Public Storage 2009 Annual Report Download - page 48

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We currently operate within three reportable segments: (i) Domestic Self-Storage, (ii) Europe Self-Storage
and (iii) Commercial. The Domestic Self-Storage segment comprises the direct and indirect ownership,
development, and operation of storage facilities in the U.S. Our Europe Self-Storage segment comprises our equity
interest in the self-storage operations in Europe through our 49% ownership in Shurgard Europe and its associated
activities in seven countries in Western Europe. Our Commercial segment includes our commercial property
operations, directly and through our 41% ownership interest in PS Business Parks, Inc. (“PSB”), a publicly traded
REIT whose common stock trades on the New York Stock Exchange under the symbol “PSB” (as of December 31,
2009, PSB owned and operated 19.6 million rentable square feet of commercial space). See “Investment in PSB”
under “Equity in Earnings of Real Estate Entities” below for information regarding transactions related to our
investment in PSB recorded during the year ended December 31, 2009. Our other activities not allocated to any
segment include (i) the reinsurance of policies against losses to goods stored by tenants in our self-storage facilities,
(ii) merchandise sales at our self-storage facilities and (iii) management of self-storage facilities owned by third-
party owners and domestic facilities owned by the affiliated entities that are not consolidated. During 2009, we
decided to terminate our containerized storage and truck rental operations. Accordingly, the related results of
operations have been included in discontinued operations on our consolidated statements of income.
Our self-storage facilities in the U.S. comprise approximately 93% of our operating revenue for the year
ended December 31, 2009, and represent the primary driver of growth in our net income and cash flows from
operations. In addition, most of our ancillary revenues are derived at our self-storage facility locations, either from
our existing self-storage customer base or from the customer traffic within our self-storage facilities. Accordingly, a
large portion of management time and focus is placed upon maximizing revenues and effectively managing
expenses in our self-storage facilities.
The self-storage industry is subject to general economic conditions, particularly those that affect the
disposable income and spending of consumers, as well as those that affect moving trends. Due to the recessionary
pressures in the U.S. and Europe, demand for self-storage space was soft in 2009 and continues to be soft. As a
result, we are experiencing downward pressure on occupancy levels, rental rates, and revenues in our self-storage
facilities.
An important determinant of our long-term growth is the expansion of our asset base and deployment of
capital. Acquisitions of self-storage facilities have been minimal over the past two years as we continue to monitor
seller expectations. However, we believe that there may be more opportunities to acquire facilities from distressed
sellers who, due to the constrained credit environment and pressure on cash flows due to the current difficult
operating environment, face covenant violations or cannot refinance their existing debt as it comes due. The timing
and amount of these opportunities will be at least partially dependent upon whether lenders elect to pursue
foreclosure, acceleration, or other remedies which could force a sale of the properties. It is our belief that
opportunities in 2009 have been limited due at least in part to lenders’ desire to extend loans rather than foreclose or
accelerate. There can be no assurance that any such opportunities will materialize in the future.
Historically we have developed and redeveloped self-storage facilities. Our development activities have
substantially ceased due to the existing economic environment and our belief that our capital can be more effectively
put to use in other ways.
On February 12, 2009, we acquired $110.2 million (face amount) of our senior unsecured debt. In addition,
during the fourth quarter of 2008 and the first quarter of 2009, we acquired $352.7 million (face amount) of our
preferred shares and units on the open market and in privately negotiated transactions for an aggregate acquisition
cost of $237.4 million. There could be opportunities for future acquisition of our own outstanding debt and equity
securities, particularly if there were a return to the same acute turbulence in the credit and equity markets which
occurred in late 2008 and early 2009. Any future such transactions will depend upon our evaluation of the return of
such investments relative to our other investment alternatives. There can be no assurance that any future such
transactions will occur or the potential yield on such transactions.
We have $763.8 million in cash and cash equivalents on hand at December 31, 2009, and continue to
evaluate opportunities to effectively deploy this capital.