Public Storage 1997 Annual Report Download - page 39

37
Public Storage, Inc. 1997 Annual Report
Other Income and Expense Items
Interest and other income: In an effort to attract a wider variety of customers, to further differentiate the Company from its competition
and to generate new sources of revenues, additional businesses are being developed through the Company’s subsidiaries that complement
the Company’s self-storage business. These products include the sale of locks, boxes and packing supplies and the rental of trucks and other
moving equipment through the implementation of a retail expansion program and truck rental program. The net results of these businesses
are presented along with interest and other income, as “interest and other income.” The components of interest and other income are detailed
as follows:
Year Ended December 31, Year Ended December 31,
Dollar Dollar
(In thousands) 1997 1996 Change 1996 1995 Change
Sales of packaging material and truck rental income:
Revenues $5,272 $3,083 $2,189 $3,083 $ 112 $2,971
Costs of operation 4,134 2,171 1,963 2,171 100 2,071
Net operating income 1,138 912 226 912 12 900
Interest and other income 7,988 7,064 924 7,064 4,497 2,567
Total interest and other income $9,126 $7,976 $1,150 $7,976 $4,509 $3,467
The strategic objective of the retail expansion program is to create a “Retail Store” that will (i) rent spaces for the attached self-storage
facility, (ii) rent spaces for the other Public Storage facilities in adjacent 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” as part of the development of new self-storage facilities,
both in high traffic, high visibility locations.
Interest and other income is primarily attributable to interest income on cash balances and interest income from mortgage notes receivable.
Interest income from mortgage notes receivable was $2,938,000, $2,710,000 and $1,974,000 in 1997, 1996 and 1995, respectively. The
Company canceled mortgage notes receivable of approximately $700,000 in 1996 and $16,435,000 in 1995 in connection with the
acquisition of real estate facilities securing such notes. The Company also acquired notes receivable of $6,667,000 in the PSMI Merger in
1995 and an additional $12,355,000 and $3,709,000 in 1995 and 1996, respectively, from affiliated parties. The other increases in interest
income are primarily attributable to fluctuations in the level of invested cash balances which are caused by the timing of investing equity
offering proceeds in real estate assets.
Depreciation and amortization: Depreciation and amortization expense was $91,356,000 in 1997, $64,967,000 in 1996 and $40,760,000
in 1995. These increases are principally due to the acquisition of additional real estate facilities in each period; the increase from 1995 to 1996
also includes the effect of amortization of intangible assets acquired in connection with the PSMI Merger. Depreciation expense with respect
to the real estate facilities was $82,047,000 in 1997, $55,689,000 in 1996 and $39,376,000 in 1995; the increases are due to the acquisition
of additional real estate facilities in 1995 through 1997. Amortization expense with respect to intangible assets acquired in the PSMI Merger
totaled $9,309,000 in 1997, $9,309,000 in 1996 and $1,164,000 in 1995 (the 1995 amount representing a pro rated amount from November 16,
1995 through the end of the year).
General and administrative expense: General and administrative expense was $6,384,000 in 1997, $5,524,000 in 1996 and $3,982,000
in 1995. The Company has experienced and expects to continue to experience increased general and administrative costs due to the following:
(i) the growth in the size of the Company, (ii) the Company’s property acquisition activities have continued to expand, resulting in certain addi-
tional costs incurred in connection with the acquisition of additional real estate facilities, and (iii) pursuant to the PSMI Merger, the Company
became self-advised, resulting in the Company internalizing management functions which previously were provided by the Company’s
investment adviser. However, offsetting the increases in general and administrative expenses has been the elimination of advisory fee expense.
General and administrative costs for each year principally consist of state income taxes (for states in which the Company is a non-resident),
investor relation expenses, and certain overhead associated with the acquisition and development of real estate facilities.