Public Storage 1996 Annual Report Download - page 39

P UBLIC S TORAGE , I NC . 1996 A NNUAL R EPORT
37
Operating as a REIT, the Company’s ability to retain cash flow for reinvestment is restricted. In order for the Company to maintain its REIT status,
a substantial portion of its operating cash flow must be used to make distributions to its shareholders (see
“REIT status” below). Remaining cash
flow must then be sufficient to fund necessary capital improvements and scheduled debt service requirements. The following table summarizes the
Company’s ability to pay the minority interests’ distributions, its dividends to the preferred shareholders and capital improvements to maintain the
facilities through the use of cash provided by operating activities. The remaining cash flow is available to the Company to make both scheduled and
optional principal payments on debt, pay distributions to common shareholders and for reinvestment.
For the Year Ended December 31,
(In thousands) 1996 1995 1994
Net income $153,549 $ 70,386 $ 42,118
Depreciation and amortization 64,967 40,760 28,274
Depreciation from Unconsolidated Entities 17,450 2,045 –
Minority interest in income 9,363 7,137 9,481
Environmental accrual – 3,251 –
Amortization of discounts on mortgage notes receivable (92) (113) (693)
Net cash provided by operating activities 245,237 123,466 79,180
Distributions from operations to minority interests (20,853) (18,380) (23,037)
Cash from operations/ FFO allocable to the Company’s shareholders 224,384 105,086 56,143
Less: preferred stock dividends (68,599) (31,124) (16,846)
Cash from operations/ FFO available to common shareholders 155,785 73,962 39,297
Capital improvements to maintain facilities:
Self-storage facilities (15,957) (8,509) (6,360)
Commercial properties (4,409) (2,852) (1,952)
Add back: minority interest share of capital improvements to maintain facilities 3,159 3,219 2,948
Funds available for principal payments on debt, common dividends and reinvestment 138,578 65,820 33,933
Cash distributions to common shareholders (67,709) (38,586) (21,249)
Funds available for principal payments on debt and reinvestment $ 70,869 $ 27,234 $ 12,684
See the Consolidated Statements of Cash Flows for the each of the three years in the period ended December 31, 1996 for additional informa-
tion regarding the Company’s investing and financing activities.
Total FFO increased to $224,384,000 for the year ended December 31, 1996 compared to $105,086,000 in 1995 and $56,143,000 in 1994. FFO
available to common shareholders (after deducting preferred stock dividends) increased to $155,785,000 for the year ended December 31, 1996
compared to $73,962,000 in 1995 and $39,297,000 in 1994. FFO means net income (loss) (computed in accordance with generally accepted
accounting principles) before (i) gain (loss) on early extinguishment of debt, (ii) minority interest in income and (iii) gain (loss) on disposition of
real estate, adjusted as follows: (i) plus depreciation and amortization (including the Company’s pro-rata share of depreciation and amortization of
unconsolidated equity interests and amortization of assets acquired in the PSMI Merger, including property management agreements and goodwill),
and (ii) less FFO attributable to minority interest.
FFO is a supplemental performance measure for equity REITs as defined by the 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, FFO represents amounts attributable to its share-
holders after deducting amounts attributable to the minority interests and before deductions for the amortization of property management agree-
ments and goodwill. FFO is presented because many industry analysts consider FFO to be one measure of the performance of the Company and it
is used in establishing the terms of the Class B Common Stock. FFO does not take into consideration capital improvements, scheduled principal pay-
ments on debt, distributions and other obligations of the Company. Accordingly, FFO is not a substitute for the Company’s cash flow or net income
(as discussed above) as a measure of the Company’s liquidity or operating performance.
The Company accounts for the Unconsolidated Entities using the equity method of accounting, and, accordingly, earnings are recognized based
upon the Company’s interest in each of the partnerships and REITs. This interest is based on the Company’s share of the increase or decrease in
the net assets of the entities from their operations. Provisions of the partnerships’ and REITs’ governing documents provide for the payment of pre-
ferred cash distributions to other investors (until certain specified amounts have been paid) without regard to the pro-rata interest of all investors
in current earnings. As a result, actual cash distributions paid to the Company for a period of time will be less than the Company’s interest in the
entities’ FFO. During 1996, FFO distributed to the Company was approximately $16.4 million less than the Company’s share of FFO. Preferred cash
distributions paid to other investors during each period have the effect of increasing the Company’s economic interest in each of the respective enti-