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Public Storage, Inc.
1996 Annual Report
2
th
5
Anniversary

Table of contents

  • Page 1
    Public Storage, Inc. 1996 Annual Report Anniversary 25 th

  • Page 2
    ...80 40 60 1994 1995 1996 0 1994 1995 1996 0 1994 1995 1996 Stock Price Performance Graph(1) Funds From Operations Per Fully Diluted Common Share(1) Annual Realized Rent Per Square Foot Same Store Facilities (1) Comparison of Cumulative Total Return Public Storage, Inc., S&P 500 Index and NAREIT...

  • Page 3
    ... per share data) For the year ended December 31, 1996(1) 1995(1) 1994 1993 1992 REVENUES: Rental income Equity in earnings of real estate entities Facility management fees Ancillary business income Interest and other income EXPENSES: Cost of operations Cost of facility management Cost of operations...

  • Page 4
    ... self-storage, portable self-storage, truck rentals, and retail stores businesses. We believe that our multiple business line infrastructure adds value to Public Storage for shareholders and our customers. We use our retained operating cash as an internal source of capital for property acquisition...

  • Page 5
    ...credit rating, reducing our cost of new capital. The merger significantly reduced internal conflicts inherent in the separate advisor/property manager format. Institutional investor interest in our corporation has improved. We believe we experienced numerous positives from the merger throughout 1996...

  • Page 6
    ... and rates for the majority of Public Storage's properties. A customer calling a property, or Public Storage's national toll-free number (1-800-44-STORE), can be connected with the center. The center currently receives about 120,000 calls per month. We can market all of our business lines through...

  • Page 7
    ... Incorporated's three real estate brands. The agreement provides certain pricing discounts on self-storage rental space for ® Coldwell Banker, ® and ERA® CENTURY 21, franchised brokerages and their customers. We should be able to use our national reservation center to offer these services to the...

  • Page 8
    ...estate product. We plan to continue finding ways to ensure that we maintain our position as the preeminent provider of quality mini-warehouse space in major metropolitan markets in the United States. Container Storage. Public Storage Pickup & Delivery SM (PSPUD) is our newest complementary business...

  • Page 9
    ... services and products. We can market mini-warehouses, container storage, truck rentals, retail stores, and our HFS preferred-vendor marketing arrangement to customers through the national reservation center. A customer calling a property, or our Company's national toll-free number (1-800-44-STORE...

  • Page 10
    ... Consolidated Balance Sheets (In thousands, except per share data) For the year ended December 31, 1996 1995 ASSETS Cash and cash equivalents Real estate facilities, at cost: Land Buildings Accumulated depreciation Investment in real estate entities Intangible assets, net Mortgage notes receivable...

  • Page 11
    ...1996 1995 1994 REVENUES: Rental income: Self-storage facilities Commercial properties Equity in earnings of real estate entities Facility management fee Ancillary business income Interest and other income $270,429 23,576 22,121 14,428 3,504 7,064 341,122 EXPENSES: Cost of operations: Self-storage...

  • Page 12
    ...I N C . 19 9 6 A N N U A L R E P O R T Consolidated Statements of Shareholders' Equity (In thousands, except share and per share amounts) For each of the three years in the period ended December 31, 1996 Cumulative Preferred Stock Convertible BALANCES AT D E C E M B E R 3 1 , 19 9 3 $103,125 62...

  • Page 13
    ...P O R T Common Stock Class B Common Stock Paid-in Capital Cumulative Net Income Cumulative Distributions Total Shareholders' Equity $1,806 - 1,077 - - - 2,883 - 4,269 - - - - 7,152 - - 1,514 161 10 - - - $8,837 $ $ 227,891 (2,300) 146,770 - - - 372,361 (9,718) 664,645 72,800 - - - 1,100...

  • Page 14
    ... estate facilities Acquisition cost of business combinations Acquisition of interests in real estate entities Construction in process Capital improvements to real estate facilities Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Net paydowns on revolving line of credit...

  • Page 15
    ... for real estate facilities Acquisition of partnership interests in real estate entities in exchange for common stock Reduction in other assets - deposits on pending real estate acquisitions FINANCING ACTIVITIES: Cancellation of mortgage notes receivable to acquire real estate facilities Assumption...

  • Page 16
    ... SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The consolidated financial statements include the accounts of (i) the Company, (ii) majority-owned subsidiaries involved in the sale of locks and boxes, rental of trucks and portable self-storage, and (iii) twenty-one limited partnerships in...

  • Page 17
    ...as incurred. Environmental costs The Company's policy is to accrue environmental assessments and/or remediation costs when it is probable that such efforts will be required and the related costs can be reasonably estimated. The majority of the Company's real estate facilities were acquired prior to...

  • Page 18
    ...of the Company. The aggregate acquisition cost of these mergers is summarized as follows: Merger consideration Entity (In thousands) Date of merger Common Stock Cash Pre-existing investment Total Public Storage Properties IX, Inc. ("Properties 9") PS Business Parks, Inc. ("PSBP") Storage Properties...

  • Page 19
    ... Merger included: (1) the ''Public Storage'' name, (2) general and limited partnership interests in 47 limited partnerships owning an aggregate of 286 self-storage facilities, (3) shares of common stock in 16 REITs owning an aggregate of 218 self-storage facilities and 14 business park properties...

  • Page 20
    ... affiliates for $83,893,000 in cash. During 1995, the Company (i) acquired limited and general partnership interest in 47 partnerships and common stock in 16 REITs in connection with the PSMI Merger at an aggregate cost of $389,686,000, (ii) acquired additional interests in some of the same...

  • Page 21
    ... equity in earnings of real estate entities includes amortization totaling $7,894,000 in 1996 and $1,119,000 in 1995 (from date of the PSMI Merger through the end of the year) representing the amortization of the Company's cost basis over the underlying book value of the Company's equity interest in...

  • Page 22
    ... Partnerships. During 1996, the Company acquired limited partnership interests in the Consolidated Partnerships in several transactions for an aggregate cost of $15,419,000. These transactions had the effect of reducing minority interest by approximately $8,193,000 (the historical book value...

  • Page 23
    ...all of the properties in which the Company invested in for a fee which is equal to 6% of the gross revenues of the self-storage facilities spaces managed and 5% of the gross revenues of the business park facilities operated. Management fees relating to the Company's real estate facilities, which are...

  • Page 24
    ... Shares 1995 Amount Shares 1994 Amount Public offerings In connection with mergers (Note 3) Issuance costs of mergers Exercise of stock options Issuance to affiliates Conversion of Mandatory Convertible Preferred Stock Acquisition of interests in real estate entities Acquisition of real estate...

  • Page 25
    ... 31, 1996, the Company had no outstanding shares of Equity Stock. Dividends The characterization of dividends for Federal income tax purposes is made based upon earnings and profits of the Company, as defined by the Internal Revenue Code. Distributions declared by the Board of Directors (including...

  • Page 26
    ...certain directors, officers and key employees and service providers to purchase shares of the Company's common stock at a price equal to the fair market value of the common stock at the date of grant. Generally, options under the Plans vest over a three-year period from the date of grant at the rate...

  • Page 27
    ... efforts in real estate facilities containing commercial and industrial rental space. The Company's majority-owned subsidiary, Public Storage Commercial Properties Group, Inc. (which subsequently changed its name to American Office Park Properties, Inc.), its commercial property manager, contributed...

  • Page 28
    ... financial position of Public Storage, Inc. at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Los Angeles, California...

  • Page 29
    ... common stock in connection with mergers and real estate acquisitions. • Development activities: In 1995, the Company commenced development of self-storage facilities, opening one in 1995 and four in 1996, with eleven under construction at December 31, 1996. • Portable self-storage business: In...

  • Page 30
    ... the Company's investment in real estate facilities as of December 31, 1996: Number of Facilities in which the Company has an ownership interest Self-storage facilities Commercial properties Total Net Rentable Square Footage (In thousands) Self-storage facilities Commercial properties Total...

  • Page 31
    ... added customer service. Customers calling either the Company's toll-free telephone referral system, (800) 44-STORE, or a local Public Storage facility, are directed to the national reservation system where a trained representative discusses with the customer space requirements, price and location...

  • Page 32
    ... changes in operations principally the result of changing occupancy levels and realized rental rates. Due to the size of the Company's investment in commercial properties relative to its self-storage facilities, the Company has not emphasized its growth in this segment of its portfolio. Effective...

  • Page 33
    ... in the case of the commercial properties, of gross revenues of the facilities managed. Under the supervision of the property owners, the Company coordinates rental policies, rent collections, marketing activities, the purchase of equipment and supplies, maintenance activity, and the selection and...

  • Page 34
    ... and may continue to seek to acquire in the future, real estate facilities owned by the Unconsolidated Entities, the Company's facility management income should decrease in 1997 compared to 1996. The acquisitions of such facilities will reduce management fee income. However, offsetting the reduction...

  • Page 35
    ... locations. In 1996, the Company organized Public Storage Pickup & Delivery, Inc. ("PSPUD") as a separate corporation to operate a portable selfstorage business that rents storage containers to customers for storage in central warehouses and provides related transportation services. The Company...

  • Page 36
    ... in the size of the Company, (ii) the Company's property acquisition activities have continued to expand, resulting in certain additional costs incurred in connection with the acquisition of additional real estate facilities, and (iii) pursuant to the PSMI Merger, the Company became self-advised...

  • Page 37
    ..., the national telephone reservation system was supporting rental activity at all of the self-storage properties managed by the Company, with the exception of one major market, which will be operational by end of March 1997. Rental income for the Same Store facilities included promotional discounts...

  • Page 38
    ... (as determined in accordance with generally accepted accounting principles) reflects the cash generated from the Company's business before distributions to various equity holders, including the preferred shareholders, capital expenditures or mandatory principal payments on debt. Net cash provided...

  • Page 39
    ... National Association of Real Estate Investment Trusts, Inc. ("NAREIT"). The NAREIT definition does not specifically address the treatment of minority interest in the determination of FFO or the treatment of the amortization of property management agreements and goodwill. In the case of the Company...

  • Page 40
    ... stock. The Company's credit ratings on its Senior Preferred Stock by each of the three major credit agencies are Baa2 by Moody's and BBB+ by Standard and Poors and Duff & Phelps. The Company's portfolio of real estate facilities remains substantially unencumbered. At December 31, 1996, the Company...

  • Page 41
    ... 1,026,000 square feet) in various locations at an estimated cost of approximately $70.2 million. The Company is evaluating the feasibility of developing additional self-storage facilities in selected markets in which there are few, if any, facilities to acquire at attractive prices and where the...

  • Page 42
    ... O R T Common Stock Distribution Policy and Stock Price Public Storage, Inc. has paid continuous quarterly distributions to its shareholders since 1981, its first full year of operations. Distributions paid per share of common stock for 1996 amounted to $.88. Holders of common stock are entitled to...

  • Page 43
    ... Transfer Agent Joanne A. Halliday Shareholders may obtain, without charge, a copy of Form 10-K, as filed by the Company with the Securities and Exchange Commission by addressing a written request to the Investor Services Department at the Corporate Headquarters. American Office Park Properties...

  • Page 44
    Public Storage, Inc. 701 Western Avenue Glendale, California 91201 (818) 244-8080 Address Correction Requested www.publicstorage.com Bulk Rate U.S. Postage PAID Bank of Boston