Public Storage 1998 Annual Report Download - page 43

Public Storage, Inc. 1998 Annual Report
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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.
The increases in revenues and cost of operations reflect the opening of additional stores, as well as increases at the Company’s existing stores.
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 $1,878,000, $2,938,000, $2,710,000 in 1998, 1997 and 1996, respectively. The Company canceled
mortgage notes receivable of approximately $2,495,000 in 1998 and $700,000 in 1996 in connection with the acquisition of the real estate facilities
securing such notes. The Company also acquired notes receivable of $3,709,000 in 1996 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 $107,482,000 in 1998, $91,356,000 in 1997 and $64,967,000 in 1996.
These increases are principally due to the acquisition of additional real estate facilities in each period. Depreciation expense with respect to the real
estate facilities was $98,173,000 in 1998, $82,047,000 in 1997, and $55,689,000 in 1996; the increases are due to the acquisition of additional real
estate facilities in 1996 through 1998. Amortization expense with respect to intangible assets totaled $9,309,000 for each of the three years ended
December 31, 1998.
General and administrative expense: General and administrative expense was $8,972,000 in 1998, $6,384,000 in 1997 and $5,524,000 in 1996.
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, and (ii) the Company’s property acquisition and development activities have continued to expand, resulting in certain
additional costs incurred in connection with the acquisition of additional real estate facilities. 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.
Interest expense: Interest expense was $4,507,000 in 1998, $6,792,000 in 1997 and $8,482,000 in 1996. Reflecting the Company’s reluctance to
finance its growth with debt, debt and related interest expense remains relatively low compared to the Company’s overall asset base. The Company
capitalized interest expense of $3,481,000 in 1998, $2,428,000 in 1997 and $1,861,000 in 1996 in connection with the Company’s development
activities. Interest expense before the capitalization of interest was $7,988,000 in 1998, $9,220,000 in 1997 and $10,343,000 in 1996. The decrease
in interest expense in 1997 as compared to 1996 principally is due to the retirement of debt in 1997 of approximately $11.9 million. The decrease in
interest expense in 1998 as compared to 1997 also includes the impact of the retirement of debt in 1998 of approximately $15.1 million.
Minority interest in income: Minority interest in income represents the income allocable to equity interests in Consolidated Entities which are not
owned by the Company. Since 1990, the Company has acquired portions of these equity interests through its acquisition of limited and general
partnership interests in the Consolidated Entities. These acquisitions have resulted in reductions to the “Minority interest in income” from what it
would otherwise have been in the absence of such acquisitions, and accordingly, have increased the Company’s share of the Consolidated Entities’
income. However, offsetting the reduction in minority interest in 1998 and 1997 caused by the acquisition of additional equity interests are the
inclusion of additional partnerships in the Company’s consolidated financial statements as well as improved property operations. During 1998 and
1997, the Company acquired sufficient ownership interest and control in three and twelve partnerships, respectively, and commenced including the
accounts of these partnerships in the Company’s consolidated financial statements which resulted in an increase in minority interest in income of
approximately $5,413,000 in 1998 and $1,961,000 in 1997. Minority interest for the year ended December 31, 1998 also reflects additional minority
interests with respect to PSB prior to April 1, 1998.
In determining income allocable to the minority interest for 1998, 1997 and 1996 consolidated depreciation and amortization expense of
approximately $12,022,000, $9,245,000 and $11,490,000, respectively, was allocated to the minority interest. The changes in depreciation allocated
to the minority interest were principally the result of the factors denoted above with respect to minority interest in income.