Public Storage 1998 Annual Report Download - page 20

Public Storage, Inc. 1998 Annual Report
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Note 1. Description of the Business
Public Storage, Inc. (the “Company”) is a California corporation which was organized in 1980. The Company is a fully integrated, self-administered and
self-managed real estate investment trust (“REIT”) that acquires, develops, owns and operates self-storage facilities which offer self-storage spaces for
lease, usually on a month-to-month basis, for personal and business use.
The Company invests in real estate facilities primarily through the acquisition of wholly-owned facilities combined with the acquisition of equity
interests in real estate entities owning real estate facilities. At December 31, 1998, the Company had direct and indirect equity interests in 1,206
properties located in 38 states, including 1,094 self-storage facilities and 107 commercial properties and five facilities for use in its portable self-storage
operations. All of the self-storage facilities are operated by the Company under the “Public Storage” name.
In 1996 and 1997, the Company organized Public Storage Pickup and Delivery, Inc. as a separate corporation and a related partnership (the
corporation and partnership are collectively referred to as “PSPUD”) to operate a portable self-storage business that rents storage containers to
customers for storage in central warehouses. At December 31, 1998, PSPUD operated 43 facilities in 11 states.
On January 2, 1997, the Company reorganized its commercial property operations into a separate private REIT (the “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 the Operating Partnership in exchange for limited partnership interests or to the Private REIT in exchange for common stock.
On March 17, 1998, the Private REIT merged into Public Storage Properties XI, Inc., an affiliated publicly traded REIT and the name of the surviving
corporation was changed to PS Business Parks, Inc. (the REIT and Operating Partnership are referred to hereafter as “PSB”). As of December 31, 1998,
the Company owned approximately 40% of PSB. At December 31, 1998, PSB owned 106 properties located in 11 states. PSB also manages the
commercial properties owned by the Company and certain of its unconsolidated affiliates.
Note 2. Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements include the accounts of the Company, PSPUD, and 21 controlled limited partnerships (the “Consolidated
Entities”). Collectively, these entities own a total of 957 real estate facilities, consisting of 951 self-storage facilities, one commercial property, and five
facilities for use by PSPUD.
At December 31, 1998, the Company also had equity investments in 26 other affiliated limited partnerships whose principal business is the
ownership of 143 self-storage facilities in aggregate which are managed by the Company. The Company does not control these entities, accordingly, the
Company’s investments in these entities are accounted for using the equity method.
From the time of PSB’s formation through March 31, 1998, the Company consolidated the accounts of PSB in its financial statements. During the
second quarter of 1998, the Company’s ownership interest in PSB was reduced below 50%, and accordingly, the Company ceased to have a controlling
interest in PSB. As a result, the Company, effective April 1, 1998, no longer includes the accounts of PSB in its consolidated financial statements and
has accounted for its investment during the nine months ended December 31, 1998 using the equity method. The consolidated statement of income
for the year ended December 31, 1998 includes the consolidated operating results of PSB for the three months ended March 31, 1998, however, for the
nine months ended December 31, 1998 the Company’s investment is accounted for using the equity method.
Use of estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Income taxes
For all taxable years subsequent to 1980, the Company qualified and intends to continue to qualify as a REIT, as defined in Section 856 of the Internal
Revenue Code. As a REIT, the Company is not taxed on that portion of its taxable income which is distributed to its shareholders provided that the
Company meets certain tests. The Company believes it has met these tests during 1998, 1997 and 1996; accordingly, no provision for income taxes has
been made in the accompanying financial statements.
Financial instruments
For purposes of financial statement presentation, the Company considers all highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
Notes to Consolidated Financial Statements (December 31, 1998)