Public Storage 2014 Annual Report Download - page 53

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(a) See “Net Operating Income” below for a reconciliation of this non-GAAP measure to our net income in our
statements of income for the years ended December 31, 2014, 2013 and 2012.
During 2014, we acquired 44 operating self-storage facilities (3,442,000 net rentable square feet of
storage space) for approximately $430.7 million. During 2013, we acquired 121 operating self-storage
facilities (8,036,000 net rentable square feet of storage space) for approximately $1.16 billion. During
2012, we acquired 24 operating self-storage facilities (1,908,000 net rentable square feet of storage space
and unfinished space that was converted to 209,000 net rentable square feet of self-storage space in 2013
for $20.3 million in additional development cost) for $225.5 million in cash.
For 2014, the weighted average annualized yield for the facilities acquired in 2013 and 2012,
respectively, was 5.5% and 7.6%. The yields for the facilities acquired in 2014 were not meaningful due to
our limited ownership period.
During 2014, we completed expansions to various facilities adding 614,000 net rentable square
feet of self-storage space, for an aggregate cost of $48 million and we opened six newly developed
facilities for an aggregate cost of $50 million with 531,000 net rentable square feet of self-storage space. In
addition, during 2014, we gained possession of a self-storage facility due to termination by a tenant who
had ground leased the facility from us. These facilities are included in “Other facilities” in the table above.
Subsequent to December 31, 2014, we acquired four self-storage facilities (one each in Florida,
North Carolina, Washington and Texas), with an aggregate of 265,000 net rentable square feet, for
approximately $32 million in cash.
We expect to increase the number of Non Same Store Facilities over at least the next 18 months
through development of new self-storage facilities, expansions to existing facilities and acquisitions of
facilities. 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 of these costs were incurred through December 31, 2014, with the
remaining costs expected to be incurred primarily in 2015. Some of these projects are subject to significant
contingencies such as entitlement approval. 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 projects that meet our risk-adjusted yield expectations and challenges in obtaining
building permits for self-storage activities in certain municipalities. There is significant competition to
acquire existing facilities and there can be no assurance that we will be able to acquire additional facilities
at prices we will find attractive.
We believe that our management and operating infrastructure will result in newly acquired
facilities stabilizing at a higher level of net operating income than was achieved by the previous owners.
However, it can take 24 or more months for these newly acquired facilities to reach stabilization, and the
ultimate levels of net operating income to be achieved can be affected by changes in general economic
conditions. As a result, there can be no assurance that our expectations with respect to these facilities will
be achieved. However, we expect the Non Same Store Facilities to continue to provide earnings growth
during 2015 as these facilities approach stabilized occupancy levels and the earnings of the 2014
acquisitions are reflected in our operations for a longer period in 2015 as compared to 2014.
Equity in earnings of unconsolidated real estate entities
At December 31, 2014, we have equity investments in PSB, Shurgard Europe and various limited
partnerships. We account for such investments using the equity method.
Equity in earnings of unconsolidated real estate entities for 2014, 2013 and 2012 consists of our
pro-rata share of the net income of these unconsolidated real estate entities for each period. The following
table sets forth the significant components of equity in earnings of unconsolidated real estate entities.