Public Storage 1997 Annual Report Download - page 34

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Public Storage, Inc. 1997 Annual Report
In the second half of 1996, the Company began to increase its scheduled rents charged to new customers (prior to promotional discounts)
and to existing tenants where warranted. As a result, for fiscal 1997, scheduled rents per square foot increased compared to 1996. In connection
with the national telephone reservation system, the Company experimented with pricing and promotional discounts designed to increase rental
activity. Accordingly, promotional discounts (which are included as a reduction to gross rents to arrive at rental income) increased significantly
from $303,000 in 1995 to $4,031,000 in 1996 and $14,244,000 in 1997. Despite the increased discounts, the Company’s facilities experienced
increased realized rents per square foot of 4.6% in 1997 compared to 1996 and 3.1% in 1996 compared to 1995.
With the exception of property management fees, most of the self-storage operating costs (i.e. payroll, property taxes, repairs and
maintenance, etc.) are generally fixed. As a result of becoming self-managed in connection with the PSMI Merger, the Company no longer
incurs property management fees. Cost of operations for 1996 decreased compared to 1995 principally as a result of the elimination of
property management fees for 1996. Included in cost of operations for 1995 were management fees totaling $9,421,000. However, offsetting
the decrease in property management fees in 1997 and 1996 are expenses with respect to the national telephone reservation system totaling
$3,875,000 and $1,257,000, respectively.
Development of self-storage facilities: Commencing in 1995, the Company began to construct self-storage facilities. Through December 31,
1997, the Company constructed and opened for operation seven facilities, one of which began operations in August 1995 (approximately
64,000 net rentable square feet), four in 1996 (approximately 244,000 net rentable square feet) and two in 1997 (approximately 118,000 net
rentable square feet). At December 31, 1997, the Company had four self-storage facilities (approximately 273,000 net rentable square feet)
under construction with an aggregate cost incurred to date of approximately $10.3 million and total additional estimated cost to complete
of $14.6 million. Generally, the construction period takes 9 to 12 months followed by an 18 to 24 month fill-up process until the newly
constructed facility reaches an stabilized occupancy level of approximately 90%.
In April 1997, the Company formed a joint venture partnership with a state pension fund to participate in the development of
approximately $220 million of self-storage facilities. The Company expects that substantially all of its development activities will be
conducted in the joint venture partnership until the $220 million is fully committed. At December 31, 1997, the joint venture partnership
had completed construction on seven self-storage facilities (approximately 412,000 net rentable square feet) with a total cost of
approximately $40.8 million, and had 17 facilities under construction (approximately 1,169,000 net rentable square feet) with an aggregate
cost incurred to date of approximately $48.9 million and total additional estimated cost to complete of $29.3 million. The partnership is
funded solely with equity capital consisting of 30% from the Company and 70% from the state pension fund. The Company accounts for its
investment in the joint venture partnership using the equity method. The following summarizes selected financial data of the development
joint venture partnership:
(In thousands)
Period from inception (April 10, 1997) to December 31, 1997
Rental income $ 952
Total revenues $ 1,125
Cost of operations $ 664
Depreciation $ 456
Net loss $ (22)
At December 31, 1997
Construction in progress $48,888
Total assets $96,076
Total equity $91,184