Public Storage 2002 Annual Report Download - page 24

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An important effect of the Act is that TRSs are permitted to offer noncustomary services to the tenants of
the REIT (such services could be provided under prior law only by “independent contractors” from which the REIT
could not earn any income). TRSs also are able to engage in other income producing activities that typically had
been undertaken by REITs only through entities in which a REIT could have a substantial economic interest, but
was limited to a 10% or less voting interest. The Act includes certain limitations that prevent income shifting
between a REIT and its TRS, in an effort to ensure that TRSs in fact are taxable on the income that they earn. In
addition, under prior law, a REIT could not own securities of any single issuer with a value in excess of 5% of the
value of all the assets of the REIT. The Act also relaxed this limitation, so that a REIT may own a TRS (or TRSs),
so long as the aggregate value of the TRSs, when combined with all other non-REIT assets, does not exceed 25% of
the value of all assets of the REIT. The Company and certain affiliates have jointly made the TRS election.
Insurance
We believe that our properties are adequately insured. Our facilities have historically carried
comprehensive insurance, including fire, earthquake, liability and extended coverage through STOR-Re Mutual
Insurance Company, Inc. (“STOR-Re”), one of the Consolidated Entities, and insures portions of these risks through
nationally recognized insurance carriers. STOR-Re also insures affiliates of the Company.
The Company, Stor-RE, and its affiliates’ maximum aggregate annual exposure for losses that are below
the deductibles set forth in the third-party insurance contracts, assuming multiple significant events occur, is
approximately $30 million. In addition, if losses exhaust the third-party insurers’ limit of coverage of $125,000,000
for property coverage and $101,000,000 for general liability, our exposure could be greater. These limits are higher
than estimates of maximum probable losses that could occur from individual catastrophic events (i.e., earthquake
and wind damage) determined in recent engineering and actuarial studies.
ITEM 1A. Risk Factors
In addition to the other information in our Form 10-K, you should consider the following factors in
evaluating the Company:
The Hughes family could control us.
At March 14, 2003, the Hughes family owned approximately 37% of our outstanding shares of 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, even though such actions may be favorable to the other common
shareholders.
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.