Public Storage 2001 Annual Report Download - page 38

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P
UBLIC S TORAGE ,I NC . 2001 A NNUAL R EPORT
R ISK F ACTORS
In addition to the other information included in our Annual Report and Form 10-K, you should consider the following factors in
evaluating the Company:
The Hughes Family Could Control Us
At March 14, 2002, the Hughes family owned approximately 34.1% of our outstanding shares of common stock (approximately
37.9% upon conversion of our class B common stock). Consequently, the Hughes family could control matters submitted to a vote
of our shareholders, including electing directors, amending our organizational documents, dissolving and approving other
extraordinary transactions, such as a takeover attempt.
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 a 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 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. As a REIT, we must distribute at least 90% of our REIT taxable
income to our shareholders, which include not only holders of our common stock and equity stock but also holders of our
preferred stock. Failure to pay full dividends on the preferred stock would prevent us from paying dividends on our common stock
and could jeopardize our qualification as a REIT.
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 Public Storage have elected to be treated as “taxable REIT subsidiaries” of
Public Storage 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 Public Storage 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 a 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, 2001, our debt of $168.6 million was approximately 3.6% of our total assets.