Public Storage 1997 Annual Report Download - page 31

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Public Storage, Inc. 1997 Annual Report
The feasibility of developing additional self-storage and portable self-storage facilities is ongoing. The focus is on 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.
In January and February 1998, PSPUD opened five additional facilities. PSPUD is currently developing 10 facilities and has also identified
an additional five sites for development which collectively have an aggregate estimated cost of $67.5 million. All such facilities are located in
existing markets in which PSPUD currently operates.
On January 2, 1997, the Company reorganized its commercial property operations into a separate private REIT. The private REIT contributed
its assets to a newly created operating partnership (the “Operating Partnership”) in exchange for a general partnership interest and limited
partnership interests. The Company and certain partnerships in which the Company has a controlling interest contributed substantially all
of their commercial properties to either the Operating Partnership in exchange for limited partnership interests or to the private REIT in
exchange for common stock. The Company believes that the concentration of all the commercial properties and the property manager into
one entity will create a vehicle which should facilitate future growth in this segment of the real estate industry. The Company will participate
in the entity’s growth through the Company’s ownership interest.
In 1997, the private REIT and Operating Partnership acquired 10 commercial properties from third parties. The aggregate purchase price
of these facilities consisted of cash, common stock of the private REIT and limited partnership interests of the Operating Partnership.
At December 31, 1997, the private REIT and the Operating Partnership owned 49 properties located in 10 states. The Operating Partnership
also managed the commercial properties owned by the Company and affiliated entities. As of December 31, 1997, the Company owned
approximately 53% of the private REIT which owned approximately 19% of the Operating Partnership. The balance of the Operating
Partnership is primarily owned by the Company and partnerships controlled by the Company.
On January 21, 1998, the private REIT entered into an agreement with a group of unaffiliated institutional investors under which up to
$155,000,000 in common stock would be issued. $50,000,000 of this common stock was issued on January 21, 1998, with the remainder
to be issued as funds are required to purchase commercial properties.
On March 17, 1998, the 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 properties owned by the Company. Upon completion of the merger, PSBP and the
Operating Partnership owned 64 commercial properties (approximately 7.3 million square feet), and managed the commercial properties
owned by the Company and affiliated partnerships. Upon completion of the merger, the Company and partnerships controlled by the
Company owned approximately 58% of PSBP and the Operating Partnership on a combined basis.
Due to the Company’s controlling ownership interest in PSBP and the Operating Partnership, the Company included the operations of these
entities in the Company’s consolidated financial statements as of December 31, 1997. However, as a result of the March 17, 1998 merger and
the agreement to issue additional shares of common stock to the group of unaffiliated institutional investors, the Company believes that its
reduced ownership will no longer warrant consolidation of these entities effective March 31, 1998.
Since 1994, the Company has significantly increased both its asset and capital base through the investment in additional real estate
assets financed predominantly with the issuance of equity. As a result, the increased asset base has translated into significant growth in the
Company’s overall operating results. The comparative growth in operating results between 1997 and 1996 is principally due to mergers with
affiliated REITs combined with acquisitions of additional real estate facilities and investments in real estate entities. The comparative growth
in operating results between 1996 and 1995 is principally due to the impact of the Company’s merger with Public Storage Management, Inc.
(“PSMI”), whereby the Company became self-administered and self-managed and acquired substantially all of the United States real estate
operations of PSMI (the “PSMI Merger”).