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Public Storage, Inc.
1997 Annual Report
Driven by a Vision

Table of contents

  • Page 1
    Public Storage, Inc. 1997 Annual Report D r i v e n b y a V i s i o n

  • Page 2
    ...-storage, truck rentals and retail stores. Number of Properties Location Self-Storage (1) Commercial (2) Net Rentable Square Feet Self-Storage (1) Commercial (2) Number of Spaces Self-Storage (1) Commercial (2) Alabama Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii...

  • Page 3
    ... for the amortization of property management agreements and excess purchase cost over net assets acquired. FFO is presented because many analysts consider FFO to be one measure of the performance of the Company and it is used in certain aspects of the terms of the Class B Common Stock. FFO does not...

  • Page 4
    ... occupancy levels and rental rates in that market. As the larger owners of self-storage continue to dominate acquisition and development activities, the competitive landscape becomes more challenging. These operators can be expected to use professional management and media advertising, economies of...

  • Page 5
    ... & StoreTM self-storage containers for holiday toy collection outside selected Target Stores. Our properties are located in almost every major metropolitan area of the United States. This property is in Atlanta, Georgia. 3 B. Wayne Hughes Chairman of the Board and Chief Executive Officer Harvey...

  • Page 6
    ...standardize how we manage our national property system. Our training of property management personnel emphasizes customer service. Our on-site property managers are normally the self-storage customer's first face-to-face contact with our Company. Portable self-storage truck drivers are trained to be...

  • Page 7
    ... our self-storage properties share a national reservation system and a coordinated media advertising program, which allows for market strategies that promote both businesses' response to consumer demand. PS Orangeco, a subsidiary of Public Storage, operated 75 full-service retail stores on December...

  • Page 8
    ...inventory management techniques with our national reservation center at the hub. We are properly staffed to receive an anticipated 250,000 calls per month during the peak spring and summer periods. In addition to self-storage, the center markets portable self-storage, truck rentals and retail stores...

  • Page 9
    ... properties, $4.0 invest in its other operations, and reduce debt using internal 3.0 cash resources. This is one of the ways the Company believes its vision and strategies separate 2.0 it from its competitors. The Company distributed 44 per1.0 cent of funds from operations per common share for 1997...

  • Page 10
    ... 19 9 7 A n n u a l R e p o r t Consolidated Balance Sheets December 31, 1997 and 1996 December 31, 1997 December 31, 1996 (In thousands, except per share data) Assets Cash and cash equivalents Real estate facilities, at cost: Land Buildings Accumulated depreciation Construction in process $ 41...

  • Page 11
    ..., 1997 (In thousands, except per share data) 1997 1996 1995 Revenues: Rental income: Self-storage facilities Commercial properties Portable self-storage Equity in earnings of real estate entities Facility management fee Interest and other income Expenses: Cost of operations: Self-storage facilities...

  • Page 12
    ... December 31, 1997 Preferred Stock (In thousands, except share and per share amounts) Cumulative Convertible Common Stock Balances at December 31, 1994 Issuance of Preferred Stock, net of issuance costs: Series E, F , and G (4,501,900 shares) Convertible Participating (31,200 shares) Issuance of...

  • Page 13
    ... , I n c . 19 9 7 A n n u a l R e p o r t Class B Common Stock Paid-in Capital Cumulative Net Income Cumulative Distributions Total Shareholders' Equity $ - - - 700 - - - 700 700 700 $ 372,361 (9,718) 664,645 72,800 - - - 1,100,088 (8,972) - 333,956 27,799 1,516 - - - 1,454,387 (5,075) 393...

  • Page 14
    ... the issuances of common stock Principal payments on mortgage notes payable Distributions paid to shareholders Distributions from operations to minority interests in consolidated real estate partnerships Net reinvestment by minority interests in consolidated real estate partnerships Other Net cash...

  • Page 15
    ... Investment in real estate entities Acquisition of partnership interests in real estate entities in exchange for common stock Financing Activities: Cancellation of mortgage notes receivable to acquire real estate facilities Assumption of mortgage notes payable upon the acquisition of real estate...

  • Page 16
    ...Company (the "PSMI Merger''), the Company became self-administered and self-managed and acquired substantially all of the United States real estate operations of PSMI. In 1996 and 1997, the Company organized Public Storage Pickup and Delivery, Inc. as a separate corporation and a related partnership...

  • Page 17
    ... the unconsolidated real estate entities. Advertising costs are expensed as incurred. 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 be reasonably estimated. The...

  • Page 18
    ... the Company. The aggregate acquisition cost of these mergers is summarized as follows: Entity Date of merger Merger consideration (In thousands) Common Pre-existing Stock Cash investment Total 16 Public Storage Properties XIV, Inc. Public Storage Properties XV, Inc. Public Storage Properties XVI...

  • Page 19
    ... as of the dates of each respective transaction. The fair market values of the assets acquired and liabilities assumed with respect to the transactions occurring in 1997 and 1996 are summarized as follows: (In thousands) REIT mergers Partnership Acquisitions Total 1997 business combinations: Real...

  • Page 20
    ... $83.9 million in 1997 and 1996, respectively, in cash. During 1995, the Company (i) acquired limited and general partnership interests in 47 partnerships and common stock in 16 REITs in connection with the PSMI Merger at an aggregate cost of $389,686,000, (ii) acquired additional interests in some...

  • Page 21
    ... Facility") has a borrowing limit of $150 million and an expiration date of July 31, 2001. The expiration date may be extended by one year on each anniversary of the credit agreement. Interest on outstanding borrowings is payable monthly. At the option of the Company, the rate of interest charged is...

  • Page 22
    ... of the minority interests' share of the operating results of the Company relating to the consolidated operations of the Consolidated Entities. During 1997, the Company acquired limited partnership interests in the Consolidated Entities in several transactions for an aggregate cost of $21,559,000...

  • Page 23
    ... case of the self-storage facilities, and 5%, in the case of the commercial properties, of gross revenues of the facilities managed. Under the supervision of the property owners, the Company coordinates rental policies, rent collections, marketing activities, the purchase of equipment and supplies...

  • Page 24
    ... cash. Common stock During 1997, 1996 and 1995, the Company issued shares of its common stock as follows: 1997 (Dollar amounts in thousands) Shares Amount Shares 1996 Amount Shares 1995 Amount Public offerings In connection with mergers (Note 3) Issuance costs of mergers Exercise of stock options...

  • Page 25
    ... has granted non-qualified options to certain directors, officers and key employees and service providers to purchase shares of the Company's common stock at a price equal to the fair market value of the common stock at the date of grant. Generally, options under the Plans vest over a three-year...

  • Page 26
    ... the date of grant. The 1996 Plan also provides for the grant of restricted stock to officers, key employees and service providers on terms determined by the Audit Committee of the Board of Directors; no shares of restricted stock have been granted. Information with respect to the Plans during 1997...

  • Page 27
    ... 1997, three cases were filed against the Company. Each of the plaintiffs in these cases is suing the Company on behalf of a purported class of California tenants who rented storage spaces from the Company and contends that the Company's fees for late payments under its rental agreements for storage...

  • Page 28
    ... financial position of Public Storage, Inc. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Los Angeles, California...

  • Page 29
    ...the Los Angeles, California market, for example, where the Company has operated a consistent pool of 138 self-storage facilities since 1993, the occupancy levels of these facilities increased from 87.8% (7.3 million occupied square feet) at January 31, 1997 to 93.1% (7.7 million occupied square feet...

  • Page 30
    ...provide added customer service. Customers calling either the Company's toll-free telephone referral system, (800) 44-STORE, or a self-storage facility are directed to the national reservation system where a representative discusses with the customer space requirements, price and location preferences...

  • Page 31
    ... private REIT merged into Public Storage Properties XI, Inc., a publicly traded REIT and an affiliate of the Company, and the name of the surviving corporation was changed to PS Business Parks, Inc. ("PSBP"). In connection with the merger, PSBP exchanged 13 self-storage facilities for 11 commercial...

  • Page 32
    ... estate facilities as of December 31, 1997: Number of Facilities in which the Company has an ownership interest Self-storage Commercial facilities properties Total Net Rentable Square Footage (In thousands) Self-storage Commercial facilities properties Total Wholly-owned facilities Facilities owned...

  • Page 33
    ... telephone reservation system to provide added customer service. Customers calling either the Company's toll-free telephone referral system, (800) 44-STORE, or a local Public Storage facility, are directed to the national reservation system where a trained representative discusses with the customer...

  • Page 34
    ... rents per square foot of 4.6% in 1997 compared to 1996 and 3.1% in 1996 compared to 1995. With the exception of property management fees, most of the self-storage operating costs (i.e. payroll, property taxes, repairs and maintenance, etc.) are generally fixed. As a result of becoming self-managed...

  • Page 35
    ... property operations represent approximately 9% of the Company's operations (based on total revenues generated during 1997). The commercial properties are generally composed of multi-tenant office/industrial space and to a lesser extent suburban office. Commercial property rental income and cost...

  • Page 36
    ... of the Company's equity in earnings of real estate entities: Year Ended December 31, Dollar 1996 Change Year Ended December 31, Dollar 1996 1995 Change (Amounts in thousands) 1997 Self-storage operations (1) Commercial property operations Depreciation: Self-storage facilities Commercial...

  • Page 37
    ...PSPUD began to advertise the portable self-storage product on television in selected markets. Customers are directed to call the national reservation system where representatives discuss the customer's storage needs and are able to schedule delivery of containers to customers' locations. During 1997...

  • Page 38
    ... case of the self-storage facilities, and 5%, in the case of the commercial properties, of gross revenues of the facilities managed. Under the supervision of the property owners, the Company coordinates rental policies, rent collections, marketing activities, the purchase of equipment and supplies...

  • Page 39
    ... neighborhoods, (iii) sell locks, boxes and packing materials to the general public, including tenants and (iv) rent trucks and other moving equipment, all in an environment that is more retail oriented. Retail stores will be retrofitted to existing self-storage facility rental offices or "built-in...

  • Page 40
    ...consolidated financial statements as well as improved property operations. During 1997, the Company acquired sufficient ownership interest and control in 12 partnerships and commenced including the accounts of these partnerships in the Company's consolidated financial statements which amounted to an...

  • Page 41
    ...: 1997 1996 1995 Payroll expense Property taxes Property management fees Advertising Telephone center costs Other(4) $ 44,233 44,476 28,490 4,859 4,506 41,086 $167,650 $ 43,490 40,799 26,139 3,851 1,956 41,977 $158,212 $ 42,545 38,325 25,391 3,502 - 39,897 $149,660 2. Realized rent per square...

  • Page 42
    ... r t As indicated above, in early 1996, the Company implemented a national telephone reservation system designed to provide added customer service for all the self-storage facilities under management by the Company. The Company believes that the improved operating results, as indicated in the above...

  • Page 43
    ... the start-up operating losses related to PSPUD's new portable self-storage business of $31.7 million. Management views such losses as part of the reinvestment of the Company's internally generated cash flows in PSPUD. Distributions requirements: The Company's conservative distribution policy has...

  • Page 44
    ...with and into Properties 11, a publicly traded real estate investment trust affiliated with the Company. In connection with the merger, the Company exchanged 11 wholly owned commercial properties with the surviving corporation for 13 self-storage facilities. At December 31, 1997, the Company and the...

  • Page 45
    ...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 shareholders after...

  • Page 46
    ... p o r t Common Stock Distribution Policy and Stock Price Public Storage, Inc. has paid continuous quarterly distributions to its shareholders since 1981, its first full year of operations. Distributions paid per share of common stock for 1997 amount to $.88. Holders of common stock are entitled to...

  • Page 47
    ...-Acquisitions Manager Jill L. Webster Vice President and Director of Taxation Professional Services Transfer Agent Boston EquiServe Boston, Massachusetts http://www.EquiServe.com Auditors Ernst & Young LLP Los Angeles, California Management Division Marvin M. Lotz President Samuel I. Ballard Senior...

  • Page 48
    Public Storage, Inc. 701 Western Avenue Glendale, California 91201 (818) 244-8080 Address Correction Requested www.publicstorage.com Bulk Rate U.S. Postage PAID Brockton, MA Permit #366 satisfied customers NOW...and GROWING! 513-AR-98