Public Storage 2014 Annual Report Download - page 39

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Accounting for acquired real estate facilities: We estimate the fair values of the land, buildings
and intangible assets acquired, for purposes of allocating the purchase price of facilities acquired. Such
estimates are based upon many assumptions and judgments, including (i) expected rates of return and
capitalization rates on real estate assets, (ii) estimated costs to replace acquired buildings and equipment,
(iii) comparisons of the acquired underlying land parcels to recent land transactions, and (iv) future cash
flows from the real estate and the existing tenant base. Others could come to materially different
conclusions as to the estimated fair values, which would result in different depreciation and amortization
expense, gains and losses on sale of real estate assets, and real estate and intangible assets.
MD&A Overview
Our domestic self-storage facilities generated approximately 93% of our revenues for the year
ended December 31, 2014, and also generated most of our net income and cash flow from operations. A
significant portion of management’s time is devoted to maximizing cash flows from our existing self-
storage facilities, as well as seeking additional investments in self-storage facilities.
Most of our facilities compete with other well-managed and well-located competitors and we are
subject to general economic conditions, particularly those that affect the spending habits of consumers and
moving trends. We believe that our centralized information networks, national telephone and online
reservation system, the brand name “Public Storage,” and our economies of scale enable us to meet such
challenges effectively.
During 2014, 2013 and 2012, we acquired 44, 121 and 24 facilities, respectively, from third
parties for approximately $431 million, $1.2 billion and $226 million, respectively, primarily through large
portfolio acquisitions. We will continue to seek to acquire properties in 2015; however, there is significant
competition to acquire existing facilities and there can be no assurance as to the level of facilities we may
acquire.
As of December 31, 2014, we had development and expansion projects which will add
approximately 3.5 million net rentable square feet of storage space at a total cost of approximately
$411 million. A total of $105 million in costs were incurred through December 31, 2014 with respect to
these projects, with the remaining costs expected to be incurred primarily in 2015. We expect to continue to
seek additional development projects; however, the level of future development may be limited due to
various constraints such as difficulty in finding available sites that meet our risk-adjusted yield
expectations, as well as challenges in obtaining building permits for self-storage activities in certain
municipalities.
We believe that our real estate development activities are beneficial to our business operations
over the long run. However, in the short run, due to the three to four year period that it takes to fill up
newly developed storage space and reach a stabilized level of cash flows, our earnings will be diluted to the
extent that earnings from those newly developed facilities are less than the cost of the capital that was
required in order to fund the development cost. We believe that this negative impact will grow in 2015 and
beyond due to the resulting level of growth of unstabilized facilities in our portfolio.
We also have equity investments in Shurgard Europe and PS Business Parks, Inc. (“PSB”). We
may invest further in these entities in the future.
As of December 31, 2014, our capital resources totaled approximately $774 million, consisting of
$188 million in cash, approximately $286 million of available borrowing capacity on our line of credit, and
$300 million of expected retained operating cash flow for 2015. Retained operating cash flow represents
our expected cash flow provided by operating activities, after deducting estimated distributions to our
shareholders and estimated maintenance capital expenditure requirements for 2015.
At December 31, 2014, we had capital commitments totaling approximately $356 million,
consisting of $306 million of remaining spend on our development pipeline, $32 million in property