July 3, 2006
BY FACSIMILE 202-772-9210
Joshua Forgione
Assistant Chief Accountant
Securities and Exchange Commission
100 F Street, N. W.
Washington, District of Columbia 20549
Dear Mr. Forgione:
Following our discussion this past Friday, I wanted to take this
opportunity to provide you with additional information with respect to two areas
that were discussed.
1. You had asked if there was a termination payment with respect to the
Advisory Contract that was part of the 1995 Transaction, and if so, how
much was the termination payment.
To confirm what I had indicated on Friday, and subsequently researched:
(i) the Advisory Contract did have a provision for a termination fee
and (ii) the termination fee was not computed in 1995, as the fee was
not used as the basis for determining valuation.
The Advisory Contract provided for a payment upon termination, except
under certain circumstances. The principal component of the
termination fee was an amount equal to 20% of the aggregate potential
net gain with respect to Public Storage's unsold properties.
The adviser was included as part of a group of operating companies for
valuation purposes in the 1995 Transaction. The operating companies'
valuation, or the number of shares Public Storage issued in 1995 to
acquire the operating companies, was derived by comparing the cash
flows generated by the operating companies relative to cash flows
generated by Public Storage on a per share basis.
It is difficult, if not impossible, to determine today what the
termination fee would have been had it been computed in 1995 because it
was not a fixed amount, but was based in significant part on property
values at the time.
Mr. Joshua Forgione
July 3, 2006
Page 2
2. I indicated that a significant number of the properties, which were
subject to the management contracts, were ultimately acquired by Public
Storage. Further, most of these acquisitions occurred in 1996 through
1999.
The following table illustrates the impact on the unamortized
intangible asset due to these acquisitions, assuming that Public
Storage had either reclassified these amounts to real estate or
eliminated these amounts as an impairment charge.
Beginning Adjustment due
Balance to acquisition Ending Balance
--------------------------------------------------------
Amounts in thousands
1995 $ 165,000 $ - $ 165,000
1996 $ 165,000 $(50,735) $ 114,265
1997 $ 114,265 $(52,693) $ 61,572
1998 $ 61,572 $(17,169) $ 44,403
1999 $ 44,403 $(14,265) $ 30,138
2000 $ 30,138 $ (1,480) $ 28,658
2001 $ 28,658 $ - $ 28,658
2002 $ 28,658 $ (8,370) $ 20,288
2003 $ 20,288 $ - $ 20,288
2004 $ 20,288 $ - $ 20,288
2005 $ 20,288 $ - $ 20,288
Q1 2006 $ 20,288 $ (4,762) $ 15,526
For each year, the "adjustment due to acquisition" in the above table,
represents that portion of the intangible asset relating to the
properties that were acquired in that particular year.
In Q1 2006, Public Storage commenced consolidating several affiliated
partnerships after applying the provisions of EITF 04-5. Public
Storage's ownership interest in these partnerships had not changed
otherwise.
Josh, if there is any additional information that I can provide, please feel
free to call me at 818-244-8080 x1300.
Very truly yours,
/s/ John Reyes
John Reyes
Senior Vice President and
Chief Financial Officer