Public Storage 2009 Annual Report Download - page 36

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“designated investment entities” (as defined in our declaration of trust), to own more than 3% of our outstanding
common shares or 9.9% of the outstanding shares of any class or series of preferred or equity shares, in each case, in
value or number of shares, whichever is more restrictive, unless an exemption is granted by our board of trustees.
These limitations could discourage, delay or prevent a transaction involving a change in control of our company not
approved by our board of trustees.
If we failed to qualify as a REIT for income tax purposes, we would be taxed as a corporation, which would
substantially reduce funds available for payment of dividends.
Investors are subject to the risk that we may not qualify as a REIT for income tax purposes. REITs are
subject to a range of complex organizational and operational requirements. As a REIT, we must distribute with
respect to each year at least 90% of our REIT taxable income to our shareholders (which may take into account
certain dividends paid in the subsequent year). Other restrictions apply to our income and assets. Our REIT status
is also dependent upon the ongoing qualification of our affiliate, PSB, as a REIT, as a result of our substantial
ownership interest in that company.
For any taxable year that we fail to qualify as a REIT and are unable to avail ourselves of relief provisions
set forth in the Code, we would be subject to federal income tax 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 and would adversely affect our earnings. 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 have also assumed, based on Shurgard Storage Center, Inc.’s public filings and due diligence
performed in connection with our acquisition of Shurgard, that Shurgard qualified as a REIT through the date of the
Shurgard Merger on August 22, 2006. However, if Shurgard failed to qualify as a REIT, we generally would have
succeeded to or incurred significant tax liabilities (including the significant tax liability that would have resulted
from the deemed sale of assets by Shurgard to us as part of the Shurgard Merger).
We may pay some taxes, reducing cash available for shareholders.
Even if we qualify as a REIT for federal income tax purposes, we are required to pay some federal, foreign,
state and local taxes on our income and property. Since January 1, 2001, certain corporate subsidiaries of the
Company have elected to be treated as “taxable REIT subsidiaries” of the Company for federal income tax purposes.
A taxable REIT subsidiary is taxable as a regular corporation and may be limited in its ability to deduct interest
payments made to us in excess of a certain amount. In addition, if we receive or accrue certain amounts and the
underlying economic arrangements among our taxable REIT subsidiaries and us are not comparable to similar
arrangements among unrelated parties, we could be subject to a 100% penalty tax on those payments in excess of
amounts the Internal Revenue Service deems reasonable between unrelated parties. To the extent that the Company
is required to pay federal, foreign, state or local taxes, we will have less cash available for distribution to
shareholders.
We have become increasingly dependent upon automated processes, telecommunications, and the Internet
and are faced with system security risks.
We have become increasingly centralized and dependent upon automated information technology
processes, and certain critical components of our operating systems are dependent upon third party providers. As a
result, we could be severely impacted by a catastrophic occurrence, such as a natural disaster or a terrorist attack, or
a circumstance that disrupted operations at our third party providers. Even though we believe we utilize appropriate
duplication and back-up procedures, a significant outage in our third party providers could negatively impact our
operations. In addition, a portion of our business operations are conducted over the Internet, increasing the risk of
viruses that could cause system failures and disruptions of operations. Experienced computer programmers may be
able to penetrate our network security and misappropriate our confidential information, create system disruptions or