Public Storage 2008 Annual Report Download - page 11

Download and view the complete annual report

Please find page 11 of the 2008 Public Storage annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

foreclosed upon. This provides us a margin of safety in case of unforseen events. We try to immunize
our company from the vagaries of the capital markets.
Shurgard Europe
Last year I outlined the significant growth opportunities for self-storage in Europe and how we would
participate through our equity investment in Shurgard Europe. At that time, we were concluding our
transaction with NYCRF and our business plan was:
• Continue to drive Same Store revenue and operating income.
• Continue to integrate U.S. best practices into the European operations.
• Continue to grow the platform, primarily through development of new properties.
• Acquire our joint venture partner’s interest in about 80 properties.
• Secure a new bank credit facility to fund these activities and refinance the intercompany loan (total
of about one billion dollars).
We approached each aspect of our plan with great zeal; however, by August it became clear that the debt
markets were changing dramatically in Europe and that we should terminate all development activity.
During the balance of this year, we terminated projects and reduced staffing. In 2009, we will complete
the balance of properties under development and work to either refinance or pay off the debt related to
our joint venture interests. As always, we will work hard to create value from our 200-store platform. By
early 2010, we plan to refinance the 400 million euro intercompany loan (market conditions permitting).
Unlike the U.S., in Europe there has never been an established market for preferred stock, especially for real
estate companies. Accordingly, Shurgard Europe will depend on the debt markets (just bank debt at this
time, but eventually public debt) for capital. Regardless, we expect it will be conservatively structured.
We expect a challenging operating environment in 2009. Like in the U.S., customers are extremely price
sensitive, moving/relocation activity is much lower and customer awareness of our product is still low.
Growth in Europe will occur at a much slower pace than prior years. Steven De Tollenaere and his
management team have made some tough decisions over the past year in view of the changing economic
climate, especially the termination of further property development. They have created significant value
for Public Storage shareholders since we acquired Shurgard and they have positioned the business well
for today’s environment.
Executive Compensation
We paid over $30 million in executive compensation in 2008–a record. This is big time money for us
and so some explanation is warranted.
Our goal is long-term wealth creation both for you the owners and the management team. The
management team participates in the value created for owners. We are fortunate to have a Board of
Trustees that has significant equity ownership, understands the business and doesn’t need a consultant to
help them think.