Public Storage 1996 Annual Report Download - page 41

P UBLIC S TORAGE , I NC . 1996 A NNUAL R EPORT
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Over the past three years the Company has funded substantially all of its acquisitions with permanent capital (both common and preferred stock).
Unlike many other real estate companies, the Company has elected to use preferred stock despite the fact that the coupon rates of its preferred
stock exceeds current rates on conventional debt. The Company has chosen this method of financing for the following reasons: (i) the Company’s
perpetual preferred stock has no sinking fund requirements or maturity date and does not require redemption, all of which eliminate any future
refinancing risks, (ii) preferred stock allows the Company to leverage the common stock without the attendant interest rate or refinancing risks of
debt, and (iii) dividends on the preferred stock can be applied to the Company’s REIT distributions requirements, which have helped the Company
to maintain a low common stock dividend payout ratio and retain cash flow.
On March 18, 1997, the Company publicly issued 4.6 million shares of common stock, raising net proceeds of approximately $126.5 million. The
Company intends to use the net proceeds from this offering to make investments in real estate, primarily self-storage, including mortgage loans and
interest in real estate partnerships, to satisfy cash elections in connection with mergers with affiliated REITs and to fund expenditures of PSPUD.
Proposed mergers with affiliates: In December 1996, Public Storage Properties XIV, Inc. (“Properties 14”) and Public Storage Properties XV, Inc.
(“Properties 15”) each agreed, subject to certain conditions, to merge with and into the Company. Properties 14 and Properties 15 are affiliated,
publicly traded equity REITs. Each of the mergers is conditioned on approval by the respective shareholders of Properties 14 and Properties 15.
However, the mergers are not conditioned on each other. The Company expects that if approved by the shareholders, the mergers would be com-
pleted in April 1997. The estimated value of the Properties 14 and Properties 15 merger is approximately $63.8 million and $58.5 million, respec-
tively. Properties 14 and Properties 15 own 14 properties (912,000 square feet) and 19 properties (1,087,000 square feet), respectively. The
Company currently owns approximately 33% and 35% of the economic interest in Properties 14 and Properties 15, respectively.
Development activities: At December 31, 1996, the Company had eleven self-storage facilities (approximately 707,000 square feet) under con-
struction with an aggregate cost incurred to date of approximately $33.5 million and total additional estimated cost to complete of $22.5 million.
The Company currently has plans to develop an additional 17 self-storage facilities (approximately 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 scarcity of other undeveloped parcels of land or other
impediments to development make it difficult to construct additional competing facilities.
The Company has reached an agreement in principle with a joint venture partner to participate in funding the development of approximately
$220 million of self-storage facilities (including the facilities currently under development by the Company). The joint venture partner would
contribute about 70% of the venture’s capital with the balance provided by the Company. After a period of time, the Company would have an option
to acquire the other venturer’s interest. There can be no assurance that a definitive agreement can be reached between the Company and the joint
venturer partner. Assuming an agreement is finalized, it is expected that the joint venture would be funded in early April 1997.
Portable self-storage business: As indicated above, in 1996 the Company organized PSPUD as a separate corporation to operate a portable self-
storage business that rents storage containers to customers for storage in central warehouses and provides related transportation services. PSPUD
currently operates a total of 12 facilities in six greater metropolitan areas in California and Texas and anticipates opening four additional facilities
in these areas and in three additional areas by the end of the first quarter of 1997. PSPUD presently anticipates expanding its operations to a sig-
nificant number of additional areas during the remainder of 1997 and 1998, subject to continuing evaluation of this business and the satisfaction of
regulatory requirements. There can be no assurance on the level of PSPUD’s expansion or profitability.
Generally, PSPUD expects to expend an amount ranging from $850,000 to $1,100,000 per facility during the first full year of operations, depend-
ing on location and pricing structure. This estimate includes approximately $550,000 of capitalized expenditures combined with estimated first year
operating losses and is based on certain assumptions indicated under “Ancillary Businesses” (pages 32-33).
REIT status: The Company believes that it has operated, and intends to continue to operate, in such a manner as to qualify as a REIT under
the Internal Revenue Code of 1986, but no assurance can be given that it will at all times so qualify. To the extent that the Company continues to
qualify as a REIT, it will not be taxed, with certain limited exceptions, on the taxable income that is distributed to its shareholders. As a REIT, the
Company is not taxed on that portion of its taxable income which is distributed to its shareholders provided that at least 95% of its taxable income
is so distributed prior to filing of the Company’s tax return. The Company has satisfied the REIT distribution requirement since 1980.