
27
25
27
22
15
92
17,192
10,310
16,715
16,344
7,904
7,049
6,064
5,272
5,110
4,527
3,980
3,549
3,404
2,931
2,867
2,755
2,470
2,136
2,006
1,993
1,926
1,922
1,818
1,691
1,528
1,310
968
5,278
Total – U.S. ......................
2,200
141,019
Europe (b):
France ......................................
Netherlands .............................
Sweden ....................................
Belgium ...................................
United Kingdom ......................
Germany ..................................
Denmark ..................................
Total - Europe ..................
55
40
30
21
21
11
10
188
2,886
2,180
1,623
1,270
1,025
571
565
10,120
Grand Total ......................
2,388
151,139
18
(a) See Schedule III: Real Estate and Accumulated Depreciation in the Company’s 2013 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 owned by Shurgard Europe.
We seek to maximize our facilities’ cash flow through the regular review and adjustment of rents
charged and promotions granted to our existing and new incoming customers, and controlling expenses.
For the year ended December 31, 2013, the weighted average occupancy level and the average realized rent
per occupied square foot for our self-storage facilities were approximately 92.7% and $14.18, respectively,
in the U.S. and 79.6% and $26.90, respectively, in Europe.
At December 31, 2013, 45 of our U.S. facilities with a net book value of $224 million were
encumbered by an aggregate of $89 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, 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 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. Space is rented on a month-to-month
basis and 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, its proximity to elevators, or if the space is climate controlled. 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” brand name.
Users include individuals from virtually all demographic groups, as well as businesses.
Individuals usually store furniture, household appliances, personal belongings, motor vehicles, boats,
campers, motorcycles and other household goods. Businesses normally store excess inventory, business
records, seasonal goods, equipment and fixtures.
Our self-storage facilities generally consist of between 350 to 750 storage spaces. Most spaces
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 and incremental
demand from college students.
Our self-storage facilities are geographically diversified and are located primarily in or near major
metropolitan markets in 38 states in the U.S. Generally our self-storage facilities are located in heavily
populated areas and close to concentrations of apartment complexes, single family residences and
commercial developments.
Competition from other self-storage facilities is significant and impacts the occupancy levels and
rental rates for many of our properties.
We believe
levels of
approximately 90%, have attractive characteristics consisting of high profit margins, a broad tenant base
and low levels of capital expenditures to maintain their condition and appearance. Historically, upon
that self-storage facilities, upon achieving stabilized occupancy
19
reaching stabilization, our U.S. self-storage facilities have generally shown a high degree of stability in
generating cash flows.
Description of Commercial Properties: We have an interest in PSB, which, as of December 31,
2013, owns and operates approximately 29.7 million net rentable square feet of commercial space in eight
states. At December 31, 2013, the $424.5 million book value and $1.1 billion market value, respectively,
of our investment in PSB represents approximately 4% and 11%, respectively of our total assets. We also
directly own 1.4 million net rentable square feet of commercial space managed primarily 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: We 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
We are a party to various legal proceedings and subject to various claims and complaints;
however, we believe that the likelihood of these contingencies resulting in a material loss to the Company,
either individually or in the aggregate, is remote.
ITEM 4. Mine Safety Disclosures
Not applicable.
20
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) have been listed on the New York Stock Exchange
since October 19, 1984. 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
2012
2013
Quarter
1st
2nd
3rd
4th
1st
2nd
3rd
4th
Range
High
Low
$141.48
146.49
152.68
148.17
157.95
168.66
168.30
176.68
$129.04
129.77
137.86
135.07
144.35
145.04
149.46
147.14
As of February 15, 2014, there were approximately 16,043 holders of record of our
Common Shares. Because many of our shares of common stock are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total number of stockholders
represented by these record holders.
b. Dividends
We have paid quarterly distributions to our shareholders since 1981, our first full year of
operations. During 2013 we paid distributions to our common shareholders of $1.25 per common
share for each of the quarters ended March 31, June 30, September 30 and $1.40 per common
share for the quarter ended December 31, representing an aggregate of $884.2 million or $5.15 per
share. During 2012 we paid distributions to our common shareholders of $1.10 per common share
for each of the quarters ended March 31, June 30, September 30 and December 31, representing an
aggregate of $751.2 million or $4.40 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. As a REIT, we do not
incur federal income tax on our REIT taxable income (generally, net rents and gains from real
property, dividends, and interest) that is fully distributed each year (for this purpose, certain
distributions paid in a subsequent year may be considered), and if we meet certain organizational
and operational rules. We believe we have met these requirements in all periods presented herein,
and we expect to continue to elect and qualify as a REIT.
For Federal income tax purposes, distributions to shareholders are treated as ordinary
income, capital gains, return of capital or a combination thereof. For 2013, the dividends paid on
common shares and preferred shares were classified as follows:
21
1st Quarter
2nd Quarter
3rd Quarter
Ordinary Income ................
Long-term Capital Gain ......
Total ...................................
100.0000%
0.0000%
100.0000%
100.0000%
0.0000%
100.0000%
99.8273%
0.1727%
100.0000%
4th Quarter
99.9543%
0.0457%
100.0000%
For 2012, the dividends paid on common shares ($4.40 per share) and on all the various
classes of preferred shares were classified as ordinary income.
c. Equity Shares
We are authorized to issue 100,000,000 equity shares from time to time in one or more
series and our Board of Trustees has broad authority to fix the dividend and distribution rights,
conversion and voting rights, redemption provisions and liquidation rights of each series of equity
shares. We had no equity shares outstanding for any period in the years ended December 31, 2013
and 2012.
d. Common Share Repurchases
Our Board of Trustees has authorized management to repurchase up to 35,000,000 of our
common shares on the open market or in privately negotiated transactions. From the inception of
the repurchase program through February 25, 2014, we have repurchased a total of 23,721,916
common shares (all purchased prior to 2010) at an aggregate cost of approximately
$679.1 million. Our common share repurchase program does not have an expiration date and
there are 11,278,084 common shares that may yet be repurchased under our repurchase program as
of December 31, 2013. We have no current plans to repurchase shares; however, future levels of
common share repurchases will be dependent upon our available capital, investment alternatives,
and the trading price of our common shares.
e. Preferred Share Redemptions
We had no preferred redemptions during the year ended December 31, 2013.
22
ITEM 6.
Selected Financial Data
2013
For the year ended December 31,
2011
2012
2010
2009
Revenues
Expenses:
Cost of operations
Depreciation and amortization
General and administrative
Asset impairment charges
Operating income
Interest and other income
Interest expense
Equity in earnings of unconsolidated real
estate entities
Foreign currency exchange gain (loss)
Gain on real estate sales and debt
retirement
Income from continuing operations
Discontinued operations
Net income
Net income allocated (to) from
noncontrolling equity interests
Net income allocable to Public Storage
shareholders
$
1,981,746 $
1,842,504 $
1,735,888 $
1,631,294 $ 1,607,395
565,161
387,402
66,679
-
1,019,242
962,504
22,577
(6,444)
555,904
357,781
56,837
-
970,522
871,982
22,074
(19,813)
560,509
357,969
52,410
2,186
973,074
762,814
32,333
(24,222)
545,921
353,245
38,487
994
938,647
692,647
29,017
(30,225)
536,555
339,003
35,735
-
911,293
696,102
29,813
(29,916)
57,579
17,082
45,586
8,876
58,704
(7,287)
38,352
(42,264)
53,244
9,662
4,233
1,057,531
-
1,057,531
1,456
930,161
12,874
943,035
10,801
833,143
3,316
836,459
827
688,354
7,760
696,114
37,540
796,445
(5,989)
790,456
(5,078)
(3,777)
(12,617)
(24,076)
44,165
$
1,052,453 $
939,258 $
823,842 $
672,038 $
834,621
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
Total preferred equity
Public Storage shareholders’ equity
Permanent noncontrolling interests’
equity
$
$
$
$
$
$5.15
$4.92
$4.89
$4.40
$3.93
$3.90
$3.65
$3.31
$3.29
$3.05
$2.36
$2.35
$2.20
$3.48
$3.47
171,640
170,562
169,657
168,877
168,358
172,688
171,664
170,750
169,772
168,768
9,876,266 $
839,053 $
3,562,500 $
8,791,730 $
8,793,403 $
468,828 $
2,837,500 $
8,093,756 $
8,932,562 $
398,314 $
3,111,271 $
8,288,209 $
568,417 $
9,495,333 $ 9,805,645
518,889
3,396,027 $ 3,399,777
8,676,598 $ 8,928,407
27,125 $
29,108 $
22,718 $
32,336 $
132,974
Net cash flow:
Provided by operating activities
Used in investing activities
Used in financing activities
$
1,430,339 $
$ (1,412,393) $
$
1,093,221 $ 1,112,857
(91,409)
(266,605) $
(16,160) $ (1,117,305) $ (1,438,546) $ (1,132,709) $ (938,401)
1,285,659 $
(290,465) $
1,203,452 $
(81,355) $
23
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) should be read in conjunction with our financial statements and notes thereto.
Critical Accounting Policies
Our MD&A discusses our financial statements, which have been prepared in accordance with
United States (“U.S.”) generally accepted accounting principles (“GAAP”). Our financial statements are
affected by our judgments, assumptions and estimates. The notes to our December 31, 2013 financial
statements, primarily Note 2, summarize our significant accounting policies.
We believe the following are our critical accounting policies, because they have a material impact
on the portrayal of our financial condition and results, and they require us to make judgments and estimates
about matters that are inherently uncertain.
Income Tax Expense: We have elected to be treated as a real estate investment trust (“REIT”), as
defined in the Internal Revenue Code. As a REIT, we do not incur federal income tax on our REIT taxable
income (generally, net rents and gains from real property, dividends, and interest) that is fully distributed
each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we
meet certain organizational and operational rules. We believe we have met these REIT requirements for all
periods presented herein. Accordingly, we have recorded no federal income tax expense related to our
REIT taxable income.
Our evaluation that we have met the REIT requirements could be incorrect, because compliance
with the tax rules requires factual determinations, and circumstances we have not identified could result in
noncompliance with the tax requirements in current or prior years. For any taxable year that we fail to
qualify as a REIT and for which applicable statutory relief provisions did not apply, we would be taxed at
the regular corporate rates on all of our taxable income for at least that year and the ensuing four years, we
could be subject to penalties and interest, and our net income would be materially different from the
amounts estimated in our financial statements.
In addition, our taxable REIT subsidiaries are taxable as regular corporations. To the extent that
amounts paid to us by our taxable REIT subsidiaries are determined by the taxing authorities to be in
excess of amounts that would be paid under similar arrangements among unrelated parties, we could be
subject to a 100% penalty tax on the excess payments. Such a penalty tax could have a material adverse
impact on our net income.
Impairment of Long-Lived Assets: The analysis of impairment of our long-lived assets involves
identification of indicators of impairment, projections of future operating cash flows, and estimates of fair
values, all of which require significant judgment and subjectivity. Others could come to materially
different conclusions. In addition, we may not have identified all current facts and circumstances that may
affect impairment. Any unidentified impairment loss, or change in conclusions, could have a material
adverse impact on our net income.
Accrual for Uncertain and Contingent Liabilities: We accrue for certain contingent and other
liabilities that have significant uncertain elements, such as property taxes, workers compensation claims,
tenant reinsurance claims, as well as other legal claims and disputes involving customers, employees,
governmental agencies and other third parties. Such liabilities we are aware of are estimated based upon
many factors such as assumptions of past and future trends and our evaluation of likely outcomes.
However, the estimates of known liabilities could be incorrect or we may not be aware of all such
liabilities, in which case our accrued liabilities and net income could be misstated.
24
Recording the fair value of acquired real estate facilities: In accounting for facilities acquired
from third parties, we estimate the fair values of the land, buildings and intangible assets acquired. Such
estimates are based upon many assumptions and judgments, including i) expected rates of return and
capitalization rates on real estate assets, ii) estimated costs to replace acquired buildings and equipment in
their current state, iii) comparisons of the acquired underlying land parcels to recent land transactions, and
iv) future cash flows from the real estate and the existing tenant base. Others could come to materially
different conclusions as to the estimated fair values, which would result in different depreciation and
amortization expense, gains and losses on sale of real estate assets, and real estate and intangible assets.
MD&A Overview
Our domestic self-storage facilities generated 93% of our revenues for the year ended
December 31, 2013, and also generated most of our net income and cash flow from operations. A
significant portion of management time is devoted to maximizing cash flows from our existing self-storage
facilities, as well as seeking additional investments in self-storage facilities.
Most of our facilities compete with other well-managed and well-located competitors and we are
subject to general economic conditions, particularly those that affect the spending habits of consumers and
moving trends. We believe that our centralized information networks, national telephone and online
reservation system, the brand name “Public Storage,” and our economies of scale enable us to meet such
challenges effectively.
During 2013, we acquired 121 self-storage facilities for approximately $1.2 billion, substantially
more than we had acquired in total in 2010, 2011 and 2012 (an aggregate of 77 facilities for $546 million).
In 2013, we took advantage of a significant increase in properties being marketed for sale, which we
believe was primarily driven by easier access to capital in the current low interest rate environment and
improved property valuations. We expect to continue to seek to acquire additional self-storage facilities
from third parties. There is significant competition to acquire existing facilities and there can be no
assurance that we will be able to acquire additional facilities at prices we will find attractive.
As of December 31 2013, we had development and expansion projects which will add
approximately 1.8 million net rentable square feet of storage space at $196 million. We expect to continue
to seek additional development projects; however, the level of future development may be limited due to
various constraints such as difficulty in finding available sites that meet our risk-adjusted yield
expectations, as well as challenges in obtaining building permits for self-storage activities in certain
municipalities.
We also have equity investments in Shurgard Europe and PS Business Parks, Inc. (“PSB”).
During the year ended December 31, 2013, we increased our ownership interest in PSB by acquiring
1,356,748 shares of PSB common stock in open-market transactions and directly from PSB, for an
aggregate cost of $105.0 million. We may invest further in these entities in the future.
As of December 31, 2013, our capital commitments for 2014 exceed our expected capital
resources. As of December 31, 2013, our capital resources consist of (i) approximately $250 million of
available borrowing capacity on our revolving line of credit, (ii) $216.2 million of cash proceeds from the
sale of 51% of a loan we have provided to Shurgard Europe which we received in January 2014, and (iii)
$250 million of expected 2014 retained operating cash flow. Retained operating cash flow represents our
expected 2014 cash flow provided by operating activities, after deducting estimated 2014 distributions to
our common and preferred shareholders, and estimated 2014 capital expenditure requirements.
At December 31, 2013, we had estimated 2014 capital commitments of $726.2 million of debt
maturities, and approximately $145 million of remaining spend on our development pipeline. In addition,
we expect that our capital commitments will continue to grow during 2014 as we continue to seek
additional development and acquisition opportunities.
25
We believe we have a variety of possibilities to bridge the gap between our capital resources and
commitments which may include raising capital through the issuance of common or preferred securities,
issuing debt, expanding the borrowing capacity of our credit facility, or entering into joint venture
arrangements to acquire or develop facilities. See Liquidity and Capital Resources for further information
regarding our 2014 capital requirements.
Results of Operations
Operating results for 2013 as compared to 2012
For the year ended December 31, 2013, net income allocable to our common shareholders was
$844.7 million or $4.89 per diluted common share, compared to $669.7 million or $3.90 per diluted
common share for the same period in 2012, representing an increase of $175.0 million or $0.99 per diluted
common share. This increase is due primarily to (i) a $124.6 million increase in self-storage net operating
income, (ii) a $68.9 million reduction in income allocated to preferred shareholders due to redemptions,
including our equity share of PSB, (iii) an $8.2 million increase from foreign currency exchange gains,
offset partially by (iv) a $29.6 million increase in depreciation and amortization associated with acquired
real estate facilities.
Operating results for 2012 as compared to 2011
For the year ended December 31, 2012, net income allocable to our common shareholders was
$669.7 million or $3.90 per diluted common share, compared to $561.7 million or $3.29 per diluted
common share for the same period in 2011, representing an increase of $108.0 million or $0.61 per diluted
common share. This increase is due to (i) a $102.5 million increase in self-storage net operating income,
(ii) a $19.6 million reduction in distributions to preferred shareholders due primarily to lower average
coupon rates, and (iii) a $16.2 million increase resulting from foreign currency exchange gains and losses
in translating our Euro-denominated loan receivable from Shurgard Europe into U.S. Dollars, offset
partially by (iv) a $36.3 million decrease due to the application of EITF D-42 to our, and our equity share
of PSB’s, redemptions of preferred securities.
Funds from Operations and Core Funds from Operations
Funds from Operations (“FFO”) is a non-GAAP term defined by the National Association of Real
Estate Investment Trusts, and generally represents net income before depreciation, gains and losses, and
impairment charges with respect to real estate assets. We present FFO and FFO per share because we
consider FFO to be an important measure of the performance of real estate companies, as do many analysts
in evaluating our Company. We believe that FFO is a helpful measure of a REIT’s performance since FFO
excludes depreciation, which is included in computing net income and assumes the value of real estate
diminishes predictably over time. We believe that real estate values fluctuate due to market conditions and
in response to inflation. FFO computations do not consider scheduled principal payments on debt, capital
improvements, distributions and other obligations of the Company. FFO and FFO per share is not a
substitute for our cash flow or net income per share as a measure of our liquidity or operating performance
or our ability to pay dividends. Because other REITs may not compute FFO in the same manner, FFO may
not be comparable among REITs.
For the year ended December 31, 2013, FFO was $7.53 per diluted common share, as compared to
$6.31 for the same period in 2012, representing an increase of $1.22 per diluted common share.
For the year ended December 31, 2012, FFO was $6.31 per diluted common share, as compared to
$5.67 for the same period in 2011, representing an increase of $0.64 per diluted common share.
The following table reconciles net income to FFO and FFO per diluted common share:
26
Net income
Adjust for amounts not included in FFO:
$
1,057,531 $
943,035 $
836,459
Year Ended December 31,
2012
(Amounts in thousands, except per share data)
2013
2011
Depreciation and amortization, including discontinued
operations
Depreciation from unconsolidated real estate
investments
Gains on sale of real estate investments, including our equity
share
FFO allocable to equity holders
Less allocation of FFO to:
Noncontrolling equity interests
Preferred shareholders - distributions
Preferred shareholders - redemptions
Restricted share unitholders
FFO allocable to common shares
Diluted weighted average common shares
FFO per share
387,402
358,103
358,525
75,458
75,648
64,677
(4,120)
1,516,271
(14,778)
1,362,008
(12,797)
1,246,864
(7,275)
(204,312)
-
(5,173)
1,299,511 $
172,688
(6,828)
(205,241)
(61,696)
(4,247)
1,083,996 $
171,664
7.53 $
6.31 $
(15,539)
(224,877)
(35,585)
(2,817)
968,046
170,750
5.67
$
$
In addition to FFO, we often discuss “Core FFO” per share which is also a non-GAAP measure
that represents FFO per share, adjusted to exclude the impact of (i) foreign currency exchange gains and
losses, representing gains of $17.1 million and $8.9 million in 2013 and 2012, respectively, and a loss of
$7.3 million for 2011, (ii) the impact of EITF D-42, including our equity share from PSB, representing
charges totaling $68.9 million and $32.6 million for 2012 and 2011, respectively, (none for 2013) and (iii)
other items. We believe Core FFO is a helpful measure in understanding our ongoing earnings and cash
flow. We also believe that the analyst community, likewise, reviews our Core FFO and Core FFO per
share (or similar measures using different terminology). Core FFO is not a substitute for net income,
earnings per share or cash flow from operations. Because other REITs may not compute Core FFO in the
same manner as we do, may not use the same terminology, or may not present such a measure, Core FFO
may not be comparable among REITs.
The following table reconciles FFO per share to Core FFO per share:
FFO per share
Eliminate the per share impact of
items excluded from Core FFO:
$
Foreign currency exchange
(gain) loss
Application of EITF D-42
Other items
Core FFO per share
$
Year Ended December 31,
Year Ended December 31,
2013
2012
Percentage
Change
2012
2011
Percentage
Change
7.53 $
6.31
19.3% $
6.31 $
5.67
11.3%
(0.10)
-
0.01
7.44 $
(0.05)
0.40
0.02
6.68
(0.05)
0.40
0.02
6.68 $
0.04
0.19
0.03
5.93
12.6%
11.4% $
27
Real Estate Operations
Self-Storage Operations: Our self-storage operations represent 93% of our revenues for the year
ended December 31, 2013. Our self-storage operations are analyzed in two groups: (i) the Same Store
Facilities, representing the facilities that we have owned and operated on a stabilized basis since January 1,
2011, and (ii) all other facilities, which are newly acquired, newly developed, or recently expanded
facilities (the “Non Same Store Facilities”).
Self-Storage Operations
Summary
Revenues:
Year Ended December 31,
Year Ended December 31,
2013
2012
Percentage
Change
2012
2011
Percentage
Change
(Dollar amounts in thousands)
Same Store Facilities
Non Same Store Facilities
Total rental income
$ 1,703,294 $ 1,616,798
102,067
1,718,865
146,589
1,849,883
5.3% $ 1,616,798 $ 1,544,543
77,256
43.6%
102,067
1,621,799
7.6% 1,718,865
Cost of operations:
Same Store Facilities
Non Same Store Facilities
Total cost of operations
Net operating income (a):
Same Store Facilities
Non Same Store Facilities
Total net operating
i
Depreciation and
amortization expense:
Same Store Facilities
Non Same Store Facilities
Total depreciation and
amortization expense
Total net income
478,978
45,108
524,086
485,460
32,181
517,641
(1.3)%
40.2%
1.2%
485,460
32,181
517,641
496,569
26,544
523,113
1,224,316
101,481
1,325,797
1,131,338
69,886
1,201,224
8.2% 1,131,338
69,886
45.2%
1,201,224
10.4%
1,047,974
50,712
1,098,686
(305,270)
(79,353)
(314,428)
(40,543)
(2.9)%
95.7%
(314,428)
(40,543)
(322,467)
(32,848)
(384,623)
941,174 $
(354,971)
846,253
$
8.4%
11.2% $
(354,971)
846,253 $
(355,315)
743,371
4.7%
32.1%
6.0%
(2.2)%
21.2%
(1.0)%
8.0%
37.8%
9.3%
(2.5)%
23.4%
(0.1)%
13.8%
Number of facilities at period end:
Same Store Facilities
Non Same Store Facilities
1,949
238
1,949
116
-
105.2%
1,949
116
1,949
89
-
30.3%
Net rentable square footage at
period end (in thousands):
Same Store Facilities
Non Same Store Facilities
122,823
17,464
122,823
8,814
-
98.2%
122,823
8,814
122,823
6,638
-
32.8%
(a) See “Net Operating Income” below for further information regarding this non-GAAP measure.
Net income from our Self-Storage operations has increased 11.2% in 2013 as compared to 2012
and 13.8% in 2012 as compared to 2011. These increases are due to improvements in our Same Store
Facilities, as well as the acquisitions of new facilities and the fill-up of unstabilized facilities.
28
Same Store Facilities
The Same Store Facilities represent those facilities that have been owned and operated on a
stabilized basis since January 1, 2011 and therefore provide meaningful comparisons for 2011, 2012 and
2013. The following table summarizes the historical operating results of these 1,949 facilities (122.8
million net rentable square feet) that represent approximately 88% of the aggregate net rentable square feet
of our U.S. consolidated self-storage portfolio at December 31, 2013.
Selected Operating Data for the Same
Store Facilities (1,949 facilities)
Year Ended December 31,
Year Ended December 31,
2013
2012
Percentage
Change
2012
2011
Percentage
Change
(Dollar amounts in thousands, except weighted average amounts)
Revenues:
Rental income
Late charges and administrative fees
Total revenues (a)
$ 1,619,533 $ 1,536,517
80,281
1,703,294 1,616,798
83,761
5.4% $ 1,536,517 $ 1,465,038
4.3%
79,505
5.3% 1,616,798 1,544,543
80,281
4.9%
1.0%
4.7%
Cost of operations:
Property taxes
On-site property manager payroll
Supervisory payroll
Repairs and maintenance
Utilities
Advertising and selling expense
Other direct property costs
Allocated overhead
Total cost of operations (a)
Net operating income (b)
Depreciation and amortization expense
Net income
160,027
97,563
33,766
39,401
36,387
27,083
49,340
35,411
478,978
152,191
98,326
33,306
40,079
36,370
38,871
50,361
35,956
485,460
1,224,316 1,131,338
(314,428)
$ 919,046 $ 816,910
(305,270)
5.1%
(0.8)%
1.4%
(1.7)%
0.0%
(30.3)%
(2.0)%
(1.5)%
(1.3)%
152,191
98,326
33,306
40,079
36,370
38,871
50,361
35,956
485,460
147,806
101,445
32,187
45,406
37,873
42,846
53,725
35,281
496,569
8.2% 1,131,338 1,047,974
(2.9)% (314,428)
(322,467)
12.5% $ 816,910 $ 725,507
3.0%
(3.1)%
3.5%
(11.7)%
(4.0)%
(9.3)%
(6.3)%
1.9%
(2.2)%
8.0%
(2.5)%
12.6%
Gross margin (before depreciation and
amortization)
Weighted average for the period:
Square foot occupancy (c)
Realized annual rental income per:
Occupied square foot (d)
Available square foot
(“REVPAF”) (d)
$
$
Weighted average at December 31:
71.9%
70.0%
2.7%
70.0%
67.9%
3.1%
93.3%
91.9%
1.5%
91.9%
91.3%
0.7%
14.13 $
13.61
3.8% $
13.61 $
13.06
4.2%
13.19 $
12.51
5.4% $
12.51 $
11.93
4.9%
Square foot occupancy
91.8%
91.4%
0.4%
91.4%
89.6%
2.0%
Annual contract rent per occupied
square foot (e)
$
15.02 $
14.43
4.1% $
14.43 $
14.02
2.9%
(a) Revenues and cost of operations do not include ancillary revenues and expenses generated at the facilities with
respect to tenant reinsurance and retail sales.
(b) See “Net Operating Income” below for a reconciliation of this non-GAAP measure to our operating income in our
income statements for the years ended December 31, 2013, 2012 and 2011.
(c) Square foot occupancies represent weighted average occupancy levels over the entire period.
29
(d) Realized annual rent per occupied square foot is computed by dividing annualized rental income, before late
charges and administrative fees, by the weighted average occupied square feet for the period. Realized annual rent
per available square foot (“REVPAF”) is computed by dividing annualized rental income, before late charges and
administrative fees, by the total available net rentable square feet for the period. These measures exclude late
charges and administrative fees in order to provide a better measure of our ongoing level of revenue. Late charges
are dependent upon the level of delinquency, and administrative fees are dependent upon the level of move-ins. In
addition, the rates charged for late charges and administrative fees can vary independently from rental rates.
These measures take into consideration promotional discounts, which reduce rental income.
(e) Contract rent represents the applicable contractual monthly rent charged to our customers, excluding the impact of
promotional discounts, late charges, and administrative fees.
Analysis of Same Store Revenue
Revenues generated by our Same Store Facilities increased by 5.3% in 2013 as compared to 2012
due to a 1.5% increase in average occupancy and a 3.8% increase in realized rent per occupied square
foot. Revenues generated by our Same Store Facilities increased by 4.7% in 2012 as compared to 2011
due to a 0.7% increase in average occupancy and a 4.2% increase in realized rent per occupied square
foot. The increase in realized rent per occupied square foot in both periods was due primarily to annual
rent increases given to customers that have been renting with us longer than one year, and to a lesser
extent, reduced promotional discounts given to new customers.
Same Store average occupancy increased from 91.3% in 2011, to 91.9% in 2012, and to 93.3% in
2013, representing increases of 0.7% in 2012 and 1.5% in 2013. The year over year increases began
primarily late in the fourth quarter of 2012, as we implemented more aggressive pricing strategies in the
seasonally slow first and fourth quarters. The occupancy spread narrowed in the fourth quarter of 2013
and is expected to continue to narrow in 2014, due to more difficult comparisons.
Our future rental growth will be dependent upon many factors for each market that we operate in,
including demand for self-storage space, the level of competitor supply of self-storage space, our ability to
increase rental rates to new and existing customers, the level of promotional activities required, and the
average length of stay of our customers.
Increasing rental rates to existing customers, generally on an annual basis, is a key component of
our revenue growth. We determine the level of rental increases based upon our expectations regarding the
impact of existing tenant rate increases on incremental move-outs. We expect to pass similar rent
increases to long-term customers in 2014, as we did in 2013.
We believe that high occupancies help maximize our rental revenue. We seek to maintain an
average occupancy level of at least 90%, by regularly adjusting the rental rates and promotions offered to
attract new customers as well as adjusting our marketing efforts on both television and the Internet in
order to generate sufficient move-in volume to replace customers that vacate. Demand fluctuates due to
various local and regional factors, including the overall economy. Demand is higher in the summer
months than in the winter months and, as a result, rental rates charged to new customers are typically
higher in the summer months than in the winter months.
During 2013, 2012 and 2011, the average annualized contractual rates per occupied square foot for
customers that moved in were $12.97, $12.76 and $12.89, respectively, and for customers that vacated
were $13.76, $13.54 and $13.24, respectively. Promotional discounts, generally representing a one-month
reduction in contractual rents, given in the first month of tenancy, were $79.3 million, $87.9 million and
$96.6 million in 2013, 2012 and 2011, respectively. Promotional discounts have declined due to higher
occupancies.
We believe that the current trends in move-in, move-out, in place contractual rents and occupancy
levels are consistent with our expectation of continued revenue growth in 2014. However, such trends,
when viewed in the short-run, are volatile and not necessarily predictive of our revenues going forward
because they are subject to many short-term factors. Such factors include initial move-in rates, seasonal
30
factors, the unit size and geographical mix of the specific customers moving in or moving out, the length
of stay of the customers moving in or moving out, changes in our pricing strategies, and the degree and
timing of rate increases previously passed to existing customers.
Analysis of Same Store Cost of Operations
Cost of operations (excluding depreciation and amortization) decreased 1.3% in 2013 as compared
to 2012 and decreased 2.2% in 2012 as compared to 2011. The decrease in 2013 was due primarily to
reduced advertising and selling expense, offset partially by increased property taxes. The decrease in
2012 was due to reduced repairs and maintenance, advertising and selling expense, and on-site property
manager payroll, offset partially by increased property taxes.
Property tax expense increased 5.1% in 2013 as compared to 2012 and increased 3.0% in 2012 as
compared to 2011. The increase in 2013 was due primarily to higher assessed values and tax rates, while
the increase in 2012 was due primarily to higher assessed values. We expect property tax growth of
approximately 4.5% to 5% in 2014.
On-site property manager payroll expense decreased 0.8% in 2013 as compared to 2012 and 3.1%
in 2012 as compared to 2011. These decreases were due to reductions in incentive compensation, offset
partially in 2013 by higher claims expense with respect to employee health benefits. We expect on-site
property manager payroll expense to increase modestly in 2014 due to higher health care costs.
Supervisory payroll expense, which represents compensation paid to the management personnel
who directly and indirectly supervise the on-site property managers, increased 1.4% in 2013 as compared
to 2012 and increased 3.5% in 2012 as compared to 2011. The increase in 2013 was due primarily to
increases in compensation rates, while the increase in 2012 was due primarily to increased headcount. We
expect inflationary increases in compensation rates and flat headcount in 2014.
Repairs and maintenance expense decreased 1.7% in 2013 as compared to 2012 and decreased
11.7% in 2012 as compared to 2011. Repair and maintenance costs include snow removal expense
totaling $5.3 million, $2.7 million and $4.3 million in 2013, 2012 and 2011, respectively. Excluding snow
removal costs, repairs and maintenance decreased 8.7% in 2013 as compared to 2012 and 9.0% in 2012 as
compared to 2011.
Repairs and maintenance expense levels are dependent upon many factors such as weather
conditions, which can impact repair and maintenance needs, inflation in material and labor costs, and
random events. We expect inflationary increases in repairs and maintenance expense in 2014 excluding
snow removal expense. Snow removal expense is expected to be higher in the three months ending
March 31, 2014 as compared to the same period in 2013 due to high levels of snowfall.
Our utility expenses are comprised primarily of electricity costs, which are dependent upon energy
prices and usage levels. Changes in usage levels are driven primarily by weather and temperature. Utility
expense was flat in 2013 as compared to 2012 and down 4.0% in 2012 as compared to 2011. The
decrease in 2012 was due to reduced usage caused by milder weather. It is difficult to estimate future
utility cost levels, because weather, temperature, and energy prices are volatile and not predictable. We
do, however, expect utility expense to be higher in the first three months of 2014 as compared to the same
period in 2013 due to severe winter weather in many of the markets we operate in.
Advertising and selling expense is comprised principally of Internet advertising, media advertising
and the operating costs of our telephone reservation center. Advertising and selling expense varies based
upon demand, occupancy levels, and other factors; media and Internet advertising, in particular, can
increase or decrease significantly in the short run in response to these factors. These costs declined 30.3%
in 2013 as compared to 2012 and declined 9.3% in 2012 as compared to 2011. The decrease in 2013 is
due to the phase-out of our yellow page advertising program as of December 31, 2012, as well as reduced
television advertising and Internet search costs as a result of high occupancies. The decrease in 2012 is
31
due primarily to reduced media advertising. Based upon current trends in move-ins, move-outs, and
occupancies, we expect advertising and selling expense to be approximately flat in 2014.
Other direct property costs include administrative expenses incurred at the self-storage facilities,
such as property insurance, business license costs, bank charges related to processing the properties’ cash
receipts, credit card fees, and the cost of operating each property’s rental office including supplies and
telephone data communication lines. These costs decreased 2.0% in 2013 as compared to 2012 and 6.3%
in 2012 as compared to 2011. The decrease in 2013 is due to lower property insurance costs and certain
administrative cost-saving efforts, offset partially by an increase in credit card fees due primarily to an
increase in credit card collections. The decrease in 2012 is due principally to lower credit card fee rates.
We expect moderate increases in other direct property costs in 2014.
Allocated overhead represents administrative expenses for shared general corporate functions,
which are allocated to self-storage property operations to the extent their efforts are devoted to self-storage
operations. Such functions include data processing, human resources, operational accounting and finance,
marketing, and costs of senior executives (other than the Chief Executive Officer and Chief Financial
Officer, which are included in general and administrative expense). Allocated overhead decreased 1.5%
in 2013 as compared to 2012, and increased 1.9% in 2012 as compared to 2011. We expect inflationary
growth in allocated overhead in 2014 as compared to the 2013.
The following table summarizes selected quarterly financial data with respect to the Same Store
Facilities:
32
For the Quarter Ended
March 31
June 30
September 30
(Amounts in thousands, except for per square foot amount)
December 31
Entire Year
Total revenues:
2013
2012
2011
$
$
$
409,604 $
388,499 $
372,073 $
420,146 $
399,725 $
381,301 $
441,011 $
418,085 $
399,864 $
432,533 $
410,489 $
391,305 $
1,703,294
1,616,798
1,544,543
Total cost of operations:
$
$
$
2013
2012
2011
131,358 $
134,411 $
133,232 $
122,587 $
125,126 $
127,781 $
124,798 $
122,987 $
126,615 $
100,235 $
102,936 $
108,941 $
478,978
485,460
496,569
Property taxes:
2013
2012
2011
$
$
$
44,758 $
43,142 $
41,472 $
44,031 $
42,051 $
40,383 $
43,652 $
40,703 $
39,713 $
27,586 $
26,295 $
26,238 $
160,027
152,191
147,806
39,401
40,079
45,406
27,083
38,871
42,846
13.19
12.51
11.93
14.13
13.61
13.06
93.3%
91.9%
91.3%
Repairs and maintenance:
2013
2012
2011
$
$
$
10,824 $
12,235 $
10,792 $
9,086 $
10,443 $
11,029 $
9,689 $
8,500 $
11,008 $
9,802 $
8,901 $
12,577 $
Advertising and selling expense:
2013
2012
2011
REVPAF:
2013
2012
2011
$
$
$
$
$
$
7,453 $
10,531 $
11,908 $
6,412 $
10,586 $
12,357 $
8,385 $
10,216 $
10,011 $
12.67 $
12.01 $
11.51 $
13.02 $
12.37 $
11.79 $
13.65 $
12.93 $
12.32 $
4,833 $
7,538 $
8,570 $
13.40 $
12.73 $
12.09 $
Weighted average realized annual rent per occupied square foot:
13.85 $
13.39 $
12.80 $
13.79 $
13.30 $
12.84 $
2013
2012
2011
$
$
$
14.46 $
13.90 $
13.29 $
14.41 $
13.83 $
13.32 $
Weighted average occupancy levels for the period:
2013
2012
2011
91.9%
90.3%
89.6%
94.0%
92.4%
92.1%
94.4%
93.0%
92.7%
93.0%
92.1%
90.8%
33
Analysis of Market Trends
The following table sets forth selected market trends in our Same Store Facilities:
Same Store Facilities Operating
Trends by Market
Revenues:
Year Ended December 31,
Year Ended December 31,
2013
2012
Change
2012
2011
Change
(Amounts in thousands)
$
Los Angeles (177 facilities)
San Francisco (126 facilities)
New York (78 facilities)
Chicago (125 facilities)
Washington DC (72 facilities)
Seattle-Tacoma (85 facilities)
Miami (59 facilities)
Dallas-Ft. Worth (99 facilities)
Houston (80 facilities)
Atlanta (89 facilities)
Philadelphia (55 facilities)
Denver (47 facilities)
Minneapolis-St Paul
(41 facilities)
Portland (41 facilities)
Orlando-Daytona (45 facilities)
All other markets (730 facilities)
Total revenues
Net operating income:
Los Angeles
San Francisco
New York
Chicago
Washington DC
Seattle-Tacoma
Miami
Dallas-Ft. Worth
Houston
Atlanta
Philadelphia
Denver
Minneapolis-St. Paul
Portland
Orlando-Daytona
All other markets
Total net operating income
232,877 $
145,029
111,695
106,284
81,815
82,111
70,408
68,177
62,205
59,573
44,783
39,808
221,310
136,821
104,290
101,340
79,348
77,251
66,955
64,127
57,637
57,382
43,532
36,921
5.2% $
6.0%
7.1%
4.9%
3.1%
6.3%
5.2%
6.3%
7.9%
3.8%
2.9%
7.8%
221,310 $
136,821
104,290
101,340
79,348
77,251
66,955
64,127
57,637
57,382
43,532
36,921
212,288
129,608
99,361
97,156
76,793
74,109
63,268
60,851
54,592
55,045
42,206
34,107
29,797
8.0%
27,321
5.1%
27,049
4.2%
4.9%
460,992
5.3% $ 1,616,798 $ 1,544,543
31,369
28,625
28,083
481,807
161,816
7.9% $
97,076
8.6%
65,917
11.8%
52,830
4.2%
56,862
4.2%
54,244
9.2%
44,977
8.1%
37,621
10.9%
34,734
9.3%
36,009
8.0%
26,732
4.8%
22,521
11.4%
18,309
10.3%
19,054
8.2%
17,455
6.2%
8.4%
301,817
8.2% $ 1,131,338 $ 1,047,974
172,382 $
104,514
70,005
59,892
59,901
57,092
48,685
41,924
37,367
39,055
28,775
25,769
19,920
20,750
18,980
326,327
33,863
30,077
29,259
505,330
31,369
28,625
28,083
481,807
$ 1,703,294 $ 1,616,798
$
185,930 $
113,509
78,269
62,378
62,444
62,354
52,649
46,498
40,853
42,171
30,154
28,707
21,979
22,457
20,155
353,809
172,382
104,514
70,005
59,892
59,901
57,092
48,685
41,924
37,367
39,055
28,775
25,769
19,920
20,750
18,980
326,327
$ 1,224,316 $ 1,131,338
34
4.2%
5.6%
5.0%
4.3%
3.3%
4.2%
5.8%
5.4%
5.6%
4.2%
3.1%
8.3%
5.3%
4.8%
3.8%
4.5%
4.7%
6.5%
7.7%
6.2%
13.4%
5.3%
5.3%
8.2%
11.4%
7.6%
8.5%
7.6%
14.4%
8.8%
8.9%
8.7%
8.1%
8.0%
Same Store Facilities Operating
Trends by Market (Continued)
Weighted average square foot
occupancy:
Los Angeles
San Francisco
New York
Chicago
Washington DC
Seattle-Tacoma
Miami
Dallas-Ft. Worth
Houston
Atlanta
Philadelphia
Denver
Minneapolis-St. Paul
Portland
Orlando-Daytona
All other markets
Total weighted average occupancy
Realized annual rent per occupied
square foot:
$
Los Angeles
San Francisco
New York
Chicago
Washington DC
Seattle-Tacoma
Miami
Dallas-Ft. Worth
Houston
Atlanta
Philadelphia
Denver
Minneapolis-St. Paul
Portland
Orlando-Daytona
All other markets
Total realized rent per square foot $
Year Ended December 31,
Year Ended December 31,
2013
2012
Change
2012
2011
Change
93.7%
94.5%
94.7%
93.5%
93.0%
93.0%
93.9%
93.4%
93.8%
91.9%
93.1%
94.8%
93.2%
94.1%
93.1%
92.9%
93.3%
20.09 $
20.01
21.85
13.76
20.36
15.12
16.84
11.01
11.37
10.37
13.38
13.22
12.26
14.20
10.96
11.43
14.13 $
92.6%
93.2%
92.9%
92.3%
91.9%
91.1%
92.5%
91.7%
91.8%
90.6%
91.6%
94.1%
91.8%
92.8%
91.8%
91.5%
91.9%
19.35
19.14
20.80
13.25
19.94
14.52
16.20
10.55
10.79
10.09
13.20
12.35
11.50
13.69
10.65
11.06
13.61
1.2%
1.4%
1.9%
1.3%
1.2%
2.1%
1.5%
1.9%
2.2%
1.4%
1.6%
0.7%
1.5%
1.4%
1.4%
1.5%
1.5%
3.8% $
4.5%
5.0%
3.8%
2.1%
4.1%
4.0%
4.4%
5.4%
2.8%
1.4%
7.0%
6.6%
3.7%
2.9%
3.3%
3.8% $
92.6%
93.2%
92.9%
92.3%
91.9%
91.1%
92.5%
91.7%
91.8%
90.6%
91.6%
94.1%
91.8%
92.8%
91.8%
91.5%
91.9%
19.35 $
19.14
20.80
13.25
19.94
14.52
16.20
10.55
10.79
10.09
13.20
12.35
11.50
13.69
10.65
11.06
13.61 $
92.1%
92.9%
92.7%
91.2%
92.6%
91.0%
91.8%
91.5%
89.8%
90.4%
91.9%
91.9%
90.9%
91.8%
90.3%
90.7%
91.3%
18.63
18.15
19.78
12.84
19.13
13.89
15.37
10.00
10.42
9.66
12.73
11.65
11.01
13.21
10.42
10.65
13.06
0.5%
0.3%
0.2%
1.2%
(0.8)%
0.1%
0.8%
0.2%
2.2%
0.2%
(0.3)%
2.4%
1.0%
1.1%
1.7%
0.9%
0.7%
3.9%
5.5%
5.2%
3.2%
4.2%
4.5%
5.4%
5.5%
3.6%
4.5%
3.7%
6.0%
4.5%
3.6%
2.2%
3.8%
4.2%
35
Same Store Facilities Operating
Trends by Market (Continued)
$
REVPAF:
Los Angeles
San Francisco
New York
Chicago
Washington DC
Seattle-Tacoma
Miami
Dallas-Ft. Worth
Houston
Atlanta
Philadelphia
Denver
Minneapolis-St. Paul
Portland
Orlando-Daytona
All other markets
Total REVPAF
$
Year Ended December 31,
Year Ended December 31,
2013
2012
Change
2012
2011
Change
18.82 $
18.91
20.68
12.87
18.92
14.06
15.81
10.28
10.66
9.53
12.45
12.54
11.43
13.36
10.21
10.62
13.19 $
17.92
17.84
19.33
12.23
18.33
13.23
14.99
9.67
9.90
9.14
12.09
11.61
10.56
12.71
9.78
10.12
12.51
5.0% $
6.0%
7.0%
5.2%
3.2%
6.3%
5.5%
6.3%
7.7%
4.3%
3.0%
8.0%
8.2%
5.1%
4.4%
4.9%
5.4% $
17.92 $
17.84
19.33
12.23
18.33
13.23
14.99
9.67
9.90
9.14
12.09
11.61
10.56
12.71
9.78
10.12
12.51 $
17.15
16.87
18.34
11.71
17.71
12.64
14.11
9.15
9.36
8.73
11.69
10.70
10.01
12.13
9.40
9.67
11.93
4.5%
5.7%
5.4%
4.4%
3.5%
4.7%
6.2%
5.7%
5.8%
4.7%
3.4%
8.5%
5.5%
4.8%
4.0%
4.7%
4.9%
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. Over the long run, we believe that markets that
experience population growth, high employment, and otherwise exhibit economic strength and consistency
will outperform markets that do not exhibit these characteristics.
Non Same Store Facilities
The Non Same Store Facilities at December 31, 2013 represent 238 facilities that were not
stabilized with respect to occupancies or rental rates since January 1, 2011, or that we did not own as of
January 1, 2011. As a result of the stabilization process and timing of when the facilities were acquired,
year-over-year changes can be significant. In the following table, “Other facilities” includes all facilities
that we have owned, but were not yet stabilized as of January 1, 2011, three facilities that we obtained
control of and began consolidating in 2012 and a newly developed facility opened in 2013.
The following table summarizes operating data with respect to the Non Same Store Facilities:
36
NON SAME STORE
FACILITIES
Rental income:
Year Ended December 31,
2012
Change
2013
Year Ended December 31,
2011
Change
2012
(Dollar amounts in thousands, except square foot amounts)
2013 third party acquisitions
2012 third party acquisitions
Other facilities
Total rental income
$
19,309 $
22,452
104,828
146,589
- $
7,791
94,276
102,067
19,309 $
14,661
10,552
44,522
- $
7,791
94,276
102,067
- $
-
77,256
77,256
-
7,791
17,020
24,811
Cost of operations before
depreciation and amortization
expense:
2013 third party acquisitions
2012 third party acquisitions
Other facilities
Total cost of operations
Net operating income and net
income:
2013 third party acquisitions
2012 third party acquisitions
Other facilities
$
$
Total net operating income (a)
Depreciation and amortization
Net income
$
At December 31:
Square foot occupancy:
2013 third party acquisitions
2012 third party acquisitions
Other facilities
Annual contract rent per occupied
square foot:
2013 third party acquisitions
2012 third party acquisitions
Other facilities
$
Number of facilities:
2013 third party acquisitions
2012 third party acquisitions
Other facilities
Net rentable square feet (in
thousands):
2013 third party acquisitions
2012 third party acquisitions
Other facilities
7,574 $
8,562
28,972
45,108
- $
3,206
28,975
32,181
7,574 $
5,356
(3)
12,927
- $
3,206
28,975
32,181
- $
-
26,544
26,544
-
3,206
2,431
5,637
11,735 $
13,890
75,856
101,481
(79,353)
22,128 $
- $
4,585
65,301
69,886
(40,543)
29,343 $
11,735 $
9,305
10,555
31,595
(38,810)
(7,215) $
- $
4,585
65,301
69,886
(40,543)
29,343 $
- $
-
50,712
50,712
(32,848)
17,864 $
-
4,585
14,589
19,174
(7,695)
11,479
82.6%
86.5%
88.3%
85.4%
-
75.2%
89.1%
86.0%
-
15.0%
(0.9)%
(0.7)%
-
75.2%
89.1%
86.0%
-
-
84.2%
84.2%
13.56 $
13.76
16.37
14.78
-
13.66
15.89
15.47
- $
- $
0.7%
3.0%
(4.5)%
13.66
15.89
15.47
-
-
15.37
15.37
121
24
93
238
-
24
92
116
121
-
1
122
-
24
92
116
-
-
89
89
-
-
5.8%
2.1%
-
-
3.4%
0.7%
-
24
3
27
8,036
2,117
7,311
17,464
-
1,908
6,906
8,814
8,036
209
405
8,650
-
1,908
6,906
8,814
-
-
6,638
6,638
-
1,908
268
2,176
37
(a) See “Net Operating Income” below for a reconciliation of this non-GAAP measure to our net income in our
statements of income for the years ended December 31, 2013, 2012 and 2011.
During 2013, we acquired 121 operating self-storage facilities from third parties (8,036,000 net
rentable square feet of storage space) for approximately $1.16 billion. During 2012, we acquired 24
operating self-storage facilities from third parties (1,908,000 net rentable square feet of storage space and
unfinished space that was converted to 209,000 net rentable square feet of self-storage space in 2013 for
$20.3 million in additional development cost) for $225.5 million in cash. During 2011, we acquired eleven
operating self-storage facilities from third parties (896,000 net rentable square feet) for an aggregate cost of
$80.4 million.
For 2013, the weighted average annualized yield for the facilities acquired in 2011 and 2012
(excluding the facility that was acquired in 2012 and expanded in 2013) was 10.5% and 6.8%,
respectively. The weighted average annualized yield with respect to the 2013 acquisitions is not
meaningful due to our limited ownership period.
During 2013, we completed expansions to the Other Facilities, adding 300,000 net rentable square
feet of self-storage space, for an aggregate cost of $19.9 million and we opened a newly developed facility
for an aggregate cost of $16.6 million with 105,000 net rentable square feet of storage space.
We expect to increase the number of Non Same Storage Facilities over at least the next twelve
months through development of additional self-storage space and acquisitions of existing facilities from
third parties. As of December 31, 2013, we had development and expansion projects which will add
approximately 1.8 million net rentable square feet of storage space at a total cost of approximately
$196 million. A total of $52 million in costs were incurred through December 31, 2013, with the remaining
costs expected to be incurred in 2014. Some of these projects are subject to significant contingencies such
as entitlement approval. We expect to continue to seek additional development projects; however, the level
of future development may be limited due to various constraints such as difficulty in finding projects that
meet our risk-adjusted yield expectations and challenges in obtaining building permits for self-storage
activities in certain municipalities. There is significant competition to acquire existing facilities and there
can be no assurance that we will be able to acquire additional facilities at prices we will find attractive.
We believe that our management and operating infrastructure will result in newly acquired
facilities stabilizing at a higher level of net operating income than was achieved by the previous owners.
However, it can take 24 or more months for these newly acquired facilities to reach stabilization, and the
ultimate levels of net operating income to be achieved can be affected by changes in general economic
conditions. As a result, there can be no assurance that our expectations with respect to these facilities will
be achieved. However, we expect the Non Same Store Facilities to continue to provide earnings growth
during 2014 as these facilities approach stabilized occupancy levels and the earnings of the 2013
acquisitions are reflected in our operations for a longer period in 2014 as compared to 2013.
Equity in earnings of unconsolidated real estate entities
At December 31, 2013, we have equity investments in PSB, Shurgard Europe and various limited
partnerships. We account for such investments using the equity method.
Equity in earnings of unconsolidated real estate entities for 2013, 2012 and 2011 consists of our
pro-rata share of the net income of these unconsolidated real estate entities for each period. The following
table sets forth the significant components of equity in earnings of unconsolidated real estate entities.
38
Historical summary:
Equity in earnings:
Year Ended December 31,
2012
2013
Year Ended December 31,
2011
Change
Change
(Amounts in thousands)
2012
PSB
Shurgard Europe
Other Investments
$
Total equity in earnings $
23,199 $
32,694
1,686
57,579 $
10,638 $
33,223
1,725
45,586 $
12,561 $
(529)
(39)
11,993 $
10,638 $
33,223
1,725
45,586 $
27,781 $
29,152
1,771
58,704 $
(17,143)
4,071
(46)
(13,118)
Investment in PSB: At December 31, 2013, we have an approximate 42% common equity
interest in PSB, comprised of our ownership of 7,158,354 shares of PSB’s common stock and 7,305,355
limited partnership units in an operating partnership controlled by PSB (41% as of December 31, 2012,
comprised of our ownership of 5,801,606 shares of PSB’s common stock and 7,305,355 limited partnership
units at December 31, 2012). The limited partnership units are convertible at our option, subject to certain
conditions, on a one-for-one basis into PSB common stock.
During 2013, we purchased 406,748 shares of PSB common stock in open-market transactions at
an average cost of $73.15 per share.
On November 7, 2013, we purchased 950,000 shares of PSB common stock from PSB at $79.25
per share, concurrent with PSB’s sale of 1,495,000 additional shares to the public at the same price per
share.
At December 31, 2013, PSB owned and operated 29.7 million rentable square feet of commercial
space located in eight states. PSB also manages commercial space that we own pursuant to property
management agreements.
Equity in earnings from PSB increased to $23.2 million in 2013 from $10.6 million in 2012. This
increase was due primarily to EITF D-42 charges from PSB’s redemptions of preferred securities recorded
in 2012, combined with increases in operating income for its newly acquired and same-park facilities. See
Note 4 to our December 31, 2013 financial statements for selected financial information on PSB, as well as
PSB’s filings and selected financial information that can be accessed through the SEC, and on PSB’s
website, www.psbusinessparks.com.
Equity in earnings from PSB decreased to $10.6 million in 2012, as compared to $27.8 million in
2011. This decrease was principally due to (i) the impact of PSB’s redemptions of preferred securities in
2011 and 2012, which reduced income allocated to the common equity holders in 2012, and increased
income allocable to the common equity holders in 2011, (ii) increased depreciation and interest expense as
a result of the properties PSB acquired in 2011 and 2012, partially offset by (iii) incremental income
generated by the properties PSB acquired in 2011 and 2012.
Our investment in PSB provides us with some diversification.
Investment in Shurgard Europe: Equity in earnings of Shurgard Europe represents our 49%
equity share of Shurgard Europe’s net income. At December 31, 2013, Shurgard Europe’s operations are
comprised of 187 wholly-owned facilities with 10 million net rentable square feet. Selected financial data
for Shurgard Europe for 2013, 2012 and 2011 is included in Note 4 to our December 31, 2013 financial
statements. As described in more detail in Note 4, we receive interest income and trademark license fees
from Shurgard Europe.
Equity in earnings from Shurgard Europe decreased to $32.7 million for the year ended
December 31, 2013 from $33.2 million for the same period in 2012.
39
Equity in earnings from Shurgard Europe increased to $33.2 million for the year ended
December 31, 2012 from $29.2 million for the same period in 2011. The increase is due to our equity share
of (i) improved property operations, (ii) reduced interest expense due to a reduction in interest rates and
repayment of principal on third-party debt (iii) the impact of Shurgard Europe’s March 2, 2011 acquisition
of the remaining 80% interest it did not own in two joint ventures that owned 72 self-storage facilities,
partially offset by (iv) a reduction in foreign currency exchange rates when converting Euros into
U.S. Dollars for reporting purposes.
Shurgard Europe has no development pipeline and no expectations in the short-term of acquiring
any facilities from third parties. Accordingly, at least in the short-term, our future earnings from Shurgard
Europe will be affected primarily by the operating results of its existing facilities, as well as the exchange
rate between the U.S. Dollar and currencies in the countries Shurgard Europe conducts its business,
principally the Euro.
European Same Store Facilities: The Shurgard Europe Same Store Pool represents the 163
facilities (8.7 million net rentable square feet, representing 86% of the aggregate net rentable square feet of
Shurgard Europe’s self-storage portfolio) that have been consolidated and operated by Shurgard Europe on
a stabilized basis since January 1, 2011 and therefore provide meaningful comparisons for 2011, 2012 and
2013. We evaluate the performance of these facilities because Shurgard Europe’s ability to effectively
manage stabilized facilities represents an important measure of its ability to grow its earnings over the
long-term.
The following table reflects 100% of the operating results of those 163 facilities. We restate the
exchange rates used in prior year’s presentation to the actual exchange rates for 2013. However, only our
pro rata share of the operating results for these facilities, based upon the actual exchange rates for each
period, is included in “equity in earnings of unconsolidated real estate entities” on our statements of
income.
In Note 4 to our December 31, 2013 financial statements, we disclose Shurgard Europe’s
consolidated operating results for the years ended December 31, 2013, 2012 and 2011. Shurgard Europe’s
consolidated operating results include 24 additional facilities that are not Same Store Facilities, and are
based upon historical exchange rates rather than constant exchange rates for each of the respective periods.
40
Selected Operating Data for the Shurgard
Europe Same Store Pool (163 facilities):
Year Ended December 31,
Year Ended December 31,
Percentage
2013
Change
(Dollar amounts in thousands, except weighted average data, utilizing
Percentage
Change
2011
2012
2012
Revenues (including late charges and
administrative fees)
Less: Cost of operations (excluding
depreciation and amortization expenses)
Net operating income (b)
$ 190,673 $ 194,275
(1.9)% $ 194,275 $ 196,163
(1.0)%
80,295
79,994
$ 110,378 $ 114,281
0.4%
79,994
83,641
(3.4)% $ 114,281 $ 112,522
(4.4)%
1.6%
Gross margin
57.9%
58.8%
(1.5)%
58.8%
57.4%
2.4%
Weighted average for the period:
Square foot occupancy (c)
Realized annual rent, prior to late charges
and administrative fees, per:
Occupied square foot (d)
Available square foot (“REVPAF”) (d)
Average Euro to the U.S. Dollar for
the period (a):
81.2%
83.1%
(2.3)%
83.1%
85.0%
(2.2)%
$
$
26.65 $
21.64 $
26.56
22.07
0.3% $
(1.9)% $
26.56 $
22.07 $
26.18
22.25
1.5%
(0.8)%
Constant exchange rates used herein
Actual historical exchange rates
1.328
1.328
1.328
1.285
-
3.3%
1.328
1.285
1.328
1.392
-
(7.7)%
(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 years ended December 31, 2012 and
2011 have been restated using the actual exchange rates for the year ended December 31, 2013.
(b) We present Shurgard Europe’s same-store net operating income or “NOI,” which is a non-GAAP (generally
accepted accounting principles) financial measure that excludes the impact of depreciation and amortization
expense. We believe that NOI is a meaningful measure of operating performance, because we utilize NOI in
making decisions with respect to capital allocations, in determining current property values, in evaluating
property performance and in 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 because it is based upon historical cost. NOI is not a
substitute for net income, net operating cash flow, or other related GAAP financial measures, in evaluating
Shurgard Europe’s operating results.
(c) Square foot occupancies represent weighted average occupancy levels over the entire period.
(d) Realized annual rent per occupied square foot is computed by dividing annualized rental income, before late
charges and administrative fees, by the weighted average occupied square feet for the period. Realized annual
rent per available square foot (“REVPAF”) is computed by dividing annualized rental income, before late
charges and administrative fees, by the total available net rentable square feet for the period. These measures
exclude late charges and administrative fees in order to provide a better measure of our ongoing level of
revenue. Late charges are dependent upon the level of delinquency, and administrative fees are dependent upon
the level of move-ins. In addition, the rates charged for late charges and administrative fees can vary
independently from rental rates. These measures take into consideration promotional discounts, which reduce
rental income.
Net operating income decreased 3.4% in 2013 as compared to 2012, principally due to a reduction
in revenue of 1.9% and relatively flat cost of operations. Net operating income increased 1.6% in 2012 as
compared to 2011, due to decreases in expenses offset by lower revenues. While revenue declined in 2013,
the most recent trends in the fourth quarter of 2013 have improved. Due to the limited number of facilities
in this portfolio and lack of geographic diversification, as well as recent volatile economic conditions in
41
Western Europe, it is difficult to estimate revenue growth. However, based upon current trends, it appears
that revenue should increase modestly in at least the first quarter of 2014.
See “Liquidity and Capital Resources – Shurgard Europe” for additional information on Shurgard
Europe’s liquidity.
Other Investments: The “Other Investments” at December 31, 2013 are comprised primarily of
our equity in earnings from various limited partnerships that own an aggregate of 14 self-storage facilities
(792,000 net rentable square feet). Our future earnings with respect to the Other Investments will be
dependent upon the operating results of the facilities these entities own. See Note 4 to our December 31,
2013 financial statements under the “Other Investments” for certain condensed combined financial
information of these entities.
Ancillary Operations
Ancillary revenues and expenses include amounts associated with (i) the reinsurance of policies
against losses to goods stored by customers in our self-storage facilities in the U.S., (ii) merchandise sales,
(iii) commercial property operations and (iv) management of 42 facilities owned by third parties and the
Unconsolidated Real Estate Entities.
Commercial property operations are included in our commercial segment and all other ancillary
revenues and costs of operations are not allocated to any segment. See Note 11 to our December 31, 2013
financial statements for further information regarding our segments and for a reconciliation of these
ancillary revenues and cost of operations to our net income.
The following table sets forth our ancillary operations as presented on our income statements:
42
Year Ended December 31,
2012
Change
2013
Year Ended December 31,
2011
2012
Change
(Amounts in thousands)
Ancillary Revenues:
Tenant reinsurance
premiums
Commercial
Merchandise and other
Total revenues
Ancillary Cost of Operations:
Tenant reinsurance
Commercial
Merchandise and other
Total cost of operations
$
84,904 $
14,510
32,449
131,863
77,977 $
14,071
31,591
123,639
6,927 $
439
858
8,224
77,977 $
14,071
31,591
123,639
71,348 $
14,592
28,149
114,089
17,067
5,228
18,780
41,075
14,429
4,908
18,926
38,263
2,638
320
(146)
2,812
14,429
4,908
18,926
38,263
13,407
5,505
18,484
37,396
6,629
(521)
3,442
9,550
1,022
(597)
442
867
Commercial depreciation
2,779
2,810
(31)
2,810
2,654
156
Ancillary net income:
Tenant reinsurance
Commercial
Merchandise and other
Total ancillary net income $
67,837
6,503
13,669
88,009 $
63,548
6,353
12,665
82,566 $
4,289
150
1,004
5,443 $
63,548
6,353
12,665
82,566 $
57,941
6,433
9,665
74,039 $
5,607
(80)
3,000
8,527
Tenant reinsurance operations: We reinsure policies offered through a non-affiliated insurance
company against losses to goods stored by customers in the domestic self-storage facilities we operate. The
level of tenant reinsurance revenues is largely dependent upon the level of premiums charged for such
insurance and the number of customers that participate in the insurance program. Cost of operations
primarily includes claims paid that are not covered by our outside third-party insurers, as well as claims
adjustment expenses. These costs are dependent primarily upon the level of losses incurred, including the
level of catastrophic events that occur and affect our properties thereby increasing tenant insurance claims.
The increase in tenant insurance revenues in 2013 and 2012 as compared to the respective prior
years is due to (i) an increased number of customers due to higher occupancy levels, including the fill-up of
non-Same Store facilities, (ii) an increase in the percentage of such customers having policies from 61% in
2011, to 63% in 2012 and 65% in 2013, (iii) an increase in average premium rates and (iv) the impact of
the acquisition of 145 self-storage facilities from third parties in 2012 and 2013. Tenant insurance revenues
with respect to customers in our Same Store Facilities totaled $76.5 million, $71.4 million and
$66.0 million in 2013, 2012 and 2011, respectively.
We expect continued increases in tenant insurance revenues in 2014 as the tenant insurance
revenues with respect to the facilities we acquired in 2013 are reflected for a full year and Non-Same Store
facilities continue to add customers. We expect stable participation rates and flat premium rates in 2014.
Commercial operations: We also own and operate commercial facilities, primarily the leasing of
small retail storefronts and office space located on or near our existing self-storage facilities. 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 our self-storage
facilities, and the level of sales of these items is primarily impacted by the level of move-ins and other
customer traffic at our self-storage facilities. These amounts include, to a much lesser extent, the results of
our management of 42 self-storage facilities in the U.S. for third party owners and other partnerships that
we account for on the equity method. In 2012 our merchandise sales and margins improved primarily as a
43
result of higher retail prices for our locks. We do not expect any significant changes in revenues our
profitability from our merchandise sales and other in 2014.
Other Income and Expense Items
Interest and other income: Interest and other income was $22.6 million in 2013, $22.1 million in
2012 and $32.3 million in 2011, respectively. Interest and other income primarily includes interest income
on loans receivable from Shurgard Europe, as well as trademark license fees received from Shurgard
Europe for the use of the “Shurgard” trade name. We record 51% of the aggregate interest income and
trademark license fees as interest and other income, while the remaining 49% is presented as additional
equity in earnings on our income statement.
Aggregate interest income and trademark license fees received from Shurgard Europe was
$20.6 million, $20.0 million and $26.7 million for 2013, 2012 and 2011, respectively.
The loan receivable from Shurgard Europe (the “Shareholder Loan”) is denominated in Euros and
has a balance of €311.0 million ($428.1 million) as of December 31, 2013. On January 28, 2014, our joint
venture partner in Shurgard Europe acquired 51% of the Shareholder Loan at face value for €158.6 million
($216.2 million) in cash and the maturity date of the Shareholder Loan was extended to April 2019. As a
result, the 51% of the interest received on the Shareholder Loan that we previously recorded as interest
income will cease as of January 28, 2014. We will continue to record interest received with respect to our
remaining 49% ownership of the Shareholder Loan as additional equity in earnings on our income
statement.
The terms of a loan payable by Shurgard Europe to a bank (the “Bank Loan”), with a principal
amount of €107.5 million at December 31, 2013, requires significant principal repayments through the
maturity date in November 2014. As a result, in 2013 and 2012 there were no principal repayments on the
Shareholder Loan. All interest on the Shareholder Loan 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.
The remainder of our interest and other income is comprised primarily of interest earned on cash
balances as well as sundry other income items that are received from time to time in varying amounts.
Interest income on cash balances has been minimal, because rates have been at historic lows of 0.1% or
less, and we expect this trend to continue in the foreseeable future. Future earnings from sundry other
income items are not predictable.
Depreciation and amortization: Depreciation and amortization increased to $387.4 million for
2013 as compared to $357.8 million for 2012 and $358.0 million for 2011, due principally to newly
acquired facilities. Included in depreciation and amortization is amortization expense of tenant intangibles
for facilities acquired from third parties, which is being amortized relative to the expected future benefit of
the customers in place for each period. Such amortization expense totaled $24.1 million, $10.5 million and
$11.9 million in 2013, 2012 and 2011, respectively. Based upon the facilities we own at December 31,
2013, amortization expense with respect to such intangibles is estimated at $36.6 million in 2014. The
level of future depreciation and amortization will primarily depend upon the level of acquisitions of
facilities and the level of capital expenditures we incur on our facilities.
General and administrative expense: The following table sets forth our general and
administrative expense:
44
Year Ended December 31,
2012
Change
2013
Year Ended December 31,
2011
Change
2012
(Amounts in thousands)
Share-based compensation expense $
Costs of senior executives
Development and acquisition costs
Tax compliance costs and taxes paid
Legal costs
Public company costs
Other costs
Total
$
28,413 $
5,309
10,475
4,704
3,550
3,069
11,159
66,679 $
24,312 $
4,736
6,355
4,775
3,653
2,937
10,069
56,837 $
4,101 $
573
4,120
(71)
(103)
132
1,090
9,842 $
24,312 $
4,736
6,355
4,775
3,653
2,937
10,069
56,837 $
23,709 $
3,332
4,129
5,546
3,601
2,919
9,174
52,410 $
603
1,404
2,226
(771)
52
18
895
4,427
Share-based compensation expense includes the amortization of restricted share units (“RSUs”)
and stock options granted to employees, as well as employer taxes incurred upon vesting of RSUs and upon
exercise of employee stock options. The level of share-based compensation expense varies based upon the
level of grants and forfeitures. The increase in share-based compensation costs in 2013 as compared to
2012 is due primarily to additional share-based grants. The increase in share-based compensation costs in
2012 as compared to 2011 is due primarily to additional share-based grants, offset partially by a reduction
of $5.5 million with respect to certain RSUs granted in 2011 under a performance-based plan. We expect
share-based compensation expense to remain flat in 2014 as compared to 2013. See Note 10 to our
December 31, 2013 financial statements for further information on our share-based compensation.
Costs of senior executives represent the cash compensation paid to our chief executive officer and
chief financial officer. The increases in 2013 as compared to 2012 and in 2012 as compared to 2011 are
due to increases in incentive compensation.
Development and acquisition costs represent internal and external expenses related to our
acquisition and development activities and varies primarily based upon the level of development and
acquisition activities undertaken. Incremental legal, transfer tax, and other related costs of approximately
$5.0 million, $1.8 million and $0.8 million were incurred in connection with the acquisition of real estate
facilities in 2013, 2012 and 2011, respectively. The level of such costs to be incurred in 2014 will depend
upon the level of acquisition activities, which is not determinable.
Tax compliance costs and taxes paid include taxes paid to various state and local authorities, the
internal and external costs of filing tax returns, costs associated with complying with federal and state tax
laws, and maintaining our compliance with Internal Revenue Service REIT rules. Such costs vary
primarily based upon the tax rates of the various states in which we do business.
Legal costs include internal personnel as well as fees paid to legal firms and other third parties
with respect to general corporate legal matters and risk management, and varies based upon the level of
litigation.
Public company costs represent the incremental costs of operating as a publicly-traded company,
such as internal and external investor relations expenses, stock listing and transfer agent fees, board of
directors’ costs, and costs associated with maintaining compliance with applicable laws and regulations,
including the Dodd-Frank Act and Sarbanes-Oxley Act.
Our future general and administrative expenses are difficult to estimate, due to their dependence
upon many factors, including those noted above.
Interest expense: Interest expense was $6.4 million, $19.8 million and $24.2 million for 2013,
2012 and 2011, respectively.
45
The decreases in 2013 as compared to 2012, and 2012 as compared to 2011, are due primarily to
repayments on our unsecured senior notes in 2013 and 2011, along with principal repayments on our
secured mortgage debt. During 2013, 2012 and 2011, we capitalized interest of $2.9 million, $0.4 million
and $0.4 million, respectively, associated with our development activities. See Note 6 to our December 31,
2013 financial statements for a schedule of our notes payable balances, principal repayment requirements
and average interest rates. The level of interest expense that we incur in 2014 will be dependent upon the
source of funds used to refinance our term loan that matures on December 2, 2014, and when such
refinance is expected to occur.
Foreign Exchange Gain (Loss): We recorded foreign currency translation gains of $17.1 million
and $8.9 million in 2013 and 2012, respectively, and a loss $7.3 million in 2011, representing primarily the
change in the U.S. Dollar equivalent of our Euro-based Shareholder Loan due to fluctuations in exchange
rates. We have not entered into any agreements to mitigate the impact of currency exchange fluctuations
between the U.S. Dollar and the Euro, therefore the amount of U.S. Dollars we will receive on repayment
will depend upon the currency exchange rates at that time. We record the exchange gains or losses into net
income each period because of our continued expectation of repayment of the Shareholder Loan in the
foreseeable future. The U.S. Dollar exchange rate relative to the Euro was approximately 1.377, 1.322 and
1.295 at December 31, 2013, December 31, 2012 and December 31, 2011, 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 of the Shareholder Loan and our continued expectation of
collecting the principal on the loan in the foreseeable future. As noted above, On January 28, 2014, our
joint venture partner in Shurgard Europe acquired 51% of the Shareholder Loan at face value for
€158.6 million ($216.2 million) in cash and the maturity date of the Shareholder Loan was extended to
April 2019.
Net Income Allocable to Preferred Shareholders: Allocations of net income to our preferred
shareholders generally consists of allocations (i) based on distributions and (ii) in applying EITF D-42
when we redeem preferred shares. During 2012 and 2011, we redeemed certain existing series of preferred
shares and issued additional preferred shares at lower coupon rates. Net income allocable to preferred
shareholders in applying EITF D-42 totaled $61.7 million and $35.6 million in 2012 and 2011,
respectively, (there were no redemptions of preferred securities and as a result, no EITF D-42 allocations in
2013). Net income allocable to preferred shareholders associated with distributions decreased during 2013
as compared to 2012, and 2012 as compared to 2011, due primarily to lower average dividend rates and
lower average outstanding preferred shares. Based upon our preferred shares outstanding at December 31,
2013, our quarterly distribution to our preferred shareholders is expected to be approximately
$51.9 million.
Net Operating Income
In our discussions above, we refer to net operating income or “NOI,” which is a non-GAAP
(generally accepted accounting principles) financial measure that excludes the impact of depreciation and
amortization expense. We believe that NOI is a meaningful measure of operating performance, because we
utilize NOI in making decisions with respect to capital allocations, in determining current property values,
in evaluating property performance and in 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 because it is based upon
historical cost. NOI is not a substitute for net income, net operating cash flow, or other related GAAP
financial measures, in evaluating our operating results. The following table reconciles NOI generated by
our self-storage facilities to our operating income:
46
Self-storage net operating income:
Same Store Facilities
Non Same Store Facilities
Self-storage depreciation expense:
Same Store Facilities
Non Same Store Facilities
Self-storage net income:
Same Store Facilities
Non Same Store Facilities
Total net income from self-storage
Ancillary operating revenue
Ancillary cost of operations
Commercial depreciation and amortization
General and administrative expenses
Asset impairment charges
Operating income
2013
Year Ended December 31,
2012
(Amounts in thousands)
2011
$
$
1,224,316
101,481
1,325,797
1,131,338 $
69,886
1,201,224
1,047,974
50,712
1,098,686
(305,270)
(79,353)
(384,623)
919,046
22,128
941,174
131,863
(41,075)
(2,779)
(66,679)
-
962,504
$
(314,428)
(40,543)
(354,971)
(322,467)
(32,848)
(355,315)
816,910
29,343
846,253
123,639
(38,263)
(2,810)
(56,837)
$
-
871,982
$
725,507
17,864
743,371
114,089
(37,396)
(2,654)
(52,410)
(2,186)
762,814
47
Liquidity and Capital Resources
Financial Strategy: Our financial profile is characterized by a low level of debt-to-total-
capitalization. In general, we seek to finance our investment activities and debt obligations with retained
operating cash flow, and when not sufficient, capital raised through the issuance of preferred and common
securities. When market conditions are not favorable to issue either preferred or common securities, we
will use bank debt as bridge financing.
Unlike most REITs, we have elected to use predominantly preferred securities in our capital
structure 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, relative to a traditional taxable corporation, 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.
We have generally been able to raise preferred capital at an attractive cost relative to the issuance
of our common shares, and as a result, our issuances of common shares for cash have been minimal over
the past several years. During the years ended December 31, 2013 and 2012, we issued approximately
$725.0 million and $1.7 billion, respectively, of preferred securities. Currently, market conditions are
much less favorable, with market coupon rates for our most recently issued series of preferred securities
trading at approximately 6.5% (as compared to 5.2% for the preferred securities we issued in the first
quarter of 2013). We believe that market coupon rates for a new issuance of our preferred securities would
need to be in the area of 6.5% and the amount of capital we could raise would most likely be much lower
than what we raised in the first quarter of 2013. The market coupon rate on our preferred securities is
influenced by long-term interest rates.
Due to poor capital market conditions for the issuance of either preferred or common securities,
during the last three months of 2013, we borrowed approximately $750.1 million from banks to bridge
finance our acquisition activities during that timeframe. See discussion on this debt below.
Our credit ratings on each of our series of preferred shares are “A3” by Moody’s, “BBB+” by
Standard & Poor’s and “A” by Fitch Ratings. In recent years, we have been one of the largest and most
frequent issuers of preferred equity in the U.S.
Liquidity and Capital Resource Analysis: We believe that our net cash provided by our operating
activities will continue to be sufficient to enable us to meet our ongoing requirements for operating
expenses, capital improvements and distributions to our shareholders for the foreseeable future.
As of December 31, 2013, our capital commitments for 2014 exceed our expected capital
resources. As of December 31, 2013, our capital resources consist of (i) approximately $250 million of
available borrowing capacity on our revolving line of credit, (ii) $216.2 million of cash proceeds from the
sale of 51% of a loan we have provided to Shurgard Europe which we received in January 2014, and (iii)
$250 million of expected 2014 retained operating cash flow. Retained operating cash flow represents our
expected 2014 cash flow provided by operating activities, after deducting estimated 2014 distributions to
our common and preferred shareholders, and estimated 2014 capital expenditure requirements.
At December 31, 2013, we had estimated 2014 capital commitments of $726.2 million of debt
maturities, and approximately $145 million of remaining spend on our development pipeline. In addition,
we expect that our capital commitments will continue to grow during 2014 as we continue to seek
additional development and acquisition opportunities.
48
We believe we have a variety of possibilities to bridge the gap between our capital resources and
commitments which may include raising capital through the issuance of common or preferred securities,
issuing debt, expanding the borrowing capacity of our credit facility, or entering into joint venture
arrangements to acquire or develop facilities.
At February 25, 2014, we have no outstanding borrowings on our line of credit and outstanding
borrowings of $600 million on our term loan.
Debt Service Requirements: As of December 31, 2013, our outstanding debt totaled
approximately $839.1 million. Approximate principal maturities of our outstanding debt are as follows
(amounts in thousands):
2014
2015
2016
2017
2018
Thereafter
Term Loan and
Line of Credit
Secured Debt
Total
$
$
700,000
-
-
50,100
-
-
750,100
$
$
26,206
30,842
15,920
1,343
11,077
3,565
88,953
$
$
726,206
30,842
15,920
51,443
11,077
3,565
839,053
The remaining maturities on our secured debt are nominal compared to our annual cash from
operations. We intend to repay the secure debt at maturity and not seek to refinance it with additional debt.
Virtually all of the book value of our real estate facilities are unencumbered at December 31,
2013.
Capital Expenditure Requirements: Capital expenditures include major repairs or replacements to
elements of our facilities, which keep the facilities in good operating condition and maintain their visual
appeal to the customer, which totaled $71.3 million in 2013. Capital expenditures do not include costs
relating to the development of new facilities or the expansion of net rentable square footage of existing
facilities. During 2014, we expect to incur approximately $70 million for capital expenditures and fund
such amounts with cash provided by operating activities. For the last four years, such capital expenditures
have ranged between approximately $0.55 and $0.60 per net rentable square foot per year.
Requirement to Pay Distributions: For all periods presented herein, we have elected to be treated
as a REIT, as defined in the Internal Revenue Code. As a REIT, we do not incur federal income tax on our
REIT taxable income (generally, net rents and gains from real property, dividends, and interest) that is fully
distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered),
and if we meet certain organizational and operational rules. We believe we have met these requirements in
all periods presented herein, and we expect to continue to elect and qualify as a REIT.
Distributions paid during 2013 totaled $1.1 billion, consisting of $204.3 million to preferred
shareholders and $887.1 million to common shareholders and restricted share unitholders. All of these
distributions were REIT qualifying distributions.
We estimate the annual distribution requirements with respect to our Preferred Shares outstanding
at December 31, 2013 to be approximately $207.6 million per year.
On February 20, 2014, our Board of Trustees declared a regular common quarterly dividend of
$1.40 per common share. Our consistent, long-term dividend policy has been to distribute only our taxable
income. Future quarterly distributions with respect to the common shares will continue to be determined
based upon our REIT distribution requirements after taking into consideration distributions to the preferred
shareholders and will be funded with cash provided by operating activities.
49
We are obligated to pay distributions to noncontrolling interests in our consolidated subsidiaries
based upon the cash provided by operating activities of the respective subsidiary. Such distributions are
estimated at approximately $6.4 million in 2014, with respect to such noncontrolling interests outstanding
at December 31, 2013.
Real Estate Investment Activities: As of February 25, 2014, we were under contract to acquire a
self-storage facility for approximately $10.8 million in cash. During 2014, 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.
As of December 31, 2013, we had development and expansion projects which will add
approximately 1.8 million net rentable square feet of storage space at a total cost of approximately
$196 million. A total of $52 million in costs were incurred through December 31, 2013, with the remaining
costs expected to be incurred primarily in 2014. Some of these projects are subject to significant
contingencies such as entitlement approval. We expect to continue to seek additional development
projects; however, the level of future development may be limited due to various constraints such as
difficulty in finding available sites for building that meet our risk-adjusted yield expectations, as well as the
challenges in obtaining building permits for self-storage activities in certain municipalities.
Shurgard Europe: Shurgard Europe has a term loan from a bank (the “Bank Loan”) with a
balance of approximately €107.5 million ($148.0 million) at December 31, 2013 maturing in November
2014 and the Shareholder Loan totaling €311.0 million ($428.1 million) at December 31, 2013. On
January 28, 2014, our joint venture partner in Shurgard Europe acquired 51% of the Shareholder Loan at
face value for €158.6 million ($216.2 million) in cash, and the maturity date of the Shareholder Loan was
extended to April 2019. Shurgard Europe is exploring various financing alternatives.
Redemption of Preferred Securities: We have no series of preferred shares that are redeemable
before April 2015 and none of our preferred securities are redeemable at the option of the holders.
Repurchases of Company’s Common Shares: Our Board of Trustees has authorized management
to repurchase up to 35,000,000 of our common shares on the open market or in privately negotiated
transactions. During 2013, we did not repurchase any of our common shares. From the inception of the
repurchase program through February 25, 2014, we have repurchased a total of 23,721,916 common shares
at an aggregate cost of approximately $679.1 million. We have no current plans to repurchase shares;
however, future levels of common share repurchases will be dependent upon our available capital,
investment alternatives and the trading price of our common shares.
50
Contractual Obligations
Our significant contractual obligations at December 31, 2013 and their impact on our cash flows
and liquidity are summarized below for the years ending December 31 (amounts in thousands):
Total
2014
2015
2016
2017
2018
Thereafter
Long-term debt (1)
$
98,034 $
30,320 $
32,861 $
17,191 $
1,965 $
11,610 $
4,087
Term loan (2)
Line of credit (3)
700,000
700,000
50,100
50,100
-
-
-
-
-
-
-
-
-
-
Operating leases (4)
72,426
4,357
3,369
3,298
2,295
1,969
57,138
Construction commitments (5)
43,450
34,760
8,690
-
-
-
-
Total
$ 964,010 $ 819,537 $
44,920 $
20,489 $
4,260 $
13,579 $
61,225
(1) Amounts include principal and interest payments (all of which are fixed-rate) on our notes payable
based on their contractual terms. See Note 6 to our December 31, 2013 financial statements for
additional information on our notes payable.
(2) Amounts represent borrowings under our $700 million term loan, of which $100 million was
repaid on January 30, 2014. See Note 6 to our December 31, 2013 financial statements for
additional information on our term loan.
(3) Amounts represent borrowings under our $300 million revolving line of credit, which were repaid
on January 8, 2014. See Note 6 to our December 31, 2013 financial statements for additional
information on our line of credit.
(4) 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.
(5) Amounts exclude an additional $100.6 million in future expected development spending that was
not under contract at December 31, 2013.
We estimate the annual distribution requirements with respect to our Preferred Shares outstanding
at December 31, 2013, to be approximately $207.6 million per year. Dividends are paid when and if
declared by our Board of Trustees and accumulate if not paid. We have no series of preferred shares that
are redeemable before April 2015 and none of our preferred securities are redeemable at the option of the
holders.
Off-Balance Sheet Arrangements: At December 31, 2013, we had no material off-balance sheet
arrangements as defined under Regulation S-K 303(a)(4) and the instructions thereto.
51
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
To limit our exposure to market risk, we are capitalized primarily with preferred and common equity. Our
preferred shares are redeemable at our option generally five years after issuance, but the holder has no redemption
option. Our debt is our only market-risk sensitive portion of our capital structure, which totals $839.1 million and
represents 9.5% of the book value of our equity at December 31, 2013.
We have foreign currency exposures related to our investment in Shurgard Europe, which has a book value
of $424.1 million at December 31, 2013. We also have a loan receivable from Shurgard Europe “the Shareholder
Loan”), which is denominated in Euros, totaling €311.0 million ($428.1 million) at December 31, 2013. On
January 28, 2014, our joint venture partner in Shurgard Europe acquired 51% of the Shareholder Loan at face value
for €158.6 million ($216.2 million) in cash, and the maturity date of the Shareholder Loan was extended to April
2019.
At December 31, 2013, we had $700 million payable under a term loan which matures on December 2,
2014 and $50.1 million outstanding on our line of credit, which expires in March 2017. As of December 31, 2013,
these balances bear interest at a variable rate of Libor plus 0.90%.
The fair value of our fixed rate debt at December 31, 2013 is $90.5 million. The table below summarizes
the annual maturities of our fixed rate debt which had a weighted average fixed rate of 4.8% at December 31, 2013.
See Note 6 to our December 31, 2013 financial statements for further information regarding our fixed rate debt
(dollar amounts in thousands).
2014
2015
2016
2017
2018
Thereafter
Total
Fixed rate debt
$
26,206 $
30,842 $
15,920 $
1,343 $
11,077 $
3,565 $
88,953
52
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 real estate entities and because we do not control these entities, our disclosure controls and
procedures with respect to such entities are substantially more limited than those we maintain with respect to our
consolidated subsidiaries.
As of December 31, 2013, 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, 2013, 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 (1992 Framework). Based on our evaluation under the framework in Internal Control-Integrated
Framework, our management concluded that our internal control over financial reporting was effective as of
December 31, 2013.
The effectiveness of internal control over financial reporting as of December 31, 2013, 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.
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 2013 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
None.
53
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
Public Storage
We have audited Public Storage’s internal control over financial reporting as of December 31, 2013, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) (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 Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We 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, 2013, 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, 2013 and 2012, and the related
consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the
period ended December 31, 2013 and our report dated February 25, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Los Angeles, California
February 25, 2014
54
ITEM 10.
Trustees, Executive Officers and Corporate Governance
PART III
The information required by this item with respect to trustees will be included under the captions titled
“Election of Trustees” in the Company’s definitive proxy statement for the 2014 Annual Meeting to be filed with
the SEC within 120 days of the fiscal year ended December 31, 2013 (the “2014 Proxy Statement”) and is
incorporated herein by reference.
The information required by this item with respect to the nominating process, the audit committee and the
audit committee financial expert will be included under the captions “Corporate Governance and Board Matters—
Audit Committee”, “Corporate Governance and Board Matters—Consideration of Candidates for Trustee” in the
2014 Proxy Statement and is incorporated herein by reference.
The information required by this item with respect to Section 16(a) compliance will be included under the
caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2014 Proxy Statement and is
incorporated herein by reference.
The information required by this item with respect to a code of ethics will be included under the caption
“Corporate Governance and Board Matters” in the 2014 Proxy Statement and is incorporated herein by reference.
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 56, is Chairman of the Board, President and Chief Executive Officer. He was
named Chairman in 2011 and has served as the company’s Chief Executive Officer and a member of the Board of
Public Storage since November 2002. Mr. Havner has been Chairman of the Board of Public Storage’s affiliate, PS
Business Parks, Inc. (PSB), since March 1998. Within the last five years, Mr. Havner served on the boards of
Union BanCal Corporation and its subsidiary, Union Bank of California and General Finance Corporation.
John Reyes, age 53, has served as Senior Vice President and Chief Financial Officer of Public Storage
since 1996.
Shawn Weidmann, 50, joined Public Storage as Senior Vice President and Chief Operating Officer in
August 2011. Prior to joining Public Storage, Mr. Weidmann was employed at Teleflora LLC, the world’s leading
floral wire service, where he served as President since 2006.
David F. Doll, age 55, 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,
redevelopments and capital improvements.
Steven M. Glick, age 57, became Senior Vice President and Chief Legal Officer of Public Storage in
February 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. Mr. Glick is
leaving the employment of the Company by March 2015.
Candace N. Krol, age 52, has served as Senior Vice President of Human Resources since September
2005.
55
ITEM 11.
Executive Compensation
The information required by this item will be included under the captions titled “Corporate
Governance and Board Matters,” “Executive Compensation,” “Corporate Governance and Board Matters--
Compensation Committee Interlocks and Insider Participation,” and “Report of the Compensation Committee” in
the 2014 Proxy Statement and is incorporated herein by reference.
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, 2013 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
2,810,540 (b)
$66.13
1,135,581
-
-
-
Equity compensation plans 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, 2013 financial statements. All plans were approved by the Company’s shareholders.
Includes 636,329 restricted share units that, if and when vested, will be settled in common shares of the
Company on a one for one basis.
There are no securities available for future issuance or currently outstanding under plans not approved
by the Company’s shareholders as of December 31, 2013.
ITEM 13. Certain Relationships and Related Transactions and Trustee Independence
The information required by this item will be included under the captions titled “Corporate
Governance and Board Matters—Trustee Independence” and “Certain Relationships and Related Transactions and
Legal Proceedings” in the 2014 Proxy Statement and is incorporated herein by reference.
ITEM 14.
Principal Accountant Fees and Services
The information required by this item will be included under the caption titled “Ratification of
Auditors—Fees Billed to the Company by Ernst & Young LLP for 2013 and 2012” in the 2014 Proxy Statement and
is incorporated herein by reference.
56
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.
57
PUBLIC STORAGE
INDEX TO EXHIBITS (1)
(Items 15(a)(3) and 15(c))
Articles of Amendment and Restatement of Declaration of Trust of Public Storage, a Maryland real estate
investment trust. Filed with the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2009 and incorporated by reference herein.
Bylaws of Public Storage, a Maryland real estate investment trust. Filed with the Registrant’s Current
Report on Form 8-K dated May 11, 2010 and incorporated by reference herein.
Articles Supplementary for Public Storage 6.875% Cumulative Preferred Shares, Series O. Filed with the
Registrant’s Current Report on Form 8-K dated April 8, 2010 and incorporated by reference herein.
Articles Supplementary for Public Storage 6.500% Cumulative Preferred Shares, Series P. Filed with the
Registrant’s Current Report on Form 8-K dated October 6, 2010 and incorporated by reference herein.
Articles Supplementary for Public Storage 6.5% Cumulative Preferred Shares, Series Q. Filed with the
Registrant’s Current Report on Form 8-K dated May 2, 2011 and incorporated by reference herein.
Articles Supplementary for Public Storage 6.35% Cumulative Preferred Shares, Series R. Filed with the
Registrant’s Current Report on Form 8-K dated July 20, 2011 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.900% Cumulative Preferred Shares, Series S. Filed with the
Registrant’s Current Report on Form 8-K dated January 9, 2012 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.750% Cumulative Preferred Shares, Series T. Filed with the
Registrant’s Current Report on Form 8-K dated March 7, 2012 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.625% Cumulative Preferred Shares, Series U. Filed with the
Registrant’s Current Report on Form 8-K dated June 6, 2012 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.375% Cumulative Preferred Shares, Series V. Filed with the
Registrant’s Current Report on Form 8-K dated September 11, 2012 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.20% Cumulative Preferred Shares, Series W. Filed with the
Registrant’s Current Report on Form 8-K dated January 8, 2013 and incorporated by reference herein.
Articles Supplementary for Public Storage 5.20% Cumulative Preferred Shares, Series X. Filed with the
Registrant’s Current Report on Form 8-K dated March 5, 2013 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.
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
4.1
10.1
58
10.2
10.3
10.4
10.5
10.5.1
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
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.
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.
Amended and Restated Credit Agreement by and among Registrant, Wells Fargo Securities, LLC and
Merrill Lynch, Pierce Fenner & Smith Incorporated as joint lead arrangers, Wells Fargo Bank, National
Association, as administrative agent, and the other financial institutions party thereto, dated as of
March 21, 2012. Filed with PSI’s Current Report on Form 8-K on March 27, 2012 (SEC File No. 001-
0839) and incorporated herein by reference.
Second Amendment to Amended and Restated Credit Agreement, dated as of July 17, 2013, by and
among Public Storage, the Lenders party thereto and Wells Fargo Bank, National Association. Filed with
the Registrant’s Current Report on Form 8-K on July 18, 2013 and incorporated herein by reference.
Shurgard Storage Centers, Inc. 2004 Long Term Incentive Compensation Plan. Filed as Appendix A of
Definitive Proxy Statement dated June 7, 2004 filed by Shurgard (SEC File No. 001-11455) 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 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.
59
10.15*
10.16*
10.17
12
23
31.1
31.2
32
Amendment to Form of Trustee Stock Option Agreement. Filed as Exhibit 10.30 to Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.
Revised Form of Trustee Stock Option Agreement. Filed as Exhibit 10.31 to Registrant’s Annual Report
on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.
Term Loan Agreement, by and among Public Storage, Wells Fargo Securities, LLC as Lead Arranger and
Wells Fargo National Bank N.A. as Administrative Agent, dated as of December 2, 2013. Filed as
Exhibit 10.1 to Registrant’s Current Report on Form 8-K and incorporated herein by reference.
Statement Re: Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. Filed
herewith.
Consent of Ernst & Young LLP. Filed herewith.
Rule 13a – 14(a) Certification. Filed herewith.
Rule 13a – 14(a) Certification. Filed herewith.
Section 1350 Certifications. Filed herewith.
101 .INS
XBRL Instance Document. Filed herewith.
101 .SCH
XBRL Taxonomy Extension Schema. Filed herewith.
101 .CAL
XBRL Taxonomy Extension Calculation Linkbase. Filed herewith.
101 .DEF
XBRL Taxonomy Extension Definition Linkbase. Filed herewith.
101 .LAB
XBRL Taxonomy Extension Label Linkbase. Filed herewith.
101 .PRE
XBRL Taxonomy Extension Presentation Link. Filed herewith.
_ (1) SEC File No. 001-33519 unless otherwise indicated.
* Denotes management compensatory plan agreement or arrangement.
60
PUBLIC STORAGE
INDEX TO FINANCIAL STATEMENTS
(Item 15 (a))
Report of Independent Registered Public Accounting Firm ...............................................................
Balance sheets as of December 31, 2013 and 2012 ............................................................................
For the years ended December 31, 2013, 2012 and 2011:
Statements of income .........................................................................................................................
Statements of comprehensive income ................................................................................................
Page
References
F-1
F-2
F-3
F-4
Statements of equity ..........................................................................................................................
F-5 – F-6
Statements of cash flows ....................................................................................................................
F-7 – F-8
Notes to financial statements ..............................................................................................................
F-9 – F-35
All other schedules have been omitted since the required information is not present or not present in amounts
sufficient to require submission of the schedule, or because the information required is included in the financial
statements or notes thereto.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders of Public Storage
We have audited the accompanying consolidated balance sheets of Public Storage as of December 31, 2013 and
2012, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of
the three years in the period ended December 31, 2013. 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, 2013 and 2012, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2013, 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.
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, 2013, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 Framework) and our report dated February 25, 2014 expressed an unqualified opinion
thereon.
Los Angeles, California
February 25, 2014
/s/ ERNST & YOUNG LLP
F-1
PUBLIC STORAGE
BALANCE SHEETS
(Amounts in thousands, except share data)
ASSETS
Cash and cash equivalents
Real estate facilities, at cost:
Land
Buildings
Accumulated depreciation
Construction in process
Investments in unconsolidated real estate entities
Goodwill and other intangible assets, net
Loan receivable from unconsolidated real estate entity
Other assets
Total assets
LIABILITIES AND EQUITY
Borrowings on bank credit facility
Term loan
Notes payable
Accrued and other liabilities
Total liabilities
Commitments and contingencies (Note 13)
Equity:
Public Storage shareholders’ equity:
December 31,
December 31,
2013
2012
$
19,169
$
17,239
3,321,236
8,965,020
12,286,256
(4,098,814)
8,187,442
52,336
8,239,778
856,182
246,854
428,139
86,144
9,876,266
50,100
700,000
88,953
218,358
1,057,411
$
$
2,863,464
8,170,355
11,033,819
(3,738,130)
7,295,689
36,243
7,331,932
735,323
209,374
410,995
88,540
8,793,403
133,000
-
335,828
201,711
670,539
$
$
Preferred Shares, $0.01 par value, 100,000,000 shares authorized, 142,500
shares issued (in series) and outstanding, (113,500 at December 31, 2012),
at liquidation preference
Common Shares, $0.10 par value, 650,000,000 shares authorized,
171,776,291 shares issued and outstanding (171,388,286 shares at
December 31, 2012)
Paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Public Storage shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
$
3,562,500
2,837,500
17,178
5,531,034
(318,482)
(500)
8,791,730
27,125
8,818,855
9,876,266
$
17,139
5,519,596
(279,474)
(1,005)
8,093,756
29,108
8,122,864
8,793,403
F-2
PUBLIC STORAGE
STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
Revenues:
Self-storage facilities
Ancillary operations
Expenses:
Self-storage cost of operations
Ancillary cost of operations
Depreciation and amortization
General and administrative
Asset impairment charges
Operating income
Interest and other income
Interest expense
Equity in earnings of unconsolidated real estate entities
Foreign currency exchange gain (loss)
Gain on real estate sales and debt retirement
Income from continuing operations
Discontinued operations
Net income
Allocation to noncontrolling interests
Net income allocable to Public Storage shareholders
Allocation of net income to:
Preferred shareholders - distributions
Preferred shareholders - redemptions
Restricted share units
Net income allocable to common shareholders
Net income per common share – basic
Continuing operations
Discontinued operations
Net income per common share – diluted
Continuing operations
Discontinued operations
For the Years Ended December 31,
2012
2011
2013
$
$
1,849,883
131,863
1,981,746
1,718,865 $
123,639
1,842,504
1,621,799
114,089
1,735,888
524,086
41,075
387,402
66,679
-
1,019,242
962,504
22,577
(6,444)
57,579
17,082
4,233
1,057,531
-
1,057,531
(5,078)
1,052,453
517,641
38,263
357,781
56,837
-
970,522
871,982
22,074
(19,813)
45,586
8,876
1,456
930,161
12,874
943,035
(3,777)
939,258
523,113
37,396
357,969
52,410
2,186
973,074
762,814
32,333
(24,222)
58,704
(7,287)
10,801
833,143
3,316
836,459
(12,617)
823,842
(204,312)
-
(3,410)
844,731 $
(205,241)
(61,696)
(2,627)
669,694 $
(224,877)
(35,585)
(1,633)
561,747
4.92 $
-
4.92 $
4.89 $
-
4.89 $
3.85 $
0.08
3.93 $
3.83 $
0.07
3.90 $
3.29
0.02
3.31
3.27
0.02
3.29
$
$
$
$
$
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
171,640
172,688
170,562
171,664
169,657
170,750
F-3
PUBLIC STORAGE
STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
For the Years Ended December 31,
2012
2011
2013
Net income
Other comprehensive income (loss):
$
1,057,531
$
943,035
$
836,459
Aggregate foreign currency exchange gain
17,587
30,885
(14,528)
Adjust for foreign currency exchange (gain) loss included in net
income
Other comprehensive income (loss)
Total comprehensive income
Allocation to noncontrolling interests
(17,082)
505
1,058,036
(5,078)
(8,876)
22,009
965,044
(3,777)
Comprehensive income allocable to Public Storage shareholders $
1,052,958
$
961,267
$
7,287
(7,241)
829,218
(12,617)
816,601
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PUBLIC STORAGE
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
For the Years Ended December 31,
2012
2011
2013
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on real estate sales and debt retirement, including amounts
in discontinued operations
Depreciation and amortization, including amounts in
discontinued operations
Distributions received from unconsolidated real estate entities
less than equity in earnings
Foreign currency exchange (gain) loss
Asset impairment charges, including amounts in discontinued
operations
Other
Total adjustments
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures to maintain real estate facilities
Construction in process
Acquisition of real estate facilities and intangibles (Note 3)
Investment in unconsolidated real estate entities
Proceeds from sale of real estate investments
Loans to unconsolidated real estate entities
Repayments of loans receivable from unconsolidated real estate
entities
Disposition of loans receivable from unconsolidated real estate
entities
Maturities of marketable securities
Other
Net cash used in investing activities
Cash flows from financing activities:
(Repayments) borrowings on bank credit facility, net
Borrowings on term loan
Repayments on notes payable
Issuance of common shares
Issuance of preferred shares
Redemption of preferred shares
Acquisition of noncontrolling interests
Distributions paid to Public Storage shareholders
Distributions paid to noncontrolling interests
Net cash used in financing activities
Net decrease in cash and cash equivalents
Net effect of foreign exchange translation on cash and cash
equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
$
1,057,531
$
943,035 $
836,459
(4,233)
(13,591)
(13,538)
387,402
358,103
358,525
(11,709)
(17,082)
-
18,430
372,808
1,430,339
(71,270)
(101,376)
(1,150,943)
(105,040)
257
-
(904)
(8,876)
-
7,892
342,624
1,285,659
(67,737)
(10,688)
(225,515)
-
20,021
-
(5,197)
7,287
2,186
17,730
366,993
1,203,452
(69,777)
(19,164)
(77,228)
(1,274)
13,435
(358,877)
-
-
206,770
-
-
15,979
(1,412,393)
(82,900)
700,000
(251,895)
21,111
701,687
-
(6,248)
(1,091,461)
(6,454)
(16,160)
1,786
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(6,546)
(290,465)
133,000
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(61,013)
124,447
1,651,456
(1,978,771)
(21,325)
(959,154)
(5,945)
(1,117,305)
(122,111)
121,317
102,279
1,164
(81,355)
-
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(174,355)
26,416
835,627
(1,147,256)
(118,418)
(846,246)
(14,314)
(1,438,546)
(316,449)
144
17,239
19,169
$
342
139,008
17,239
$
(795)
456,252
139,008
$
F-7
PUBLIC STORAGE
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
For the Years Ended December 31,
2012
2011
2013
Supplemental schedule of non-cash investing and financing
activities:
Foreign currency translation adjustment:
Real estate facilities, net of accumulated depreciation
Investments in unconsolidated real estate entities
Intangible assets
Loan receivable from unconsolidated real estate entity
Accumulated other comprehensive income (loss)
$
(254) $
(45)
-
(17,144)
17,587
$
(646)
(21,600)
5
(8,302)
30,885
Real estate acquired in exchange for assumption of note payable
Note payable assumed in connection with acquisition of real estate
(6,071)
6,071
-
-
Consolidation of entities previously accounted for under the equity
method of accounting:
Real estate facilities
Investments in unconsolidated real estate entities
Intangible assets
Noncontrolling interests
Noncontrolling interests in subsidiaries acquired in exchange for the
issuance of common shares (Note 7):
Additional paid in capital (noncontrolling interests acquired)
Common shares
Additional paid in capital (common shares issued)
Adjustments of redeemable noncontrolling interests to fair values:
Accumulated deficit
Redeemable noncontrolling interests
Exchange of loan receivable from Shurgard Europe for investment
(Note 4):
Loans receivable from unconsolidated real estate entities
Investment in unconsolidated real estate entities
Real estate acquired in connection with elimination of intangible
assets
Intangible assets eliminated in connection with acquisition of real
estate
-
-
-
-
-
-
-
-
-
-
-
-
-
(10,403)
3,072
(949)
8,224
-
-
-
-
-
-
-
-
-
(18)
6,985
-
6,766
(14,528)
(9,679)
9,679
(19,427)
6,126
(3,985)
17,663
(57,108)
48
57,060
(764)
764
116,560
(116,560)
(4,738)
4,738
F-8
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
1. Description of the Business
Public Storage (referred to herein as “the Company”, “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.
At December 31, 2013, we have direct and indirect equity interests in 2,200 self-storage facilities (with
approximately 141 million net rentable square feet) located in 38 states in the United States (“U.S.”) operating
under the “Public Storage” name. In Europe, we own one self-storage facility in London, England and we have
a 49% interest in Shurgard Europe, which owns 187 self-storage facilities (with approximately 10 million net
rentable square feet) located in seven Western European countries, all operating under the “Shurgard” name.
We also have direct and indirect equity interests in approximately 31 million net rentable square feet of
commercial space located in 11 states in the U.S. primarily owned and operated by PS Business Parks, Inc.
(“PSB”) under the “PS Business Parks” name. At December 31, 2013, we have an approximate 42% common
equity interest in PSB.
Disclosures of the number and square footage of properties, as well as the number and coverage of
tenant reinsurance policies are unaudited and outside the scope of our independent registered public accounting
firm’s review of our financial statements in accordance with the standards of the Public Company Accounting
Oversight Board (U.S.).
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements are presented on an accrual basis in accordance with U.S. generally accepted
accounting principles (“GAAP”) as defined in the Financial Accounting Standards Board Accounting Standards
Codification (the “Codification”). Certain amounts previously reported in our December 31, 2012 and 2011
financial statements have been reclassified to conform to the December 31, 2013 presentation, (i) to reflect
credit card fees as part of cost of operations rather than as a reduction to revenues and (ii) to reclassify
construction in process from buildings.
Consolidation and Equity Method of Accounting
We consider entities to be Variable Interest Entities (“VIEs”) when they have insufficient equity to
finance their activities without additional subordinated financial support provided by other parties, or where the
equity holders as a group do not have a controlling financial interest. We have no investments or other
involvement in any VIEs.
We consolidate all entities that we control (these entities, for the period in which the reference applies,
are referred to collectively as the “Subsidiaries”), and we eliminate intercompany transactions and balances.
We account for our investments in entities that we have significant influence over, but do not control, using the
equity method of accounting (these entities, for the periods in which the reference applies, are referred to
collectively as the “Unconsolidated Real Estate Entities”). When we obtain control of an Unconsolidated Real
Estate Entity, we commence consolidating the entity and record a gain representing the differential between the
book value and fair value of our preexisting equity interest. All changes in consolidation status are reflected
prospectively.
F-9
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
When we are general partner, we control the partnership unless the third-party limited partners can
dissolve the partnership or otherwise remove us as general partner without cause, or if the limited partners have
the right to participate in substantive decisions of the partnership.
Collectively, at December 31, 2013, the Company and the Subsidiaries own 2,186 self-storage
facilities in the U.S., one self-storage facility in London, England and six commercial facilities in the U.S. At
December 31, 2013, the Unconsolidated Real Estate Entities are comprised of PSB, Shurgard Europe, as well as
limited partnerships that own an aggregate of 14 self-storage facilities in the U.S. (these limited partnerships,
for the periods in which the reference applies, are referred to as the “Other Investments”).
Use of Estimates
The financial statements and accompanying notes reflect our estimates and assumptions. Actual
results could differ from those estimates and assumptions.
Income Taxes
We have elected to be treated as a real estate investment trust (“REIT”), as defined in the Internal
Revenue Code. As a REIT, we do not incur federal income tax if we distribute 100% of our REIT taxable
income (generally, net rents and gains from real property, dividends, and interest) each year, and if we meet
certain organizational and operational rules. We believe we will meet these REIT requirements in 2013, and
that we have met them for all other periods presented herein. Accordingly, we have recorded no federal income
tax expense related to our REIT taxable income.
Our merchandise and tenant reinsurance operations are subject to corporate income tax and such taxes
are included in ancillary cost of operations. We also incur income and other taxes in certain states, which are
included in general and administrative expense.
We recognize tax benefits of uncertain income tax positions that are subject to audit only if we believe
it is more likely than not that the position would be sustained (including the impact of appeals, as applicable),
assuming the relevant taxing authorities had full knowledge of the relevant facts and circumstances of our
positions. As of December 31, 2013, we had no tax benefits that were not recognized.
Real Estate Facilities
Real estate facilities are recorded at cost. We capitalize all costs incurred to develop, construct,
renovate and improve properties, including interest and property taxes incurred during the construction period.
We expense internal and external transaction costs associated with acquisitions or dispositions of real estate, as
well as repairs and maintenance costs, as incurred. We depreciate buildings and improvements on a straight-
line basis over estimated useful lives ranging generally between 5 to 25 years.
We allocate the net acquisition cost of acquired operating self-storage facilities to the underlying land,
buildings, identified intangible assets, and remaining noncontrolling interests based upon their respective
individual estimated fair values. Any difference between the net acquisition cost and the estimated fair value of
the net tangible and intangible assets acquired is recorded as goodwill.
F-10
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
Other Assets
Other assets primarily consist of prepaid expenses, accounts receivable, land held for sale and
restricted cash. In 2011, we recorded impairment charges with respect to other assets totaling $1.9 million.
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, accrued tenant reinsurance losses, casualty
losses, and contingent loss accruals which are accrued when probable and estimable. We disclose the nature of
significant unaccrued losses that are reasonably possible of occurring and, if estimable, a range of exposure.
Cash Equivalents and Marketable Securities
Cash equivalents represent highly liquid financial instruments such as money market funds with daily
liquidity or short-term commercial paper or treasury securities maturing within three months of acquisition.
Cash and cash equivalents which are restricted from general corporate use are included in other assets.
Commercial paper not maturing within three months of acquisition, which we intend and have the capacity to
hold until maturity, are included in marketable securities and accounted for using the effective interest method.
Fair Value Accounting
As used herein, the term “fair value” is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. We prioritize the inputs used in
measuring fair value based upon a three-tier hierarchy described in Codification Section 820-10-35.
We believe that, during all periods presented, the carrying values approximate the fair values of our
cash and cash equivalents, marketable securities, other assets, and accrued and other liabilities, based upon our
evaluation of the underlying characteristics, market data, and short maturity of these financial instruments,
which involved considerable judgment. The estimated fair values are not necessarily indicative of the amounts
that could be realized in current market exchanges. The characteristics of these financial instruments, market
data, and other comparative metrics utilized in determining these fair values are “Level 2” inputs as the term is
defined in Codification Section 820-10-35-47.
We use significant judgment to estimate fair values in recording our business combinations, to evaluate
real estate, investments in unconsolidated real estate entities, goodwill, and other intangible assets for
impairment, and to determine the fair values of notes payable and receivable. In estimating fair values, we
consider significant unobservable inputs such as market prices of land, market capitalization rates and earnings
multiples for real estate facilities, projected levels of earnings, costs of construction, functional depreciation,
and market interest rates for debt securities with a similar time to maturity and credit quality, which are
“Level 3” inputs as the term is defined in Codification Section 820-10-35-52.
Currency and Credit Risk
Financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts
receivable, loans receivable, and restricted cash. Cash equivalents and marketable securities we invest in are
either money market funds with a rating of at least AAA by Standard and Poor’s, commercial paper that is
rated A1 by Standard and Poor’s or deposits with highly rated commercial banks.
F-11
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
At December 31, 2013, due primarily to our investment in and loan receivable from Shurgard Europe,
our operating results and financial position are affected by fluctuations in currency exchange rates between the
Euro, and to a lesser extent, other European currencies, against the U.S. Dollar.
Goodwill and Other Intangible Assets
Intangible assets are comprised of goodwill, the “Shurgard” trade name, acquired customers in place,
and leasehold interests in land.
Goodwill totaled $174.6 million at December 31, 2013 and 2012. The “Shurgard” trade name, which
is used by Shurgard Europe pursuant to a fee-based licensing agreement, has a book value of $18.8 million at
December 31, 2013 and 2012. Goodwill and the “Shurgard” trade name have indefinite lives and are not
amortized.
Acquired customers in place and leasehold interests in land are finite-lived and are amortized relative
to the benefit of the customers in place or the land lease expense to each period. At December 31, 2013, these
intangibles have a net book value of $53.4 million ($15.9 million at December 31, 2012). Accumulated
amortization totaled $35.1 million at December 31, 2013 ($24.8 million at December 31, 2012), and
amortization expense of $24.1 million, $10.5 million and $11.9 million was recorded in 2013, 2012 and 2011,
respectively. The estimated future amortization expense for our finite-lived intangible assets at December 31,
2013 is $36.6 million in 2014, $8.2 million in 2015 and $8.6 million thereafter. During 2013, 2012 and 2011,
intangibles were increased $61.5 million, $9.1 million and $1.0 million, respectively, in connection with the
acquisition of self-storage facilities and leasehold interests (Note 3), and in 2012 and 2011, $0.9 million and
$4.0 million, respectively, in connection with the consolidation of facilities previously accounted for under the
equity method (Note 4).
Evaluation of Asset Impairment
We evaluate our real estate, finite-lived intangible assets, investments in unconsolidated real estate
entities, and loan receivable from Shurgard Europe for impairment on a quarterly basis. We evaluate indefinite-
lived assets (including goodwill) for impairment on an annual basis, or more often if there are indicators of
impairment.
In evaluating our real estate assets and finite-lived intangible assets for impairment, if there are
indicators of impairment, and we determine that the asset is not recoverable from future undiscounted cash
flows, an impairment charge is recorded for any excess of the carrying amount over the asset’s estimated fair
value. For long-lived assets that we expect to dispose of prior to the end of their estimated useful lives, we
record an impairment charge for any excess of the carrying value of the asset over the expected net proceeds
from disposal.
Prior to January 1, 2013, we evaluated the “Shurgard” trade name for impairment through a
quantitative analysis, and we would record impairment charges to the extent quantitatively estimated fair value
was less than the carrying amount. Beginning January 1, 2013, if we determine, based upon the relevant events
and circumstances and other such qualitative factors, that it is more likely than not that the asset is unimpaired,
we do not record an impairment charge and no further analysis is performed. Otherwise, we record an
impairment charge for any excess of carrying amount over quantitatively assessed fair value.
In evaluating goodwill for impairment, we first evaluate, based upon the relevant events and
circumstances and other such qualitative factors, whether the fair value of the reporting unit that the goodwill
pertains to is greater than its aggregate carrying amount. If based upon this evaluation it is more likely than not
F-12
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
that the fair value of the reporting unit is in excess of its aggregate carrying amount, no impairment charge is
recorded and no further analysis is performed. Otherwise, we estimate the goodwill’s implied fair value based
upon what would be allocated to goodwill if the reporting unit were acquired at estimated fair value in a
transaction accounted for as a business combination, and record an impairment charge for any excess of book
value over the goodwill’s implied fair value.
For our investments in unconsolidated real estate entities, if we determine that a decline in the
estimated fair value of the investments below carrying amount is other than temporary, we record an
impairment charge for any excess of carrying amount over the estimated fair value.
For our loan receivable from Shurgard Europe, if we determine that it is probable we will be unable to
collect all amounts due based on the terms of the loan agreement, we record an impairment charge for any
excess of book value over the present value of expected future cash flows.
No impairments were recorded in any of our evaluations for any period presented herein.
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 reduce rental income
over the promotional period. Ancillary revenues and interest and other income are recognized when earned.
Equity in earnings of unconsolidated real estate entities represents our pro-rata share of the earnings of the
Unconsolidated Real Estate Entities.
We accrue for property tax expense based upon actual amounts billed and, in some circumstances,
estimates and historical trends when bills or assessments have not been received from the taxing authorities or
such bills and assessments are in dispute. If these estimates are incorrect, the timing and amount of expense
recognition could be incorrect. Cost of operations, general and administrative expense, interest expense, as well
as television and other advertising expenditures are expensed as incurred.
Foreign Currency Exchange Translation
The local currency (primarily the Euro) is the functional currency for our interests in foreign
operations. The related balance sheet amounts are translated into U.S. Dollars at the exchange rates at the
respective financial statement date, while amounts on our statements of income are translated at the average
exchange rates during the respective period. The Euro was translated at exchange rates of approximately 1.377
U.S. Dollars per Euro at December 31, 2013 (1.322 at December 31, 2012), and average exchange rates of
1.328, 1.285 and 1.392 for the years ended December 31, 2013, 2012 and 2011, respectively. Cumulative
translation adjustments, to the extent not included in cumulative net income, are included in equity as a
component of accumulated other comprehensive income (loss).
Comprehensive Income (Loss)
Total comprehensive
in other
comprehensive income (loss) for the applicable period. The aggregate foreign currency exchange gains and
losses reflected on our statements of comprehensive income are comprised primarily of foreign currency
exchange gains and losses on our investment in, and loan receivable from, Shurgard Europe.
income, adjusted for changes
income (loss) represents net
F-13
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
Discontinued Operations
Discontinued operations represent the net income of those facilities that have been disposed of as of
during the three years ended December 31, 2013, or which we plan to dispose of within a year. In addition,
discontinued operations include $12.1 million and $2.7 million in gains on disposition of real estate facilities in
2012 and 2011, respectively.
Net Income per Common Share
Net income is allocated to (i) noncontrolling interests based upon their share of the net income of the
Subsidiaries, (ii) preferred shareholders, to the extent redemption cost exceeds the related original net issuance
proceeds (an “EITF D-42 allocation.”), and (iii) the remaining net income allocated to each of our equity
securities based upon the dividends declared or accumulated during the period, combined with participation
rights in undistributed earnings.
Basic net income per share, basic net income 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 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 net income allocations and weighted average common shares and
equivalents outstanding, as used in our calculations of basic and diluted net income per share, basic and diluted
net income from discontinued operations per share, and basic and diluted net income from continuing
operations per share:
2013
For the Years Ended December 31,
2012
(Amounts in thousands)
2011
Net income allocable to common shareholders from
continuing operations and discontinued operations:
Net income allocable to common shareholders
Eliminate: Discontinued operations
allocable to common shareholders
Net income from continuing operations
allocable to common shareholders
Weighted average common shares and equivalents
outstanding:
Basic weighted average common shares outstanding
Net effect of dilutive stock options - based
on treasury stock method
Diluted weighted average common shares outstanding
$
844,731 $
669,694
$
561,747
-
(12,874)
(3,316)
$
844,731 $
656,820
$
558,431
171,640
170,562
169,657
1,048
172,688
1,102
171,664
1,093
170,750
F-14
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
3.
Real Estate Facilities
Activity in real estate facilities during 2013, 2012 and 2011 is as follows:
$
Operating facilities, at cost:
Beginning balance
Capital expenditures to maintain real estate
facilities
Acquisitions
Dispositions
Impairment
Newly developed facilities opened for operation
Impact of foreign exchange rate changes
Ending balance
Accumulated depreciation:
Beginning balance
Depreciation expense
Dispositions
Impairment
Impact of foreign exchange rate changes
Ending balance
Construction in process:
Beginning balance
Current development
Acquisitions
Newly developed facilities opened for operation
Ending balance
Total real estate facilities at December 31,
$
2013
2012
(Amounts in thousands)
2011
11,033,819
$
10,773,277
$
10,587,347
71,270
1,095,477
(89)
-
85,283
496
12,286,256
(3,738,130)
(360,442)
-
-
(242)
(4,098,814)
36,243
101,376
-
(85,283)
52,336
8,239,778
$
67,737
198,316
(13,792)
-
7,244
1,037
11,033,819
(3,398,379)
(345,459)
6,099
-
(391)
(3,738,130)
4,299
10,688
28,500
(7,244)
36,243
7,331,932
$
69,777
105,360
(10,528)
(453)
21,793
(19)
10,773,277
(3,061,459)
(342,758)
5,645
156
37
(3,398,379)
6,928
19,164
-
(21,793)
4,299
7,379,197
During 2013, we acquired 121 operating self-storage facilities from third parties (8,036,000 net
rentable square feet of storage space) for $1.151 billion in cash and assumed mortgage debt with a fair value of
$6 million. We allocated approximately $1.095 billion to real estate facilities and $62 million to intangible
assets. We completed expansion and development activities during 2013, adding 614,000 net rentable square
feet of self-storage space, at an aggregate cost of $85.3 million. We disposed of real estate for an aggregate of
$0.2 million in cash, recording a gain of approximately $0.1 million in connection with partial condemnations.
Construction in process at December 31, 2013, consists of projects to develop new self-storage facilities and
expand existing self-storage facilities, which would add a total of 1.8 million net rentable square feet of storage
space, for an aggregate estimated cost of approximately $196 million.
The results of operations of the facilities acquired from third parties during 2013 have been included in
our consolidated financial statements since their respective acquisitions dates. The unaudited pro forma data
presented below assumes that the acquisitions occurred as of January 1, 2012, and includes pro forma
adjustments to (i) increase depreciation and amortization expense to the buildings and intangible assets acquired
and (ii) increase interest expense to reflect the financing of the acquisitions with borrowings on our line of
credit, the term loan and the issuance of preferred shares. The unaudited pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of the results of operations that would have
occurred had the acquisitions been consummated on January 1, 2012.
F-15
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
Revenues
Net income
Income per share:
Basic
Diluted
For the Year Ended December 31,
2013
2012
(Amounts in thousands, except per share data)
(Unaudited)
$
$
$
$
2,053,143
1,079,066
5.03
5.00
$
$
$
$
1,926,195
902,108
3.56
3.54
During 2012, we acquired 24 operating self-storage facilities from third parties (1,908,000 net rentable
square feet of storage space and unfinished space that we converted to 209,000 net rentable square feet of
storage space in 2013 for $20.3 million in additional development cost) for $225.5 million in cash, with
$187.9 million allocated to real estate facilities, $9.1 million allocated to intangible assets and $28.5 million
allocated to construction in process with respect to the unfinished space. In addition, we consolidated a limited
partnership that we had previously accounted for using the equity method (see Note 4). The three self-storage
facilities (183,000 net rentable square feet) owned by this entity, having an aggregate fair market value of
$10.4 million, have been added to our operating facilities. We also completed various expansion activities to
our existing facilities for an aggregate cost of approximately $7.2 million.
During 2012, we also disposed of four operating self-storage facilities and portions of other facilities in
connection with eminent domain proceedings. We received aggregate proceeds totaling $20.0 million and
recorded gains totaling of $12.3 million, of which $12.1 million was included in discontinued operations and
$0.2 million was included in gain on real estate sales and debt retirement in our statement of income for the year
ended December 31, 2012.
During 2011, we acquired eleven operating self-storage facilities from third parties (896,000 net
rentable square feet) and the leasehold interest in the land of one of our existing self-storage facilities for an
aggregate cost of $91.6 million, consisting of $77.2 million of cash, assumed mortgage debt with a fair value of
$9.7 million and the elimination of the $4.7 million book value of an intangible asset related to the acquired
leasehold interest. The aggregate cost was allocated $85.9 million to real estate facilities and $5.7 million to
intangible assets. In addition, we consolidated two limited partnerships that we had previously accounted for
using the equity method (see Note 4). The two self-storage facilities (143,000 net rentable square feet) owned
by these limited partnerships have an aggregate fair market value of $19.4 million and have been added to our
operating facilities. We also completed various expansion activities to our existing facilities for an aggregate
cost of approximately $21.8 million.
During 2011, we disposed of two operating self-storage facilities and portions of other facilities in
connection with eminent domain proceedings. We received aggregate proceeds totaling $13.4 million and
recorded an aggregate gain of $8.5 million, of which $2.7 million was included in discontinued operations and
$5.8 million was included in gain on real estate sales and debt retirement on our statement of income for the
year ended December 31, 2011. Our facilities incurred hurricane damage in 2011, resulting in a $0.3 million
impairment charge.
At December 31, 2013, the adjusted basis of real estate facilities for federal tax purposes was
approximately $8.5 billion (unaudited).
F-16
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
4.
Investments in Unconsolidated Real Estate Entities
The following table sets forth our investments in, and equity earnings of, the Unconsolidated Real
Estate Entities (amounts in thousands):
Investments in Unconsolidated
Real Estate Entities at December 31,
Equity in Earnings of Unconsolidated Real Estate Entities
for the Year Ended December 31,
2013
2012
2013
2012
2011
424,538
424,095
7,549
856,182
$
$
316,078
411,107
$
8,138
735,323
$
23,199
32,694
1,686
57,579
$
$
10,638
33,223
1,725
45,586
$
$
27,781
29,152
1,771
58,704
$
PSB
Shurgard Europe
Other Investments
Total
$
During 2013, 2012 and 2011, we received cash distributions from our investments in the
Unconsolidated Real Estate Entities totaling $45.9 million, $44.7 million and $53.5 million, respectively.
Investment in PSB
PSB is a REIT traded on the New York Stock Exchange. We have an approximate 42% common
equity interest in PSB as of December 31, 2013, comprised of our ownership of 7,158,354 shares of PSB’s
common stock and 7,305,355 limited partnership units in an operating partnership controlled by PSB (41% as of
December 31, 2012, comprised of our ownership of 5,801,606 shares of PSB’s common stock and 7,305,355
limited partnership units at December 31, 2012). 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, 2013 ($76.42 per share of PSB common stock), the shares and units we owned had a market
value of approximately $1.1 billion.
During 2013, we purchased 406,748 shares of PSB common stock in open-market transactions at an
average cost of $73.15 per share. Subsequently, on November 7, 2013, PSB completed a public offering of
1,495,000 shares of its common stock for $79.25 per share. Concurrent with the public offering, we purchased
an additional 950,000 shares of PSB common stock from PSB at the same price per share as the public offering
for a total cost of $75.3 million. In connection with PSB’s common share issuance, we recognized a gain on
sale of real estate totaling $4.1 million as if we had sold a proportionate share of our investment in PSB.
The following table sets forth selected financial information of PSB. The amounts represent all of
PSB’s balances and not our pro-rata share.
F-17
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
For the year ended December 31,
Total revenue
Costs of operations
Depreciation and amortization
General and administrative
Other items
Net income
Net income allocated to preferred unitholders, preferred
shareholders and restricted stock unitholders (a)
Net income allocated to common shareholders and
2013
2012
(Amounts in thousands)
2011
$
$
359,885
(114,831)
(108,917)
(5,312)
(14,681)
116,144
$
347,197
(114,108)
(109,398)
(8,919)
(19,400)
95,372
298,141
(99,917)
(84,391)
(9,036)
(2,157)
102,640
(59,341)
(69,597)
(34,935)
unitholders
$
56,803
$
25,775
$
67,705
(a) Includes EITF D-42 allocations to preferred equity holders of $17.3 million during 2012 related to PSB’s redemption of
preferred securities and an allocation from preferred equity holders of $7.4 million during 2011, related to PSB’s redemption
of preferred securities.
As of December 31,
Total assets (primarily real estate)
Debt
Other liabilities
Equity:
Preferred stock
Common equity and units
Investment in Shurgard Europe
2013
2012
(Amounts in thousands)
$
2,238,559
$
250,000
73,919
995,000
919,640
2,151,817
468,102
69,454
885,000
729,261
For all periods presented, we had a 49% equity investment in Shurgard Europe. On March 2, 2011,
Shurgard Europe acquired the 80% interests it did not own in two joint ventures. These joint ventures owned 72
self-storage facilities located in Europe and operated by Shurgard Europe under the “Shurgard” name. We and
our joint venture partner provided the funding for this acquisition (see Note 5).
Changes in foreign currency exchange rates increased our investment in Shurgard Europe by
approximately $45 thousand in 2013 and $21.6 million in 2012, and decreased our investment by approximately
$7.0 million in 2011.
Shurgard Europe pays interest to us on the loan we have provided to them (see Note 5). In addition,
Shurgard Europe pays us a license fee for the use of the “Shurgard” trademark. We classify 49% of the interest
income and trademark license fees received from Shurgard Europe as equity in earnings of unconsolidated real
estate entities and the remaining 51% as interest and other income, as set forth in the following table:
F-18
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
For the year ended December 31,
Our 49% equity share of:
Shurgard Europe’s net income (net of $2,834
allocated to noncontrolling interests in 2011)
Interest income and trademark license fee
Total equity in earnings of Shurgard Europe
2013
2012
2011
(Amounts in thousands)
$
$
$
12,944
19,750
32,694 $
14,040 $
19,183
33,223 $
3,473
25,679
29,152
The following table sets forth selected consolidated financial information of Shurgard Europe based
upon all of Shurgard Europe’s balances for all periods (including the consolidated operations of 72 self-storage
facilities formerly owned by the two joint ventures), rather than our pro rata share. Such amounts are based
upon our historical acquired book basis.
For the year ended December 31,
Self-storage and ancillary revenues
Self-storage and ancillary cost of operations
Depreciation and amortization
General and administrative
Interest expense on third party debt
Trademark license fee payable to Public Storage
Interest expense on debt due to Public Storage
Lease termination charge, gain on sale of real estate and
other
Net income ($2,834 of net income was allocated to
noncontrolling interests in 2011)
Average exchange rates Euro to the U.S. Dollar
$
2013
2012
(Amounts in thousands)
2011
246,615 $
(98,222)
(60,029)
(13,651)
(5,082)
(2,468)
(37,838)
243,687 $
(96,341)
(60,404)
(13,327)
(7,689)
(2,439)
(36,710)
259,618
(107,056)
(61,244)
(12,458)
(16,299)
(2,481)
(49,925)
(2,909)
1,876
(234)
$
26,416 $
28,653 $
1.328
1.285
9,921
1.392
As of December 31,
Total assets (primarily self-storage facilities)
Total debt to third parties
Total debt to Public Storage
Other liabilities
Equity
2013
2012
(Amounts in thousands)
$
1,468,155 $
154,119
428,139
107,550
778,347
1,468,111
216,594
410,995
103,425
737,097
Exchange rate of Euro to U.S. Dollar
1.377
1.322
F-19
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
Other Investments
At December 31, 2013, the “Other Investments” include an average common equity ownership of
approximately 26% in various limited partnerships that collectively own 14 self-storage facilities.
During 2012 and 2011, we began to consolidate limited partnerships that we gained control of, and
recorded gains of $1.3 million and $3.1 million, respectively, representing the differences between the
aggregate fair values of our existing investments and their book values. The fair values of our existing
investments in 2012 and 2011 was allocated to real estate facilities ($10.4 million and $19.4 million,
respectively), intangible assets ($0.9 million and $4.0 million, respectively), noncontrolling interests ($8.2
million and $17.7 million, respectively), and cash ($0.4 million in 2011).
The following table sets forth certain condensed combined financial information (representing 100%
of these entities’ balances, rather than our pro-rata share) with respect to the Other Investments:
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
$
$
$
5. Loan Receivable from Unconsolidated Real Estate Entity
2013
2012
(Amounts in thousands)
2011
14,105
(4,686)
(2,012)
7,407
$
$
13,688 $
(4,398)
(2,140)
7,150 $
13,271
(5,117)
(2,252)
5,902
2013
2012
(Amounts in thousands)
$
26,531
1,412
25,119
27,710
1,291
26,419
As of December 31, 2013 and 2012, we had a Euro-denominated loan receivable from Shurgard
Europe (the “Shareholder Loan”) with a balance of €311.0 million at both periods ($428.1 million at
December 31, 2013 and $411.0 million at December 31, 2012), which bears interest at a fixed rate of 9.0% per
annum and has no required principal payments until maturity on February 15, 2015, but can be prepaid in part
or in full at any time without penalty. Because we expected repayment of the Shareholder Loan in the
foreseeable future for all periods presented, foreign exchange rate gains or losses due to changes in exchange
rates between the Euro and the U.S. Dollar are recognized on our income statements as “foreign currency
exchange gain (loss).” For 2013, 2012 and 2011, we recorded interest income with respect to this loan
(representing 51% of the aggregate interest received, see Note 4) of approximately $19.3 million, $18.7 million
and $23.0 million, respectively.
We believe that the interest rate on the Shareholder Loan approximates the market rate for loans with
similar terms, conditions, subordination features, and tenor, and that the fair value of the loan approximates
book value. In our evaluation of market rates and fair value, we considered that Shurgard Europe has sufficient
operating cash flow, liquidity and collateral, and we have sufficient creditor rights such that credit risk is
F-20
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
mitigated. We have received a total of €80.9 million in principal repayments on this loan since its inception on
March 31, 2008.
On January 28, 2014, our joint venture partner in Shurgard Europe acquired 51% of the Shareholder
Loan at face value for €158.6 million ($216.2 million) in cash and the maturity date of the Shareholder Loan
was extended to April 2019. We continue to believe that the Shareholder Loan will be repaid in the foreseeable
future.
On February 9, 2011, we loaned PSB $121.0 million. The loan had a six-month term and bore interest
at a rate of three-month LIBOR plus 0.85% (1.13% per annum for the term of the loan). For 2011, we recorded
interest income of approximately $0.7 million related to the loan. The loan was repaid in 2011.
In March 2011, we provided bridge financing to Shurgard Europe totaling $237.9 million, bearing
interest at a fixed rate of 7.0% per annum and denominated in U.S. Dollars, which it used to acquire its partner’s
80% interests in two joint ventures. In June 2011, our joint venture partner in Shurgard Europe effectively
purchased 51% of the loan from us for $121.3 million and the entire loan balance was exchanged for an equity
interest in Shurgard Europe. In addition to interest on the bridge financing, during 2011, we received
$1.5 million in other income from our joint venture partner for our interim funding of its 51% pro rata share of
Shurgard Europe’s cost to acquire the interests.
6. Credit Facility, Term Loan and Notes Payable
We have a $300 million revolving line of credit (the “Credit Facility”) that expires on March 21, 2017.
Amounts drawn on the Credit Facility bear annual interest at rates ranging from LIBOR plus 0.900% to LIBOR
plus 1.500% depending upon the ratio of our Total Indebtedness to Gross Asset Value (as defined in the Credit
Facility) (LIBOR plus 0.900% at December 31, 2013). In addition, we are required to pay a quarterly facility
fee ranging from 0.125% per annum to 0.300% per annum depending upon the ratio of our Total Indebtedness
to our Gross Asset Value (0.125% per annum at December 31, 2013). At December 31, 2013, outstanding
borrowings under this Credit Facility totaled $50.1 million ($133.0 million at December 31, 2012) which was
repaid in full on January 8, 2014. At February 25, 2014, we had no outstanding borrowings on our Credit
Facility. We had undrawn standby letters of credit, which reduce our borrowing capacity, totaling $15.1 million
at December 31, 2013 ($15.3 million at December 31, 2012). The Credit Facility has various customary
restrictive covenants, all of which we were in compliance with at December 31, 2013.
On December 2, 2013, we entered into a one year $700 million unsecured term loan (the “Term Loan”)
with Wells Fargo Bank, the lead arranger for our Credit Facility. The Term Loan matures on December 2, 2014
and can be repaid in full or part at any time prior to its maturity without penalty. The interest rate and
covenants on the Term Loan are the same as for the Credit Facility. As of December 31, 2013 and February 25,
2014, outstanding borrowings under the Term Loan totaled $700.0 million and $600.0 million, respectively, at
an interest rate of 1.065%. In connection with the Term Loan, we incurred origination costs of $1.9 million
which are amortized over the one year period of the Term Loan. As of December 31, 2013, we had $1.8 million
of unamortized loan costs.
F-21
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
On October 1, 2013, we borrowed $100.0 million from PSB under a term loan which was repaid in full
on October 18, 2013. The loan bore interest at 1.388%.
The carrying amounts of our notes payable at December 31, 2013 and 2012 consist of the following
(dollar amounts in thousands):
December 31, 2013
December 31, 2012
Carrying
amount
Fair Value
Carrying
amount
Fair Value
Secured Notes Payable:
4.8% average effective rate, secured by 45 real estate facilities
with a net book value of approximately $223.6 million at
December 31, 2013 and stated note rates between 2.92% and
7.13%, maturing at varying dates between June 2014 and
September 2028 (carrying amount includes $528 of
unamortized premium at December 31, 2013 and $1,192 at
December 31, 2012)
$
Unsecured Note Payable:
5.9% effective and stated note rate, interest only and payable
semi-annually, matured in March 2013
88,953 $
90,476 $
149,368 $
152,493
-
-
186,460
187,141
Total notes payable
$
88,953 $
90,476 $
335,828 $
339,634
Substantially all of our notes payable was assumed in connection with business combinations. An
initial premium or discount is established for any difference between the stated note balance and estimated fair
value of the debt assumed and amortized over the remaining term of the debt using the effective interest
method.
During 2013 and 2011, we assumed mortgage debt of $5.7 million and $8.8 million, respectively, in
connection with the acquisition of real estate facilities. The debt was recorded at its estimated fair value of
approximately $6.1 million and $9.7 million in 2013 and 2011, respectively, and we recorded premiums of
$0.4 million and $0.9 million, respectively. In determining estimated fair values, we used estimated market
rates of approximately 3.7% and 2.9%, in 2013 and 2011, respectively, compared to average contractual rates of
6.2% and 5.5%, respectively.
At December 31, 2013, approximate principal maturities of our notes payable are as follows (amounts
in thousands):
2014
2015
2016
2017
2018
Thereafter
Weighted average effective rate
$
$
26,206
30,842
15,920
1,343
11,077
3,565
88,953
4.8%
F-22
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
Cash paid for interest totaled $10.4 million, $21.7 million and $27.6 million for 2013, 2012 and 2011,
respectively. Interest capitalized as real estate totaled $2.9 million, $0.4 million and $0.4 million in 2013, 2012
and 2011, respectively.
7. Noncontrolling Interests
At December 31, 2013, third parties own i) interests in Subsidiaries that own an aggregate of 14 self-
storage facilities, and ii) 231,978 partnership units in a Subsidiary that are convertible on a one-for-one basis
(subject to certain limitations) into common shares of the Company at the option of the unitholder. These
interests are referred to collectively hereinafter as the “Noncontrolling Interests.” At December 31, 2013, the
Noncontrolling Interests cannot require us to redeem their interests, other than pursuant to a liquidation of the
Subsidiary.
Redeemable Noncontrolling Interests
At December 31, 2013 and 2012, we had no Redeemable Noncontrolling Interests. At December 31,
2011, the Redeemable Noncontrolling Interests represented ownership interests in Subsidiaries that owned 14
self-storage facilities. During 2012, we acquired all the outstanding Redeemable Noncontrolling Interests for
$19.9 million in cash, of which $11.9 million was recorded as a reduction to Redeemable Noncontrolling
Interests and $8.0 million was recorded as a reduction to paid-in capital. During 2012 and 2011, we allocated a
total of $0.2 million and $0.9 million, respectively, of income to these interests and paid distributions to these
interests totaling $0.6 million and $1.6 million, respectively.
Permanent Noncontrolling Interests
At December 31, 2013, the Permanent Noncontrolling Interests have ownership interests in
Subsidiaries that owned 14 self-storage facilities and 231,978 partnership units in a subsidiary that are
convertible on a one-for-one basis (subject to certain limitations) into common shares of the Company at the
option of the unitholder. During 2013, 2012 and 2011, we allocated a total of $5.1 million, $3.5 million and
$11.7 million, respectively, in income to these interests; and we paid $6.5 million, $5.3 million and $12.8
million, respectively, in distributions to these interests.
As described more fully in Note 4, we increased Permanent Noncontrolling Interests during 2012 and
2011 by $8.2 million and $17.7 million, respectively, in connection with consolidating partnerships.
During 2013, we acquired Permanent Noncontrolling Interests for $6.2 million in cash, substantially
all of which was allocated to paid-in-capital.
During 2012, we acquired Permanent Noncontrolling Interests for $1.4 million in cash, of which
$0.1 million was recorded as a reduction to permanent noncontrolling interests and the remainder as a reduction
to paid-in capital.
During 2011, we acquired Permanent Noncontrolling Interests for an aggregate of $175.5 million in
cash and our common shares. Permanent Noncontrolling Interests were reduced by $26.2 million, with the
excess cost over the underlying book value ($149.3 million) recorded as a reduction to paid-in capital.
F-23
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
8. Shareholders’ Equity
Preferred Shares
At December 31, 2013 and 2012, we had the following series of Cumulative Preferred Shares
(“Preferred Shares”) outstanding:
Series
Earliest
Redemption Date
Dividend
Rate
Shares
Outstanding
Shares
Liquidation
Preference
Outstanding
(Dollar amounts in thousands)
Liquidation
Preference
At December 31, 2013
At December 31, 2012
Series O
Series P
Series Q
Series R
Series S
Series T
Series U
Series V
Series W
Series X
4/15/2015
10/7/2015
4/14/2016
7/26/2016
1/12/2017
3/13/2017
6/15/2017
9/20/2017
1/16/2018
3/13/2018
6.875%
5,800 $
145,000
5,800 $
145,000
6.500%
5,000
6.500%
15,000
6.350%
19,500
5.900%
18,400
5.750%
18,500
5.625%
11,500
5.375%
19,800
5.200%
20,000
5.200%
9,000
125,000
375,000
487,500
460,000
462,500
287,500
495,000
500,000
225,000
5,000
15,000
19,500
18,400
18,500
11,500
19,800
-
-
125,000
375,000
487,500
460,000
462,500
287,500
495,000
-
-
Total Preferred Shares
142,500 $
3,562,500
113,500 $
2,837,500
The holders of our Preferred Shares have general preference rights with respect to liquidation,
quarterly distributions and any accumulated unpaid distributions. Except under certain conditions and as noted
below, holders of the Preferred Shares 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 the arrearage has been cured. At December 31, 2013, there were no dividends in arrears.
Except under certain conditions relating to the Company’s qualification as a REIT, the Preferred
Shares are not redeemable prior to the dates indicated on the table above. On or after the respective dates, each
of the series of Preferred Shares is redeemable at our option, in whole or in part, at $25.00 per depositary share,
plus accrued and unpaid dividends. Holders of the Preferred Shares cannot require us to redeem such shares.
Upon issuance of our Preferred Shares, we classify the liquidation value as preferred equity on our
balance sheet with any issuance costs recorded as a reduction to paid-in capital.
During 2013, we issued an aggregate 29.0 million depositary shares, each representing 1/1,000 of a
share of our Series W and Series X Preferred Shares, at an issuance price of $25.00 per depositary share, for a
total of $725.0 million in gross proceeds, and we incurred $23.3 million in issuance costs.
During 2012, we issued an aggregate 68.2 million depositary shares, each representing 1/1,000 of a
share of our Series S, Series T, Series U, and Series V Preferred Shares, at an issuance price of $25.00 per
depositary share, for a total of $1.7 billion in gross proceeds, and we incurred $53.5 million in issuance costs.
F-24
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
In 2012, we redeemed our Series A, Series C, Series D, Series E, Series F, Series L, Series M,
Series N, Series W, Series X, Series Y and Series Z Preferred Shares, at par. The aggregate redemption
amount, before payment of accrued dividends, was $2.0 billion.
During 2011, we issued an aggregate 34.5 million depositary shares, each representing 1/1,000 of a
share of our Series Q and Series R Preferred Shares, at an issuance price of $25.00 per depositary share, for a
total of $862.5 million in gross proceeds, and we incurred $26.9 million in issuance costs.
In 2011, we redeemed our Series G, Series I and Series K Preferred Shares, at par. The aggregate
redemption amount, before payment of accrued dividends, was $1.1 billion.
We recorded $61.7 million and $35.6 million in EITF D-42 allocations of income from our common
shareholders to the holders of our Preferred Shares in 2012 and 2011, respectively, (none in 2013).
Common Shares
During 2013, 2012 and 2011, activity with respect to the issuance or repurchase of our common shares
was as follows (amounts in thousands):
Employee stock-based compensation and
exercise of stock options (Note 10)
Issuance of commons shares in connection
with acquisition of Permanent
Noncontrolling Interest (Note 7)
Issuance of commons shares for cash
2013
2012
2011
Shares
Amount
Shares
Amount
Shares
Amount
388,005 $
21,111
437,081 $
23,185
508,058 $
26,416
-
-
-
-
-
712,400
-
101,262
477,928
-
57,108
-
388,005 $
21,111
1,149,481 $ 124,447
985,986 $
83,524
Our Board of Trustees previously authorized the repurchase from time to time of up to 35.0 million of
our common shares on the open market or in privately negotiated transactions. Through December 31, 2013,
we repurchased approximately 23.7 million shares pursuant to this authorization; none of which were
repurchased during the three years ended December 31, 2013.
In December 2012, we sold 712,400 of our common shares for aggregate proceeds of approximately
$101.3 million in cash.
At December 31, 2013 and 2012, we had 2,810,540 and 2,896,157, respectively, of common shares
reserved in connection with our share-based incentive plans (see Note 10), and 231,978 shares reserved for the
conversion of Convertible Partnership Units.
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 $887.1 million ($5.15 per share),
$753.9 million ($4.40 per share) and $621.4 million ($3.65 per share), for the years ended December 31, 2013,
2012 and 2011, respectively. Preferred share dividends totaled $204.3 million, $205.2 million and
$224.9 million for the years ended December 31, 2013, 2012 and 2011, respectively.
F-25
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
For the tax year ended December 31, 2013, distributions for the common shares and all the various
series of preferred shares were classified as follows:
Ordinary Income
Long-Term Capital Gain
Total
2013 (unaudited)
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
100.00%
0.00%
100.00%
100.00%
0.00%
100.00%
99.83%
0.17%
100.00 %
99.95 %
0.05%
100.00 %
The ordinary income dividends distributed for the tax year ended December 31, 2013 do not constitute
qualified dividend income.
9. Related Party Transactions
The Hughes Family owns approximately 15.8% of our common shares outstanding at December 31,
2013.
The Hughes Family has ownership interests in, and operates, approximately 54 self-storage facilities in
Canada (“PS Canada”) using the “Public Storage” brand name pursuant to a non-exclusive, royalty-free
trademark license agreement with the Company. We currently do not own any interests in these facilities. We
have a right of first refusal to acquire the stock or assets of the corporation that manages the 54 self-storage
facilities in Canada, if the Hughes Family or the corporation agrees to sell them. We reinsure risks relating to
loss of goods stored by customers in these facilities. During the years ended December 31, 2013, 2012 and
2011, we received $0.5 million, $0.6 million and $0.6 million, respectively, in reinsurance premiums attributed
to these facilities. There is no assurance that these premiums will continue, as our rights to reinsure these risks
may be qualified.
At December 31, 2012, PS Canada and PSB held approximately a 2.2% and 4.0%, respectively,
interest in STOR-Re Mutual Insurance Company, Inc. (“STOR-Re”), a Subsidiary that provided liability and
casualty insurance for PS Canada, PSB, the Company, and certain affiliates of the Company for occurrences
prior to April 1, 2004. During 2013, we acquired PS Canada’s 2.2% interest and PSB’s 4.0% interest in STOR-
Re for $0.6 million and $1.1 million, respectively, in cash.
On October 1, 2013, we borrowed $100.0 million from PSB under a term loan which was repaid in full
on October 18, 2013. The loan bore interest at 1.388% per annum and interest paid to PSB totaled $0.1 million.
10. Share-Based Compensation
Under various share-based compensation plans and under terms established by a committee of our
Board of Trustees, the Company grants non-qualified options to purchase the Company’s common shares, as
well as restricted share units (“RSUs”), to trustees, officers, service providers and key employees.
Stock options and RSUs are considered “granted” and “outstanding” as the terms are used herein,
when i) the Company and the recipient reach a mutual understanding of the key terms of the award, ii) the
award has been authorized, iii) the recipient is affected by changes in the market price of our stock, and iv) it is
probable that any performance and service conditions will be met.
F-26
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
We amortize the grant-date fair value of awards (net of anticipated forfeitures) as compensation
expense over the service period. The service period begins on the grant date and ends on the vesting date. For
awards that are earned solely upon the passage of time and continued service, the entire cost of the award is
amortized on a straight-line basis over the service period. For awards with performance conditions, the
individual cost of each vesting is amortized separately over each individual service period (the “accelerated
attribution” method).
Stock Options
Stock options vest over a three to five-year period, expire ten years after the grant date, and the
exercise price is equal to the closing trading price of our common shares on the grant date. Employees cannot
require the Company to settle their award in cash. We use the Black-Scholes option valuation model to
estimate the fair value of our stock options.
Outstanding stock option grants are included on a one-for-one basis in our diluted weighted average
shares, to the extent dilutive, after applying the treasury stock method (based upon the average common share
price during the period) to assumed exercise proceeds and measured but unrecognized compensation.
The stock options outstanding at December 31, 2013 have an aggregate intrinsic value (the excess, if
any, of each option’s market value over the exercise price) of approximately $142.2 million and remaining
average contractual lives of approximately five years. Other than stock options granted in 2012 and 2013, all
stock options outstanding at December 31, 2013 have exercise prices of $123 or less. The aggregate intrinsic
value of exercisable stock options at December 31, 2013 amounted to approximately $117.4 million.
Additional information with respect to stock options during 2013, 2012 and 2011 is as follows:
2013
Weighted
Average
Number Exercise Number
of
Price
of
Options
per Share Options
2012
2011
Weighted
Average
Exercise
Price
per Share
Weighted
Average
Number Exercise
of
Options
Price
per Share
Options outstanding January 1,
Granted
Exercised
Cancelled
2,253,510 $
235,000
(286,299)
(28,000)
76.14
153.89
71.06
55.25
2,591,066 $
35,000
(341,156)
(31,400)
74.30
144.97
68.26
55.54
2,950,892 $
135,000
(448,826)
(46,000)
Options outstanding December 31,
2,174,211 $
85.49
2,253,510 $
76.14
2,591,066 $
Options exercisable at December 31,
1,581,954 $
76.29
1,401,883 $
76.23
1,200,356 $
69.43
120.77
58.86
48.95
74.30
76.94
F-27
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
2013
2012
2011
Stock option expense for the year
(in 000's)
$
3,468
$
3,036
$
3,445
Aggregate exercise date intrinsic value of
options exercised during the year
(in 000's)
$
Average assumptions used in valuing
options with the Black-Scholes
method:
Expected life of options in years, based
upon historical experience
Risk-free interest rate
Expected volatility, based upon historical
volatility
Expected dividend yield
23,337
$
23,948
$
23,703
5
0.8%
25.8%
3.3%
5
0.8%
24.5%
3.1%
5
1.2%
18.8%
3.3%
Average estimated value of options
granted during the year
Restricted Share Units
$
23.83
$
20.71
$
13.01
RSUs generally vest ratably over a three to eight-year period from the grant date. The grantee receives
dividends for each outstanding RSU equal to the per-share dividends received by our common shareholders.
We expense any dividends previously paid upon forfeiture of the related RSU. Upon vesting, the grantee
receives common shares equal to the number of vested RSUs, less common shares withheld in exchange for tax
deposits made by the Company to satisfy the grantee’s statutory tax liabilities arising from the vesting.
The fair value of our RSUs is determined based upon the applicable closing trading price of our
common shares.
The fair value of our RSUs outstanding at December 31, 2013 was approximately $95.8 million.
Remaining compensation expense related to RSUs outstanding at December 31, 2013 totals approximately
$45.3 million (which is net of expected forfeitures) and is expected to be recognized as compensation expense
over the next two years on average. The following tables set forth relevant information with respect to
restricted shares (dollar amounts in thousands):
F-28
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
2013
2012
Number of Grant Date Number of
Restricted Aggregate Restricted
Share Units Fair Value Share Units
Grant Date
Aggregate
Fair Value
2011
Number of Grant Date
Restricted Aggregate
Share Units Fair Value
Restricted share units outstanding
January 1,
Granted
Vested
Forfeited
Restricted share units outstanding
December 31,
642,647 $
197,675
(154,535)
(49,458)
67,473
30,774
(15,657)
(5,306)
701,499 $
159,133
(151,775)
(66,210)
66,514
21,721
(14,507)
(6,255)
484,395 $
381,025
(92,039)
(71,882)
39,896
40,570
(7,655)
(6,297)
636,329 $
77,284
642,647 $
67,473
701,499 $
66,514
2013
2012
2011
Amounts for the year (in 000's,
except number of shares:
Fair value of vested shares on vesting
date
Cash paid upon vesting lieu of common
shares issued
Common shares issued upon vesting
Restricted share unit expense
$
23,551
$
$
8,067
101,706
23,919
$
$
$
20,783
$
10,224
7,657
95,925
20,227
$
$
3,736
59,232
19,736
See also “net income per common share” in Note 2 for further discussion regarding the impact of
RSUs and stock options on our net income per common and income allocated to common shareholders.
11.
Segment Information
Our reportable segments reflect the significant components of our operations that are evaluated
separately by our chief operating decision maker (“CODM”) and have discrete financial information available.
We organize our segments based primarily upon the nature of the underlying products and services, and
whether the operation is located in the U.S. or outside the U.S. In making resource allocation decisions, our
CODM considers the net income from continuing operations of each reportable segment included in the tables
below, excluding the impact of depreciation and amortization, gains or losses on disposition of real estate
facilities, and asset impairment charges. The amounts for each reportable segment included in the tables below
are in conformity with GAAP and our significant accounting policies as denoted in Note 2. Ancillary revenues
and expenses, interest and other income (other than from Shurgard Europe), interest expense, general and
administrative expense and gains and losses on the early repayment of debt are not allocable to any of our
reportable segments. Our CODM does not consider the book value of assets in making resource allocation
decisions.
Following is the description of and basis for presentation for each of our segments.
Domestic Self-Storage Segment
The Domestic Self-Storage Segment includes the operations of the 2,187 self-storage facilities owned
by the Company and the Subsidiaries, as well as our equity share of the Other Investments. For all periods
F-29
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
presented, substantially all of our real estate facilities, goodwill and other intangible assets, other assets, and
accrued and other liabilities are associated with the Domestic Self-Storage Segment.
European Self-Storage Segment
The European Self-Storage segment comprises our interest in Shurgard Europe, which has a separate
management team reporting directly to our CODM and our joint venture partner. The European Self-Storage
segment includes our equity share of Shurgard Europe’s operations, the interest and other income received from
Shurgard Europe, and foreign currency exchange gains and losses that are attributable to Shurgard Europe. Our
balance sheet includes an investment in Shurgard Europe (Note 4) and a loan receivable from Shurgard Europe
(Note 5).
Commercial Segment
The Commercial segment comprises our investment in PSB, a publicly-traded REIT with a separate
management team that makes its 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 earnings and interest income from PSB, as
well as the revenues and expenses of our commercial facilities. At December 31, 2013, the assets of the
Commercial segment are comprised principally of our investment in PSB (Note 4).
Presentation of Segment Information
The following tables reconcile the performance of each segment, in terms of segment income, to our
net income (amounts in thousands):
F-30
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
Year ended December 31, 2013
Domestic Self-
Storage
European Self-
Storage
Commercial
(Amounts in thousands)
Other Items
Not Allocated
to Segments
Total
Revenues:
Self-storage facilities
Ancillary operations
$
1,849,883 $
-
1,849,883
- $
-
-
- $
14,510
14,510
- $
117,353
117,353
1,849,883
131,863
1,981,746
Expenses:
Self-storage cost of operations
Ancillary cost of operations
Depreciation and amortization
General and administrative
Operating income
Interest and other income
Interest expense
Equity in earnings of
unconsolidated real estate entities
Foreign currency exchange gain
Gain on real estate sales
Net income
$
524,086
-
384,623
-
908,709
941,174
-
-
-
-
-
-
-
5,228
2,779
-
8,007
-
35,847
-
66,679
102,526
524,086
41,075
387,402
66,679
1,019,242
6,503
14,827
962,504
-
-
20,556
-
-
-
2,021
(6,444)
22,577
(6,444)
1,686
-
168
$
943,028
32,694
17,082
-
70,332 $
23,199
-
4,065
33,767 $
-
-
-
10,404 $
57,579
17,082
4,233
1,057,531
F-31
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
Year ended December 31, 2012
Domestic Self-
Storage
European Self-
Storage
Commercial
(Amounts in thousands)
Other Items
Not Allocated
to Segments
Total
Revenues:
Self-storage facilities
Ancillary operations
$
1,718,865 $
-
1,718,865
- $
-
-
- $
14,071
14,071
- $
109,568
109,568
1,718,865
123,639
1,842,504
Expenses:
Self-storage cost of operations
Ancillary cost of operations
Depreciation and amortization
General and administrative
Operating income
Interest and other income
Interest expense
Equity in earnings of
unconsolidated real estate entities
Foreign currency exchange gain
Gain on real estate sales
517,641
-
354,971
-
872,612
846,253
-
-
1,725
-
1,456
Income (loss) from continuing
operations
Discontinued operations
Net income (loss)
849,434
12,874
$
862,308
$
-
-
-
-
-
-
19,966
-
33,223
8,876
-
62,065
-
-
4,908
2,810
-
7,718
-
33,355
-
56,837
90,192
517,641
38,263
357,781
56,837
970,522
6,353
19,376
871,982
-
-
2,108
(19,813)
22,074
(19,813)
10,638
-
-
16,991
-
-
-
-
45,586
8,876
1,456
1,671
-
1,671 $
930,161
12,874
943,035
62,065 $
16,991 $
F-32
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
Year ended December 31, 2011
Domestic Self-
Storage
European Self-
Storage
Commercial
(Amounts in thousands)
Other Items
Not Allocated
to Segments
Total
Revenues:
Self-storage facilities
Ancillary operations
$
1,621,799 $
-
1,621,799
- $
-
-
- $
14,592
14,592
- $
99,497
99,497
1,621,799
114,089
1,735,888
Expenses:
Self-storage cost of operations
Ancillary cost of operations
Depreciation and amortization
General and administrative
Asset impairment charges
Operating income
Interest and other income
Interest expense
Equity in earnings of
unconsolidated real estate entities
Foreign currency exchange loss
Gain on real estate sales and debt
retirement, net
523,113
-
355,315
-
297
878,725
743,074
-
-
1,771
-
-
-
-
-
-
-
-
28,190
-
29,152
(7,287)
-
5,505
2,654
-
-
8,159
-
31,891
-
52,410
1,889
86,190
523,113
37,396
357,969
52,410
2,186
973,074
6,433
13,307
762,814
664
-
3,479
(24,222)
32,333
(24,222)
27,781
-
-
-
58,704
(7,287)
8,953
-
-
1,848
10,801
Income (loss) from continuing
operations
Discontinued operations
Net income (loss)
753,798
3,696
$
757,494
50,055
-
34,878
-
50,055 $
34,878 $
$
(5,588)
(380)
(5,968) $
833,143
3,316
836,459
12. Recent Accounting Pronouncements and Guidance
In January 2013, we adopted ASU No. 2013-02, “Reporting Amounts Classified out of Accumulated
Other Comprehensive Income,” (ASU No. 2013-02”) which requires enhanced disclosures, in one place in our
notes to financial statements, about items reclassified out of accumulated other comprehensive income. The
adoption of ASU No. 2013-02 had no impact on our financial condition or results of operations.
F-33
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
13. Commitments and Contingencies
Contingent Losses
We are a party to various legal proceedings and subject to various claims and complaints; however, we
believe that the likelihood of these contingencies resulting in a material loss to the Company, either individually
or in the aggregate, is remote.
Insurance and Loss Exposure
We have historically carried customary property, earthquake, general liability, employee medical
insurance and workers compensation coverage through internationally recognized insurance carriers, subject to
customary levels of deductibles. The aggregate limits on these policies of approximately $75 million for
property losses and $102 million for general liability losses are higher than estimates of maximum probable
losses that could occur from individual catastrophic events determined in recent engineering and actuarial
studies; however, in case of multiple catastrophic events, these limits could be exhausted.
We reinsure a program that provides insurance to our customers from an independent third-party
insurer. This program covers tenant claims for losses to goods stored at our facilities as a result of specific
named perils (earthquakes are not covered by this program), up to a maximum limit of $5,000 per storage unit.
We reinsure all risks in this program, but purchase insurance from an independent third party insurance
company for aggregate claims between $5.0 million and $15.0 million per occurrence. We are subject to
licensing requirements and regulations in several states. At December 31, 2013, there were approximately
759,000 certificates held by our self-storage customers, representing aggregate coverage of approximately
$1.7 billion.
14. Supplementary Quarterly Financial Data (unaudited)
Three Months Ended
March 31,
2013
June 30,
2013
September 30,
December 31,
2013
2013
(Amounts in thousands, except per share data)
Self-storage and ancillary revenues
$ 470,900 $ 485,378 $ 511,957 $ 513,511
Self-storage and ancillary cost of operations
$ 150,389 $ 142,571 $ 147,803 $ 124,398
Depreciation and amortization
$ 91,001 $ 90,937 $ 96,537 $ 108,927
Income from continuing operations
$ 212,247 $ 261,679 $ 285,628 $ 297,977
Net Income
$ 212,247 $ 261,679 $ 285,628 $ 297,977
Per Common Share
Net income - Basic
$ 0.94 $ 1.21 $ 1.35 $ 1.42
Net income - Diluted
$ 0.94 $ 1.20 $ 1.34 $ 1.41
F-34
PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
Three Months Ended
March 31,
2012
June 30,
2012
September 30,
December 31,
2012
2012
(Amounts in thousands, except per share data)
Self-storage and ancillary revenues
$ 439,835 $ 455,793 $ 477,182 $ 469,694
Self-storage and ancillary cost of operations
$ 151,711 $ 142,883 $ 141,475 $ 119,835
Depreciation and amortization
$ 86,824 $ 88,474 $ 89,897 $ 92,586
Income from continuing operations
$ 206,488 $ 198,697 $ 252,884 $ 272,092
Net Income
$ 206,722 $ 198,931 $ 264,819 $ 272,563
Per Common Share
Net income - Basic
$ 0.74 $ 0.78 $ 1.19 $ 1.23
Net income - Diluted
$ 0.73 $ 0.77 $ 1.18 $ 1.22
15. Subsequent Events
As of February 25, 2014, we are under contract to acquire (subject to customary closing conditions)
one self-storage facility in Austin, Texas), consisting of approximately 86,000 in net rentable square feet, at a
total cost of $10.8 million in cash.
On January 28, 2014, our joint venture partner in Shurgard Europe acquired 51% of our €311.0 loan
receivable from Shurgard Europe at face value for €158.6 million ($216.2 million) in cash, and the maturity
date of the loan receivable from Shurgard Europe was extended to April 2019.
At February 25, 2014, we had no outstanding borrowings on our Credit Facility and $600.0 million of
outstanding borrowings on our Term Loan.
F-35
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R
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1)
(2)
(3)
(4)
Registration Statement on Form S-3ASR (No. 333-189100) and related prospectus,
Registration Statement on Form S-3ASR (No. 333-185000) 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, and
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 25, 2014, with respect to the consolidated financial statements and 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, 2013.
/s/ ERNST & YOUNG LLP
February 25, 2014
Los Angeles, California
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
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
/s/ Ronald L. Havner, Jr.
Name: Ronald L. Havner, Jr.
Title: Chairman, Chief Executive Officer & President
Date:
February 25, 2014
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
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
/s/ John Reyes
Name: John Reyes
Title: Chief Financial Officer
Date:
February 25, 2014
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, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
Ronald L. Havner, Jr., as Chairman, 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: Chairman, Chief Executive Officer & President
Date:
February 25, 2014
/s/ John Reyes
Name: John Reyes
Title: Chief Financial Officer
Date:
February 25, 2014
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
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C O R P O R AT E D ATA (as of February 28, 2014)
Trustees
Executive Officers
Ronald L. Havner, Jr. (2002)
Chairman of the Board, Chief Executive
Officer and President
Ronald L. Havner, Jr.
Chairman of the Board, Chief Executive
Officer and President
Tamara Hughes Gustavson (2008)
Private Investor
John Reyes
Senior Vice President and Chief Financial Officer
Uri P. Harkham (1993)
President, Harkham Family Enterprises
Shawn L. Weidmann
Senior Vice President and Chief Operating Officer
B. Wayne Hughes, Jr. (1998)
Founder, American Commercial
Equities, LLC
David F. Doll
Senior Vice President and President,
Real Estate Group
Avedick B. Poladian (2010)
Executive Vice President and Chief Operating
Officer of Lowe Enterprises, Inc.
Steven M. Glick
Senior Vice President, Chief Legal Officer and
Corporate Secretary
Gary E. Pruitt (2006)
Retired Chairman of Univar N.V.
Ronald P. Spogli (2010)
Co-Founder, Freeman Spogli & Co.
Daniel C. Staton (1999)
Chairman of Staton Capital
( ) = date trustee was elected to the Board
Founder and Chairman Emeritus
B. Wayne Hughes
Candace N. Krol
Senior Vice President, Human Resources
PS Insurance
Capri L. Haga
President
Shurgard Self Storage S.C.A. (Europe)
Marc Oursin
Chief Executive Officer
PS Business Parks, Inc.
Joseph D. Russell, Jr.
President and Chief Executive Officer
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 30170
College Station, TX 77842-3170
(781) 575-3120
Shareholder website:
www.computershare.com/investor
Shareholder online inquiries:
www-us.computershare.com/investor/contact
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 1, 2014
at 11:00 a.m. at the Westin Pasadena,
191 North Los Robles, Pasadena, CA.
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 15, 2013.
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
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(SKU 002CSN34F8)