Public Storage 1996 Annual Report Download - page 29

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
P UBLIC S TORAGE , I NC . 1996 A NNUAL R EPORT
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The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and notes thereto.
O VERVIEW :
Over the past three years, the Company has effected several business initiatives which have had, and should continue to have, significant effects
on the Company’s results of operations and financial condition. The Company’s asset base has expanded rapidly through the acquisition of additional
real estate investments which have principally been financed through the issuance of permanent capital in the form of common and preferred stock
and the retention of operating cash flow. Since 1993, the Company’s total assets and shareholders’ equity have increased significantly as total assets
increased from $666.1 million at December 31, 1993 to $2.6 billion at December 31, 1996, and shareholders’ equity increased from $376.1 million
at December 31, 1993 to $2.3 billion at December 31, 1996. Among the more significant transactions that the Company completed during 1994, 1995
and 1996 are summarized as follows:
•
Increased interests in real estate facilities: Through the acquisition of wholly-owned facilities and the acquisition of interests in real estate
entities, the Company’s ownership interest in real estate facilities has increased from 331 facilities at the end of 1993 to 1,109 facilities at the
end of 1996.
•
Mergers with affiliated REITs :Since 1993, the Company has completed eleven mergers with affiliated REITs: one in 1994 with an aggregate cost
of $55.8 million, two in 1995 with an aggregate cost of $135.4 million, and eight in 1996 with an aggregate cost of $356.8 million.
•
Became self-advised and self-managed: On November 16, 1995, the Company became self-advised and self-managed in connection with the
merger with Public Storage Management, Inc. (“PSMI”) with an aggregate cost of $549.3 million. In the merger with PSMI (the “PSMI Merger”),
the Company acquired all the real estate operations of PSMI, including (i) general and limited partnership interests in 47 limited partnerships
owning an aggregate of 286 self-storage facilities, (ii) shares of common stock in 16 REITs owning an aggregate of 218 self-storage facilities
and 14 commercial properties, (iii) seven wholly-owned properties, (iv) all-inclusive deeds of trust secured by 10 self-storage facilities,
(v) property management contracts, exclusive of facilities owned by the Company, for 563 self-storage facilities and through ownership of a
95% economic interest in a subsidiary, 24 commercial properties and (vi) a 95% economic interest in another subsidiary that currently sells
locks and boxes in self-storage facilities operated by the Company.
•
Issuance of capital stock: To fund the Company’s acquisition activities over the past three years the Company has issued approximately
$592.8 million of preferred stock and $321.3 million of common stock in public offerings, and approximately $87.4 million of preferred stock
and $830.7 million of 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 August 1996, the Company commenced operations in the portable self-storage business facilitated by the
acquisition of an existing operator. As of December 31, 1996, the Company opened three new facilities. From December 31, 1996 through
March 15, 1997 the Company opened an additional eight facilities.
The significant increases in both the Company’s asset and capital base have translated into significant growth in the Company’s overall operat-
ing results. The comparative growth in operating results between 1996 and 1995 is principally due to the impact of the PSMI Merger combined with
mergers with affiliated REITs. The comparative growth in operating results between 1995 and 1994 is principally due to mergers with affiliated REITs
combined with acquisitions of additional real estate facilities and investments in real estate entities.
R ESULTS OF O PERATIONS
Net income and earnings per common share: Net income for 1996, 1995 and 1994 was $153,549,000, $70,386,000 and $42,118,000, respec-
tively, representing increases over the prior year of 118.2% for 1996 and 67.1% for 1995. Net income allocable to common shareholders (net income
less preferred stock dividends) for 1996, 1995 and 1994 was $84,950,000, $39,262,000 and $25,272,000, respectively, representing increases over
the prior year of 116.4% for 1996 and 55.4% for 1995. On a per share basis, net income was $1.10 per share (based on weighted average shares
outstanding of 77,358,000) for 1996, $0.95 per share (based on weighted average shares outstanding of 41,171,000) for 1995 and $1.05 per share
(based on weighted average shares outstanding of 24,077,000) for 1994. The increase in net income per share for 1996 compared to 1995 was the
result of improved real estate operations. The 1996 per share amount also reflects earnings dilution caused by (i) development activities ($0.02 per
share), (ii) portable self storage operations ($0.01 per share) and (iii) the temporary uninvested net offering proceeds ($0.02 per share) from the
issuance of the Series H and Series I preferred stock. The decrease in net income per share for 1995 compared to 1994 was principally due to
increasing depreciation expense combined with the accrual of estimated environmental remediation costs at the end of 1995 and a greater number
of shares outstanding in 1995.
Net income includes depreciation and amortization expense (including depreciation included in equity in earnings of real estate entities) of
approximately $70,835,000 ($0.92 per common share) for 1996, $31,449,000 ($0.76 per common share) for 1995, and $14,025,000 ($0.58 per