Public Storage 1997 Annual Report Download - page 29

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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Public Storage, Inc. 1997 Annual Report
The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and notes thereto.
Overview:
The self-storage industry is highly fragmented and is composed predominantly of numerous local and regional operators. Competition in the
markets in which the Company operates is significant and is increasing from additional development of self-storage facilities in many markets
which may negatively impact occupancy levels and rental rates at the Company’s self-storage facilities. However, the Company believes it
possesses several distinguishing characteristics which enable it to compete effectively with other owners and operators.
The Company believes it is the largest owner and operator of self-storage facilities in the United States with ownership interests in 1,073
self-storage facilities containing approximately 64 million net rentable square feet. All of the Company’s facilities are operated under the
“Public Storage” brand name, which the Company believes is the most recognized and established name in the self-storage industry. Located
in the major metropolitan markets of 37 states, the Company’s self-storage facilities are geographically diverse, giving it national recognition
and prominence. This concentration establishes the Company as one of the dominant providers of storage space in each market that it
operates in and enables it to use a variety of promotional activities, such as television and radio advertising as well as targeted discounting
and referrals, which are generally not economically viable for its competitors. In addition, the Company believes that geographic diversity of
the portfolio reduces the impact from regional economic downturns and provides a greater degree of revenue stability.
In an effort to attract a wider variety of customers, to further differentiate the Company from its competition and to generate new sources
of revenue, additional products are being offered to enhance the Company’s self-storage business. In late 1996, the Company organized
Public Storage Pickup and Delivery, Inc. as a separate corporation and a related partnership (the corporation and partnership are collectively
referred to as “PSPUD”) to operate a portable self-storage business that rents storage containers to customers for storage in central warehouses.
The concept of PSPUD is to provide an alternative to a traditional self-storage facility wherein customers transport their goods to the facility
and rent a space to store their goods. PSPUD will deliver a storage container(s) to the customer’s location where the customer, at his
convenience, packs his goods into the storage container. PSPUD will subsequently return to the customer’s location to retrieve the storage
container(s) for storage in a central warehouse. PSPUD is not intended to replace the traditional self-storage facility but is designed to
complement and provide additional services to the customers not offered at the self-storage facilities.
During 1997, PSPUD opened 45 facilities, which combined with facilities opened as of the beginning of the year brought the total number
of facilities to 49. The facilities are located in 24 greater metropolitan areas in 16 states. Averaging approximately 2,000 containers per facility,
a facility provides approximately 70,000 net rentable square feet which is slightly larger than an average self-storage facility which contains
approximately 65,000 net rentable square feet. Currently, all of the PSPUD facilities operate in facilities leased from third parties which has
provided the Company with an efficient and flexible means of expanding rapidly into markets.
At December 31, 1997, the PSPUD facilities in aggregate had 36,000 occupied containers, representing approximately 1,256,000 square
feet. The Company believes that, to some extent, the portable self-storage business may negatively impact the occupancy levels of self-storage
facilities located in the same markets. However, the Company’s average self-storage occupancy level is higher than at any comparable period
in prior years, despite the promotion and rental activity of the portable self-storage business in the same markets. In the Los Angeles,
California market, for example, where the Company has operated a consistent pool of 138 self-storage facilities since 1993, the occupancy
levels of these facilities increased from 87.8% (7.3 million occupied square feet) at January 31, 1997 to 93.1% (7.7 million occupied square feet)
at January 31, 1998, representing an increase of approximately 5.3%. During the same period of time, the newly opened PSPUD facilities in the
Los Angeles market increased their aggregate occupied containers from 957 (33,495 square feet) at January 1997 to 8,830 (309,050 square
feet) at January 1998. Accordingly, in aggregate (self-storage and portable self-storage combined), occupied square footage increased
from 7.3 million at January 31, 1997 to 8.0 million at January 31, 1998, representing an increase of approximately 700,000 square feet. The
Company is seeking to replicate this performance in other major markets in which it operates. However, there can be no assurance that the
Company will be successful.