Public Storage 2000 Annual Report Download - page 41

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P
UBLIC S TORAGE , I NC . 2000 A NNUAL R EPORT
In April 1997, we formed a joint venture partnership (the “Development Joint Venture”) with an institutional investor to participate
in the development of approximately $220 million of storage facilities. The venture is funded solely with equity capital consisting of
30% from the Company and 70% from the institutional investor. Equity in earnings from the Development Joint Venture reflects our
pro rata share, based upon our ownership interest, of the operations of the Development Joint Venture. Since inception through
December 31, 2000, the Development Joint Venture has developed and opened 47 storage facilities with an aggregate cost of
approximately $231.5 million. Generally the construction period takes nine to 12 months followed by a 18 to 24 month fill-up process
until the newly constructed facility reaches a stabilized occupancy level of approximately 90%. For fiscal 1997, 1998, and 1999, the
majority of the completed facilities are in the fill-up process and had not reached a stabilized occupancy level. We expect that our
earnings with respect to our investment in the Development Joint Venture will continue to increase in 2001 as compared to 2000 as
the existing properties continue to fill up.
During the first six months of fiscal 2000, we acquired controlling interests in certain entities. As a result of our ownership and control,
we began to consolidate the accounts of these entities into our financial statements. Since we no longer account for our investment
using the equity method, equity in earnings with respect to the “Other partnerships” has decreased in 2000 as compared 1999.
O THER I NCOME AND E XPENSE I TEMS
Interest and other income: Interest in other income includes (i) the net operating results from our property management operations,
(ii) merchandise sales and consumer truck rentals and (iii) interest income.
Interest and other income has increased in 2000 as compared to 1999 principally as a result of higher cash balances invested in
interest bearing accounts. Higher cash balances are primarily due to our issuance of preferred operating partnership units in 2000
and the timing of investing the proceeds into real estate assets.
Depreciation and amortization: Depreciation and amortization expense was $148,967,000 in 2000, $137,719,000 in 1999
and $111,799,000 in 1998. Depreciation expense with respect to the real estate facilities was $134,857,000 in 2000, $123,495,000
in 1999 and $98,173,000 in 1998; the increases are due to the acquisition of additional real estate facilities in 1998 through 2000.
Depreciation expense with respect to non real estate assets, primarily depreciation of equipment associated with the containerized
storage operations, was $4,801,000 in 2000, $4,915,000 in 1999 and $4,317,000 in 1998. Amortization expense with respect to
intangible assets totaled $9,309,000 for each of the three years ended December 31, 2000.
General and administrative expense: General and administrative expense was $21,306,000 in 2000, $12,491,000 in 1999
and $11,635,000 in 1998. General and administrative costs for each year principally consist of state income taxes, investor relation
expenses, certain overhead associated with the acquisition and development of real estate facilities, and overhead associated with the
containerized storage business. The increase includes an expansion in our product research and development efforts, as well as costs
associated with lease terminations on leased containerized storage facilities which were replaced by newly-developed facilities, and
increased consulting fees. The total amount of such expenses was approximately $5,963,000 in 2000 and $1,291,000 in 1999 (none
in 1998). In addition, during 2000, we experienced an increase in costs relating to our development activities of approximately
$1,447,000 when compared to 1999.
Although we expect that our general and administrative expense for fiscal 2001 will be less than what we experienced in 2000 we
expect to exceed the level of general and administrative expense experienced in 1999 due to the following: (i) the growth in the size
of the Company, (ii) additional lease termination cost with respect to the leased containerized storage facilities, and (iii) Company’s
property acquisition and development activities have continued to expand, resulting in certain additional costs incurred in connection
with the acquisition of additional real estate facilities.
Interest expense: Interest expense was $3,293,000 in 2000, $7,971,000 in 1999 and $4,507,000 in 1998. Debt and related interest
expense remain relatively low compared to our overall asset base. The decrease in interest expense in 2000 compared to
1999 is principally the result of increased capitalized interest. Capitalized interest expense totaled $9,778,000 in 2000, $4,509,000
in 1999 and $3,481,000 in 1998 in connection with our development activities.