Public Storage 1997 Annual Report Download - page 37

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Public Storage, Inc. 1997 Annual Report
Portable Self-Storage Operations
In August 1996, PSPUD, a subsidiary of the Company, made its initial entry into the portable self-storage business through its acquisition of a
single facility operator located in Irvine, California. In the latter part of the fourth quarter of 1996, PSPUD opened 3 facilities in the Los
Angeles market. During 1997, PSPUD opened a total of 45 facilities (9 facilities opened during the first quarter of 1997, 21 during the second
quarter, 9 during the third quarter, and 6 during the fourth quarter of fiscal 1997).
Due to the start-up nature of the business, PSPUD incurred operating losses totaling approximately $31.7 million and $826,000 for the
years ended December 31, 1997 and 1996, respectively, summarized as follows.
Portable Self-Storage: Year Ended December 31,
Dollar
(Dollar amounts in thousands) 1997 1996 Change
Rental and other income $ 7,893 $ 421 $ 7,472
Cost of operations:
Direct operating costs 20,645 1,022 19,623
Marketing and advertising 10,441 19 10,422
Depreciation 1,394 32 1,362
General and administrative 7,078 174 6,904
39,558 1,247 38,311
Operating losses $(31,665) $ (826) $(30,839)
PSPUD’s facilities had a total of 36,000 occupied containers at December 31, 1997. Occupancy levels at the facilities varies significantly
depending on opening date, size of the facility and rental activity. Of the 49 facilities opened as of December 31, 1997, 32 facilities had been
opened in excess of seven months. The capacity of these 32 facilities ranges from 1,600 to 3,500 containers (averaging 2,140), and as of
December 31, 1997 these facilities had occupancy levels ranging from 17% to 97% (averaging 43%). As with mini-warehouses, PSPUD
believes that the portable self-storage business experiences some seasonal fluctuations in occupancy levels with occupancies generally higher
in the summer months than the winter months.
During 1997, PSPUD experimented with monthly container rental rates and transportation fees charged to customers. At December 31,
1997, monthly rental rates for the 32 facilities ranged from $45 to $69 per container per month. Transportation fees charged to customers
ranged from $19 to $49 for each of the move-in and move-out process. However, during 1997, PSPUD waived the move-in fee to customers.
PSPUD believes that marketing and advertising activities positively impact move-in activity. Commencing in the third quarter of 1997,
PSPUD began to advertise the portable self-storage product on television in selected markets. Customers are directed to call the national
reservation system where representatives discuss the customer’s storage needs and are able to schedule delivery of containers to customers’
locations. During 1997, approximately $9.2 million and $1.2 million was incurred in television and yellow pages advertising, respectively.
Marketing and advertising activities have not been consistently implemented in all markets. PSPUD believes there may be markets in which
its business will not be successful despite consistent marketing and advertising and is evaluating the advisability of continuing to operate
in certain markets.
Currently all of the PSPUD facilities are operated in buildings which are leased from third parties. A typical facility generally has
6 personnel (manager and truck drivers), 2 to 4 trucks, and a corresponding number of forklifts. Substantially all the equipment is leased.
Direct operating costs principally include payroll, facility and equipment (truck and forklift) lease expense.
During 1997, PSPUD incurred significant general and administrative costs related to recruiting and training personnel, equipment,
computer software and professional fees in organizing this business. PSPUD will continue to expend funds during 1998 in connection with
these activities. However, the amounts are expected to be less than in 1997.