Public Storage 2013 Annual Report Download - page 53

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Year Ended December 31, Year Ended December 31,
2013 2012 Change 2012 2011 Change
(Amounts in thousands)
Ancillary Revenues:
Tenant reinsurance
premiums $ 84,904 $ 77,977 $ 6,927 $ 77,977 $ 71,348 $ 6,629
Commercial 14,510 14,071 439 14,071 14,592 (521)
Merchandise and other 32,449 31,591 858 31,591 28,149 3,442
Total revenues 131,863 123,639 8,224 123,639 114,089 9,550
Ancillary Cost of Operations:
Tenant reinsurance 17,067 14,429 2,638 14,429 13,407 1,022
Commercial 5,228 4,908 320 4,908 5,505 (597)
Merchandise and other 18,780 18,926 (146) 18,926 18,484 442
Total cost of operations 41,075 38,263 2,812 38,263 37,396 867
Commercial depreciation 2,779 2,810 (31) 2,810 2,654 156
Ancillary net income:
Tenant reinsurance 67,837 63,548 4,289 63,548 57,941 5,607
Commercial 6,503 6,353 150 6,353 6,433 (80)
Merchandise and other 13,669 12,665 1,004 12,665 9,665 3,000
Total ancillary net income $ 88,009 $ 82,566 $ 5,443 $ 82,566 $ 74,039 $ 8,527
Tenant reinsurance operations: We reinsure policies offered through a non-affiliated insurance
company against losses to goods stored by customers in the domestic self-storage facilities we operate. The
level of tenant reinsurance revenues is largely dependent upon the level of premiums charged for such
insurance and the number of customers that participate in the insurance program. Cost of operations
primarily includes claims paid that are not 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 that occur and affect our properties thereby increasing tenant insurance claims.
The increase in tenant insurance revenues in 2013 and 2012 as compared to the respective prior
years is due to (i) an increased number of customers due to higher occupancy levels, including the fill-up of
non-Same Store facilities, (ii) an increase in the percentage of such customers having policies from 61% in
2011, to 63% in 2012 and 65% in 2013, (iii) an increase in average premium rates and (iv) the impact of
the acquisition of 145 self-storage facilities from third parties in 2012 and 2013. Tenant insurance revenues
with respect to customers in our Same Store Facilities totaled $76.5 million, $71.4 million and
$66.0 million in 2013, 2012 and 2011, respectively.
We expect continued increases in tenant insurance revenues in 2014 as the tenant insurance
revenues with respect to the facilities we acquired in 2013 are reflected for a full year and Non-Same Store
facilities continue to add customers. We expect stable participation rates and flat premium rates in 2014.
Commercial operations: We also own and 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. These amounts include, to a much lesser extent, the results of
our management of 42 self-storage facilities in the U.S. for third party owners and other partnerships that
we account for on the equity method. In 2012 our merchandise sales and margins improved primarily as a