Public Storage 1997 Annual Report Download - page 38

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Public Storage, Inc. 1997 Annual Report
During 1998, PSPUD has opened an additional 5 facilities in markets where PSPUD facilities are currently operating. The number of new
store openings in 1998 is not determinable, however, future openings will predominantly be in existing markets in which PSPUD currently
operates. By opening in existing markets, PSPUD will seek to gain benefits from economies of scale. PSPUD is also developing 10 facilities
and has identified 5 additional sites for development. All of these development projects are located in existing markets with expected
opening dates commencing during the second half of 1998.
Until the PSPUD facilities are operating profitably, PSPUD’s operations are expected to continue to adversely impact the Company’s
earnings. PSPUD believes that its business is likely to be more successful in certain markets than in others. There can be no assurances as to
the level of PSPUD’s expansion, level of gross rentals, level of move-outs or profitability.
Property Management Operations
In connection with the PSMI Merger, the Company acquired property management contracts, exclusive of facilities owned by the Company,
for self-storage facilities and, through a subsidiary, the management contracts for commercial properties. These facilities constitute all of
the United States self-storage facilities and commercial properties doing business under the “Public Storage” name and all those in which the
Company has an interest. At December 31, 1997, the Company managed 1,107 self-storage facilities (1,073 owned by affiliates of the Company
and 34 owned by third parties) and the Operating Partnership managed 63 commercial properties, all of which are owned by the Company
or affiliates of the Company.
The property management contracts generally provide for compensation equal to 6%, in the 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, maintenance activity,
and the selection and engagement of vendors, suppliers and independent contractors. In addition, the Company assists and advises the
property owners in establishing policies for the hire, discharge and supervision of employees for the operation of these facilities, including
resident managers, assistant managers, relief managers and billing and maintenance personnel.
Property Management Operations: Year Ended December 31, Year Ended December 31,
Dollar Dollar
(Amounts in thousands) 1997 1996 Change 1996 1995 Change
Facility management fees:
Self-storage $ 9,706 $13,474 $(3,768) $13,474 $1,976 $11,498
Commercial properties 435 954 (519) 954 168 786
10,141 14,428 (4,287) 14,428 2,144 12,284
Cost of operations:
Self-storage 1,449 1,820 (371) 1,820 264 1,556
Commercial properties 344 755 (411) 755 88 667
1,793 2,575 (782) 2,575 352 2,223
Net operating income:
Self-storage 8,257 11,654 (3,397) 11,654 1,712 9,942
Commercial properties 91 199 (108) 199 80 119
$8,348 $11,853 $(3,505) $11,853 $1,792 $10,061
Because the Company has significant ownership interests in all but 34 of the facilities it manages, the revenues generated from its property
management operations are generally predictable and are dependent upon the future growth of rental income for those facilities the Company
manages. However, because the Company has acquired in the past, and may continue to seek to acquire in the future, real estate facilities
owned by the Unconsolidated Entities, the Company’s facility management income should decrease in 1998 compared to 1997. The acquisitions
of such facilities will reduce management fee income.
Effective March 31, 1998, the Company will no longer consolidate PSBP and the Operating Partnership, the commercial properties
manager. This will have the effect of eliminating commercial properties management fee income and cost of operations.