Public Storage 2006 Annual Report Download - page 4

u
r net income
d
ec
l
ine
d
in 2006 as compare
d
to 2005, principa
ll
y as a resu
l
t o
f
our mer
g
er
with Shur
g
ard Stora
g
e Centers, Inc. (“Shur
g
ard”). Our intrinsic or business value, however,
did
j
ust the opposite and increased, also as a result of the mer
g
er and improvements in all
of our business segments.
First let’s review the mer
g
er.
Shur
g
ard Mer
g
e
r
After nearly a decade of trying to combine the two companies, on August 23 we consummated the merge
r
w
ith Shurgard. This was just over a year after announcing our “unsolicited offer” to merge
.
S
h
urgar
d
,
l
i
k
e Pu
bl
ic Storage, starte
d
in 1972 an
d
grew in a simi
l
ar
f
as
h
ion. Bot
h
companies raise
d
capita
l
in t
h
e 1980’s t
h
rou
gh
l
imite
d
partners
h
ips an
d
continue
d
to expan
d
in t
h
e 1990’s as Rea
l
Estate Investmen
t
T
rusts (REITs). We compete
d
f
or many o
f
t
h
e same
d
eve
l
opment sites an
d
acquisition properties an
d
c
reated what was considered by many to be the two best franchises in the self-stora
g
e industry. While both
c
ompanies thou
g
ht they had the “best brand, best properties and best people,” both or
g
anizations respecte
d
and mimicked each other and considered the other “number two.”
Wh
en we approac
h
e
d
S
h
urgar
d
a
b
out merging, we i
d
enti
f
ie
d
t
h
ree areas o
f
opportunity
.
First, signi
f
icant genera
l
an
d
a
d
ministrative costs cou
ld
b
e e
l
iminate
d
as a resu
l
t o
f
com
b
ining corporat
e
an
d
executive
f
unctions an
d
mi
g
ratin
g
S
h
ur
g
ar
d
’s
d
omestic port
f
o
l
io onto Pu
bl
ic Stora
g
e’s centra
l
ize
d
operatin
g
system, WebChamp.
Second, there was an opportunity to eliminate redundant property operatin
g
costs such as duplicate
Y
ellow Pages, back office support functions and call centers. There was also an opportunity to use
Public Storage’s marketing and pricing programs to achieve higher revenues in Shurgard’s domestic
p
ort
f
o
l
io, w
h
ic
h
h
a
d
h
istorica
ll
y o
p
erate
d
at a
b
out 500 to 600
b
asis
p
oints
l
ower occu
p
ancy t
h
a
n
Pu
bl
ic Stora
g
e’s properties.
Th
ir
d
, Pu
bl
ic Stora
g
e
h
a
d
t
h
e
f
inancia
l
stren
g
t
h
to consummate t
h
e mer
g
er, retire a si
g
ni
f
icant amoun
t
of Shur
g
ard’s debt, absorb the operatin
g
losses from Europe and provide capital to
g
row both the domesti
c
and European platforms.
T
he Shurgard directors recognized the benefits of the merger and in March 2006 we signed a definitive
merger agreement w
h
ic
h
was approve
d
b
y
b
ot
h
companies’ s
h
are
h
o
ld
ers in August. From signing unti
l
cl
osing, t
h
e S
h
urgar
d
an
d
Pu
bl
ic Storage management teams wor
k
e
d
h
ar
d
to ma
k
e sure t
h
e merger
inte
g
ration went as smoot
hl
y as possi
bl
e.
At closin
g
, Public Stora
g
e paid about
$
5.3 billion for the “second best” domestic portfolio and by far the
best portfolio and operatin
g
or
g
anization in Europe. We issued 39 million shares of common stock an
d
assumed
$
2 billion of debt. In the U.S., we acquired 487 properties consisting of 32 million net rentabl
e
square
f
eet. We are now
l
arger t
h
an our next
f
our
l
argest competitors COMBINED! In Europe, we are
a
l
so t
h
e
l
argest owner an
d
operator wit
h
103 properties consisting o
f
5.6 mi
ll
ion net renta
bl
e square
f
eet
an
d
j
oint venture interest wit
h
anot
h
er 63 properties, wit
h
3.1 mi
ll
ion net renta
bl
e square
f
eet.
TO OUR SHAREHOLDERS
O