AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 2001
REGISTRATION NO. 333-_________
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-3
Registration Statement
Under
The Securities Act of 1933
Public Storage, Inc.
--------------------
(Exact Name of Registrant as Specified in its Charter)
California 95-3551121
--------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
701 Western Avenue
Glendale, California 91201-2397
(818) 244-8080
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Harvey Lenkin
Public Storage, Inc.
701 Western Avenue
Glendale, California 91201-2397
(818) 244-8080
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
David Goldberg, Esq.
Public Storage, Inc.
701 Western Avenue
Glendale, California 91201-2397
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
Proposed
Maximum Proposed
Aggregate Price Maximum
Title of Each Class of Amount to be Per Share or Per Aggregate Amount of
Securities to be Registered Registered Unit Offering Price Registration Fee
--------------------------------------------- ------------- ---------------- -------------- ----------------
Common Stock, $.01 par value per share....... (1) (3) (2) (1) (2) (3) N/A
Preferred Stock, $.01 par value per share.... (1) (4) (2) (1) (2) (4) N/A
Depositary Shares Representing Interests in
Preferred Stock........................... (1) (4) (2) (1) (2) (4) N/A
Equity Stock, $.01 par value per share....... (1) (5) (2) (1) (2) (5) N/A
Depositary Shares Representing Interests in
Equity Stock.............................. (1) (5) (2) (1) (2) (5) N/A
Warrants..................................... (1) (6) (2) (1) (2) (6) N/A
Total........................................ $800,000,000 (2) $800,000,000 $200,000 (7)
(1) In no event will the aggregate maximum offering price of all securities
issued pursuant to this Registration Statement exceed $800,000,000. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
(2) The proposed maximum offering price per share or per unit will be
determined, from time to time, by the Registrant in connection with the
issuance by the Registrant of the securities registered hereunder. No
separate consideration will be received for any Depositary Shares
representing shares of Preferred Stock or Equity Stock of the Registrant.
(3) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of shares of Common Stock as may be sold, from time to time, by the
Registrant. There is also being registered hereunder an indeterminate
number of shares of Common Stock as shall be issuable upon conversion of
the Preferred Stock or the Equity Stock or exercise of Warrants registered
hereby.
(4) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of shares of Preferred Stock, and Depositary Shares representing a
fractional interest in a share of Preferred Stock, as may be sold, from
time to time, by the Registrant. In the event the Registrant elects to
offer to the public fractional interests in shares of the Preferred Stock
registered hereunder, Depositary Receipts will be distributed to those
persons acquiring such fractional interests and the shares of Preferred
Stock will be issued to a Depositary under a Deposit Agreement. There is
also being registered hereunder an indeterminate number of shares of
Preferred Stock as shall be issuable upon exercise of Warrants registered
hereby.
(5) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of shares of Equity Stock, and Depositary Shares representing a
fractional interest in a share of Equity Stock, as may be sold, from time
to time, by the Registrant. In the event the Registrant elects to offer to
the public fractional interests in shares of the Equity Stock registered
hereunder, Depositary Receipts will be distributed to those persons
acquiring such fractional interests and the shares of Equity Stock will be
issued to a Depository under a Deposit Agreement. There is also being
registered hereunder an indeterminate number of shares of Equity Stock as
shall be issuable upon exercise of Warrants registered hereby.
(6) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of Warrants representing rights to purchase Common Stock, Preferred
Stock or Equity Stock, as the case may be, registered pursuant to this
Registration Statement.
(7) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion, dated September 14, 2001
Prospectus
$800,000,000
Public Storage, Inc.
By this prospectus, we may offer-
Common Stock
Preferred Stock
Equity Stock
Depositary Shares
Warrants
We will provide the
specific terms of
these securities in
supplements to this
prospectus. You
should read this
prospectus and the
supplements carefully
before you invest.
PLEASE READ "RISK FACTORS" BEGINNING ON PAGE 1 FOR A DISCUSSION OF
MATERIAL RISKS YOU SHOULD CONSIDER BEFORE YOU INVEST.
Our common stock is listed and traded on the New York Stock Exchange
and the Pacific Exchange under the symbol "PSA."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the securities to be issued under this
prospectus or determined if this prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
This prospectus may not be used to sell securities unless accompanied by a
prospectus supplement.
_____________, 2001
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER TO SELL THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE ON THE FRONT OF THIS PROSPECTUS. OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE
CHANGED SINCE THAT DATE.
TABLE OF CONTENTS
Page
Risk Factors
The Hughes family could control us.................................................................... 1
Provisions in our organizational documents may prevent changes in control............................. 1
We would incur adverse tax consequences if we fail to qualify as a REIT............................... 1
We may pay some taxes................................................................................. 1
We would incur a corporate level tax if we sell certain assets........................................ 1
We and our shareholders are subject to financing risks................................................ 1
Debt increases risk of loss...................................................................... 1
Issuing additional shares reduces the interest of existing shareholders.......................... 1
Since our business consists primarily of acquiring and operating real estate, we are subject to real
Estate operating risks.............................................................................. 2
Value of our investments may be reduced by general risks of real estate ownership................ 2
There is significant competition among self-storage facilities................................... 2
We may incur significant environmental costs and liabilities..................................... 2
The Hughes family receives the benefit of tenant reinsurance premiums................................. 3
We have no interest in Canadian self-storage facilities owned by the Hughes family.................... 3
The Hughes family has an interest in our merchandise operations....................................... 3
Our portable self-storage business has incurred operating losses...................................... 3
About This Prospectus..................................................................................... 3
Where You Can Find More Information....................................................................... 4
Forward-Looking Statements................................................................................ 5
The Company............................................................................................... 5
Use of Proceeds........................................................................................... 5
Ratio of Earnings to Fixed Charges........................................................................ 6
Description of Common Stock and Class B Common Stock...................................................... 6
Common Stock.......................................................................................... 6
Ownership Limitations................................................................................. 6
Class B Common Stock.................................................................................. 8
Description of Preferred Stock............................................................................ 8
Outstanding Preferred Stock........................................................................... 9
Ownership Limitations................................................................................. 9
Future Series of Preferred Stock...................................................................... 9
Description of Equity Stock............................................................................... 13
Ownership Limitations................................................................................. 13
Terms of Equity Stock................................................................................. 13
Description of the Depositary Shares...................................................................... 15
Dividends............................................................................................. 15
Liquidation Rights.................................................................................... 16
Redemption............................................................................................ 16
Conversion............................................................................................ 16
Voting ............................................................................................... 16
Withdrawal of Preferred Stock or Equity Stock......................................................... 16
Amendment and Termination of Deposit Agreement........................................................ 17
Charges of Depositary................................................................................. 17
TABLE OF CONTENTS--(Continued)
Page
Miscellaneous......................................................................................... 17
Resignation and Removal of Depositary................................................................. 17
Federal Income Tax Considerations..................................................................... 18
Description of Warrants................................................................................... 18
Federal Income Tax Consequences........................................................................... 19
Taxation of Public Storage as a REIT.................................................................. 19
Taxation of U.S. Shareholders......................................................................... 27
Taxation of-Tax Exempt Shareholders................................................................... 28
US Taxation of Non-U.S. Shareholders.................................................................. 29
Information Reporting and Backup Withholding Tax Applicable to Shareholders........................... 31
Plan of Distribution...................................................................................... 32
Legal Opinions............................................................................................ 33
Experts................................................................................................... 33
RISK FACTORS
Before investing in our securities, you should consider the following
risks and detriments:
THE HUGHES FAMILY COULD CONTROL US.
The Hughes family owns approximately 33.7% of our outstanding shares of
common stock (approximately 37.5% upon conversion of our class B common stock).
Consequently, the Hughes family could control matters submitted to a vote of our
shareholders, including electing directors, amending our organizational
documents, dissolving and approving other extraordinary transactions, such as a
takeover attempt.
PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS MAY PREVENT CHANGES IN CONTROL.
Restrictions in our organizational documents may further limit changes
in control. Unless our board of directors waives these limitations, no
shareholder may own more than (1) 2.0% of the outstanding shares of our common
stock or (2) 9.9% of the outstanding shares of each class or series of our
preferred or equity stock. Our organizational documents in effect provide,
however, that the Hughes family may continue to own the shares of our common
stock held by them at the time of a 1995 reorganization. These limitations are
designed, to the extent possible, to avoid a concentration of ownership that
might jeopardize our ability to qualify as a real estate investment trust or
REIT. These limitations, however, also make a change of control significantly
more difficult (if not impossible) even if it would be favorable to the
interests of our public shareholders. These provisions will prevent future
takeover attempts not approved by our board of directors even if a majority of
our public shareholders deem it to be in their best interests because they would
receive a premium for their shares over the shares' then market value or for
other reasons. See "Description of Common Stock and Class B Common
Stock--Ownership Limitations."
WE WOULD INCUR ADVERSE TAX CONSEQUENCES IF WE FAIL TO QUALIFY AS A REIT.
You will be subject to the risk that we may not qualify as a REIT. As a
REIT, we must distribute at least 90% of our REIT taxable income to our
shareholders, which include not only holders of our common stock and equity
stock but also holders of our preferred stock. Failure to pay full dividends on
the preferred stock would prevent us from paying dividends on our common stock
and could jeopardize our qualification as a REIT. See "Federal Income Tax
Consequences--Taxation of Public Storage as a REIT."
For any taxable year that we fail to qualify as a REIT and the relief
provisions do not apply, we would be taxed at the regular corporate rates on all
of our taxable income, whether or not we make any distributions to our
shareholders. Those taxes would reduce the amount of cash available for
distribution to our shareholders or for reinvestment. As a result, our failure
to qualify as a REIT during any taxable year could have a material adverse
effect upon us and our shareholders. Furthermore, unless certain relief
provisions apply, we would not be eligible to elect REIT status again until the
fifth taxable year that begins after the first year for which we fail to
qualify.
WE MAY PAY SOME TAXES.
Even if we qualify as a REIT for federal income tax purposes, we are
required to pay some federal, state and local taxes on our income and property.
Several corporate subsidiaries of Public Storage have elected to be treated as
"taxable REIT subsidiaries" of Public Storage for federal income tax purposes
since January 1, 2001. A taxable REIT subsidiary is a fully taxable corporation
and is limited in its ability to deduct interest payments made to us. In
addition, we will be subject to a 100% penalty tax on some payments that we
receive if the economic arrangements among our tenants, our taxable REIT
subsidiaries and us are not comparable to similar arrangements among unrelated
parties. To the extent that Public Storage or any taxable REIT subsidiary is
require to pay federal, state or local taxes, we will have less cash available
for distribution to shareholders.
WE WOULD INCUR A CORPORATE LEVEL TAX IF WE SELL CERTAIN ASSETS.
We will generally be subject to a corporate level tax on any net
built-in gain if before November 2005 we sell any of the assets we acquired in a
November 1995 reorganization.
WE AND OUR SHAREHOLDERS ARE SUBJECT TO FINANCING RISKS.
DEBT INCREASES RISK OF LOSS. In making real estate investments, we may
borrow money, which increases the risk of loss. At June 30, 2001, our debt of
$149.8 million was approximately 3.3% of our total assets.
ISSUING ADDITIONAL SHARES REDUCES THE INTEREST OF EXISTING
SHAREHOLDERS. Issuing additional securities can dilute the interest of our
shareholders in our company. We intend to issue additional securities under this
registration statement. See "Description of Common Stock and Class B Common
Stock", "Description of Preferred Stock" and "Description of Equity Stock," for
a discussion of the terms of the preferred stock, common stock and equity stock.
If we liquidated, holders of our preferred stock and of preferred units
in one of our operating partnerships would be entitled to receive, before any
distribution of assets to holders of our common stock, liquidating distributions
(a total of approximately $1.7 billion with respect to preferred stock and
preferred units outstanding at June 30, 2001), plus any accrued and unpaid
distributions. Holders of preferred stock and preferred units are entitled to
receive, when declared by our board of directors, cash distributions (a total of
approximately $149.0 million per year with respect to preferred stock and
preferred units outstanding at June 30, 2001), in preference to holders of our
common stock.
SINCE OUR BUSINESS CONSISTS PRIMARILY OF ACQUIRING AND OPERATING REAL ESTATE, WE
ARE SUBJECT TO REAL ESTATE OPERATING RISKS.
VALUE OF OUR INVESTMENTS MAY BE REDUCED BY GENERAL RISKS OF REAL ESTATE
OWNERSHIP. Since we derive substantially all of our income from real estate
operations, we are subject to the general risks of owning real estate-related
assets, including:
* lack of demand for rental spaces or units in a locale;
* changes in general economic or local conditions;
* changes in supply of or demand for similar or competing facilities in
an area;
* the impact of environmental protection laws;
* changes in interest rates and availability of permanent mortgage funds
which may render the sale or financing of a property difficult or
unattractive; and
* changes in tax, real estate and zoning laws.
THERE IS SIGNIFICANT COMPETITION AMONG SELF-STORAGE FACILITIES. Most of
our properties are self-storage facilities, which represented 91% of our total
revenues generated during 2000. Competition in the market areas in which many of
our properties are located is significant and has affected the occupancy levels,
rental rates and operating expenses of some of our properties. Any increase in
availability of funds for investment in real estate may accelerate competition.
Recent increases in development of self-storage facilities are expected to
further intensify competition among operators of self-storage facilities in
certain market areas in which we operate.
WE MAY INCUR SIGNIFICANT ENVIRONMENTAL COSTS AND LIABILITIES. As an
owner and operator of real properties, under various federal, state and local
environmental laws, we are required to clean up spills or other releases of
hazardous or toxic substances on or from our properties. Certain environmental
laws impose liability whether or not the owner knew of, or was responsible for,
the presence of the hazardous or toxic substances. In some cases, liability may
not be limited to the value of the property. The presence of these substances,
or the failure to properly remediate any resulting contamination, also may
adversely affect the owner's or operator's ability to sell, lease or operate its
property or to borrow using its property as collateral.
We have conducted preliminary environmental assessments of most of our
properties (and intend to conduct these assessments in connection with property
acquisitions) to evaluate the environmental condition of, and potential
environmental liabilities associated with, our properties. These assessments
generally consist of an investigation of environmental conditions at the
property (not including soil or groundwater sampling or analysis), as well as a
review of available information regarding the site and publicly available data
regarding conditions at other sites in the vicinity. In connection with these
property assessments, our operations and recent property acquisitions, we have
2
become aware that prior operations or activities at some facilities or from
nearby locations have or may have resulted in contamination to the soil or
groundwater at these facilities. In this regard, some of our facilities are or
may be the subject of federal or state environmental investigations or remedial
actions. We have obtained, with respect to recent acquisitions and intend to
obtain with respect to pending or future acquisitions, appropriate purchase
price adjustments or indemnifications that we believe are sufficient to cover
any related potential liabilities. Although we cannot provide any assurance,
based on the preliminary environmental assessments, we believe we have funds
available to cover any liability from environmental contamination or potential
contamination and we are not aware of any environmental contamination of our
facilities material to our overall business, financial condition or results of
operation.
THE HUGHES FAMILY RECEIVES THE BENEFIT OF TENANT REINSURANCE PREMIUMS.
A corporation owned by the Hughes family reinsures policies insuring
against losses to goods stored by tenants in our self-storage facilities. We
believe that the availability of insurance reduces our potential liability to
tenants for losses to their goods from theft or destruction. That corporation
receives the premiums and bears the risks associated with the reinsurance. We
have an agreement to acquire that corporation on December 31, 2001. The
agreement is subject to certain conditions and there can be no assurance that
the acquisition will be completed.
WE HAVE NO INTEREST IN CANADIAN SELF-STORAGE FACILITIES OWNED BY THE HUGHES
FAMILY.
The Hughes family owns and operates self-storage facilities in Canada.
We have a right of first refusal to acquire the stock or assets of the
corporation engaged in these operations if the Hughes family or the corporation
agree to sell them. However, we have no interest in the operations of that
corporation and no right to acquire that stock or assets unless the Hughes
family decides to sell.
THE HUGHES FAMILY HAS AN INTEREST IN OUR MERCHANDISE OPERATIONS.
At almost all of our self-storage facilities, a related corporation (PS
Orangeco, Inc.) offers for sale to the general public, including tenants of
self-storage facilities, a variety of items such as locks and boxes to assist in
the moving and storage of goods. Because the revenues received from the sale of
these items would be nonqualifying income under the REIT tax rules, we own the
nonvoting preferred stock of that corporation (representing 95% of the equity).
The Hughes family owns the voting common stock of that corporation (representing
5% of the equity).
OUR PORTABLE SELF-STORAGE BUSINESS HAS INCURRED OPERATING LOSSES.
Public Storage Pickup & Delivery was organized in 1996 to operate a
portable self-storage business. We own substantially all of the economic
interest of Pickup & Delivery. Since Pickup & Delivery will operate profitably
only if it can succeed in the relatively new field of portable self-storage, we
cannot provide any assurance as to its profitability. Pickup & Delivery incurred
operating losses of $7,396,000 in 1999, $5,135,000 in 2000 and $1,538,000 for
the first six months of 2001. See "Federal Income Tax Consequences--Taxation of
Public Storage as a REIT" concerning the treatment of income from and investment
in Pickup & Delivery for purposes of the REIT income and asset tests.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission using a "shelf" registration process.
Under this shelf process, we may sell from time to time up to $800,000,000 of
our common stock, preferred stock, equity stock, depositary shares and warrants,
in any combination. This prospectus provides a general description of the
securities that we may offer. Each time we offer any of the types of securities
described in this prospectus, we will prepare and distribute a prospectus
supplement that will contain a description of the specific terms of the
securities being offered and of the offering. The prospectus supplement may also
supplement the information contained in this prospectus. You should read both
this prospectus and the applicable prospectus supplement, together with the
additional information described under the heading "Where You Can Find More
Information," before purchasing any securities.
Unless otherwise indicated or unless the context requires otherwise,
all references in this prospectus to "the Company," "we," "us," "our" and
similar references mean Public Storage, Inc. and its subsidiaries.
3
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange
Act of 1934, and are required to file annual, quarterly and special reports with
the Securities and Exchange Commission. You may read and copy any of these
documents at the Commission's public reference rooms at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You may telephone the Commission at 1-800-SEC-0330 for
further information on the Commission's public reference facilities. The
Commission also maintains a computer site on the World Wide Web
(http://www.sec.gov) that contains the reports, proxy and information statements
and other information that we and other registrants file electronically with the
Commission. You can also inspect reports and other information we file at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005, and the Pacific Exchange, 301 Pine Street, San Francisco, California
94104.
This prospectus is a part of a registration statement on Form S-3 filed
with the Commission to register offers and sales of the securities described in
this prospectus under the Securities Act of 1933, as amended. The registration
statement contains additional information about us and the securities. You may
obtain the registration statement and its exhibits from the Commission as
indicated above or from us.
The Commission allows us to provide information about our business and
other important information to you by "incorporating by reference" the
information we file with the Commission, which means that we can disclose that
information to you by referring in this prospectus to the documents we file with
the Commission. Under the Commission's regulations, any statement contained in a
document incorporated by reference in this prospectus is automatically updated
and superseded by any information contained in this prospectus, or in any
subsequently filed document of the types described below.
We incorporate into this prospectus by reference the following
documents filed by us with the Commission, each of which should be considered an
important part of this prospectus:
SEC Filing (File No. 1-8389) Period Covered or Date of Filing
------------------------------------------------------------------ ----------------------------------------------------------
Annual Report on Form 10-K...................................... Year ended December 31, 2000
Quarterly Report on Form 10-Q................................... Quarters ended March 31, 2001 and June 30, 2001
Current Reports on Form 8-K..................................... Dated January 16, 2001, April 5, 2001 and September 4, 2001
Description of our common stock contained in Registration
Statement on Form 8-A,as supplemented by the description
of our common stock contained in this prospectus.............. Effective June 30, 1981
All subsequent documents filed by us under Sections 13(a), After the date of this prospectus and before the
13(c), 14 or 15(d) of the Exchange Act of 1934................ termination of the offering
You may request a copy of each of our filings at no cost, by writing or
telephoning us at the following address, telephone or facsimile number:
Investor Services Department
Public Storage, Inc.
701 Western Avenue
Glendale, California 91201-2397
Telephone: (800) 807-3055
(800) 421-2856
(818) 244-8080
Facsimile: (818) 241-0627
Exhibits to a document will not be provided unless they are
specifically incorporated by reference in that document.
4
FORWARD-LOOKING STATEMENTS
This prospectus includes or incorporates by reference forward-looking
statements, including those identified by the words "expects," "believes,"
"anticipates," "should," "estimates," "may," "will," "seeks," "intends,"
"plans," "pro forma," or the negative of these words and phrases or similar
expressions that convey the uncertainty of future events or outcomes.
Discussions of strategy, plans or intentions also include forward-looking
statements. Forward-looking statements are subject to risks and uncertainties
and you should not rely on them as predictions of future events. In addition to
the factors described in this prospectus under "Risk Factors," some of these
factors include:
* the impact of competition from new and existing self-storage and
commercial facilities which could impact rents and occupancy levels at
our facilities;
* our ability to evaluate, finance and integrate acquired and developed
properties into our existing operations;
* our ability to effectively compete in the markets in which we do
business;
* the impact of the regulatory environment as well as national, state and
local laws and regulations, including, without limitation, those
governing real estate investment trusts;
* profitability of the Pickup and Delivery business;
* the impact of general economic conditions upon rental rates and
occupancy levels at our facilities; and
* the availability of permanent capital at attractive rates.
These factors, as well as changes in the real estate markets and the
general economy, could cause future events and actual results to differ
materially from those set forth or contemplated in the forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus or in the incorporated documents might not
occur and actual results could be substantially different than expected.
THE COMPANY
We are a fully integrated, self-administered and self-managed real
estate investment trust or REIT that acquires, develops, owns and operates
self-storage facilities which offer self-storage spaces for lease for personal
and business use. We are the largest owner and operator of self-storage
facilities in the United States with equity interests (through direct ownership,
as well as general and limited partnership interests), as of June 30, 2001, in
1,376 storage facilities located in 37 states. We also own an interest in PS
Business Parks, Inc., a REIT that, as of June 30, 2001, had equity interests in
152 commercial properties located in nine states.
We elected to be taxed as a REIT beginning with our 1981 taxable year.
So long as we continue to qualify as a REIT, we will not be taxed, with certain
limited exceptions, on the net income that we distribute currently to our
shareholders. We were incorporated in California in 1980. Our principal
executive offices are located at 701 Western Avenue, Glendale, California
91201-2397. Our telephone number is (818) 244-8080.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities
described in this prospectus to make investments in self-storage facilities,
including development, interests in partnerships and mortgage loans and for
general corporate purposes, including repayment of debt and the redemption of
outstanding securities. Pending their use, we may invest the net proceeds in
short-term, interest bearing securities.
5
RATIO OF EARNINGS TO FIXED CHARGES
We compute our ratio of earnings to combined fixed charges and
preferred distributions by dividing our earnings by the sum of our fixed charges
and preferred stock and preferred unit distributions. Earnings consists of net
income before minority interest in income, plus fixed charges (other than
preferred stock dividends) less the portion of minority interest in income which
does not contribute to fixed charges.
For the Six
Months Ended
June 30, For the Year Ended December 31,
------------ ---------------------------------------
2001 2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
Ratio of earnings to combined fixed charges and Preferred
distributions......................................... 2.21 2.44 2.38 2.78 2.73 1.91 2.07
DESCRIPTION OF COMMON STOCK AND CLASS B COMMON STOCK
We are authorized to issue up to 200,000,000 shares of common stock and
up to 7,000,000 shares of class B common stock. At June 30, 2001, we had
outstanding 113,261,141 shares of common stock (excluding shares issuable upon
conversion of convertible securities and shares subject to options) and
7,000,000 shares of class B common stock.
COMMON STOCK
The following description of our common stock sets forth certain
general terms and provisions of our common stock to which any prospectus
supplement may relate, including a prospectus supplement providing that common
stock will be issuable upon conversion of preferred stock or equity stock or
upon the exercise of warrants. The statements below describing our common stock
are in all respects subject to and qualified in their entirety by reference to
the applicable provisions of our articles of incorporation and bylaws.
Holders of our common stock will be entitled to receive dividends when,
as and if declared by our board of directors, out of funds legally available for
distribution. If we fail to pay dividends on our outstanding preferred stock,
generally we may not pay dividends on our common stock or repurchase those
shares. If we liquidate, dissolve or wind up our affairs, holders of common
stock will be entitled to share equally and ratably in any assets available for
distribution to them, after payment or provision for payment of our debts and
other liabilities and the preferential amounts owing with respect to any of our
outstanding preferred stock. Holders of our common stock have no preemptive
rights, which means they have no right to acquire any additional shares of
common stock that we may issue at a later date. See "Description of Preferred
Stock."
The holders of our common stock are entitled to cast one vote for each
share on all matters presented to our holders for a vote, with the exception
that they have cumulative voting rights with respect to the election of our
board of directors, in accordance with California law. Cumulative voting means
that each holder of our common stock is entitled to cast as many votes as there
are directors to be elected multiplied by the number of shares registered in his
or her name. A holder of our common stock may cumulate the votes for directors
by casting all of the votes for one candidate or by distributing the votes among
as many candidates as he or she chooses. The outstanding shares of our common
stock are, and additional shares of common stock will be, when issued, fully
paid and nonassessable.
The rights, preferences and privileges of holders of our common stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of our preferred stock or our equity stock which are
outstanding or which we may designate and issue in the future. See "Description
of Preferred Stock" and "Description of Equity Stock."
OWNERSHIP LIMITATIONS
To qualify as a REIT under the Internal Revenue Code of 1986, as
amended, no more than 50% in value of our outstanding shares of capital stock
may be owned, directly or constructively under the applicable attribution rules
of the Internal Revenue Code, by five or fewer individuals (as defined in the
Internal Revenue Code to include certain entities) during the last half of a
taxable year. In order to maintain our qualification as a REIT, our
organizational documents restrict the number of shares of capital stock that any
shareholder may own.
6
In a series of transactions among Public Storage Management, Inc. and
its affiliates (collectively, "Public Storage Management"), culminating in the
November 16, 1995 merger of Public Storage Management into Storage Equities,
Inc., Storage Equities became self-administered and self-managed, acquired
substantially all of Public Storage Management's United States real estate
interests and was renamed "Public Storage, Inc."
Our articles of incorporation and bylaws provide that, subject to
certain exceptions, no holder may own, or be deemed to own by virtue of the
attribution provisions of the Internal Revenue Code, more than (A) 2.0% of the
outstanding shares of our common stock and (B) 9.9% of the outstanding shares of
each class or series of shares of our preferred stock or equity stock and that
all shares of stock be imprinted with a legend setting forth that restriction.
Our articles of incorporation provide, however, that no person will be deemed to
exceed the ownership limit solely by reason of the beneficial ownership of
shares of any class of stock to the extent that those shares of stock were
beneficially owned by the person (including the Hughes family) after the merger
with Public Storage Management. Thus, this limitation does not affect the
ownership of common stock held by the Hughes family at the time of the merger.
The ownership limitation is intended to preserve our REIT status in view of the
Hughes family's substantial ownership interest in us. We cannot provide any
assurance, however, that this ownership limit will enable us to satisfy the
requirement that a REIT not be "closely held" within the meaning of Section
856(h) of the Internal Revenue Code for any given taxable year.
Our articles of incorporation and bylaws provide that our board of
directors, in its sole and absolute discretion, may grant exceptions to the
ownership limits, so long as (A) our board has determined that we would not be
"closely held" within the meaning of Section 856(h) of the Internal Revenue Code
(without regard to whether the event in question takes place during the second
half of a taxable year) and would not otherwise fail to qualify as a REIT, after
giving effect to an acquisition by an excepted person of beneficial ownership of
the maximum amount of capital stock permitted as a result of the exception to be
granted, and taking into account the existing and permitted ownership by other
persons of stock (taking into account any other exceptions granted) and (B) the
excepted persons provide to our board the representations and undertakings as
our board may require. In any case, no holder may own or acquire, either
directly, indirectly or constructively under the applicable attribution rules of
the Internal Revenue Code, any shares of any class of capital stock if the
ownership or acquisition (1) would cause more than 50% in value of our
outstanding capital stock to be owned, either directly or constructively, under
the applicable attribution rules of the Internal Revenue Code, by five or fewer
individuals (as defined in the Internal Revenue Code to include certain
tax-exempt entities, other than, in general, qualified domestic pension funds),
(2) would result in our stock being beneficially owned by less than 100 persons
(determined without reference to any rules of attribution), or (3) would
otherwise result in our failing to qualify as a REIT.
Our articles of incorporation and bylaws generally provide that if any
holder of capital stock purports to transfer shares to a person or there is a
change in our capital structure, and either the transfer or the change in
capital structure would result in our failing to qualify as a REIT, or the
transfer or the change in capital structure would cause the transferee to hold
shares in excess of the applicable ownership limit, then the shares causing the
violation will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary. The purported transferee of those shares will
have no right to receive dividends or other distributions with respect to them
and will have no right to vote the shares. Any dividends or other distributions
paid to the purported transferee prior to our discovery that the shares have
been transferred to a trust will be paid to the trustee of the trust for the
benefit of the charitable beneficiary upon demand. The trustee will designate a
transferee of those shares so long as the shares would not violate the
restrictions on ownership or transfer in our articles of incorporation in the
hands of the designated transferee. Upon the sale of the shares, the purported
transferee will receive out of any proceeds remaining after payment of expenses
of the charitable trust and us the lesser of (A)(1) the price per share the
purported transferee paid for the stock in the purported transfer that resulted
in the transfer of the shares to the trust, or (2) if the transfer or other
event that resulted in the transfer of the shares to the trust was not a
transaction in which the purported transferee gave full value for the shares, a
price per share equal to the market price on the date of the purported transfer
or other event that resulted in the transfer of the shares to the trust and (B)
the price per share received by the trustee from the sale or other disposition
of the shares held in the trust. Each purported transferee will be deemed to
have waived any claims the purported transferee may have against the trustee and
us arising from the disposition of the shares, except for claims arising from
the trustee's or our gross negligence, willful misconduct, or failure to make
payments when required by our articles of incorporation.
In addition, our bylaws provide our board of directors with the power
to prevent the transfer of shares of capital stock or to redeem shares of
capital stock if the board of directors determines in good faith that the action
is necessary to preserve our status as a REIT.
7
CLASS B COMMON STOCK
Our class B common stock:
(1) Participates in distributions (other than liquidating distributions) at
the rate of 97% of the per share distributions on our common stock,
provided that cumulative distributions of at least $.22 per quarter
(beginning with the 4th quarter of 1995) per share have been paid on
our common stock;
(2) Does not participate in liquidating distributions;
(3) Is not entitled to vote (except as expressly required by California
law); and
(4) Will automatically convert into our common stock, on a share for share
basis, upon the later to occur of (A) funds from operations per common
share aggregating $3.00 during any period of four consecutive calendar
quarters and (B) January 1, 2003.
For these purposes:
(1) Funds from operations means net income (loss) (computed in accordance
with GAAP) before (A) gain (loss) on early extinguishment of debt, (B)
minority interest in income and (C) gain (loss) on disposition of real
estate, adjusted as follows: (1) plus depreciation and amortization
(including our pro-rata share of depreciation and amortization of
unconsolidated equity interests and amortization of assets acquired in
the 1995 merger (including property management agreements and
goodwill)), and (2) less funds from operations attributable to minority
interest. Funds from operations is a supplemental performance measure
for equity REITs as defined by the National Association of Real Estate
Investment Trusts, Inc. This definition does not specifically address
the treatment of minority interest in the determination of funds from
operations or the treatment of the amortization of property management
agreements and goodwill. In our case, funds from operations represents
amounts attributable to shareholders after deducting amounts
attributable to the minority interests and before deductions for the
amortization of property management agreements and goodwill. Funds from
operations does not take into consideration scheduled principal
payments on debt, capital improvements, distributions and our other
obligations. Accordingly, funds from operations is not a substitute for
our cash flow or net income as a measure of our liquidity or operating
performance or ability to pay distributions.
(2) Funds from operations per common share means funds from operations less
dividends on our preferred stock and on our equity stock, series A
divided by the outstanding weighted average shares of our common stock
assuming conversion of all outstanding convertible securities and our
class B common stock.
DESCRIPTION OF PREFERRED STOCK
We are authorized to issue up to 50,000,000 shares of preferred stock.
At June 30, 2001, we had outstanding 11,148,000 shares of preferred stock (of
which 42,000 shares were represented by 42,000,000 depositary shares) and had
reserved for issuance an additional 14,600 shares of preferred stock. Our
articles of incorporation provide that the preferred stock may be issued from
time to time in one or more series and give our board of directors broad
authority to fix the dividend and distribution rights, conversion and voting
rights, if any, redemption provisions and liquidation preferences of each series
of preferred stock. Holders of preferred stock have no preemptive rights. The
preferred stock will be, when issued, fully paid and nonassessable.
Although the issuance of preferred stock with special voting rights (or
common stock) could be used to deter attempts to obtain control of us in
transactions not approved by our board of directors, we have no present
intention to issue stock for that purpose.
8
OUTSTANDING PREFERRED STOCK
At June 30, 2001, we had outstanding 14 series of preferred stock and
had reserved for issuance, upon conversion of preferred units in one of our
operating partnerships, an additional three series. Each series (1) has a stated
value of $25.00 per share or depositary share, (2) in preference to the holders
of shares of our common stock and any other capital stock ranking junior to our
preferred stock as to payment of dividends, provides for cumulative quarterly
dividends calculated as a percentage of the stated value (ranging from 8% to 10%
per year in the case of 13 series of our fixed rate preferred stock and a rate
adjustable quarterly ranging from 6.75% to 10.75% per year in the case of a
series of our adjustable rate preferred stock) and (3) is subject to redemption,
in whole or in part, at our option at a cash redemption price of $25.00 per
share or depositary share, plus accrued and unpaid dividends (on and after June
30, 1999 in the case of our adjustable rate preferred stock and on or after
various dates between December 31, 2000 and January 19, 2006 in the case of the
series of our fixed rate preferred stock).
If we voluntarily or involuntarily liquidate, dissolve or wind up, the
holders of the preferred stock will be entitled to receive out of our assets
available for distribution to shareholders, before any assets are distributed to
holders of our common stock or any other shares of capital stock ranking junior
to the preferred stock, liquidating distributions equal to $25 per share or
depositary share, plus all accrued and unpaid dividends.
Except as expressly required by law and in certain other limited
circumstances, holders of the preferred stock are not entitled to vote. Our
board of directors will not, without the consent of holders of at least 66 2/3%
of the outstanding shares of the preferred stock, voting as a single class,
authorize another class of shares senior to the preferred stock.
OWNERSHIP LIMITATIONS
For a discussion of the ownership limitations that apply to preferred
stock, see "Description of Common Stock and Class B Common Stock--Ownership
Limitations."
FUTURE SERIES OF PREFERRED STOCK
Below is a description of some general terms and provisions of our
preferred stock which may be specified in a prospectus supplement. The
statements below describing the preferred stock are in all respects subject to
and qualified in their entirety by reference to the applicable provisions of our
articles of incorporation (including the applicable form of certificate of
determination) and bylaws.
You should read the prospectus supplement relating to the preferred
stock being offered for specific terms, including:
(1) the title and stated value of the preferred stock;
(2) the number of shares of the preferred stock being offered, the
liquidation preference per share and the offering price of the
preferred stock;
(3) the dividend rate, period and payment date or method of calculation
applicable to the preferred stock;
(4) the date from which dividends on the preferred stock accumulates, if
applicable;
(5) the provision for a sinking fund, if any, for the preferred stock;
(6) the provision for redemption, if applicable, of the preferred stock;
(7) any listing of the preferred stock on any securities exchange;
(8) the terms and conditions, if applicable, upon which the preferred stock
will be convertible into common stock, including the conversion price
(or manner of calculation);
(9) the voting rights, if any, of the preferred stock;
(10)any other specific terms, preferences, rights, limitations or
restrictions of the preferred stock;
9
(11)the relative ranking and preferences of the preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of our affairs; and
(12)any limitations on issuance of any series of preferred stock ranking
senior to or on a parity with the series of preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of our affairs.
RANKING. The ranking of the preferred stock will be set forth in the
applicable prospectus supplement. Unless otherwise specified in the applicable
prospectus supplement, the preferred stock will, with respect to dividend rights
and rights upon liquidation, dissolution or winding up of our affairs, rank:
(1) senior to the common stock, any additional class of common stock,
existing and future equity stock and any series of preferred stock
junior to the preferred stock;
(2) on a parity with all preferred stock previously issued by us the terms
of which specifically provide that the preferred stock rank on a parity
with the preferred stock being offered; and
(3) junior to all preferred stock previously issued by us the terms of
which specifically provide that the preferred stock rank senior to the
preferred stock being offered.
DIVIDENDS. Holders of shares of the preferred stock of each series
being offered will be entitled to receive, when, as and if declared by our board
of directors, out of our assets legally available for payment, cash dividends at
the rates and on the dates as will be set forth in the applicable prospectus
supplement. Each dividend will be payable to holders of record as they appear on
our stock transfer books on the record dates fixed by our board of directors.
Dividends on any series of the preferred stock being offered may be
cumulative or non-cumulative, as provided in the applicable prospectus
supplement. Dividends, if cumulative, will be cumulative from and after the date
set forth in the applicable prospectus supplement. If our board of directors
fails to declare a dividend payable on a dividend payment date on any series of
the preferred stock for which dividends are noncumulative, the holders of the
series of the preferred stock will have no right to receive a dividend in
respect of the dividend period ending on that dividend payment date, and we will
have no obligation to pay the dividend accrued for the period, whether or not
dividends on that series are declared payable on any future dividend payment
date.
No dividends (other than in common stock or other capital stock ranking
junior to the preferred stock of any series as to dividends and upon
liquidation) will be declared or paid or set aside for payment (nor will any
other distribution be declared or made upon our common stock, or any of our
other capital stock ranking junior to or on a parity with the preferred stock of
the series as to dividends or upon liquidation), nor will any common stock or
any other of our capital stock ranking junior to or on a parity with the
preferred stock of the series as to dividends or upon liquidation be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of the
stock) by us (except by conversion into or exchange for our other capital stock
ranking junior to the preferred stock of the series as to dividends and upon
liquidation) unless:
(1) if the series of preferred stock has a cumulative dividend, full
cumulative dividends on the preferred stock of the series have been or
contemporaneously are declared and paid or declared and a sum set apart
for payment for all past dividend periods and the then current dividend
period; and
(2) if the series of preferred stock does not have a cumulative dividend,
full dividends on the preferred stock of the series have been or
contemporaneously are declared and paid or declared and a sum set apart
for payment for the then current dividend period.
Any dividend payment made on shares of a series of cumulative preferred
stock being offered will first be credited against the earliest accrued but
unpaid dividend due with respect to shares of the series which remains payable.
REDEMPTION. The shares of preferred stock will be subject to mandatory
redemption or redemption at our option, in whole or in part, in each case to the
extent set forth in the prospectus supplement relating to the series.
10
The prospectus supplement relating to a series of preferred stock being
offered that is subject to mandatory redemption will specify the number of
shares of that series that will be redeemed by us in each year commencing after
a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
will not, if shares of that series do not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash, securities
or other property, as specified in the applicable prospectus supplement.
Notwithstanding the foregoing, no shares of any series of preferred
stock being offered will be redeemed and we will not purchase or otherwise
acquire directly or indirectly any shares of preferred stock of that series
(except by conversion into or exchange for capital stock of us ranking junior to
the preferred stock of that series as to dividends and upon liquidation) unless
all outstanding shares of preferred stock of that series are simultaneously
redeemed unless, in each case:
(1) if that series of preferred stock has a cumulative dividend, full
cumulative dividends on the preferred stock of that series will have
been or contemporaneously are declared and paid or declared and a sum
sufficient for payment for all past dividend periods and the then
current dividend period is set apart; and
(2) if that series of preferred stock does not have a cumulative dividend,
full dividends on the preferred stock of that series have been or
contemporaneously are declared and paid or declared and a sum
sufficient for payment for the then current dividend period is set
apart; provided, however, that we may acquire shares of preferred stock
of the series under a purchase or exchange offer made on the same terms
to holders of all outstanding shares of preferred stock of the series.
If fewer than all of the outstanding shares of preferred stock of any
series being offered are to be redeemed, the number of shares to be redeemed
will be determined by us and these shares may be redeemed pro rata from the
holders of record of these shares in proportion to the number of these shares
held by such holders (with adjustments to avoid redemption of fractional shares)
or any other equitable method determined by us.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of preferred stock
of any series to be redeemed at the address shown on our stock transfer books.
Each notice will state:
(1) the redemption date;
(2) the number of shares and series of the preferred stock to be redeemed;
(3) the redemption price;
(4) the place or places where certificates for that preferred stock are to
be surrendered for payment of the redemption price;
(5) that dividends on the shares to be redeemed will cease to accrue on the
redemption date; and
(6) the date upon which the holder's conversion rights, if any, as to the
shares terminate.
If fewer than all the shares of preferred stock of any series are to be
redeemed, the notice mailed to each holder will also specify the number of
shares of preferred stock to be redeemed from the holder and, upon redemption, a
new certificate will be issued representing the unredeemed shares without cost
to the holder. To facilitate the redemption of shares of preferred stock, our
board of directors may fix a record date for the determination of shares of
preferred stock to be redeemed. The record date may not be not less than 30 or
more than 60 days before the date fixed for redemption.
If notice has been given as provided above, unless we default in
providing funds for the payment of the redemption price on that date, then from
and after the redemption date all dividends on the preferred stock called for
redemption will cease. From and after the redemption date, unless we default,
all rights of the holders of our preferred stock, except the right to receive
the redemption price (but without interest), will cease.
Subject to applicable law and the limitation on purchases when
dividends on preferred stock are in arrears, we may, at any time and from time
to time, purchase any shares of preferred stock in the open market, by tender or
by private agreement.
11
LIQUIDATION PREFERENCE. If we voluntarily or involuntarily liquidate,
dissolve or wind-up our affairs, then, before we make any distribution or
payment to the holders of any common stock or any other class or series of our
capital stock ranking junior to the preferred stock in the distribution of
assets upon our liquidation, dissolution or winding up, the holders of each
series of preferred stock will be entitled to receive out of our assets legally
available for distribution to shareholders liquidating distributions in the
amount of the liquidation preference per share (set forth in the applicable
prospectus supplement), plus an amount equal to all accrued and unpaid dividends
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if the preferred stock does not have a cumulative
dividend). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of preferred stock will have no right or
claim to any of our remaining assets. In the event that, upon the voluntary or
involuntary liquidation, dissolution or winding up, our legally available assets
are insufficient to pay the amount of the liquidating distributions on all
outstanding shares of any series of preferred stock and the corresponding
amounts payable on all shares of other classes or series of our capital stock
ranking on a parity with the preferred stock in the distribution of assets upon
liquidation, dissolution or winding up, then the holders of the preferred stock
and all other such classes or series of capital stock will share ratably in any
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions have been made in full to all holders of
preferred stock, our remaining assets will be distributed among the holders of
any other classes or series of capital stock ranking junior to the preferred
stock upon liquidation, dissolution or winding up, according to their respective
rights and preferences and in each case according to their respective number of
shares. For these purposes, our consolidation or merger with or into any other
corporation, or the sale, lease, transfer or conveyance of all or substantially
all of our property or business, will not be deemed to constitute a liquidation,
dissolution or winding up.
VOTING RIGHTS. Holders of the preferred stock being offered will not
have any voting rights, except as set forth below or as otherwise expressly
required by law or as indicated in the applicable prospectus supplement.
If six quarterly dividends payable on any series of preferred stock are
in default (whether or not declared or consecutive), the holders of all the
series of preferred stock, voting as a single class with all other series of
preferred stock upon which similar voting rights have been conferred and are
exercisable, will be entitled to elect two additional directors until all
dividends in default have been paid or declared and set apart for payment.
The right to vote separately to elect directors will, when vested, be
subject, always, to the same provisions for vesting of the right to elect
directors separately in the case of future dividend defaults. At any time when
the right to elect directors separately has vested, we may, and upon the written
request of the holders of record of not less than 20% of our total number of
preferred shares then outstanding will, call a special meeting of shareholders
for the election of directors. In the case of the written request, a special
meeting will be held within 90 days after the delivery of the request and, in
either case, at the place and upon the notice provided by law and in the bylaws.
However, we will not be required to call a special meeting if the request is
received less than 120 days before the date fixed for the next annual meeting of
shareholders, and the holders of all classes of outstanding preferred stock are
offered the opportunity to elect the directors (or fill any vacancy) at the
annual meeting of shareholders. Directors so elected will serve until the next
annual meeting of shareholders or until their respective successors are elected
and qualify. If, before the end of the term of any director so elected, a
vacancy in the office of the director occurs, during the continuance of a
default by reason of death, resignation, or disability, the vacancy will be
filled for the unexpired term of the former director by the appointment of a new
director by the remaining director or directors so elected.
The affirmative vote or consent of the holders of at least a majority
of the outstanding shares of each series of preferred stock will be required to
amend or repeal any provision of, or add any provision to, our articles of
incorporation, including the certificate of determination, if this action would
materially and adversely alter or change the rights, preferences or privileges
of the series of preferred stock.
No consent or approval of the holders of any series of preferred stock
being offered will be required for the issuance from our authorized but unissued
preferred stock of other shares of any series of preferred stock ranking on a
parity with or junior to that series of preferred stock, or senior to a series
of preferred stock expressly made junior to that series of preferred stock as to
payment of dividends and distribution of assets, including other shares of the
same series of preferred stock.
These voting provisions will not apply if, at or prior to the time when
the act with respect to which a vote would otherwise be required is effected,
all outstanding shares of the series of preferred stock had been redeemed or
called for redemption upon proper notice and sufficient funds had been deposited
in trust to effect the redemption.
12
CONVERSION RIGHTS. The terms and conditions, if any, upon which shares
of any series of preferred stock being offered are convertible into common stock
will be set forth in the applicable prospectus supplement. The terms will
include the number of shares of common stock into which the preferred stock is
convertible, the conversion price (or manner of calculation), the conversion
period, provisions as to whether conversion will be at our option or at the
option of the holders of the preferred stock or automatically upon the
occurrence of certain events, the events requiring an adjustment of the
conversion price and provisions affecting conversion if we redeem the preferred
stock.
DESCRIPTION OF EQUITY STOCK
We are authorized to issue up to 200,000,000 shares of equity stock. At
June 30, 2001, we had outstanding 4,523,220.338 shares of equity stock (of which
8,676.102 shares were represented by 8,676,102 depositary shares) which rank on
a parity with our common stock. Our articles of incorporation provide that the
equity stock may be issued from time to time in one or more series and give our
board of directors broad authority to fix the dividend and distribution rights,
conversion and voting rights, redemption provisions and liquidation rights of
each series of equity stock. Holders of equity stock have no preemptive rights.
The shares of equity stock will be, when issued, fully paid and nonassessable.
The issuance of equity stock with special voting rights could be used
to deter attempts by a single shareholder or group of shareholders to obtain
control of us in transactions not approved by our board of directors. We have no
intention to issue the equity stock for these purposes.
OWNERSHIP LIMITATIONS
For a discussion of the ownership limitations that apply to equity
stock, see "Description of Common Stock and Class B Common Stock--Ownership
Limitations."
TERMS OF EQUITY STOCK
Below is a description of some general terms and provisions of our
equity stock which may be specified in a prospectus supplement. The statements
below describing the equity stock are in all respects subject to and qualified
in their entirety by reference to the applicable provisions of our articles of
incorporation (including the applicable form of certificate of determination)
and bylaws.
You should read the prospectus supplement relating to the equity stock
being offered for specific terms, including:
(1) the designation of that equity stock;
(2) the number of shares of that equity stock offered, the liquidation
rights and the offering price of that equity stock;
(3) the dividend rate, period and payment date or method of calculation
applicable to that equity stock;
(4) the provision for redemption, if applicable, of that equity stock;
(5) any listing of that equity stock on any securities exchange;
(6) the terms and conditions, if applicable, upon which that equity stock
will be convertible into common stock, including the conversion price
(or manner of calculation);
(7) the voting rights, if any, of that equity stock;
(8) any other specific terms, rights, limitations or restrictions of that
equity stock; and
(9) the relative ranking of that equity stock as to dividend rights and
rights if we liquidate, dissolve or wind-up our affairs.
RANKING. Unless otherwise specified in the applicable prospectus
supplement, equity stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of our affairs, rank on a parity with the
common stock.
13
DIVIDENDS. Holders of shares of the equity stock of each series being
offered will be entitled to receive, when, as and if declared by our board of
directors, out of our assets legally available for payment, cash dividends at
the rates and on the dates set forth in the applicable prospectus supplement.
Each dividend will be payable to holders of record as they appear on our stock
transfer books on the record dates fixed by our board of directors. Unless
otherwise specified in the applicable prospectus supplement, dividends on equity
stock will be non-cumulative.
REDEMPTION. The shares of equity stock will be subject to mandatory
redemption or redemption at our option, in whole or in part, in each case to the
extent set forth in the applicable prospectus supplement.
The prospectus supplement relating to a series of equity stock being
offered that is subject to mandatory redemption will specify the number of
shares of that series that we must redeem in each year commencing after a date
to be specified, at a redemption price per share to be specified, together with
an amount equal to all accrued and unpaid dividends (which will not, if that
series does not have a cumulative dividend, include any accumulation in respect
of unpaid dividends for prior dividend periods) to the date of redemption. The
redemption price may be payable in cash, securities or other property, as
specified in the applicable prospectus supplement.
If fewer than all of the outstanding shares of equity stock of any
series offered are to be redeemed, the number of shares to be redeemed will be
determined by us and those shares may be redeemed pro rata from the holders of
record of those shares in proportion to the number of those shares held by such
holders (with adjustments to avoid redemption of fractional shares) or any other
equitable method determined by us.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of equity stock of
any series to be redeemed at the address shown on our stock transfer books. Each
notice will state:
(1) the redemption date;
(2) the number of shares and series of the equity stock to be redeemed;
(3) the redemption price;
(4) the place or places where certificates for shares of that series are to
be surrendered for payment of the redemption price;
(5) that dividends on the shares to be redeemed will cease to accrue on the
redemption date; and
(6) the date upon which the holder's conversion rights, if any, as to those
shares terminates.
If fewer than all the shares of equity stock of any series are to be
redeemed, the notice mailed to each holder will also specify the number of
shares of equity stock to be redeemed from the holder and, upon redemption, a
new certificate will be issued representing the unredeemed shares without cost
to the holder. To facilitate the redemption of shares of equity stock, our board
of directors may fix a record date for the determination of shares of equity
stock to be redeemed. The record date may not be less than 30 or more than 60
days before the date fixed for redemption.
If notice has been given as provided above, unless we default in
providing funds for the payment of the redemption price on that date, then from
and after the redemption date all dividends on the equity stock called for
redemption will cease. From and after the redemption date, unless we default,
all rights of the holders of our equity stock, except the right to receive the
redemption price (but without interest), will cease.
LIQUIDATION RIGHTS. If we voluntarily or involuntarily liquidate,
dissolve or wind-up our affairs, then, before we make any distribution or
payment to the holders of the equity stock or any other class or series of our
capital stock ranking junior to any series of preferred stock in the
distribution of assets upon our liquidation, dissolution or winding up, the
holders of each series of preferred stock will be entitled to receive out of our
assets legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share, plus an
amount equal to all accrued and unpaid dividends (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if the
preferred stock does not have a cumulative dividend). After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of preferred stock will have no right or claim to any of our remaining assets.
14
If liquidating distributions have been made in full to all holders of
preferred stock, our remaining assets will be distributed among the holders of
any other classes or series of capital stock ranking junior to the preferred
stock upon liquidation, dissolution or winding up, including the equity stock,
according to their respective rights and in each case according to their
respective number of shares. For these purposes, our consolidation or merger
with or into any other corporation, or the sale, lease, transfer or conveyance
of all or substantially all of our property or business, will not be deemed to
constitute a liquidation, dissolution or winding up.
Unless otherwise specified in the applicable prospectus supplement, if
we voluntarily or involuntarily liquidate, dissolve or wind up our affairs,
holders of the equity stock will rank on a parity with the holders of the common
stock, subject to any maximum or minimum distribution to holders of equity stock
specified in the applicable prospectus supplement.
VOTING RIGHTS. Unless otherwise specified in the applicable prospectus
supplement, holders of the equity stock will vote with holders of the common
stock.
No consent or approval of the holders of any series of equity stock
will be required for the issuance from our authorized but unissued equity stock
of other shares of any series of equity stock including shares of the same
series of equity stock.
CONVERSION RIGHTS. The terms and conditions, if any, upon which shares
of any series of equity stock being offered are convertible into common stock
will be set forth in the applicable prospectus supplement. The terms will
include the number of shares of common stock into which the equity stock is
convertible, the conversion price (or manner of calculation), the conversion
period, provisions as to whether conversion will be at our option or at the
option of the holders of the equity stock or automatically upon the occurrence
of certain events, the events requiring an adjustment of the conversion price
and provisions affecting conversion in the event of the redemption of the series
of equity stock.
DESCRIPTION OF THE DEPOSITARY SHARES
We may, at our option, elect to offer depositary shares, each of which
will represent a fractional interest in a share of preferred stock or equity
stock of a specified series as described in the applicable prospectus
supplement. The shares of preferred stock or equity stock represented by the
depositary shares will be deposited with a depositary named in the applicable
prospectus supplement, under a deposit agreement, among the depositary, the
holders of the depositary receipts and us. Depositary receipts, which are
certificates evidencing depositary shares, will be delivered to those persons
purchasing depositary shares in the offering. The depositary will be the
transfer agent, registrar and dividend disbursing agent for the depositary
shares. Holders of depositary receipts agree to be bound by the deposit
agreement, which requires holders to take certain actions such as filing proof
of residence and paying certain charges.
The summary of terms of the depositary shares contained in this
prospectus does not purport to be complete and is subject to, and qualified in
its entirety by, the provisions of the deposit agreement, our articles of
incorporation and the form of certificate of determination for the applicable
series of preferred stock or equity stock.
DIVIDENDS
The depositary will distribute all cash dividends or other cash
distributions received in respect of the series of preferred stock or equity
stock represented by the depositary shares to the record holders of depositary
receipts in proportion to the number of depositary shares owned by those holders
on the relevant record date, which will be the same date as the record date
fixed by us for the applicable series of preferred stock or equity stock. The
depositary, however, will distribute only an amount as can be distributed
without attributing to any depositary share a fraction of one cent with any
undistributed balance added to and treated as part of the next sum received by
the depositary for distribution to record holders of depositary receipts then
outstanding.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary receipts
that are entitled to receive the distribution, in proportion, as nearly as may
be practicable, to the number of depositary shares owned by those holders on the
relevant record date, unless the depositary determines (after consultation with
us) that it is not feasible to make the distribution. If this occurs, the
depositary may (with our approval) sell the property and distribute the net
proceeds from that sale to those holders or adopt another method of distribution
as it deems equitable and appropriate.
15
LIQUIDATION RIGHTS
If we liquidate, dissolve or wind up our affairs, whether voluntary or
involuntary, the holders of each depositary share will be entitled to the
fraction of the liquidation amount accorded each share of the applicable series
of preferred stock or equity stock, as set forth in the prospectus supplement.
REDEMPTION
If a series of preferred stock or equity stock represented by that
series of depositary shares is redeemable, those depositary shares will be
redeemed from the proceeds received by the depositary resulting from the
redemption, in whole or in part, of that series of preferred stock or equity
stock held by the depositary. Whenever we redeem any preferred stock or equity
stock held by the depositary, the depositary will redeem as of the same
redemption date the number of depositary shares representing the preferred stock
or equity stock so redeemed. The depositary will mail the notice of redemption
promptly upon receipt of such notice from us and not less than 30 nor more than
60 days prior to the date fixed for redemption of the preferred stock or equity
stock and the depositary shares to the record holders of the depositary
receipts.
CONVERSION
If the series of preferred stock or equity stock represented by the
applicable series of depositary shares is convertible into a different class of
our securities, the depositary shares will be also be convertible on the terms
described in the applicable prospectus supplement.
VOTING
Promptly upon receipt of notice of any meeting at which the holders of
the series of preferred stock or equity stock represented by the applicable
series of depositary shares are entitled to vote, the depositary will mail the
information contained in the notice of meeting to the record holders of the
depositary receipts as of the record date for that meeting. Each record holder
of depositary receipts will be entitled to instruct the depositary as to the
exercise of the voting rights pertaining to the number of shares of preferred
stock or equity stock represented by that record holder's depositary shares. The
depositary will then try, as far as practicable, to vote the preferred stock or
equity stock represented by such depositary shares in accordance with those
instructions, and we will agree to take all action which may be deemed necessary
by the depositary in order to enable the depositary to do so. The depositary
will not vote any of the preferred stock or equity stock to the extent that it
does not receive specific instructions from the holders of depositary receipts.
WITHDRAWAL OF PREFERRED STOCK OR EQUITY STOCK
Upon surrender of depositary receipts at the principal office of the
depositary, upon payment of any unpaid amount due the depositary, and subject to
the terms of the deposit agreement, the holder of the depositary shares
evidenced by the depositary receipts is entitled to delivery of the number of
whole shares of preferred stock or equity stock and all money and other
property, if any, represented by those depositary shares. Partial shares of
preferred stock or equity stock will not be issued. If the depositary receipts
delivered by the holder evidence a number of depositary shares in excess of the
number of depositary shares representing the number of whole shares of preferred
stock or equity stock to be withdrawn, the depositary will deliver to that
holder at the same time a new depositary receipt evidencing the excess number of
depositary shares. Holders of withdrawn preferred stock or equity stock will not
be entitled to deposit those shares under the deposit agreement or to receive
depositary receipts evidencing depositary shares.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of depositary receipt evidencing the depositary shares of any
series and any provision of the deposit agreement may at any time be amended by
agreement between the depositary and us. However, any amendment which materially
and adversely alters the rights of the holders (other than any change in fees)
of depositary shares of any series will not be effective unless that amendment
has been approved by the holders of at least a majority of the depositary shares
of that series then outstanding. No such amendment may impair the right, subject
to the terms of the deposit agreement, of any owner of any depositary shares to
surrender the depositary receipt evidencing those depositary shares with
instructions to the depositary to deliver to the holder the preferred stock or
equity stock and all money and other property, if any, represented by the
depositary receipt, except in order to comply with mandatory provisions of
applicable law. The deposit agreement may be terminated by the depositary or us
only if:
16
(1) all outstanding depositary shares have been redeemed or
(2) there has been a final distribution in respect of the preferred stock
or equity stock in connection with our liquidation, dissolution or
winding up and the distribution has been made to all the holders of
depositary shares.
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. We will pay
charges of the depositary in connection with the initial deposit of the
preferred stock or equity stock and the initial issuance of the depositary
shares, and redemption of the preferred stock or equity stock and all
withdrawals of preferred stock or equity stock by owners of depositary shares.
Holders of depositary receipts will pay transfer, income and other taxes and
governmental charges and those other charges as are provided in the deposit
agreement to be for their accounts. In some circumstances, the depositary may
refuse to transfer depositary shares, may withhold dividends and distributions
and sell the depositary shares evidenced by the depositary receipt if the
charges are not paid.
MISCELLANEOUS
The depositary will forward to the holders of depositary receipts all
reports and communications from us which are delivered to the depositary and
which we are required to furnish to the holders of the preferred stock or equity
stock. In addition, the depositary will make available for inspection by holders
of depositary receipts at the principal office of the depositary, and at other
places as it may from time to time deem advisable, any reports and
communications received from us which are received by the depositary as the
holder of preferred stock or equity stock.
Neither the depositary nor we assume any obligation or liability under
the deposit agreement to holders of depositary receipts other than for its or
our negligence or willful misconduct. Neither the depositary nor we will be
liable if the depositary is prevented or delayed by law or any circumstance
beyond its control in performing its obligations under the deposit agreement.
Our obligations and those of the depositary under the deposit agreement will be
limited to performance in good faith of the depositary's duties under the
deposit agreement. Neither of us will be obligated to prosecute or defend any
legal proceeding in respect of any depositary shares or preferred stock unless
satisfactory indemnity is furnished. We and the depositary may rely on written
advice of counsel or accountants, on information provided by holders of
depositary receipts or other persons believed in good faith to be competent to
give the information and on documents believed to be genuine and to have been
signed or presented by the proper party or parties.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering to us notice of its
election to do so, and we may at any time remove the depositary. Any resignation
or removal will take effect upon the appointment of a successor depositary and
its acceptance of the appointment. The successor depositary must be appointed
within 60 days after delivery of the notice for resignation or removal and must
be a bank or trust company having its principal office in the United States of
America and having a combined capital and surplus of at least $150,000,000.
FEDERAL INCOME TAX CONSIDERATIONS
Owners of the depositary shares will be treated for federal income tax
purposes as if they were owners of the preferred stock or equity stock
represented by those depositary shares. Accordingly, the owners will be entitled
to take into account, for federal income tax purposes, income and deductions to
which they would be entitled if they were holders of such preferred stock or
equity stock. In addition:
(1) no gain or loss will be recognized for federal income tax purposes upon
the withdrawal of preferred stock or equity stock in exchange for
depositary shares;
(2) the tax basis of each share of preferred stock or equity stock to an
exchanging owner of depositary shares will, upon such exchange, be the
same as the aggregate tax basis of the depositary shares being
exchanged; and
(3) the holding period for preferred stock or equity stock in the hands of
an exchanging owner of depositary shares will include the period during
which that person owned those depositary shares.
17
DESCRIPTION OF WARRANTS
We have no warrants outstanding (other than options issued under our
stock option plan). We may issue warrants for the purchase of common stock,
preferred stock or equity stock. Warrants may be issued independently or
together with any other securities offered by any prospectus supplement and may
be attached to or separate from those securities. Each series of warrants will
be issued under a separate warrant agreement to be entered into between a
warrant agent specified in the applicable prospectus supplement and us. The
warrant agent will act solely as our agent in connection with the warrants of
that series and will not assume any obligation or relationship of agency or
trust for or with any holders or beneficial owners of warrants. The following
sets forth certain general terms and provisions of the warrants being offered.
Further terms of the warrants and the applicable warrant agreement will be set
forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the terms of the
warrants in respect of which this prospectus is being delivered, including,
where applicable, the following:
(1) the title of those warrants;
(2) the aggregate number of those warrants;
(3) the price or prices at which those warrants will be issued;
(4) the designation, number and terms of the shares of common stock,
preferred stock or equity stock purchasable upon exercise of those
warrants;
(5) the designation and terms of the other securities, if any, with which
those warrants are issued and the number of those warrants issued with
each security;
(6) the date, if any, on and after which those warrants and the related
common stock, preferred stock or equity stock, if any, will be
separately transferable;
(7) the price at which each share of common stock, preferred stock or
equity stock purchasable upon exercise of those warrants may be
purchased;
(8) the date on which the right to exercise those warrants will commence
and the date on which that right expires;
(9) the minimum or maximum amount of those warrants which may be exercised
at any one time; and
(10)any other terms of those warrants, including terms, procedures and
limitations relating to the exchange and exercise of those warrants.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes the material federal income tax
consequences relating to the taxation of Public Storage as a REIT and the
acquisition, ownership and disposition of our common shares. If we offer
securities other than common stock, information about any additional income tax
consequences to holders of those securities will be included in the documents
pursuant to which those securities are offered.
Because this summary only addresses the federal income tax consequences
that generally apply to all holders that acquire, own or dispose of our common
shares, it may not contain all the information that may be important in your
specific circumstances. As you review this discussion, you should keep in mind
that:
(1) The tax consequences to you may vary depending on your particular tax
situation;
(2) Special rules that are not discussed below may apply to you if, for
example, you are a tax-exempt organization, a broker-dealer, a non-U.S.
person, a trust, an estate, a regulated investment company, a financial
institution, an insurance company, or otherwise subject to special tax
treatment under the Internal Revenue Code;
18
(3) This summary does not address state, local or foreign tax
considerations;
(4) This summary deals only with Public Storage common shareholders that
hold common shares as "capital assets," within the meaning of Section
1221 of the Internal Revenue Code; and
(5) This discussion is not intended to be, and should not be construed as,
tax advice.
You are urged both to review the following discussion and to consult
with your own tax advisor to determine the effect of acquiring, owning and
disposing of Public Storage common shares in your individual tax situation,
including any state, local or foreign tax consequences.
The information in this section is based on the current Internal
Revenue Code, current, temporary and proposed treasury regulations, the
legislative history of the Internal Revenue Code, current administrative
interpretations and practices of the Internal Revenue Service, including its
practices and policies as reflected in private letter rulings, which are not
binding on the Internal Revenue Service, and existing court decisions. Future
legislation, regulations, administrative interpretations and court decisions
could change current law or adversely affect existing interpretations of current
law. Any change could apply retroactively. Except as described under "--Taxation
of Public Storage as a REIT--Income Tests Applicable to REITs," Public Storage
has not obtained any rulings from the Internal Revenue Service concerning the
tax treatment of the matters discussed below. Thus, it is possible that the
Internal Revenue Service could challenge the statements in this discussion,
which do not bind the Internal Revenue Service or the courts, and that a court
could agree with the Internal Revenue Service.
TAXATION OF PUBLIC STORAGE AS A REIT
GENERAL. We elected to be taxed as a REIT under the Internal Revenue
Code beginning with our taxable year ended December 31, 1981. A REIT generally
is not subject to federal income tax on the net income that it distributes to
shareholders if it meets the applicable REIT distribution requirements and other
requirements for REIT qualification.
We believe that we have been organized and operated, and we intend to
continue to operate, in a manner to qualify as a REIT, but there can be no
assurance that we will qualify or remain qualified as a REIT. Qualification and
taxation as a REIT depend upon our ability to meet, through actual annual (or in
some cases quarterly) operating results, requirements relating to income, asset
ownership, distribution levels and diversity of share ownership, and the various
other REIT qualification requirements imposed under the Internal Revenue Code.
Given the complex nature of the REIT qualification requirements, the ongoing
importance of factual determinations and the possibility of future changes in
our circumstances, we cannot provide any assurance that our actual operating
results will satisfy the requirements for taxation as a REIT under the Internal
Revenue Code for any particular taxable year.
So long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income tax on our net income that is distributed
currently to our shareholders. This treatment substantially eliminates "double
taxation" (that is, taxation at both the corporate and shareholder levels) that
generally results from an investment in a regular corporation. However, we will
be subject to federal corporate income tax as follows:
(1) We will be taxed at regular corporate rates on any undistributed "REIT
taxable income." REIT taxable income is the taxable income of the REIT
subject to specified adjustments, including a deduction for dividends
paid;
(2) Under some circumstances, we may be subject to the "alternative minimum
tax" on our items of tax preference;
(3) If we have net income from the sale or other disposition of
"foreclosure property" (generally, property acquired through
foreclosure after a default on a loan secured by the property or on a
lease of the property) that is held primarily for sale to customers in
the ordinary course of business, or other nonqualifying income from
foreclosure property, this income will be subject to tax at the highest
corporate rate;
(4) Our net income from "prohibited transactions" will be subject to a 100%
tax. In general, prohibited transactions are sales or other
dispositions of property (other than foreclosure property) held
primarily for sale to customers in the ordinary course of business;
19
(5) If we fail to satisfy either the 75% gross income test or the 95% gross
income test discussed below, but still maintain our qualification as a
REIT because other requirements are met, we will be subject to a tax
equal to the gross income attributable to the greater of either (1) the
amount by which 75% of our gross income exceeds the amount of our
income qualifying under the 75% test for the taxable year or (2) the
amount by which 90% of our gross income exceeds the amount of our
income qualifying for the 95% income test for the taxable year,
multiplied by a fraction intended to reflect our profitability;
(6) We will be subject to a 4% excise tax if we fail to distribute during
each calendar year at least the sum of:
(a) 85% of our REIT ordinary income for the year;
(b) 95% of our REIT capital gain net income for the year; and
(c) any undistributed taxable income from prior taxable years.
The tax applies to the excess of the required distribution over the sum
of amounts actually distributed and amounts retained for which federal income
tax was paid.
(7) We will be subject to a 100% penalty tax on some payments we receive
(or on certain expenses deducted by a taxable REIT subsidiary) if
arrangements among Public Storage, our tenants, and our taxable REIT
subsidiaries are not comparable to similar arrangements among unrelated
parties.
In addition, we could be liable for specified tax liabilities inherited
from a taxable "C" corporation, if we acquired or acquire assets from such a
corporation in a carryover basis transaction (such as in the case of our 1995
merger with Public Storage Management). We also have acquired assets in
carryover basis merger transactions with a number of REITs (including our 1999
merger with Storage Trust Realty). If any such acquired REIT failed to qualify
as a REIT at the time of its merger into Public Storage, it would have been a
"C" corporation and we also would be liable for tax liabilities inherited from
it.
When assets are acquired from a "C" corporation in a carryover basis
transaction, the "C" corporation is generally required to recognize gain with
respect to the assets' "built-in gain." Built-in gain is the amount by which an
asset's fair market value exceeds its adjusted basis. As the successor to these
acquired entities, we would be liable for any tax owed by them as a result of
the recognition of built-in gain. Applicable treasury regulations, however,
allow an acquiring REIT, such as Public Storage, to make an election to avoid
the recognition of gain and the imposition of corporate level tax on a built-in
gain asset acquired in a carryover basis transaction from a "C" corporation
unless and until the acquiring REIT disposes of that built-in gain asset during
the 10-year period following the asset's acquisition, at which time the
acquiring REIT would recognize, and would be subject to the highest regular
corporate rate of tax on, the built-in gain. We elected to be subject to these
10-year built-in gain rules in connection with our merger with Public Storage
Management. Similar rules would apply if in the future we acquire assets from a
"C" corporation in a carryover basis transaction.
REQUIREMENTS FOR QUALIFICATION AS A REIT. The Internal Revenue Code
defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares,
or by transferable certificates of beneficial interest;
(3) that would be taxable as a domestic corporation, but for Sections 856
through 859 of the Internal Revenue Code;
(4) that is neither a financial institution nor an insurance company
subject to applicable provisions of the Internal Revenue Code;
(5) the beneficial ownership of which is held by 100 or more persons;
20
(6) during the last half of each taxable year not more than 50% in value of
the outstanding shares of which is owned directly or indirectly by five
or fewer individuals, as defined in the Internal Revenue Code to
include specified entities;
(7) that makes an election to be taxable as a REIT, or has made this
election for a previous taxable year which has not been revoked or
terminated, and satisfies all relevant filing and other administrative
requirements established by the Internal Revenue Service that must be
met to elect and maintain REIT status;
(8) that uses a calendar year for federal income tax purposes and complies
with the recordkeeping requirements of the Internal Revenue Code and
regulations; and
(9) that meets other applicable tests, described below, regarding the
nature of our income and assets and the amount of our distributions.
Conditions (1), (2), (3) and (4) above must be met during the entire
taxable year and condition (5) above must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. For purposes of determining stock ownership under condition
(6) above, a supplemental unemployment compensation benefits plan, a private
foundation or a portion of a trust permanently set aside or used exclusively for
charitable purposes generally is considered an individual. However, a trust that
is a qualified trust under Internal Revenue Code Section 401(a) generally is not
considered an individual, and beneficiaries of a qualified trust are treated as
holding shares of a REIT in proportion to their actuarial interests in the trust
for purposes of condition (6) above.
We believe that we have issued sufficient shares with sufficient
diversity of ownership to allow us to satisfy conditions (5) and (6) above. In
addition, our organizational documents contain restrictions regarding the
transfer of our capital stock that are intended to assist us in continuing to
satisfy the share ownership requirements described in conditions (5) and (6)
above. The ownership restrictions in our articles of incorporation and bylaws
generally prohibit the actual or constructive ownership of more than 2% of the
outstanding shares of common stock (excluding the interest held by the Hughes
family) or more than 9.9% of the outstanding shares of each class or series of
shares of preferred stock or equity stock, unless an exception is established by
the board of directors. The restrictions provide that if, at any time, for any
reason, those ownership limitations are violated or more than 50% in value of
our outstanding stock otherwise would be considered owned by five or fewer
individuals, then a number of shares of stock necessary to cure the violation
will automatically and irrevocably be transferred from the person causing the
violation to a designated charitable beneficiary. See "Description of Common
Stock and Class B Common Stock--Ownership Limitations." At the time of the
merger with Public Storage Management, to further assist us in meeting the
ownership restrictions, the Hughes family entered into an agreement with us for
the benefit of Public Storage and certain designated charitable beneficiaries
providing that if, at any time, for any reason, more than 50% in value of our
outstanding stock otherwise would be considered owned by five or fewer
individuals, then a number of shares of our common stock owned by Wayne Hughes
necessary to cure such violation would automatically and irrevocably be
transferred to a designated charitable beneficiary.
The REIT protective provisions of our organizational documents and the
agreement with the Hughes family are modeled after certain arrangements that the
Internal Revenue Service has ruled in private letter rulings will preclude a
REIT from being considered to violate the ownership restrictions so long as the
arrangements are enforceable as a matter of state law and the REIT seeks to
enforce them as and when necessary. There can be no assurance, however, that the
Internal Revenue Service might not seek to take a different position concerning
Public Storage (a private letter ruling is legally binding only as to the
taxpayer to whom it was issued and we will not seek a private ruling on this
issue) or contend that we failed to enforce these various arrangements.
Accordingly, there can be no assurance that these arrangements necessarily will
preserve our REIT status.
To monitor compliance with condition (6) above, a REIT is required to
send annual letters to its shareholders requesting information regarding the
actual ownership of its shares. For taxable years commencing on or after January
1, 1998, if we comply with the annual letters requirement and do not know, or
exercising reasonable diligence, would not have known, of a failure to meet
condition (6) above, then we will be treated as having met condition (6) above.
To qualify as a REIT, Public Storage cannot have at the end of any
taxable year any undistributed earnings and profits that are attributable to a
non-REIT taxable year. As a result of the 1995 merger with Public Storage
Management, the 1999 merger with Storage Trust Realty and mergers with other
affiliated REITs, Public Storage has succeeded to various tax attributes of
those entities and their predecessors, including any undistributed earnings and
profits. We do not believe that we have acquired any undistributed earnings and
profits and we believe that the REITs with which we have merged qualified as
REITs at the time of acquisition. However, neither these entities nor Public
Storage has sought an opinion of counsel or outside accountants to the effect
21
that we did not acquire any earnings and profits. There can be no assurance that
the Internal Revenue Service would not contend otherwise on a subsequent audit.
If the Internal Revenue Service determined that we inherited
undistributed non-REIT earnings and profits and that we did not distribute the
non-REIT earnings and profits by the end of that taxable year, it appears that
we could avoid disqualification as a REIT by using "deficiency dividend"
procedures to distribute the non-REIT earnings and profits. The deficiency
dividend procedures would require us to make a distribution to shareholders, in
addition to the regularly required REIT distributions, within 90 days of the
Internal Revenue Service determination. In addition, we would have to pay to the
Internal Revenue Service interest on 50% of the non-REIT earnings and profits
that were not distributed prior to the end of the taxable year in which we
inherited the undistributed non-REIT earnings and profits. If, however, we were
considered to be a "successor" under the applicable treasury regulations to a
corporation that had failed to qualify as a REIT at the time of its merger with
Public Storage, we could fail to qualify as a REIT and could be prevented from
reelecting REIT status for up to four years after such failure to qualify.
QUALIFIED REIT SUBSIDIARIES. If a REIT owns a corporate subsidiary that
is a "qualified REIT subsidiary," the separate existence of that subsidiary will
be disregarded for federal income tax purposes. Generally, a qualified REIT
subsidiary is a corporation, other than a taxable REIT subsidiary (discussed
below), all of the capital stock of which is owned by the REIT. All assets,
liabilities and items of income, deduction and credit of the qualified REIT
subsidiary will be treated as assets, liabilities and items of income, deduction
and credit of the REIT itself. A qualified REIT subsidiary of Public Storage
will not be subject to federal corporate income taxation, although it may be
subject to state and local taxation in some states.
TAXABLE REIT SUBSIDIARIES. A "taxable REIT subsidiary" of Public
Storage is a corporation in which we directly or indirectly own stock and that
elects, together with Public Storage, to be treated as a taxable REIT subsidiary
under Section 856(l) of the Internal Revenue Code. In addition, if a taxable
REIT subsidiary of Public Storage owns, directly or indirectly, securities
representing 35% or more of the vote or value of a subsidiary corporation, that
subsidiary will also be treated as a taxable REIT subsidiary of Public Storage.
A taxable REIT subsidiary is a corporation subject to federal income tax, and
state and local income tax where applicable, as a regular "C" corporation.
Generally, a taxable REIT subsidiary can perform some impermissible
tenant services (as described under "-Income Tests Applicable to REITs") without
causing us to receive impermissible tenant services income under the REIT income
tests. However, several provisions regarding the arrangements between a REIT and
its taxable REIT subsidiaries are intended to ensure that a taxable REIT
subsidiary will be subject to an appropriate level of federal income taxation.
For example, a taxable REIT subsidiary is limited in its ability to deduct
interest payments made to Public Storage. In addition, a REIT will be obligated
to pay a 100% penalty tax on some payments that it receives or on certain
expenses deducted by the taxable REIT subsidiary if the economic arrangements
between the REIT, the REIT's tenants and the taxable REIT subsidiary are not
comparable to similar arrangements among unrelated parties.
Public Storage and PS Orangeco, Inc. (and its subsidiaries, including
PS Pickup & Delivery, Inc.), PSCC, Inc. and certain other corporations have made
elections for those corporations to be treated as taxable REIT subsidiaries of
Public Storage. These entities engage in businesses such as the portable
self-storage business, providing moving services, selling locks, boxes and
packing materials, renting trucks, among other activities. Upon completion of
our planned acquisition of the stock of PS Insurance Company, Ltd. (which
reinsures policies obtained by tenants covering losses to their goods while in
storage), we also expect to make the election for that corporation to be treated
as a taxable REIT subsidiary of Public Storage.
OWNERSHIP OF PARTNERSHIP INTERESTS BY A REIT. A REIT that is a partner
in a partnership will be deemed to own its proportionate share of the assets of
the partnership and will be deemed to earn its proportionate share of the
partnership's income. The assets and gross income of the partnership retain the
same character in the hands of the REIT for purposes of the gross income and
asset tests applicable to REITs as described below. In the mergers with Public
Storage Management and Storage Trust Realty, the formation of PS Business Parks,
L.P., and in other transactions, we have acquired interests in various
partnerships that own and operate properties. Thus, our proportionate share of
the assets and items of income of Storage Trust Properties, L.P., PS Business
Parks, L.P. or other partnerships, including any such partnerships' shares of
assets and items of income of any subsidiaries that are partnerships or limited
liability companies, are treated as assets and items of income of Public Storage
for purposes of applying the REIT asset and income tests. For these purposes,
under current treasury regulations our interest in each of the partnerships must
be determined in accordance with our "capital interest" in the partnership.
22
We believe that Storage Trust Properties, L.P., PS Business Parks, L.P.
and each of the partnerships and limited liability companies in which we own an
interest, directly or through another partnership or limited liability company,
will be treated as partnerships or disregarded for federal income tax purposes
and will not be taxable as corporations. If any of these entities were treated
as a corporation, it would be subject to an entity level tax on its income and
we could fail to meet the REIT income and asset tests. See "--Taxation of Public
Storage as a REIT-- Income Tests Applicable to REITs" and "--Taxation of Public
Storage as a REIT-- Asset Tests Applicable to REITs" below.
INCOME TESTS APPLICABLE TO REITS. To qualify as a REIT, Public Storage
must satisfy two gross income tests. First, at least 75% of our gross income for
each taxable year, excluding gross income from prohibited transactions, must be
derived directly or indirectly from investments relating to real property or
mortgages on real property, including "rents from real property," gains on the
disposition of real estate, dividends paid by another REIT and interest on
obligations secured by mortgages on real property or on interests in real
property, or from some types of temporary investments. Second, at least 95% of
our gross income for each taxable year, excluding gross income from prohibited
transactions, must be derived from any combination of income qualifying under
the 75% test and dividends, interest, some payments under hedging instruments
and gain from the sale or disposition of stock or securities and some hedging
instruments.
Rents that we receive will qualify as rents from real property in
satisfying the gross income tests for a REIT described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term rents from real property
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Second, rents received from a "related party tenant" will not qualify
as rents from real property in satisfying the gross income tests unless the
tenant is a taxable REIT subsidiary and at least 90% of the property is leased
to unrelated tenants and the rent paid by the taxable REIT subsidiary is
substantially comparable to the rent paid by the unrelated tenants for
comparable space. A tenant is a related party tenant if the REIT, or an actual
or constructive owner of 10% or more of the REIT, actually or constructively
owns 10% or more of the tenant. Third, if rent attributable to personal property
that is leased in connection with a lease of real property is greater than 15%
of the total rent received under the lease, then the portion of rent
attributable to the personal property will not qualify as rents from real
property.
Generally, for rents to qualify as rents from real property for the
purpose of satisfying the gross income tests, we are only allowed directly to
provide services that are "usually or customarily rendered" in connection with
the rental of real property and not otherwise considered "rendered to the
occupant." Accordingly, we may not provide "impermissible services" to tenants
(except through a taxable REIT subsidiary, or through an independent contractor
that bears the expenses of providing the services and from whom we derive no
revenue) without giving rise to "impermissible tenant service income," which is
nonqualifying income for purposes of the income tests. For this purpose, the
amount that we would be deemed to have received for performing any
"impermissible services" will be the greater of the actual amount so received or
150% of the direct cost to us of providing those services. If impermissible
tenant service income exceeds 1% of our total income from a property, all of the
income from that property will fail to qualify as rents from real property. If
the total amount of impermissible tenant service income from a property does not
exceed 1% of our total income from the property, the services will not "taint"
the other income from the property (that is, they will not cause the rent paid
by tenants of that property to fail to qualify itself as rents from real
property), but the impermissible tenant service income will not qualify as rents
from real property.
In light of these requirements, we do not intend to take any of the
actions listed below, unless we determine that the resulting nonqualifying
income, taken together with all other nonqualifying income that we earn in the
taxable year, will not jeopardize our status as a REIT:
(1) charge rent for any property that is based in whole or in part on the
income or profits of any person (unless based on a fixed percentage or
percentages of receipts or sales, as permitted and described above);
(2) rent any property to a related party tenant, including a taxable REIT
subsidiary;
(3) derive rental income attributable to personal property other than
personal property leased in connection with the lease of real property,
the amount of which is less than 15% of the total rent received under
the lease; or
(4) directly perform services considered to be noncustomary or rendered to
the occupant of the property.
23
In connection with our merger with Public Storage Management, Public
Storage and the various other owners of self-storage facilities and business
parks for which we performed management activities entered into an agreement
with PSCC, Inc. under which PSCC provides the owners and Public Storage certain
administrative and cost-sharing services in connection with the operation of the
properties and the performance of certain administrative functions. The services
include the provision of corporate office space and certain equipment, personnel
required for the operation and maintenance of the properties, and corporate or
partnership administration. Each of the owners and Public Storage pay PSCC
directly for services rendered by PSCC in connection with the administrative and
cost sharing agreement. That payment is separate from and in addition to the
compensation paid to Public Storage under the management agreements for the
management of the properties owned by the owners. At the time of the merger with
Public Storage Management, we received a private letter ruling from the Internal
Revenue Service to the effect that the reimbursements and other payments made to
PSCC by the owners would not be treated as our revenues for purposes of the 95%
gross income test, and to the effect that our income from self-storage facility
rentals generally would qualify as rent from real property for purposes of the
REIT gross income tests. We subsequently received a private letter ruling
indicating that the truck rental activities of an affiliated corporation (PS
Orangeco, Inc., now a taxable REIT subsidiary of Public Storage) would not
adversely affect the treatment of our income from self-storage facility rentals
as rent from real property for purposes of the REIT gross income tests.
We own substantially all of the economic interest in Pickup & Delivery
(the portable self-storage business). The income from that business would be
nonqualifying income to us and the business is conducted by a limited
partnership between Public Storage and a subsidiary of PS Orangeco, Inc. The
share of gross income of that business attributable to our partnership interest,
when combined with our other nonqualifying income, must be less than 5% of our
total gross income. While we have earned and will continue to earn some
nonqualifying income from this and other sources, we anticipate that we will be
able to continue to satisfy both the 95% and 75% gross income tests.
The ownership of certain partnership interests creates several issues
regarding our satisfaction of the 95% gross income test. First, we earn property
management fees from these partnerships. Existing treasury regulations do not
address the treatment of management fees derived by a REIT from a partnership in
which the REIT holds a partnership interest, but the Internal Revenue Service
has issued a number of private letter rulings holding that the portion of the
management fee that corresponds to the REIT's interest in the partnership in
effect is disregarded in applying the 95% gross income test when the REIT holds
a "substantial" interest in the partnership. We disregard the portion of
management fees derived from partnerships in which we are a partner that
corresponds to our interest in these partnerships in determining the amount of
our nonqualifying income. There can be no assurance, however, that the Internal
Revenue Service would not take a contrary position with respect to Public
Storage, either rejecting the approach set forth in the private letter rulings
mentioned above or contending that our situation is distinguishable from those
addressed in the private letter rulings (for example, arguing that we do not
have a "substantial" interest in the partnerships).
In addition, we acquired interests in certain of these partnerships
that entitle us to a percentage of profits (either from operations, or upon a
sale, or both) in excess of the percentage of total capital originally
contributed to the partnership with respect to such interest. Existing treasury
regulations do not specifically address how our "capital interest" in
partnerships of this type should be determined. This determination is relevant
because it affects both the percentage of the gross rental income of the
partnership that is considered gross rental income (or qualifying income) to us
and the percentage of the management fees paid to us that is disregarded in
determining our nonqualifying income. For example, if we take the position that
we have a 25% "capital interest" in a partnership (because we would receive 25%
of the partnership's assets upon a sale and liquidation) but the Internal
Revenue Service determines we only have a 1% "capital interest" (because the
original holder of our interest only contributed 1% of the total capital
contributed to the partnership), our share of the qualifying income from the
partnership would be reduced and the portion of the management fee from the
partnership that would be treated as nonqualifying income would be increased,
both of which would adversely affect our ability to satisfy the 95% gross income
test. In determining our "capital interest" in the various partnerships, we
estimate the percentage of the partnership's assets that would be distributed to
us if those assets were sold and distributed among the partners in accordance
with the applicable provisions of the partnership agreements. There can be no
assurance, however, that the Internal Revenue Service will agree with this
methodology and not contend that another, perhaps less favorable, method must be
used for purposes of determining our "capital interests," which could adversely
affect our ability to satisfy the 95% gross income test.
"Interest" income that depends in whole or in part on the income or
profits of any person generally will be nonqualifying income for purposes of the
75% or 95% gross income tests. However, interest based on a fixed percentage or
percentages of receipts or sales may still qualify under the gross income tests.
We do not expect to derive significant amounts of interest that would fail to
qualify under the 75% and 95% gross income tests.
24
Our share of any dividends received from our corporate subsidiaries
(and from other corporations in which we own an interest) will qualify for
purposes of the 95% gross income test but not for purposes of the 75% gross
income test. We do not anticipate that we will receive sufficient dividends to
cause us to exceed the limit on nonqualifying income under the 75% gross income
test.
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may still qualify as a REIT for that year if we are
entitled to relief under the Internal Revenue Code. The relief provisions
generally will be available if our failure to meet the tests is due to
reasonable cause and not due to willful neglect, we attach a schedule of the
sources of our income to our federal income tax return and any incorrect
information on the schedule is not due to fraud with intent to evade tax. It is
not possible, however, to state whether in all circumstances we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally receive exceeds the limits on nonqualifying income, the Internal
Revenue Service could conclude that the failure to satisfy the tests was not due
to reasonable cause. If these relief provisions are inapplicable to a particular
set of circumstances involving Public Storage, we could fail to qualify as a
REIT. As discussed under "-Taxation of Public Storage as a REIT-General" even if
these relief provisions apply, a tax would be imposed based on the amount of
nonqualifying income.
Any gain that we realize on the sale of any property held as inventory
or other property held primarily for sale to customers in the ordinary course of
business, including our share of this type of gain realized by a partnership in
which we hold an interest, will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Under existing law, whether
property is held as inventory or primarily for sale to customers in the ordinary
course of a trade or business is a question of fact that depends on all the
facts and circumstances of each particular transaction. We intend to hold our
properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning and operating properties, and to
make occasional sales of properties as are consistent with our investment
objectives. We cannot provide any assurance, however, that the Internal Revenue
Service might not contend that one or more of these sales are subject to the
100% penalty tax.
ASSET TESTS APPLICABLE TO REITs. At the close of each quarter of our
taxable year, we must satisfy four tests relating to the nature of our assets:
(1) at least 75% of the value of our total assets must be represented by
real estate assets, cash, cash items and government securities. Our
real estate assets include, for this purpose, our allocable share of
real estate assets held by partnerships in which we have invested, as
well as stock or debt instruments held for less than one year purchased
with the proceeds of an offering of shares or long-term debt of Public
Storage;
(2) not more than 25% of our total assets may be represented by securities
other than those in the 75% asset class;
(3) except for equity investments in REITs, qualified REIT subsidiaries, or
taxable REIT subsidiaries or other securities that qualify as "real
estate assets" for purposes of the test described in clause (1):
(a) the value of any one issuer's securities that we own may not
exceed 5% of the value of our total assets;
(b) we may not own more than 10% of any one issuer's outstanding
voting securities; and
(c) we may not own more than 10% of the value of the outstanding
securities of any one issuer; and
(4) not more than 20% of our total assets may be represented by securities
of one or more taxable REIT subsidiaries.
Securities for purposes of the asset tests may include debt securities.
However, debt of an issuer will not count as a security for purposes of the 10%
value test if the debt securities are "straight debt" as defined in Section 1361
of the Internal Revenue Code and (1) the issuer is an individual, (2) the only
securities of the issuer that the REIT holds are straight debt or (3) if the
issuer is a partnership, the REIT holds at least a 20% profits interest in the
partnership.
25
Public Storage currently owns approximately 25% of the outstanding
common stock of PS Business Parks, Inc., which has elected to be taxed as a REIT
for federal income tax purposes (as well as a substantial portion of the
outstanding common units of limited partnership interest of PS Business Parks,
L.P., which may be exchangeable for shares of PS Business Parks, Inc.'s common
stock). As a REIT, PS Business Parks, Inc. is subject to the various REIT
qualification requirements. We believe that PS Business Parks, Inc. has been
organized and has operated in a manner to qualify for taxation as a REIT for
federal income tax purposes and will continue to be organized and operated in
this manner. If PS Business Parks, Inc. were to fail to qualify as a REIT, our
stock investment in PS Business Parks, Inc. would cease to be a qualifying real
estate asset for purposes of the 75% gross asset test and would become subject
to the 5% asset test, the 10% voting stock limitation, and the 10% value
limitation generally applicable to our ownership in corporations (other than
REITs, qualified REIT subsidiaries and taxable REIT subsidiaries). If PS
Business Parks, Inc. failed to qualify as a REIT, we would not meet the 10%
voting stock limitation and the 10% value limitation with respect to our
interest in PS Business Parks, Inc., and accordingly, Public Storage also would
fail to qualify as a REIT.
We believe that the aggregate value of our taxable REIT subsidiaries
does not (and will not, after acquisition of PS Insurance Company, Ltd.) exceed
20% of the aggregate value of our gross assets. As of each relevant testing date
prior to the election to treat each corporate subsidiary of Public Storage or
any other corporation in which we own an interest as a taxable REIT subsidiary,
which election first became available as of January 1, 2001, we believe we did
not own more than 10% of the voting securities of any such entity. In addition,
we believe that as of each relevant testing date prior to the election to treat
each corporate subsidiary of Public Storage or any other corporation in which we
own an interest as a taxable REIT subsidiary of Public Storage, our pro rata
share of the value of the securities, including debt, of any such corporation or
other issuer did not exceed 5% of the total value of our assets.
With respect to each issuer in which we currently own an interest that
does not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT
subsidiary, we believe that our pro rata share of the value of the securities,
including debt, of any such issuer does not exceed 5% of the total value of our
assets and that it complies with the 10% voting securities limitation and 10%
value limitation with respect to each such issuer. In this regard, however, we
cannot provide any assurance that the Internal Revenue Service might not
disagree with our determinations.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT if we fail to satisfy the 25%, 20%, and 5%
asset tests and the 10% value limitation at the end of a later quarter solely by
reason of changes in the relative values of our assets. If the failure to
satisfy the 25%, 20%, or 5% asset tests or the 10% value limitation results from
an acquisition of securities or other property during a quarter, the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. We intend to maintain adequate records of the value
of our assets to maintain compliance with the asset tests and would attempt to
take any available actions within 30 days after the close of any quarter in an
effort to cure any noncompliance with the 25%, 20%, or 5% asset tests or 10%
value limitation of which we become aware within that period. If we failed to
cure noncompliance with the asset tests within this time period, we would cease
to qualify as a REIT.
ANNUAL DISTRIBUTION REQUIREMENTS APPLICABLE TO REITs. To qualify as a
REIT, we are required to distribute dividends, other than capital gain
dividends, to our shareholders each year in an amount at least equal to (1) the
sum of (a) 90% (95% prior to 2001) of our REIT taxable income, computed without
regard to the dividends paid deduction and our net capital gain, and (b) 90%
(95% prior to 2001) of the net income, after tax, from foreclosure property,
minus (2) the sum of certain specified items of noncash income. In addition, if
we recognize any built-in gain, we are required under the treasury regulations
to distribute at least 90% of the built-in gain, after tax, recognized on the
disposition of the applicable asset. See "--Taxation of Public Storage as a
REIT--General" for a discussion of the possible recognition of built-in gain.
These distributions must be paid either in the taxable year to which they
relate, or in the following taxable year if declared before we timely file our
tax return for the prior year and if paid with or before the first regular
dividend payment date after the declaration is made.
26
In years prior to 1990, we made distributions in excess of our REIT
taxable income. During 1990, we reduced the level of distributions to our
shareholders. As a result, distributions paid by Public Storage in 1990 were
less than 95% of our REIT taxable income for 1990. We satisfied the REIT
distribution requirements for 1990 through 2000 by attributing distributions in
1991 through 2001 to the prior year's taxable income, and we expect to satisfy
the distribution requirement for 2001 by attributing distributions in 2002 to
our 2001 taxable income. We may be required to continue this pattern of making
distributions after the close of a taxable year that are attributed to the prior
year for this purpose, but shareholders will be treated for federal income tax
purposes as having received such distributions in the taxable years in which
they actually are made. The extent to which we will be required to attribute
distributions to the prior year will depend on our operating results and the
level of distributions as determined by the board of directors. As noted below,
reliance on subsequent year distributions could cause us to be subject to an
excise tax, although we intend to comply with the 85% current distribution
requirement under the excise tax in an effort to avoid or minimize any effect of
that tax.
We intend to make timely distributions sufficient to satisfy our annual
distribution requirements. Although we anticipate that our cash flow will permit
us to make those distributions, it is possible that, from time to time, we may
not have sufficient cash or other liquid assets to meet these distribution
requirements. In this event, we may find it necessary to arrange for short-term,
or possibly long-term, borrowings to fund required distributions or to pay
dividends in the form of taxable dividends of Public Storage shares.
Under some circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying deficiency dividends to
shareholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, we will be required to
pay interest to the government based upon the amount of any deduction taken for
deficiency dividends.
To the extent that we do not distribute all of our net capital gain or
distribute at least 90%, but less than 100%, of our REIT taxable income, as
adjusted, we are subject to tax on these amounts at regular corporate tax rates.
A REIT may elect to retain rather than distribute all or a portion of
its net capital gains and pay the tax on the gains. In that case, a REIT may
elect to have its shareholders include their proportionate share of the
undistributed net capital gains in income as long-term capital gains and receive
a credit for their share of the tax paid by the REIT. For purposes of the 4%
excise tax described below, any retained amounts would be treated as having been
distributed.
As mentioned above, we would be subject to a 4% excise tax if we fail
to distribute during each calendar year at least the sum of:
(1) 85% of our REIT ordinary income for the year;
(2) 95% of our REIT capital gain net income for the year; and
(3) any undistributed taxable income from prior taxable years.
This 4% excise tax applies to the excess of such required distribution
over the sum of amounts actually distributed and amounts retained for which
federal income tax was paid.
RECORD-KEEPING REQUIREMENTS. We are required to comply with applicable
record-keeping requirements. Failure to comply could result in monetary fines.
FAILURE OF PUBLIC STORAGE TO QUALIFY AS A REIT. If we fail to qualify
for taxation as a REIT in any taxable year, and if relief provisions do not
apply, we will be subject to tax, including any applicable alternative minimum
tax, on our taxable income at regular corporate rates. If we fail to qualify as
a REIT, we will not be required to make any distributions to shareholders and
any distributions that are made to shareholders will not be deductible by us. As
a result, our failure to qualify as a REIT would significantly reduce the cash
available for distributions by us to our shareholders. In addition, if we fail
to qualify as a REIT, all distributions to shareholders will be taxable as
ordinary income to the extent of our current and accumulated earnings and
profits, whether or not attributable to capital gains of Public Storage, and
corporate shareholders may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, we also would be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. There can be no assurance that we
would be entitled to any statutory relief.
27
TAXATION OF U.S. SHAREHOLDERS
As used in the remainder of this discussion, the term "U.S.
shareholder" means a beneficial owner of a Public Storage common share that is,
for United States federal income tax purposes:
(1) a citizen or resident, as defined in Section 7701(b) of the Internal
Revenue Code, of the United States;
(2) a corporation or partnership, or other entity treated as a corporation
or partnership for federal income tax purposes, created or organized
under the laws of the United States, any state or the District of
Columbia;
(3) an estate the income of which is subject to federal income taxation
regardless of its source; or
(4) in general, a trust subject to the primary supervision of a United
States court and the control of one or more United States persons.
Generally, in the case of a partnership that holds Public Storage
common shares, any partner that would be a U.S. shareholder if it held the
Public Storage common shares directly is also a U.S. shareholder. A "non-U.S.
shareholder" is a holder, including any partner in a partnership that holds
Public Storage common shares, that is not a U.S. shareholder.
Distributions by Public Storage. So long as we qualify as a REIT,
distributions to U.S. shareholders out of our current or accumulated earnings
and profits that are not designated as capital gain dividends will be taxable as
ordinary income and will not be eligible for the dividends received deduction
generally available for corporations. Distributions in excess of our current and
accumulated earnings and profits will not be taxable to a U.S. shareholder to
the extent that the distributions do not exceed the adjusted tax basis of the
shareholder's shares. Rather, the distributions will reduce the adjusted tax
basis of the shares. Distributions that exceed the U.S. shareholder's adjusted
basis in our shares will be taxable as capital gains. If we declare a dividend
in October, November, or December of any year with a record date in one of these
months and pay the dividend on or before January 31 of the following year, we
will be treated as having paid the dividend, and the shareholder will be treated
as having received the dividend, on December 31 of the year in which the
dividend was declared.
We may elect to designate distributions of our net capital gain as
"capital gain dividends." Capital gain dividends are taxed to shareholders as
gain from the sale or exchange of a capital asset held for more than one year,
without regard to how long the U.S. shareholder has held our shares.
Designations that we make only will be effective to the extent that they comply
with Revenue Ruling 89-81, which requires that distributions made to different
classes of shares be composed proportionately of dividends of a particular type.
If we designate any portion of a dividend as a capital gain dividend, a U.S.
shareholder will receive an Internal Revenue Service Form 1099-DIV indicating
the amount that will be taxable to the shareholder as capital gain. Corporate
shareholders, however, may be required to treat up to 20% of capital gain
dividends as ordinary income.
Instead of paying capital gain dividends, we may designate all or part
of our net capital gain as "undistributed capital gain." We will be subject to
tax at regular corporate rates on any undistributed capital gain. A U.S.
shareholder:
(1) will include in its income as long-term capital gains its proportionate
share of such undistributed capital gains and
(2) will be deemed to have paid its proportionate share of the tax paid by
Public Storage on such undistributed capital gains and receive a credit
or refund to the extent that the tax we paid exceeds the U.S.
shareholder's tax liability on the undistributed capital gain.
A U.S. shareholder will increase the basis in its common shares by the
difference between the amount of capital gain included in its income and the
amount of tax it is deemed to have paid. Our earnings and profits will be
adjusted appropriately.
We will classify portions of any designated capital gain dividend or
undistributed capital gain as either:
(1) a 20% rate gain distribution, which would be taxable to non-corporate
U.S. shareholders at a maximum rate of 20%; or
28
(2) an "unrecaptured Section 1250 gain" distribution, which would be
taxable to non-corporate U.S. shareholders at a maximum rate of 25%.
We must determine the maximum amounts that we may designate as 20% and
25% rate capital gain dividends by performing the computation required by the
Internal Revenue Code as if we were an individual whose ordinary income were
subject to a marginal tax rate of at least 28%.
Distributions that we make and gain arising from the sale or exchange
by a U.S. shareholder of our shares will not be treated as passive activity
income, and as a result, U.S. shareholders generally will not be able to apply
any "passive losses" against this income or gain. In addition, taxable
distributions from Public Storage generally will be treated as investment income
for purposes of the investment interest limitations. A U.S. shareholder may
elect to treat capital gain dividends and capital gains from the disposition of
shares as investment income for purposes of the investment interest limitation,
in which case the applicable capital gains will be taxed at ordinary income
rates. We will notify shareholders regarding the portions of distributions for
each year that constitute ordinary income, return of capital, capital gain or
represent tax preference items to be taken into account for purposes of
computing the alternative minimum tax liability of the shareholders. U.S.
shareholders may not include in their individual income tax returns any of our
net operating losses or capital losses. Our operating or capital losses would be
carried over by us for potential offset against future income, subject to
applicable limitations.
SALES OF SHARES. Upon any taxable sale or other disposition of shares,
a U.S. shareholder will recognize gain or loss for federal income tax purposes
in an amount equal to the difference between:
(1) the amount of cash and the fair market value of any property received
on the sale or other disposition; and
(2) the holder's adjusted tax basis in the shares for tax purposes.
This gain or loss will be a capital gain or loss. The applicable tax
rate will depend on the shareholder's holding period for the asset (generally,
if an asset has been held for more than one year it will produce long-term
capital gain) and the shareholder's tax bracket. The Internal Revenue Service
has the authority to prescribe, but has not yet prescribed, regulations that
would apply a capital gain tax rate of 25% (which is generally higher than the
long-term capital gain tax rates for noncorporate shareholders) to a portion of
capital gain realized by a noncorporate shareholder on the sale of REIT shares
that would correspond to the REIT's "unrecaptured Section 1250 gain."
Shareholders are urged to consult with their tax advisors with respect to their
capital gain tax liability. A corporate U.S. shareholder will be subject to tax
at a maximum rate of 35% on capital gain from the sale of Public Storage shares
held for more than 12 months. In general, any loss recognized by a U.S.
shareholder upon the sale or other disposition of shares that have been held for
six months or less, after applying the holding period rules, will be treated as
a long-term capital loss, to the extent of distributions received by the U.S.
shareholder from us that were required to be treated as long-term capital gains.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Provided that a tax-exempt shareholder has not held its common shares
as "debt financed property" within the meaning of the Internal Revenue Code,
distributions from Public Storage will not be unrelated business taxable income,
referred to as UBTI, to a tax-exempt shareholder. Similarly, income from the
sale of shares will not constitute UBTI unless the tax-exempt shareholder has
held its shares as debt financed property within the meaning of the Internal
Revenue Code or has used the shares in a trade or business.
However, for tax-exempt shareholders that are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit trusts and
qualified group legal services plans exempt from federal income taxation under
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, income from an investment in Public Storage will constitute UBTI
unless the organization properly sets aside or reserves such amounts for
purposes specified in the Internal Revenue Code. These tax-exempt shareholders
should consult their tax advisors concerning these "set aside" and reserve
requirements.
Notwithstanding the above, however, a portion of the dividends paid by
a "pension held REIT" are treated as UBTI if received by any trust which is
described in Section 401(a) of the Internal Revenue Code, is tax-exempt under
Section 501(a) of the Internal Revenue Code, and holds more than 10%, by value,
of the interests in the REIT. Tax-exempt pension funds that are described in
Section 401(a) of the Internal Revenue Code are referred to below as "pension
trusts."
29
A REIT is a pension held REIT if it meets the following two tests:
(1) it qualified as a REIT only by reason of Section 856(h)(3) of the
Internal Revenue Code, which provides that stock owned by pension
trusts will be treated, for purposes of determining if the REIT is
closely held, as owned by the beneficiaries of the trust rather than by
the trust itself; and
(2) either (a) at least one pension trust holds more than 25% of the value
of the REIT's stock, or (b) a group of pension trusts each individually
holding more than 10% of the value of the REIT's shares, collectively
owns more than 50% of the value of the REIT's shares.
The percentage of any REIT dividend treated as UBTI is equal to the
ratio of the UBTI earned by the REIT, treating the REIT as if it were a pension
trust and therefore subject to tax on UBTI, to the total gross income of the
REIT. An exception applies where the percentage is less than 5% for any year.
The provisions requiring pension trusts to treat a portion of REIT distributions
as UBTI will not apply if the REIT is able to satisfy the "not closely held
requirement" without relying upon the "look-through" exception for pension
trusts. Based on both our current share ownership and the limitations on
transfer and ownership of shares contained in our organizational documents, we
do not expect to be classified as a pension held REIT.
U.S. TAXATION OF NON-U.S. SHAREHOLDERS
DISTRIBUTIONS BY PUBLIC STORAGE. Our distributions to a non-U.S.
shareholder that are neither attributable to gain from sales or exchanges by us
of "U.S. real property interests" nor designated by us as capital gains
dividends will be treated as dividends of ordinary income to the extent that
they are made out of our current or accumulated earnings and profits. These
distributions ordinarily will be subject to withholding of U.S. federal income
tax on a gross basis at a rate of 30%, or a lower rate as permitted under an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the non-U.S. shareholder of a U.S. trade or
business. Under some treaties, however, lower withholding rates generally
applicable to dividends do not apply to dividends from REITs. Applicable
certification and disclosure requirements must be satisfied to be exempt from
withholding under the effectively connected income exemption. Dividends that are
effectively connected with a trade or business will be subject to tax on a net
basis, that is, after allowance for deductions, at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to these dividends, and are
generally not subject to withholding. Any dividends received by a corporate
non-U.S. shareholder that is engaged in a U.S. trade or business also may be
subject to an additional branch profits tax at a 30% rate, or lower applicable
treaty rate.
Distributions in excess of current and accumulated earnings and profits
that exceed the non-U.S. shareholder's basis in our Public Storage common shares
will be taxable to a non-U.S. shareholder as gain from the sale of common
shares, which is discussed below. Distributions in excess of current or
accumulated earnings and profits of Public Storage that do not exceed the
adjusted basis of the non-U.S. shareholder in our common shares will reduce the
non-U.S. shareholder's adjusted basis in our common shares and will not be
subject to U.S. federal income tax, but will be subject to U.S. withholding tax
as described below.
We expect to withhold U.S. income tax at the rate of 30% on any
dividend distributions (including distributions that later may be determined to
have been in excess of current and accumulated earnings and profits) made to a
non-U.S. shareholder unless:
(1) a lower treaty rate applies and the non-U.S. shareholder files an
Internal Revenue Service Form W-8BEN evidencing eligibility for that
reduced treaty rate with Public Storage; or
(2) the non-U.S. shareholder files an Internal Revenue Service Form W-8ECI
with us claiming that the distribution is effectively connected income.
We may be required to withhold at least 10% of any distribution in
excess of our current and accumulated earnings and profits, even if a lower
treaty rate applies and the non-U.S. shareholder is not liable for tax on the
receipt of that distribution. However, a non-U.S. shareholder may seek a refund
of these amounts from the Internal Revenue Service if the non-U.S. shareholder's
U.S. tax liability with respect to the distribution is less than the amount
withheld.
Distributions to a non-U.S. shareholder that we designate at the time
of the distribution as capital gain dividends, other than those arising from the
disposition of a U.S. real property interest, generally should not be subject to
U.S. federal income taxation unless:
30
(1) the investment in the common shares is effectively connected with the
non-U.S. shareholder's U.S. trade or business, in which case the
non-U.S. shareholder will be subject to the same treatment as U.S.
shareholders on any gain, except that a shareholder that is a foreign
corporation also may be subject to the 30% branch profits tax, as
discussed above, or
(2) the non-U.S. shareholder is a nonresident alien individual who is
present in the U.S. for 183 days or more during the taxable year and
has a "tax home" in the U.S., in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital
gains.
Under the Foreign Investment in Real Property Tax Act, which is
referred to as "FIRPTA," distributions to a non-U.S. shareholder that are
attributable to gain from sales or exchanges by Public Storage of U.S. real
property interests, whether or not designated as a capital gain dividend, will
cause the non-U.S. shareholder to be treated as recognizing gain that is income
effectively connected with a U.S. trade or business. Non-U.S. shareholders will
be taxed on this gain at the same rates applicable to U.S. shareholders, subject
to a special alternative minimum tax in the case of nonresident alien
individuals. Also, this gain may be subject to a 30% branch profits tax in the
hands of a non-U.S. shareholder that is a corporation.
We will be required to withhold and remit to the Internal Revenue
Service 35% of any distributions to foreign shareholders that are designated as
capital gain dividends, or, if greater, 35% of a distribution that could have
been designated as a capital gain dividend. Distributions can be designated as
capital gains to the extent of our net capital gain for the taxable year of the
distribution. The amount withheld is creditable against the non-U.S.
shareholder's United States federal income tax liability.
Although the law is not clear on the matter, it appears that amounts we
designate as undistributed capital gains in respect of the common shares held by
U.S. shareholders generally should be treated for non-U.S. shareholders in the
same manner as actual distributions by Public Storage of capital gain dividends.
Under that approach, the non-U.S. shareholders would be able to offset as a
credit against their United States federal income tax liability resulting from
reporting the capital gain their proportionate share of the tax paid by Public
Storage on the undistributed capital gains, and to receive from the Internal
Revenue Service a refund to the extent their proportionate share of this tax
paid by Public Storage were to exceed their actual United States federal income
tax liability.
SALE OF COMMON SHARES. Gain recognized by a non-U.S. shareholder upon
the sale or exchange of our common shares generally would not be subject to
United States taxation unless:
(1) the investment in the Public Storage common shares is effectively
connected with the non-U.S. shareholder's U.S. trade or business, in
which case the non-U.S. shareholder will be subject to the same
treatment as domestic shareholders as to any gain;
(2) the non-U.S. shareholder is a nonresident alien individual who is
present in the United States for 183 days or more during the taxable
year and has a tax home in the United States, in which case the
nonresident alien individual will be subject to a 30% tax on the
individual's net capital gains for the taxable year; or
(3) the Public Storage common shares constitute a U.S. real property
interest within the meaning of FIRPTA, as described below.
The Public Storage common shares will not constitute a U.S. real
property interest if we are a domestically controlled REIT. We will be a
domestically-controlled REIT if, at all times during a specified testing period,
less than 50% in value of our stock is held directly or indirectly by non-U.S.
shareholders. We believe that we currently are a domestically controlled REIT
and, therefore, that the sale of our common shares would not be subject to
taxation under FIRPTA. Because our shares are publicly traded, however, we
cannot guarantee that we are or will continue to be a domestically controlled
REIT. Even if we do not qualify as a domestically controlled REIT at the time a
non-U.S. shareholder sells our common shares, gain arising from the sale still
would not be subject to FIRPTA tax if:
(1) the class or series of shares sold is considered regularly traded under
applicable treasury regulations on an established securities market,
such as the NYSE; and
(2) the selling non-U.S. shareholder owned, actually or constructively, 5%
or less in value of the outstanding class or series of shares being
sold throughout the five-year period ending on the date of the sale or
exchange.
31
If gain on the sale or exchange of our common shares were subject to
taxation under FIRPTA, the non-U.S. shareholder would be subject to regular U.S.
income tax as to any gain in the same manner as a taxable U.S. shareholder,
subject to any applicable alternative minimum tax and special alternative
minimum tax in the case of nonresident alien individuals.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX APPLICABLE TO SHAREHOLDERS
U.S. SHAREHOLDERS
In general, information reporting requirements will apply to payments
of distributions on our common shares and payments of the proceeds of the sale
of our common shares to some shareholders, unless an exception applies. Further,
the payer will be required to withhold backup withholding tax at the rate of
30.5% (the rate is subject to reduction through 2006) if:
(1) the payee fails to furnish a taxpayer identification number, or TIN, to
the payer or to establish an exemption from backup withholding;
(2) the Internal Revenue Service notifies the payer that the TIN furnished
by the payee is incorrect;
(3) there has been a notified payee under-reporting of interest, dividends
or original issue discount described in Section 3406(c) of the Internal
Revenue Code; or
(4) there has been a failure of the payee to certify under the penalty of
perjury that the payee is not subject to backup withholding under the
Internal Revenue Code.
Some shareholders, including corporations, will be exempt from backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a shareholder will be allowed as a credit against the shareholder's
United States federal income tax and may entitle the shareholder to a refund,
provided that the required information is furnished to the Internal Revenue
Service.
NON-U.S. SHAREHOLDERS
Generally, information reporting will apply to payments of
distributions on our common shares, and backup withholding at a rate of 30.5%
(the rate is subject to reduction through 2006) may apply, unless the payee
certifies that it is not a U.S. person or otherwise establishes an exemption.
The payment of the proceeds from the disposition of our common shares
to or through the U.S. office of a U.S. or foreign broker will be subject to
information reporting and, possibly, backup withholding unless the non-U.S.
shareholder certifies as to its non-U.S. status or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
shareholder is a U.S. person or that the conditions of any other exemption are
not, in fact, satisfied. The proceeds of the disposition by a non-U.S.
shareholder of our common shares to or through a foreign office of a broker
generally will not be subject to information reporting or backup withholding.
However, if the broker is a U.S. person, a controlled foreign corporation for
U.S. tax purposes, or a foreign person 50% or more of whose gross income from
all sources for specified periods is from activities that are effectively
connected with a U.S. trade or business, information reporting generally will
apply unless the broker has documentary evidence as to the non-U.S.
shareholder's foreign status and has no actual knowledge to the contrary.
Applicable treasury regulations provide presumptions regarding the
status of shareholders when payments to the shareholders cannot be reliably
associated with appropriate documentation provided to the payer. Under these
treasury regulations, some shareholders are required to have provided new
certifications as to payments made after December 31, 2000. Because the
application of the these treasury regulations varies depending on the
shareholder's particular circumstances, you are urged to consult your tax
advisor regarding the information reporting requirements applicable to you.
32
OTHER TAX CONSEQUENCES FOR PUBLIC STORAGE AND OUR SHAREHOLDERS
Public Storage and our shareholders are subject to state or local
taxation in various state or local jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of Public
Storage and our shareholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective shareholders of Public
Storage should consult their own tax advisors regarding the effect of state and
local tax laws on an investment in us.
A portion of the cash to be used by Public Storage to fund
distributions may come from dividends paid by our taxable REIT subsidiaries. The
taxable REIT subsidiaries are subject to federal and state income tax at the
full applicable corporate rates. In addition, a taxable REIT subsidiary may be
limited in its ability to deduct interest payments made to Public Storage. To
the extent that we and our taxable REIT subsidiaries are required to pay
federal, state or local taxes, we will have less cash available for distribution
to shareholders.
PLAN OF DISTRIBUTION
We may sell the securities:
(1) through underwriters or dealers;
(2) through agents;
(3) directly to purchasers; or
(4) through a combination of any of these methods of sale.
Any underwriter or agent involved in the offer and sale of the
securities will be named in the applicable prospectus supplement.
Direct sales to investors or our shareholders may be accomplished
through subscription offerings or through shareholder purchase rights
distributed to shareholders. In connection with subscription offerings or the
distribution of shareholder purchase rights to shareholders, if all of the
underlying securities are not subscribed for, we may sell any unsubscribed
securities to third parties directly or through underwriters or agents. In
addition, whether or not all of the underlying securities are subscribed for, we
may concurrently offer additional securities to third parties directly or
through underwriters or agents. If securities are to be sold through shareholder
purchase rights, the shareholder purchase rights will be distributed as a
dividend to the shareholders for which they will pay no separate consideration.
The prospectus supplement with respect to the offer of securities under
shareholder purchase rights will set forth the relevant terms of the shareholder
purchase rights, including:
(1) whether common stock, preferred stock or equity stock, or warrants for
those securities will be offered under the shareholder purchase rights;
(2) the number of those securities or warrants that will be offered under
the shareholder purchase rights;
(3) the period during which and the price at which the shareholder purchase
rights will be exercisable;
(4) the number of shareholder purchase rights then outstanding;
(5) any provisions for changes to or adjustments in the exercise price of
the shareholder purchase rights, and
(6) any other material terms of the shareholder purchase rights.
Underwriters may offer and sell the securities at:
(1) fixed prices, which may be changed;
(2) prices related to the prevailing market prices at the time of sale; or
33
(3) negotiated prices.
We also may, from time to time, authorize underwriters acting as our
agents to offer and sell the securities upon the terms and conditions as are set
forth in the applicable prospectus supplement. In connection with the sale of
securities, underwriters may be deemed to have received compensation from us in
the form of underwriting discounts or commissions and may also receive
commissions from purchasers of securities for whom they may act as agent.
Underwriters may sell securities to or through dealers, and these dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters or commissions from the purchasers for whom they may act as
agent, or both.
The applicable prospectus supplement will disclose (1) any underwriting
compensation we pay to underwriters or agents in connection with the offering of
securities and (2) any discounts, concessions or commissions allowed by
underwriters to participating dealers. Under the Securities Act, (1)
underwriters, dealers and agents participating in the distribution of the
securities may be deemed to be underwriters and (2) any discounts and
commissions received by them and any profit realized by them on resale of the
securities may be deemed to be underwriting discounts and commissions. We may
agree to indemnify underwriters, dealers and agents against civil liabilities,
including liabilities under the Securities Act and to make contribution to them
in connection with those liabilities.
If indicated in the applicable prospectus supplement, we may also offer
and sell securities through a firm that will remarket the securities. These
firms may act as principals for their own account or as our agents. These firms
may be deemed to be underwriters in connection with the securities being
remarketed. We may agree to indemnify these firms against liabilities, including
liabilities under the Securities Act.
If indicated in the applicable prospectus supplement, we will authorize
dealers acting as our agents to solicit offers by institutions to purchase
securities at the offering price set forth in that prospectus supplement under
delayed delivery contracts providing for payment and delivery on the dates
stated in the prospectus supplement. Each contract will be for an amount not
less than, and the aggregate principal amount of securities sold under contracts
will be not less nor more than, the respective amounts stated in the applicable
prospectus supplement. Institutions with whom contracts, when authorized, may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions but will in all cases be subject to our approval. Contracts will
not be subject to any conditions except (1) the purchase by an institution of
the securities covered by its contracts will not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which the
institution is subject, and (2) if the securities are being sold to
underwriters, we will have sold to them the total principal amount of the
securities less the principal amount of the securities covered by contracts.
Agents and underwriters will have no responsibility in respect of the delivery
or performance of contracts.
Some of the underwriters and their affiliates may engage in
transactions with or perform services for us in the ordinary course of business.
LEGAL OPINIONS
David Goldberg, our vice president and senior counsel, has delivered an
opinion to the effect that the securities offered by this prospectus will be
validly issued, fully paid and nonassessable. Hogan & Hartson L.L.P.,
Washington, D.C., has delivered an opinion as to our status as a REIT. See
"Federal Income Tax Consequences." Mr. Goldberg owns 117,881 shares of common
stock, 3,396 depositary shares representing interests in equity stock and 600
shares of preferred stock, and has options to acquire an additional 349,500
shares of common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 2000, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses, other than underwriting discounts and
commissions, in connection with the offerings of the Securities, are as follows:
Registration Fee - Securities and Exchange Commission........ $200,000
Transfer Agent and Depositary Fees........................... 200,000
Rating Agency Fees........................................... 200,000
Printing and Engraving Expenses.............................. 400,000
Legal Fees and Expenses...................................... 200,000
Accounting Fees and Expenses................................. 200,000
Miscellaneous................................................ 50,000
----------
Total..................................................... $1,450,000
Item 15. Indemnification of Directors and Officers.
Our Articles of Incorporation provide that we may indemnify our agents
to the maximum extent permitted under California law. See Article V of the
Certificate of Amendment of Articles of Incorporation (Exhibit 3.11) and Article
VII of the Bylaws (Exhibit 3.23) which are incorporated herein by this
reference. We have also entered into indemnity agreements with our management
and non-management directors and executive officers. The agreements permit us to
indemnify directors and executive officers to the maximum extent permitted under
California law and prohibit us from terminating our indemnification obligations
as to acts or omissions of any director or executive officer occurring before
the termination. The indemnification and limitations on liability permitted by
the Articles of Incorporation and the agreements are subject to the limitations
set forth by California law. We believe the indemnification agreements will
assist it in attracting and retaining qualified individuals to serve as our
directors and executive officers.
II-1
Item 16. Exhibits
Exhibit
No. Description
------- -----------------------------------------------------------------------
1.1 Form of Underwriting Agreement. (1)
3.1 Restated Articles of Incorporation. Filed with Registrant's
Registration Statement No. 33-54557 and incorporated herein by
reference.
3.2 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series A. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.
3.3 Certificate of Determination for the 9.20% Cumulative Preferred Stock,
Series B. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.
3.4 Amendment to Certificate of Determination for the 9.20% Cumulative
Preferred Stock, Series B. Filed with Registrant's Registration
Statement No. 33-56925 and incorporated herein by reference.
3.5 Certificate of Determination for the 8.25% Convertible Preferred Stock.
Filed with Registrant's Registration Statement No. 33-54557 and
incorporated herein by reference.
3.6 Certificate of Determination for the Adjustable Rate Cumulative
Preferred Stock, Series C. Filed with Registrant's Registration
Statement No. 33-54557 and incorporated herein by reference.
3.7 Certificate of Determination for the 9.50% Cumulative Preferred Stock,
Series D. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 9.50% Cumulative Preferred Stock, Series D and
incorporated herein by reference.
3.8 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series E. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 10% Cumulative Preferred Stock, Series E and
incorporated herein by reference.
3.9 Certificate of Determination for the 9.75% Cumulative Preferred Stock,
Series F. Filed with Registration's Form 8-A/A Registration Statement
relating to the 9.75% Cumulative Preferred Stock, Series F and
incorporated herein by reference.
3.10 Certificate of Determination for the Convertible Participating
Preferred Stock. Filed with Registrant's Registration Statement No.
33-63947 and incorporated herein by reference.
3.11 Certificate of Amendment of Articles of Incorporation, Filed with
Registrant's Registration Statement No. 33-63947 and incorporated
herein by reference.
3.12 Certificate of Determination for the 8-7/8% Cumulative Preferred Stock,
Series G. Filed with Registration's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000th of a
Share of 8-7/8% Cumulative Preferred Stock, Series G and incorporated
herein by reference.
3.13 Certificate of Determination for the 8.45% Cumulative Preferred Stock,
Series H. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000th of a
Share of 8.45% Cumulative Preferred Stock, Series H and incorporated
herein by reference.
3.14 Certificate of Determination for the Convertible Preferred Stock,
Series CC. Filed with Registrant's Registration Statement No. 333-03749
and incorporated herein by reference.
3.15 Certificate of Correction of Certificate of Determination for the
Convertible Participating Preferred Stock. Filed with Registrant's
Registration Statement No. 333-08791 and incorporated herein by
reference.
II-2
3.16 Certificate of Determination for 8-5/8% Cumulative Preferred Stock,
Series I. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8-5/8% Cumulative Preferred Stock, Series I and incorporated herein
by reference.
3.17 Certificate of Amendment of Articles of Incorporation. Filed with
Registrant's Registration Statement No. 333-18395 and incorporated
herein by reference.
3.18 Certification of Determination for Equity Stock, Series A. Filed with
Registrant's Form 10-Q for the quarterly period ended June 30, 1997 and
incorporated herein by reference.
3.19 Certificate of Determination for Equity Stock, Series AA. Filed with
Registrant's Form 10-Q for the quarterly period ended September 30,
1999 and incorporated herein by reference.
3.20 Certificate Decreasing Shares Constituting Equity Stock, Series A.
Filed with Registrant's Form 10-Q for the quarterly period ended
September 30, 1999 and incorporated herein by reference.
3.21 Certificate of Determination for Equity Stock, Series A. Filed with
Registrant's Form 10-Q for the quarterly period ended September 30,
1999 and incorporated herein by reference.
3.22 Certification of Determination for 8% Cumulative Preferred Stock,
Series J. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8% Cumulative Preferred Stock, Series J and incorporated herein by
reference.
3.23 Certificate of Correction of Certificate of Determination for the 8.25%
Convertible Preferred Stock. Filed with Registrant's Registration
Statement No. 333-61045 and incorporated herein by reference.
3.24 Certification of Determination for 8-1/4% Cumulative Preferred Stock,
Series K. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8-1/4% Cumulative Preferred Stock, Series K and incorporated herein
by reference.
3.25 Certificate of Determination for 8-1/4% Cumulative Preferred Stock,
Series L. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8-1/4% Cumulative Preferred Stock, Series L and incorporated herein
by reference.
3.26 Certificate of Determination for 8.75% Cumulative Preferred Stock,
Series M. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8.75% Cumulative Preferred Stock, Series M and incorporated herein
by reference.
3.27 Certificate of Determination for Equity Stock, Series AAA. Filed with
Registrant's Current Report on Form 8-K dated November 15, 1999 and
incorporated herein by reference.
3.28 Certification of Determination for 9.5% Cumulative Preferred Stock,
Series N. Filed with Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999 and incorporated herein by reference.
3.29 Certification of Determination for 9.125% Cumulative Preferred Stock,
Series O. Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000 and incorporated herein by
reference.
3.30 Certificate of Determination for 8.75% Cumulative Preferred Stock,
Series P. Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000 and incorporated herein by
reference.
3.31 Certificate of Determination for 8.600% Cumulative Preferred Stock,
Series Q. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8.600% Cumulative Preferred Stock, Series Q and incorporated herein
by reference.
3.32 Amendment to Certificate of Determination for Equity Stock, Series A.
Filed with Registrant's Form 10-Q for the quarterly period ended June
30, 2001 and incorporated herein by reference.
II-3
3.33 Certificate of Determination for 8.000% Cumulative Preferred Stock,
Series R. Filed with Registrant's Form 8-A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8.000% Cumulative Preferred Stock, Series R and incorporated herein
by reference.
3.34 Bylaws, as amended. Filed with Registrant's Registration Statement No.
33-64971 and incorporated herein by reference.
3.35 Amendment to Bylaws adopted on May 9, 1996. Filed with Registrant's
Registration Statement No. 333-03749 and incorporated herein by
reference.
3.36 Amendment to Bylaws adopted on June 26, 1997. Filed with Registrant's
Registration Statement No. 333-41123 and incorporated herein by
reference.
3.37 Amendment to Bylaws adopted on January 6, 1998. Filed with Registrant's
Registration Statement No. 333-41123 and incorporated herein by
reference.
3.38 Amendment to Bylaws adopted on February 10, 1998. Filed with
Registrant's Current Report on Form 8-K dated February 10, 1998 and
incorporated herein by reference.
3.39 Amendment to Bylaws adopted on March 4, 1999. Filed with Registrant's
Current Report on Form 8-K dated March 4, 1999 and incorporated herein
by reference.
3.40 Amendment to Bylaws adopted on May 6, 1999. Filed with Registrant's
Form 10-Q for the quarterly period ended March 31, 1999 and
incorporated herein by reference.
4.1 Form of Certificate of Determination for additional series of Preferred
Stock. (1)
4.2 Form of Deposit Agreement. (1)
4.3 Form of Certificate of Determination for additional series of Equity
Stock. (1)
4.4 Form of Warrant Agreement. (1)
5.1 Opinion of David Goldberg as to the legality of the securities being
registered.
8.1 Opinion of Hogan & Hartson L.L.P. re tax matters.
12.1 Statement on computation of ratio of earnings to fixed charges. Filed
with Registrant's Form 10-Q for the quarterly period ended June 30,
2001 and incorporated herein by reference.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of David Goldberg (included in Exhibit 5.1).
23.3 Consent of Hogan & Hartson L.L.P. (included in exhibit 8.1).
24.1 Power of Attorney (included on page II-7).
--------------------
(1) To be filed by amendment or incorporated by reference in connection
with the offering of Securities.
II-4
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii)Toreflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in the periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) That, for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(4) To remove from registration by means of a post-effective amendment any of
the Securities being registered which remains unsold at the termination of
the offering.
(5) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Glendale, State of California, on the 14 day of
September, 2001.
PUBLIC STORAGE, INC.
By: /s/ B. Wayne Hughes
-------------------
B. Wayne Hughes
Chairman of the Board
Each person whose signature appears below hereby authorizes B. Wayne
Hughes and Harvey Lenkin, and each of them, as attorney-in-fact, to sign on his
behalf, individually and in each capacity stated below, any amendment, including
post-effective amendments to this Registration Statements, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
------------------------------------ -------------------------------- ------------------
/s/ B. Wayne Hughes Chairman of the Board, Chief September 14, 2001
------------------------------------ Executive Officer and Director
B. Wayne Hughes (principal executive officer)
/s/ Harvey Lenkin President and Director September 14, 2001
------------------------------------
Harvey Lenkin
/s/ John Reyes Senior Vice President and September 14, 2001
------------------------------------ Chief Financial Officer
John Reyes (principal financial officer and
principal accounting officer)
/s/ Robert J. Abernethy Director September 14, 2001
------------------------------------
Robert J. Abernethy
/s/ Dann V. Angeloff Director September 14, 2001
------------------------------------
Dann V. Angeloff
/s/ William C. Baker Director September 14, 2001
------------------------------------
William C. Baker
/s/ Uri P. Harkham Director September 14, 2001
------------------------------------
Uri P. Harkham
/s/ B. Wayne Hughes, Jr. Vice President and Director September 14, 2001
------------------------------------
B. Wayne Hughes, Jr.
/s/ Marvin M. Lotz Senior Vice President and Director September 14, 2001
------------------------------------
Marvin M. Lotz
Director
------------------------------------
Thomas J. Barrack, Jr.
Director
------------------------------------
Daniel C. Staton
II-7
Exhibit 5.1
David Goldberg
Vice President and Senior Counsel
Public Storage, Inc.
701 Western Avenue
Glendale, California 91201-2397
September 14, 2001
Public Storage, Inc.
701 Western Avenue
Glendale, California 91201-2397
Gentlemen:
As Vice President and Senior Counsel of Public Storage, Inc. (the
"Company"), I have examined the Registration Statement on Form S-3, which is
expected to be filed by the Company with the Securities and Exchange Commission
(the "Commission") on or about the date of delivery of this opinion (the
"Registration Statement"), which includes a Prospectus to be used in connection
with securities registered under the Registration Statement (the "Prospectus").
The Prospectus relates to the offer and sale of up to $800,000,000 stated amount
of (i) shares of common stock, par value $.01 per share (the "Common Shares"),
(ii) shares of preferred stock, par value $.01 per share (the "Preferred
Shares"), (iii) shares of equity stock, par value $.01 per share (the "Equity
Shares"), (iv) depositary shares (the "Depositary Shares") representing a
fractional interest in a Preferred Share or an Equity Share and (v) warrants
(the "Warrants").
I am familiar with the proceedings taken or to be taken by the Company
relating to the authorization and issuance of the Common Shares, the Preferred
Shares, the Equity Shares, the Depositary Shares and the Warrants in the manner
set forth in the Registration Statement. I have also examined the Company's
Restated Articles of Incorporation and Revised Bylaws and have made such other
investigation as I have deemed necessary in order to express the opinions
contained herein.
It is my opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of California.
2. The Common Shares, the Preferred Shares, the Equity Shares, the
Depositary Shares and the Warrants, when issued and delivered in the
manner and on the terms described in the Registration Statements and
payment of the agreed consideration therefor has been received by the
Company, will be legally issued, fully paid and nonassessable.
I hereby consent to (i) the reference to me under the caption "Legal
Opinions" in the Registration Statement, (ii) the filing of this opinion as an
exhibit to the Registration Statement or amendments thereto and (iii) the
incorporation by reference of this opinion into a Registration Statement on Form
S-3MEF filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, relating to the Registration Statement.
Very truly yours,
/s/ DAVID GOLDBERG
DAVID GOLDBERG
Exhibit 8.1
September 14, 2001
Public Storage, Inc.
701 Western Avenue
Suite 200 Glendale, California 91201-2394
Ladies and Gentlemen:
We have acted as special tax counsel to Public Storage, Inc., a California
corporation (the "Company") in connection with the registration of shares of
common stock, par value $.10 per share (the "Common Stock"), shares of preferred
stock, par value $.01 per share (the "Preferred Stock"), shares of equity stock,
par value $.01 per share (the "Equity Stock"), depositary shares representing a
fractional interest in a share of Preferred Stock or Equity Stock (the
"Depositary Shares"), and warrants to purchase Common Stock, Preferred Stock or
Equity Stock (the "Warrants") with an aggregate public offering price of up to
$800,000,000, on terms to be determined at the time of offering as more fully
described in the Company's Registration Statement filed with the Securities and
Exchange Commission on or about the date hereof ("Registration Statement," which
includes the "Prospectus"). In connection with such registration, we have been
asked to provide you with an opinion as to certain federal income tax matters
related to the Company. Unless otherwise defined herein, each term used herein
with initial capitalized letters has the meaning given to such term in the
Prospectus.
BASIS FOR OPINIONS
The opinions set forth in this letter are based on our best judgment regarding
the application of relevant provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations thereunder (including proposed and
temporary Treasury Regulations), and interpretations of the foregoing as
expressed in court decisions, applicable legislative history, and administrative
rulings and practices of the Internal Revenue Service ("IRS") (including its
practices and policies endorsed in issuing private letter rulings, which are not
binding on the IRS except with respect to a taxpayer that receives such a
ruling), all as of the date hereof. These provisions and interpretations are
subject to change, which may or may not be retroactive in effect, that might
result in material modifications of our opinions.
Our opinion does not foreclose the possibility of a contrary determination by
the IRS or a court of competent jurisdiction, or of a contrary determination
made by the IRS or the Treasury Department in regulations or rulings issued in
the future. In this regard, although we believe that our opinions set forth
herein will be sustained if challenged, an opinion of counsel with respect to an
issue is not binding on the IRS or the courts, and is not a guarantee that the
IRS will not assert a contrary position with respect to such issue or that a
court will not sustain such a position asserted by the IRS.
In rendering the following opinions, we have examined such statutes,
regulations, records, agreements, certificates and other documents as we have
considered necessary or appropriate as a basis for such opinions, including the
following:
(1) the Prospectus;
(2) the Agreement and Plan of Reorganization by and among Public Storage
Management, Inc. ("PSMI") and the Company dated June 30, 1995 (the
reorganization pursuant to such agreement is referred to hereafter as
the "PSMI Merger");
(3) the Amendment to the Company's Restated Articles of Incorporation, as
adopted in connection with the PSMI Merger;
(4) the Shareholders' Agreement dated November 16, 1995 ("Shareholders'
Agreement") entered into by B. Wayne Hughes, Tamara L. Hughes, B. Wayne
Hughes, Jr. and Parker Hughes Trust No. 2;
(5) the articles of incorporation, by-laws and stock ownership information
for PS OrangeCo., Inc. ("Lock/Box Company"), PS Business Parks, Inc.
(previously known as American Office Park Properties, Inc., which was
formerly known as Public Storage Commercial Properties Group, Inc.),
PSCC, Inc. ("PSCC"), and Public Storage Pickup & Delivery, Inc. ("PS
Pickup");
(6) the ruling request letters, dated March 19, 1995 and June 7, 1995,
submitted to the IRS on behalf of the Company, and the ruling letter
dated October 4, 1995, issued by the IRS in response thereto and the
ruling request letters dated July 30, 1996, December 23, 1996, and
March 4, 1997 and the ruling letter dated May 16, 1997 issued by the
IRS in response thereto (the "Ruling Requests");
(7) the Amendment to the Amended Management Agreement dated August 8, 1995;
(8) the Agreement and Plan of Merger by and among Storage Trust Realty
("Storage Trust"), the Company, and Merger Sub, dated as of November
12, 1998, as amended (the merger pursuant to such agreement is referred
to hereafter as the "Storage Trust Merger"); and
(9) such other instruments and documents related to the organization and
operation of the Company as we have deemed necessary or appropriate.
The opinions set forth in this letter also are premised on certain written
representations of PS Business Parks, Inc. contained in a letter addressed to
Hogan & Hartson L.L.P. dated on or about the date hereof regarding the assets,
operations, and activities of PS Business Parks, Inc. (the "PS Business Parks
Representation Letter") and certain written representations of the Company
contained in a letter dated on or about the date hereof regarding the assets,
operations and activities of the Company, including whether the Company has
satisfied and will continue to satisfy the stock ownership and gross income
requirements applicable to REITs following the PSMI Merger and the Storage Trust
Merger (the "Management Representation Letter").
We have made such factual and legal inquiries, including examination of the
documents set forth above, as we have deemed necessary or appropriate for
purposes of our opinions. For purposes of rendering our opinions, however, we
have not made an independent investigation or audit of the facts set forth in
any of the above-referenced documents, including the Prospectus, Management
Representation Letter, and the PS Business Parks Representation Letter. We
consequently have relied upon your representations and assumed that the
information presented in such documents or otherwise furnished to us is accurate
and complete in all material respects relevant to our opinions. Without limiting
the foregoing, we have not undertaken to review and determine the tax status, as
a partnership for federal income tax purposes, of each limited partnership and
each limited liability company in which the Company owns an interest. Instead,
we have, with the Company's consent, relied upon the Company's representations,
set forth in the Management Representation Letter, as to the status of these
entities for federal income tax purposes. If any one or more of these entities
were to be classified as an association taxable as a corporation for federal
income tax purposes, and the Company were considered to own more than 10% of the
outstanding voting securities of such entity (or for taxable years beginning
after December 31, 2000 more than either (i) 10% of the voting power or (ii) 10%
of the total value of the outstanding securities of such entity, unless the
entity were to qualify and elect to be treated as a "taxable REIT subsidiary"
under the applicable provisions of the Code), that would preclude the Company
from qualifying as a "real estate investment trust" for federal income tax
purposes and therefore would have a material adverse impact on the opinions set
forth herein.
In our review, we have assumed, with your consent, that all of the obligations
imposed by any documents on the parties thereto, have been and will be performed
or satisfied substantially in accordance with their terms. Moreover, we have
assumed that each of the Company, the Lock/Box Company, PSCC and PS Pickup has
been and will be operated substantially in the manner described in the
Prospectus, the Ruling Requests, and the relevant articles of incorporation and
other organizational documents. We also have assumed the genuineness of all
signatures, the proper execution of all documents that are executed, the
authenticity of all documents submitted to us as originals, the conformity to
originals of documents submitted to us as copies, and the authenticity of the
originals from which any copies were made.
We also have assumed for the purposes of this opinion that (i) the Company is a
validly organized and duly incorporated corporation under the laws of the State
of California, (ii) the provisions of the Shareholders' Agreement and Article IV
of the Amendment to the Company's Restated Articles of Incorporation are fully
enforceable in the manner set forth therein under the laws of the State of
California, and (iii) each class or series of shares of stock of the Company
(including the shares of Equity Stock, Series A (which shares were issued
pursuant to a Certificate of Determination filed with the California Secretary
of State on June 27, 1997 or November 9, 1999)) that is issued and outstanding
is and has been at all times validly issued and enforceable in accordance with
its terms under the laws of the State of California. In the event any of the
statements, representations, or assumptions upon which we have relied in
rendering this opinion is incorrect or incomplete, our opinion could be
adversely affected and may not be relied upon.
OPINIONS
Based upon the foregoing, and subject to the various assumptions, limitations,
and qualifications set forth in this letter, we are of the opinion that:
(1) The Company is organized and currently operates in conformity with the
requirements for qualification and taxation as a real estate investment
trust ("REIT") under the Code, and the Company's proposed method of
operation (as described in the Prospectus and the Management
Representation Letter) will enable the Company to continue to meet the
requirements for qualification and taxation as a REIT for the taxable
year ending December 31, 2001, and for subsequent taxable years; and
(2) The statements in the Prospectus under the heading "Federal Income Tax
Consequences" and "Risk Factors -- We would incur adverse tax
consequences if we fail to qualify as a REIT", "-- We may pay some
taxes," and "-- We would incur a corporate level tax if we sell certain
assets," to the extent that they describe matters of law or legal
conclusions, are correct in all material respects.
An opinion of counsel merely represents counsel's best judgment with respect to
the probable outcome on the merits and is not binding on the IRS or the courts.
There can be no assurance that positions contrary to our opinion will not be
taken by the IRS or that a court considering the issues would not hold contrary
to such opinion.
We assume no obligation to advise you of any new developments in the application
or interpretation of the federal income tax laws subsequent to the date of this
opinion letter, and we are not undertaking to update the opinion letter from
time to time.
The Company's qualification and taxation as a REIT depends upon the Company's
ability to meet on a continuing basis, through actual annual operating and other
results, the various requirements under the Code and described in the Prospectus
with regard to, among other things, the sources of its gross income, the
composition of its assets, the level of distributions to stockholders, and the
diversity of its share ownership. Hogan & Hartson L.L.P. will not review the
Company's compliance with these requirements on a continuing basis. No assurance
can be given that the actual results of operations of the Company, the sources
of its income, the nature of its assets, the level of distributions to its
shareholders and the diversity of its share ownership for any given taxable year
will satisfy the requirements under the Code for qualification and taxation as a
REIT.
In this regard, we are expressing our opinion only as to the specific matters
set forth in the numbered paragraphs under the caption "Opinions." It should be
noted that among the representations that we are relying on is a representation
as to the absence of any earnings and profits of PSMI or Storage Trust at the
time of the PSMI Merger and the Storage Trust Merger. We specifically are not
rendering an opinion as to whether PSMI or Storage Trust had current or
accumulated earnings and profits at the time of the PSMI Merger and the Storage
Trust Merger. There can be no assurance, however, that the IRS will not examine
the tax returns of PSMI, Storage Trust, their predecessors and their affiliates
for all years prior to the PSMI Merger and the Storage Trust Merger and propose
adjustments to increase their taxable income, which could result in the Company
being considered to have undistributed "earnings and profits," in which event
the Company would not qualify as a REIT for such year and possibly subsequent
years. For a discussion of certain of the considerations associated with these
issues, we direct your attention specifically to the discussions of these
matters contained in the Prospectus under the caption "Federal Income Tax
Consequences."
We note that the Prospectus does not currently address the federal income tax
considerations that may be relevant to a holder of the Preferred Stock, the
Equity Stock, the Warrants or the Depositary Shares. It is our understanding
that in the event the Company issues Preferred Stock, Equity Stock, Warrants, or
Depositary Shares, the Company will prepare a supplement to the Prospectus,
which supplement will address the federal income tax considerations that are
likely to be material to a holder of such securities.
This opinion letter has been prepared solely for your benefit in connection with
the filing of the Registration Statement. This opinion may not be used or relied
upon by any other person or for any other purpose and may not be disclosed,
quoted, or filed with a governmental agency or otherwise referred to without our
prior written consent. We hereby consent to (i) the filing of this opinion
letter as Exhibit 8.1 to the Registration Statement, (ii) the reference to this
firm under the caption "Legal Opinions" in the Prospectus and (iii) the
incorporation by reference of this opinion into a registration statement on Form
S-3 filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended,
relating to the Registration Statement (provided, however, that neither this
consent nor such incorporation by reference of this opinion letter shall be
deemed to cause this opinion letter to speak as of any date other than the date
hereof, to imply or require that this opinion letter be updated to any date
subsequent to the date hereof, or to imply a view as to the accuracy of any
disclosure in such registration statement to the extent different than the
disclosure set forth in the Registration Statement or to the extent that any
facts, circumstances, or changes in the law after the date hereof could bear
thereon). In giving this consent, we do not thereby admit that we are an
"expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ HOGAN & HARTSON L.L.P.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Prospectus of Public Storage, Inc. (included in the Registration Statement
on Form S-3 (No. 333-______)) for the registration of shares of its common
stock, its preferred stock, its equity stock, its depositary shares and warrants
for the purchase of its common stock, preferred stock and equity stock and to
the incorporation by reference therein of our report dated February 23, 2001
with respect to the consolidated financial statements and schedule of Public
Storage, Inc. included in the Annual Report on Form 10-K for the year ended
December 31, 2000, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Los Angeles, California
September 14, 2001