Public Storage 1996 Annual Report Download - page 40

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
P UBLIC S TORAGE , I NC . 1996 A NNUAL R EPORT
38
ties and reducing the amount of future preference payments which must be paid to other investors before cash distributions will be shared on a pro-
rata basis with respect to each investor’s actual interest. The aggregate future preference payments to other investors is approximately $81.1 mil-
lion and is expected to be paid over approximately 12 years, with approximately 50% of the amount being paid over the next 3.5 years.
Distributions requirements: Over the past four years, the Company’s conservative distribution policy has been the principal reason for the
Company’s ability to retain significant operating cash flows which have been used to make additional investments and debt reductions. During 1994,
1995 and 1996, the Company distributed to common shareholders approximately 54%, 52% and 44% of its FFO available to common shareholders,
respectively, allowing it to retain approximately $110.8 million over this period of time after satisfying its capital improvements and preferred stock
dividend requirements.
During 1996, the Company paid dividends totaling $56,472,000 to the holders of the Company’s Senior Preferred Stock, $12,127,000 to the hold-
ers of the Convertible Preferred Stock, and $67,709,000 to the holders of Common Stock. Dividends with respect to the Senior Preferred Stock and
the Convertible Preferred Stock include pro-rated amounts for securities issued during 1996. The Company estimates the distribution requirements
for fiscal 1997 with respect to Senior Preferred Stock and the Convertible Preferred Stock to be approximately $76.8 million. Distributions with
respect to the common stock will be determined based upon the Company’s REIT distribution requirements after taking into consideration distrib-
utions to the Company’s preferred shareholders.
Capital improvement requirements: During 1997, the Company has budgeted approximately $26.6 million for capital improvements ($22.4 mil-
lion for its self-storage facilities and $4.2 million for its commercial properties). The minority interests’ share of the budgeted capital improvements
is approximately $3.3 million.
During 1995, the Company commenced a program to enhance its visual icon and modernize the appearance of its self-storage facilities, includ-
ing modernization of signs, paint color schemes, and rental offices. Included in the 1997 capital improvement budget is approximately $4.8 million
with respect to these expenditures.
The significant increase in capital improvements in 1996 for the self-storage facilities (as reflected in the table on page 37) is due to the acqui-
sition of new facilities in 1996 and 1995 and the aforementioned visual enhancements during 1996.
Debt service requirements: The Company does not believe it has any significant refinancing risks with respect to its mortgage debt, all of which
is fixed rate. During 1996, the Company retired early approximately $43.2 million of mortgage debt. At December 31, 1996, the Company had total
outstanding borrowings of approximately $108.4 million. See Note 8 to the Consolidated Financial Statements for approximate principal maturities
of such borrowings.
The Company uses its $150.0 million of bank credit facility (all of which was unused as of March 18, 1997) primarily to fund acquisitions
and provide financial flexibility and liquidity. The credit facility currently bears interest at LIBOR plus 0.40% based on the Company’s current
financial ratios.
Growth strategies: During 1997, the Company intends to continue to expand its asset and capital base principally through the (i) acquisition of real
estate assets and interests in real estate assets from both unaffiliated and affiliated parties through direct purchases, mergers, tender offers or other
transactions, (ii) development of additional self-storage facilities and (iv) the expected growth in the operations of PSPUD in the portable self-stor-
age business. See further discussion below with respect to each of these activities.
The Company expects to fund these transactions with internally generated retained cash flows and borrowings under its $150.0 million credit
facility. The Company intends to repay amounts borrowed under the credit facility from undistributed operating cash flow or, as market conditions
permit and are determined to be advantageous, from the public or private placement of equity securities. With respect to the development of addi-
tional self-storage facilities, the Company expects to enter into a joint venture arrangement, see “Development Activities” below.
External financing ability: The Company believes that its size and financial flexibility enables it to access capital for growth when appropriate. The
Company’s financial profile is characterized by a low level of debt to total capitalization, increasing net income, increasing cash flow from opera-
tions, and a conservative dividend payout ratio with respect to the common 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 had mortgage debt
outstanding of $48.7 million and had consolidated real estate facilities with a book value of $1.9 billion. The Company, however, has been reluctant
to finance its acquisitions with debt and generally will only increase its mortgage borrowing through the assumption of pre-existing debt on acquired
real estate facilities.