Public Storage 2001 Annual Report Download - page 39

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P
UBLIC S TORAGE ,I NC . 2001 A NNUAL R EPORT
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, Series A. Holders of preferred securities are
entitled to receive, when declared by our board of directors, cash distributions in preference to holders of our common stock
and Equity Stock, Series A.
Since Our Business Consists Primarily of Acquiring and Operating Real Estate, We Are Subject to Real Estate Operating Risks
The value of our investments may be reduced by general risks of real estate ownership. Since we derive substantially all of
our income from real estate operations, we are subject to the general risks of owning real estate-related assets, including:
• lack of demand for rental spaces or units in a locale;
• changes in general economic or local conditions;
• changes in supply of or demand for similar or competing facilities in an area;
• the impact of environmental protection laws;
• changes in interest rates and availability of permanent mortgage funds which may render the sale or financing of a property
difficult or unattractive; and
• changes in tax, real estate and zoning laws.
There is significant competition among self-storage facilities. Most of our properties are self-storage facilities, which generated
92% of our rental revenue during 2001. Competition in the market areas in which many of our properties are located is significant
and has affected the occupancy levels, rental rates and operating expenses of some of our properties. Any increase in availability
of funds for investment in real estate may accelerate competition. Further development of self-storage facilities may intensify
competition among operators of self-storage facilities in the market areas in which we operate.
We may incur significant environmental costs and liabilities. As an owner and operator of real properties, under various federal,
state and local environmental laws, we are required to clean up spills or other releases of hazardous or toxic substances on or from
our properties. Certain environmental laws impose liability whether or not the owner knew of, or was responsible for, the presence
of the hazardous or toxic substances. In some cases, liability may not be limited to the value of the property. The presence of these
substances, or the failure to properly remediate any resulting contamination, also may adversely affect the owner’s or operator’s
ability to sell, lease or operate its property or to borrow using its property as collateral.
We have conducted preliminary environmental assessments of most of our properties (and intend to conduct these assessments
in connection with property acquisitions) to evaluate the environmental condition of, and potential environmental liabilities
associated with, our properties. These assessments generally consist of an investigation of environmental conditions at the property
(not including soil or groundwater sampling or analysis), as well as a review of available information regarding the site and publicly
available data regarding conditions at other sites in the vicinity. In connection with these property assessments, our operations and
recent property acquisitions, we have become aware that prior operations or activities at some facilities or from nearby locations
have or may have resulted in contamination to the soil or groundwater at these facilities. In this regard, some of our facilities are
or may be the subject of federal or state environment investigations or remedial actions. We have obtained, with respect to recent
acquisitions and intend to obtain with respect to pending or future acquisitions, appropriate purchase price adjustments or
indemnifications that we believe are sufficient to cover any related potential liability. Although we cannot provide any assurance,
based on the preliminary environmental assessments, we believe we have funds available to cover any liability from environmental
contamination or potential contamination and we are not aware of any environmental contamination of our facilities material to
our overall business, financial condition or results of operation.
We Have No Interest in Canadian Self-Storage Facilities Owned by the Hughes Family
The Hughes family owns and operates self-storage facilities in Canada. We have a right of first refusal to acquire the stock or assets
of the corporation engaged in these operations if the Hughes family or the corporation agree to sell them. However, we have no
interest in the operations of that corporation and no right to acquire that stock or assets unless the Hughes family decides to sell.
Our Portable Self-Storage Business Has Incurred Operating Losses
Public Storage Pickup & Delivery was organized in 1996 to operate a portable self-storage business. We own all of the economic
interest of Pickup & Delivery. Since Pickup & Delivery will operate profitably only if it can succeed in the relatively new field of
portable self-storage, we cannot provide any assurance as to its profitability. Pickup & Delivery incurred operating losses of
$7,396,000 in 1999, $5,135,000 in 2000 and $2,218,000 in 2001.