Public Storage 2011 Annual Report Download - page 106

PUBLIC STORAGE
NOTES TO FINANCIAL STATEMENTS
December 31, 2011
F-26
reinsurance premiums attributable to the Canadian facilities. Since our right to provide tenant reinsurance to the
Canadian facilities may be qualified, there is no assurance that these premiums will continue.
PS Canada holds approximately a 2.2% interest in Stor-RE, a consolidated entity that provides liability
and casualty insurance for PS Canada, the Company and certain affiliates of the Company for occurrences prior
to April 1, 2004.
On August 23, 2011, we completed mergers to acquire all of the units of limited partnership interest
and general partnership interests we did not already own in each of five affiliated partnerships. For three of
these partnerships, Mr. Hughes was a co-general partner along with the Company. These mergers were
approved by Public Storage and the Hughes Family, who together own a majority of the limited partnership
units outstanding and therefore could approve the mergers without the vote of the other limited partners. The
merger consideration was based upon independent appraisals, dated April 5, 2011, from a nationally recognized
appraisal firm, with allocation of the net asset value based upon the liquidation provisions of the relevant
partnership documents. Under the merger agreements, the Hughes Family sold all of its general and limited
partnership interests in these five partnerships for approximately $54.6 million, reflecting the same pricing and
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,QWHUHVWV´ ,n addition, on August 23, 2011, the Hughes Family’s interests in a private REIT owned by the
Company and the Hughes Family were acquired for approximately $0.2 million, based upon the merger value of
the interests in these five partnerships owned by the private REIT. Our board of trustees appointed a special
committee of independent trustees to review the terms of these acquisitions. The special committee
unanimously determined that the transactions were advisable and fair to and in the respective best interests of
Public Storage and its shareholders not affiliated with the Hughes Family, as well as fair to the public limited
partners. The Company also engaged an investment banking firm who concluded that the consideration
received in the mergers by the unaffiliated limited partners was fair to them, from a financial point of view. As
a trustee, Mr. Hughes is indemnified for any litigation arising from this transaction pursuant to the
indemnification agreements we have with each Public Storage trustee.
The Hughes Family also had interests in 18 additional limited partnerships that we acquired on
June 30, 2011. The acquisition price was based upon independent appraisals of the partnerships’ facilities,
dated April 5, 2011, from a nationally recognized appraisal firm, with allocation of the net asset value based
upon the liquidation provisions of the relevant partnership documents. We paid the Hughes Family
$13.3 million for their interests. The special committee of our board of trustees also reviewed the terms of each
of these purchases and unanimously determined that the purchases were fair to and in the respective best
interests of Public Storage and its shareholders not affiliated with the Hughes Family. As of December 31,
2011, Mr. Hughes has withdrawn as general partner in 17 of these partnerships. At February 24, 2012,
Mr. Hughes remains as general partner in one of these partnerships.
10. Share-Based Compensation
Under various share-based compensation plans, the Company can grant non-qualified options to
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service providers, and key employees. The terms of these grants are established by an authorized committee of
our Board of Trustees.
Stock Options
Stock option exercise prices are equal to the closing trading price of our common shares on the date of
grant, vest generally over a five-year period, and expire ten years after the grant date. We use the Black-
Scholes option valuation model to estimate the grant-date fair value of our stock options, and recognize these
amounts, net of estimated forfeitures, as compensation expense over the applicable vesting period. Stock
options DUHFRQVLGHUHG³JUDQWHG´IRUDFFRXQWLQJSXUSRVHVZKHQWKHCompany and the recipient reach a mutual
understanding of the key terms and conditions of the award and the award has been authorized in accordance
with the Company’s share grant approval procedures.