Public Storage 2003 Annual Report Download - page 7

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historical trends. We do not expect any meaningful reduction in this number in the near term. We
recognize a significant opportunity to improve profitability by reducing our customer acquisition costs.
The positive trends in revenue growth in 2003 and into 2004 have been, and will continue to be,
moderated by expense growth. Costs of operations in our Consistent Group increased about 11% for the
year. Expense increases were across the board, but primarily concentrated in customer acquisition costs,
personnel and repairs and maintenance. We expanded our hiring, training and retention programs to
improve the caliber of our operating personnel, retaining and motivating our best and brightest and to
improve customer service levels through proper staffing. Total hours increased approximately 5%. We also
initiated a restricted stock incentive program for field management personnel. Our repairs and
maintenance, as well as maintenance capital expenditures, increased in 2003 and will continue to increase
in 2004. On average, our portfolio is about 20 years old and is in need of some cosmetic improvements.
We are striving to have a competitive product, in rent ready condition at all times, which provides good
value to our customers.
Ancillary Business Operations
Our ancillary businesses continue to make positive and growing contributions to earnings. While not of
great magnitude individually, collectively, the containerized moving and storage, merchandise sales,
consumer truck rental and tenant insurance businesses made a positive and measurable impact on our
operating results during the year. Most of these positive results were driven by increased customer traffic
flow from our primary business, self-storage.
With respect to the continuing operations of our containerized storage business, revenues were over 14%
higher due to higher rates. During the year, we have focused on segmenting the containerized storage
business away from the self-storage business, trying to attract different customers and pricing the product
according to its service and value. Operating expenses were down significantly compared to last year,
resulting in a year-over-year increase in net income of $5 million. Taking the results of our discontinued
operations into account, net income was over $2 million versus a loss of $10 million for 2002. We decided
to close an additional nine facilities during 2003, which followed the closure of 22 facilities in 2002.
Our ancillary operations also include tenant insurance, truck rental (both our own and as an agent of
Penske) and retail sales (locks and boxes). These businesses all grew as a result of increased customer
volume, better pricing and expense controls.
Revenues of our continuing ancillary operations increased 13% to $90 million. Net income from these
continuing operations improved by almost $7 million. These businesses continue to provide important
complimentary products to our self-storage customers, enabling them to one-stop shop for their moving
and storage needs.