Public Storage 2010 Annual Report Download - page 62

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level of losses incurred, including the level of catastrophic events, such as hurricanes, that occur and affect our
properties thereby increasing tenant insurance claims.
Commercial operations: We also operate commercial facilities, primarily small storefronts and office
space located on or near our existing self-storage facilities that are rented to third parties. We do not expect any
significant changes in revenues or profitability from our commercial operations.
Merchandise sales and other: We sell locks, boxes, and packing supplies at the self-storage facilities that
we operate. The primary factor impacting the level of merchandise sales is the level of customer traffic at our self-
storage facilities, including the level of move-ins. Merchandise revenues have been negatively impacted in 2010 as
compared to 2009 by reduced volume, driven primarily by a shift in the mix of locks sold to a more upscale but
lower-margin product. In addition, to a much lesser extent, we also manage self-storage facilities within our
existing management infrastructure, for third party owners as well as for the Unconsolidated Entities.
Other Income and Expense Items
Interest and other income: Interest and other income was $29,017,000 in 2010, $29,813,000 in 2009, and
$36,155,000 in 2008 and is comprised primarily of interest and other income from Shurgard Europe and, to a lesser
extent, interest earned on cash balances.
The interest and other income from Shurgard Europe is comprised of interest income on the loan receivable
from Shurgard Europe, as well as trademark license fees received from Shurgard Europe for the use of the
³6KXUJDUG´WUDGHQDPHWe record 51% of the aggregate interest income and trademark license fees as interest and
other income, while 49% is presented as additional equity in earnings on our consolidated statements of income.
Interest and other income from Shurgard Europe increased from $24,832,000 in 2009 to $25,121,000 in 2010, due
primarily to an increase in the interest rate on the loan receivable from Shurgard Europe from 7.5% to 9.0%,
effective November 1, 2009, in connection with an extension of the loan, partially offset by a decrease in the
average exchange rate of the Euro to the U.S. Dollar to 1.326 for 2010 as compared to 1.393 for 2009. Interest and
other income from Shurgard Europe increased from $18,496,000 for the year ended December 31, 2008 to
$24,832,000 for the year ended December 31, 2009, as no interest or other income in connection with the loan or
trademark license fees was recorded prior to March 31, 2008, as any such income received was fully eliminated in
consolidation until March 31, 2008.
The loan receivable from Shurgard Europe, denominated in EXURVWRWDOLQJ¼373.7 million ($495.2 million)
DV RI 'HFHPEHU   PDWXUHV LQ 0DUFK    'XULQJ  6KXUJDUG (XURSH UHSDLG ¼18.2 million
($24.5 million) on the note. Future interest income recorded in connection with this loan will be dependent upon the
average outstanding balance as well as the exchange rate of the Euro versus the U.S. Dollar. All such interest has
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operating cash flow.
Interest earned on our cash balances was $3,896,000, $4,981,000, and $17,659,000 in 2010, 2009, and
2008, respectively. The reductions in interest earned have been primarily due to reduced interest rates, which
decreased in 2008, 2009, and 2010 and are now at historically low rates.
Future interest income will depend upon the level of interest rates and the timing of when the cash on hand
is ultimately invested; however, based upon current interest rates on our outstanding money-market fund
investments and short-term investments in high-grade corporate securities of approximately 0.1%, earned interest is
expected to be minimal.
Depreciation and amortization: Depreciation and amortization expense was $354,006,000, $339,766,000
and $408,983,000 for the years ended December 31, 2010, 2009 and 2008, respectively.
The increase in depreciation and amortization expense for 2010, as compared to 2009 is primarily due to
amortization of the tenant intangible assets we acquired in connection with the acquisition of 42 self-storage
facilities during 2010. Amortization expense with respect to tenant intangible assets was $13,261,000 for 2010, as