Public Storage 2003 Annual Report Download - page 25

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Provisions in our organizational documents may prevent changes in control.
Restrictions in our organizational documents may further limit changes in control. Unless our board of
directors waives these limitations, no shareholder may own more than (1) 2.0% of our outstanding shares of our
common stock or (2) 9.9% of the outstanding shares of each class or series of our preferred or equity stock. Our
organizational documents in effect provide, however, that the Hughes family may continue to own the shares of our
common stock held by them at the time of the 1995 reorganization. These limitations are designed, to the extent
possible, to avoid a concentration of ownership that might jeopardize our ability to qualify as a real estate
investment trust or REIT. These limitations, however, also may make a change of control significantly more
difficult (if not impossible) even if it would be favorable to the interests of our public shareholders. These
provisions will prevent future takeover attempts not approved by our board of directors even if a majority of our
public shareholders deem it to be in their best interests because they would receive a premium for their shares over
the shares then market value or for other reasons.
We would incur adverse tax consequences if we fail to qualify as a REIT.
You will be subject to the risk that we may not qualify as a REIT. REITs are subject to a range of complex
organizational and operational requirements. As a REIT, we must distribute at least 90% of our REIT taxable
income to our shareholders. Other restrictions apply to our income and assets. Our REIT status is also dependent
upon the ongoing qualification of PS Business Parks, Inc. as a REIT, as a result of our substantial ownership interest
in that company.
For any taxable year that we fail to qualify as a REIT and the relief provisions do not apply, we would be
taxed at the regular corporate rates on all of our taxable income, whether or not we make any distributions to our
shareholders. Those taxes would reduce the amount of cash available for distribution to our shareholders or for
reinvestment. As a result, our failure to qualify as a REIT during any taxable year could have a material adverse
effect upon us and our shareholders. Furthermore, unless certain relief provisions apply, we would not be eligible to
elect REIT status again until the fifth taxable year that begins after the first year for which we fail to qualify.
We may pay some taxes.
Even if we qualify as a REIT for Federal income tax purposes, we are required to pay some federal, state
and local taxes on our income and property. Several corporate subsidiaries of the Company have elected to be
treated as taxable REIT subsidiaries of the Company for Federal income tax purposes since January 1, 2001. A
taxable REIT subsidiary is a fully taxable corporation and is limited in its ability to deduct interest payments made
to us. In addition, we will be subject to a 100% penalty tax on some payments that we receive if the economic
arrangements among our tenants, our taxable REIT subsidiaries and us are not comparable to similar arrangements
among unrelated parties. To the extent that the Company or any taxable REIT subsidiary is required to pay federal,
state or local taxes, we will have less cash available for distribution to shareholders.
We would incur a corporate level tax if we sell certain assets.
We will generally be subject to a corporate level tax on any net built-in gain if before November 2005 we
sell any of the assets we acquired in the November 1995 reorganization.
We and our shareholders are subject to financing risks.
Debt increases the risk of loss. In making real estate investments, we may borrow money, which increases
the risk of loss. At December 31, 2003, our debt of $76 million was approximately 1.5% of our total assets.
Certain securities have a liquidation preference over our common stock and Equity Stock, Series A. If we
liquidated, holders of our preferred securities would be entitled to receive liquidating distributions, plus any accrued
and unpaid distributions, before any distribution of assets to the holders of our common stock and Equity Stock,