Public Storage 2003 Annual Report Download - page 55

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Facility lease expense decreased from $4,053,000 in 2001 to $1,683,000 in 2002, principally due to moving
operations from leased facilities to wholly-owned facilities, and thus eliminating the lease expense paid to third
parties as well as discontinuing operations at leased facilities. This process was completed in 2002.
At December 31, 2003, six of the 24 containerized storage facilities are leased from third parties. The
remaining 18 facilities were operated in facilities owned by the Company, comprised of 13 combination facilities
with an aggregate of 805,000 square feet of industrial space (this square footage is a component of the total net
rentable square footage of the Expansion Facilities and the Developed Facilities in the table above) and five
industrial facilities having an aggregate of 404,000 net rentable square feet.
The containerized storage operations may continue to adversely impact our future earnings and cash flows.
There can be no assurance as to the level of the containerized storage businesss expansion, level of gross rentals,
level of move-outs or profitability.
See Discontinued Operations below for a discussion of operating results of the Closed Facilities.
Tenant Reinsurance Operations: On December 31, 2001, we acquired PS Insurance Company, Ltd. (PS
Insurance) from a related party. PS Insurance reinsures policies against losses to goods stored by tenants in our
self-storage facilities. Effective January 1, 2002, the operations of PS Insurance are included in the income
statement under Revenues  tenant reinsurance premiums and Cost of operations  tenant reinsurance. The
tenant reinsurance business earned $22,464,000 and $19,947,000 in revenues for the years ended December 31,
2003 and 2002, respectively, and incurred $11,987,000 and $9,411,000 in operating expenses, with respect to the
same period. PS Insurance generated net operating profits of $10,477,000 and $10,536,000 for the years ended
December 31, 2003 and 2002, respectively.
The level of tenant reinsurance revenues is largely dependent upon our occupancy level and move-in
activity. As of December 31, 2003 and 2002, approximately 37% of our self-storage tenant base had such policies.
New insurance business comes from tenants who sign up for insurance as they move into our self-storage facilities.
We have outside third-party insurance coverage for losses from any individual event that exceeds a loss of
$500,000, to a limit of $10,000,000. Losses below these amounts are recorded as cost of operations for the tenant
reinsurance operations.
Equity in earnings of real estate entities: In addition to our ownership of equity interests in PSB, we had
general and limited partnership interests in seven limited partnerships at December 31, 2003 (PSB and the limited
partnerships are collectively referred to as the Unconsolidated Entities). Due to our limited ownership interest and
limited control of these entities, we do not consolidate the accounts of these entities for financial reporting purposes,
and account for such investments using the equity method.