Public Storage 1996 Annual Report Download - page 36

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
P UBLIC S TORAGE , I NC . 1996 A NNUAL R EPORT
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Depreciation and amortization: Depreciation and amortization expense was $64,967,000 in 1996, $40,760,000 in 1995, and $28,274,000 in 1994.
These increases are principally due to the acquisition of additional real estate facilities in each period combined with amortization of intangible
assets acquired in connection with the PSMI Merger. Depreciation expense with respect to the real estate facilities was $55,689,000 in 1996,
$39,376,000 in 1995, and $28,099,000 in 1994; the increases are due to the acquisition of additional real estate facilities in 1994 through 1996.
Amortization expense with respect to intangible assets acquired in the PSMI Merger totaled $9,309,000 in 1996 and $1,164,000 in 1995 (the 1995
amount representing a pro rated amount from November 16, 1995 through the end of the year).
General and administrative expense: General and administrative expense was $5,524,000 in 1996, $3,982,000 in 1995, and $2,631,000 in 1994.
The Company has experienced and expects to continue to experience increased general and administrative costs due to the following: (i) the growth
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,
resulting in the Company internalizing management functions which previously were provided by the Company’s investment adviser. However,
offsetting the expected increases in general and administrative expenses has been the elimination of advisory fee expense. General and adminis-
trative costs for each year principally consist of state income taxes (for states in which the Company is a non-resident), investor relation expenses,
and certain overhead associated with the acquisition and development of real estate facilities.
Interest expense: Interest expense was $8,482,000 in 1996, $8,508,000 in 1995, and $6,893,000 in 1994. Reflecting the Company’s reluctance
to finance its growth with debt, debt and related interest expense remains relatively low compared to the Company’s overall asset base. The decrease
in interest expense in 1996 compared to 1995, principally is due to the early retirement of debt in 1996 of approximately $41.0 million having a
weighted average interest rate of 7.76% partially offset by assumption of a $65.5 million, 7.08% unsecured senior note in connection with the
PSMI Merger on November 16, 1995.
Environmental costs: The Company’s policy is to accrue environmental assessments and/or remediation cost when it is probable that such efforts
will be required and the related costs can reasonably be estimated. The majority of the Company’s real estate facilities were acquired prior to the
time when it was customary to conduct environmental assessments. During 1995, the Company and the Consolidated Partnerships conducted inde-
pendent environmental investigations of their real estate facilities. As a result of these investigations, the Company has recorded an amount which,
in management’s best estimate, will be sufficient to satisfy anticipated costs of known remediation requirements. At December 31, 1995, the
Company accrued $2,741,000 for estimated environmental remediation costs. Although there can be no assurance, the Company is not aware of
any environmental contamination of any of its facilities which individually or in the aggregate would be material to the Company’s overall business,
financial condition, or results of operations. The Company believes that amounts accrued in 1995 are sufficient to satisfy anticipated costs.
Advisory fees: Advisory fees were $4,983,000 in 1994 and $6,437,000 in 1995. The advisory fee, which was based on a contractual computation,
increased as a result of increased adjusted net income (as defined) per common share combined with the issuance of additional preferred and com-
mon stock during each of the periods. Advisory fees for fiscal 1995 represent such amounts from the beginning of the year through November 16,
1995, when the Company became self-advised pursuant to the PSMI Merger. As a result of becoming self-advised, the Company no longer incurs
advisory fees.
Minority interest in income: Minority interest in income represents the income allocable to equity interests in the Consolidated Partnerships which
are not owned by the Company. Since 1990, the Company has acquired portions of these equity interests through its acquisition of limited and gen-
eral partnership interests in the Consolidated Partnerships. These acquisitions have resulted in reductions to the “Minority interest in income”
from what it would otherwise have been in the absence of such acquisitions, and accordingly, have increased the Company’s share of the
Consolidated Partnerships’ income. However, offsetting the reduction in minority interest in 1996 caused by the acquisition of additional equity
interests are the inclusion of additional partnerships in the Company’s consolidated financial statements. During 1996, the Company acquired
sufficient ownership interest and control in three partnerships and commenced including the accounts of these partnerships in the Company’s
consolidated financial statements which amounted to an increase in minority interest in income of approximately $2,187,000 in 1996.
In determining income allocable to the minority interest for 1996, 1995 and 1994 consolidated depreciation and amortization expense of approx-
imately $11,490,000, $11,243,000 and $13,556,000, respectively, was allocated to the minority interest. The decrease in depreciation allocated to
the minority interest was principally the result of the acquisition of limited partnership units in the Consolidated Partnerships by the Company
throughout fiscal 1994, 1995 and 1996 offset by an increase in 1996 resulting from the above mentioned consolidation of three partnerships.