Public Storage 2010 Annual Report Download - page 43

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29
either not probable or not estimable or because we are not aware of the event. Future events and the results of
pending litigation could result in such potential losses becoming probable and estimable, which could have a
material adverse impact on our financial condition or results of operations. Significant unaccrued losses that we
have determined are at least reasonably possible are described in Note 13 to our December 31, 2010 consolidated
financial statements.
Accruals for Operating Expenses: Certain of our expenses are estimated based upon assumptions
regarding past and future trends, such as losses for workers compensation and employee health plans, and estimated
claims for our tenant reinsurance program. Our property tax expense represents one of our largest operating
expenses totaling approximately $153 million in the year ended December 31, 2010, has significant estimated
components. Most notably, in certain jurisdictions we do not receive tax bills for the current fiscal year until after
our earnings are finalized, and as a result, we must estimate tax expense based upon anticipated implementation of
regulations and trends. If these estimates and assumptions were incorrect, our expenses could be misstated.
Valuation of real estate and intangible assets acquired: In reporting the acquisition of operating self-
storage facilities in our financial statements, we must estimate the fair value of the land, buildings, and intangible
assets acquired in these transactions. These estimates are based upon many assumptions, subject to a significant
degree of judgment, including estimating discount rates, replacement costs of land and buildings, and estimating
future cash flows from the tenant base in place at the time of the acquisition. We believe that the assumptions we
used were reasonable, however, others could come to materially different conclusions as to the estimated values,
which would result in different depreciation and amortization expense, gains and losses on sale of real estate assets,
as well as the amounts included on our consolidated balance sheets for real estate and intangible assets.
2YHUYLHZRI0DQDJHPHQW¶V'LVFXssion and Analysis of Operations
Our principal business activities include the acquisition, development, ownership and operation of self-
storage facilities which offer storage spaces for lease, generally on a month-to-month basis, for personal and
business use. We are the largest owner of self-storage facilities in the U.S., which represents our Domestic Self-
Storage segment. A large portion of management time is focused on maximizing revenues and effectively managing
expenses at our self-storage facilities, as the Domestic Self-Storage segment contributes 92% of our revenues for the
year ended December 31, 2010, and is the primary driver of growth in our net income and cash flow from
operations.
The remainder of our operations are comprised of our Europe Self-Storage segment, our Commercial
segment, and the operations not allocated to any segment, each of which is described in Note 11 to our
December 31, 2010 consolidated financial statements.
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., demand for self-storage space has been negatively impacted since the fourth quarter of 2008.
As a result, rental income in our same store self-storage facilities declined on a year-over-year basis in each quarter
of 2009, with a peak decline of 5.1% in the quarter ended September 30, 2009. Rental income trends improved each
quarter since the quarter ended September 30, 2009, with reduced levels of year-over-year rental income declines,
and in the most recent quarter ended December 31, 2010 rental income increased 2.0%. While trends have been
improving, there can be no assurance that this will continue.
Another important component of our long-term growth is our access to capital and deployment of that
capital. Acquisitions of self-storage facilities were minimal during 2008 and 2009. During the year ended
December 31, 2010, we acquired 42 self-storage facilities for $239.6 million. During January 2011, we acquired
five additional facilities for $19.5 million. In February 2011, we acquired the leasehold interest in the land for one
of our self-storage facilities for approximately $6.6 million. We believe that there may be opportunities to acquire
additional facilities in 2011, because we have seen more facilities come to market and an increase in transaction
volume. However, there can be no assurance that the facilities that come to market will be those that we might be
interested in acquiring at the prices asked.