Public Storage 2012 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 of the 2012 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 120

  • 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

43
covered by our outside third-party insurers, as well as claims adjustment expenses. These costs are dependent
primarily upon the level of losses incurred, including the level of catastrophic events, such as hurricanes, that occur
and affect our properties thereby increasing tenant insurance claims.
The increase in tenant insurance revenues in 2012 as compared to 2011, and 2011 as compared to 2010,
was due primarily to (i) an increase in the number of tenants participating in the insurance program, due to a larger
tenant base combined with a higher participation level, and (ii) an increase in average premium rates. On average,
approximately 63%, 61%, and 58% of our tenants had such policies during 2012, 2011 and 2010, respectively. We
expect less growth in the percentage of tenants with insurance policies, and approximately flat premium rates, in
2013 as compared to the growth experienced in 2012.
Commercial operations: We also operate commercial facilities, primarily the leasing of small retail
storefronts and office space located on or near our existing self-storage facilities. We do not expect any significant
changes in revenues or profitability from our commercial operations.
Merchandise sales and other: We sell locks, boxes, and packing supplies at our self-storage facilities, and
the level of sales of these items is primarily impacted by the level of move-ins and other customer traffic at our self-
storage facilities. Over the past two years our merchandise sales and margins improved primarily as a result of
higher retail prices for our locks. To a much lesser extent, we manage a total of 44 self-storage facilities in the U.S.
for third party owners and various unconsolidated affiliated limited partnerships for a fee.
Other Income and Expense Items
Interest and other income: Interest and other income was $22.1 million in 2012, $32.3 million in 2011
and $29.0 million in 2010, respectively. Interest and other income primarily includes interest income on loans
receivable from Shurgard Europe, as well as trademark license fees received from Shurgard Europe for the use of
the “Shurgard” trade name. We record 51% of the aggregate interest income and trademark license fees as interest
and other income, while the remaining 49% is presented as additional equity in earnings on our statements of
income.
Interest and other income received from Shurgard Europe decreased from $26.7 million in 2011 to
$20.0 million in 2012, due primarily to (i) interest income on a bridge loan to Shurgard Europe of approximately
$2.5 million during 2011 (none in 2012), (ii) reduced interest income on our currently outstanding loan receivable
from Shurgard Europe, due to lower average outstanding balance in 2012 versus 2011 and a decrease in the average
exchange rate of the U.S. Dollar to the Euro from 1.392 for 2011 to 1.285 for 2012 when converting euro
denominated interest on the loan into U.S. Dollars.
Interest and other income from Shurgard Europe increased from $25.1 million in 2010 to $26.7 million in
2011, due primarily to (i) $2.5 million in interest earned during 2011 on the aforementioned bridge loan to Shurgard
Europe, and (ii) an increase in the average exchange rate of the U.S. Dollar to the Euro from 1.326 for 2010 as to
1.392 in 2011.
In 2011, we also received $1.5 million in interest and other income from our joint venture partner for
funding its 51% pro rata share of Shurgard Europe’s cost of the Acquired JV Interests for the period from March 2,
2011 until June 15, 2011.
The loan receivable from Shurgard Europe is denominated in Euros, has a balance of €311.0 million
($411.0 million) as of December 31, 2012, and matures in February 2015. Future interest income recorded in
connection with this loan will be dependent upon the average outstanding balance as well as the exchange rate of the
Euro versus the U.S. Dollar. All such interest has been paid currently when due and we expect the interest to
continue to be paid when due with Shurgard Europe’s operating cash flow. The terms of a loan payable by Shurgard
Europe to a bank, with a principal amount of €160 million at December 31, 2012, requires significant principal
repayments through the maturity date in November 2014. As a result, in 2012, there were no principal repayments
on our loan, and future principal repayments on our loan will be limited until the bank loan is repaid.