Public Storage 1996 Annual Report Download - page 7

P UBLIC S TORAGE , I NC . 1996 A NNUAL R EPORT
5
petitive advantages will continue to attenuate
the effects of these pressures. Our strengths
include the significant operating and financial
experience of our executive officers and
directors, Public Storage’s strong operating
business and financial strength, national
investment scope, geographic diversification,
economies of scale, and our trade name.
In February 1997 we reached an agree-
ment in principle with a joint venture partner
to participate in funding the development
of approximately $220 million of mini-
warehouses (including the properties cur-
rently under development by Public Storage).
The joint venture partner would contribute
about 70 percent of the venture’s capital
with the balance provided by Public Storage.
After a period of time, Public Storage would
have an option to acquire the other venture
partner’s interest. The construction of self-
storage properties and the relatively long
“fill-up” period to reach a stabilized occu-
pancy level creates short-term earnings dilu-
tion. We expect that the development joint
venture will alleviate this earnings dilution.
There can be no assurance that a definitive
agreement can be reached between Public
Storage and the joint venture partner.
Assuming an agreement is finalized, it is
expected that the joint venture would be
funded in April 1997.
As of December 31, 1996 we had five
recently developed self-storage properties
(costs of $23.5 million) open and in the fill-
up stage. An additional 11 facilities were
under construction (estimated costs of
$56 million) with expected opening dates
ranging from January 1997 through March
1998. Our investment strategy will continue
to include developing mini-warehouses.
Consequently, we have approved the develop-
ment of an additional 17 facilities (estimated
costs of $70.2 million) with construction and
completion dates through mid-1998. We are
currently evaluating the feasibility of devel-
oping additional mini-warehouses in selected
markets in which there are few, if any, facili-
ties 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 com-
peting facilities.
At the end of 1996 Public Storage and HFS
Incorporated, the world’s largest franchisor
of residential real estate brokerage offices,
entered into a three-year preferred vendor
agreement to co-market rental storage
space to franchisees and customers of
HFS Incorporated’s three real estate brands.
The agreement provides certain pricing
discounts on self-storage rental space for
CENTURY 21,
®
Coldwell Banker,
®
and ERA
®
franchised brokerages and their customers.
We should be able to use our national reser-
vation center to offer these services to the
clientele of some of the largest real estate
brand names in the country.
Last year we opened, on an experimental
basis, complete storage-related retail centers
at self-storage locations in Atlanta, Georgia
and Southern California. We plan to continue
opening retail stores in selected markets.
Currently, we have 13 retail stores in opera-
tion and 20 retail store conversions. If the
previously discussed joint venture agreement
is reached, all future development projects,
including projects currently under construc-
tion and development, will be presented to
the joint venture for approval and acceptance
into their portfolio. Public Storage will then
have the option to construct any project not
approved by the joint venture. Almost all
newly constructed Public Storage self-
storage properties will feature a retail oper-
ation. The retail operations are performed
through a subsidiary of the Company.
In 1996 we organized Public Storage
Pickup & DeliverySM (PSPUD) as a separate
corporation to operate a portable self-
storage business that rents storage contain-
ers to customers for storage in central
warehouses and provides related transporta-
tion services. PSPUD currently operates a
total of twelve facilities in six greater metro-
politan areas in California and Texas. PSPUD
anticipates opening four additional facilities
in these areas and in three additional metro-
politan areas by the end of the first quarter of
1997. PSPUD presently anticipates expand-
ing its operations to a significant number of
additional areas during the remainder of
1997 and in 1998, subject to continuing eval-
uation of the feasibility of this business and
the satisfaction of regulatory requirements.
There can be no assurance on the level of
PSPUD’s expansion or profitability.
M AINTAINING I NDUSTRY
L EADERSHIP
We entered 1996 with substantial momentum
from the merger that was consummated on
November 16, 1995. That merger increased
our competitive position and provided for a
more efficient organizational structure. As
we progressed through 1996 we enhanced
the economic value of our business at the
property level. We did this primarily by com-
pleting financial transactions that improved
our balance sheet, incorporating new infor-
mation and operating technologies into our
property management system, and expand-
ing the complementary businesses that
now constitute part of the Public Storage
infrastructure.
In evaluating how effectively we are
accommodating our customers’ needs, we
emphasize certain key elements: value, ser-
vice, location, product, and marketing. To our
540,000 customers, adding value to their
self-storage experience means maximizing
the “what they receive” side of the equation
while minimizing the “what they pay” side of
the equation. We anticipate our shareholders
will benefit from our long-term operating and
investment strategies and our substantial
strengths in 1997 and beyond, and we thank
our shareholders for their continued support.
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
Portfolio Growth
1980-1996
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96
Years (through 12/31/96)
Property interests (through 12/ 31/96)
Sincerely,
B. Wayne Hughes
Chairman of the Board
and Chief Executive Officer
Harvey Lenkin
President
March 31, 1997