Public Storage 1998 Annual Report Download - page 46

Public Storage, Inc. 1998 Annual Report
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cash flow. The following table summarizes the Company’s ability to pay the minority interests’ distributions, its dividends to the preferred shareholders
and capital improvements to maintain the facilities through the use of cash provided by operating activities. The remaining cash flow generated is
available to the Company to make both scheduled and optional principal payments on debt and for reinvestment.
For the Year Ended December 31,
(amounts in thousands) 1998 1997 1996
Net income $ 227,019 $178,649 $153,549
Depreciation and amortization 107,482 91,356 64,967
Depreciation from Unconsolidated Entities 13,884 11,474 17,450
Minority interest in income 20,290 11,684 9,363
Net cash provided by operating activities 368,675 293,163 245,329
Distributions from operations to minority interests (32,312) (20,929) (20,853)
Cash from operations allocable to the Company’s shareholders 336,363 272,234 224,476
Less: preferred stock dividends (78,375) (88,393) (68,599)
Add: Non-recurring payment of dividends with respect to the
Series CC convertible stock — 13,412 —
Cash from operations available to common shareholders 257,988 197,253 155,877
Capital improvements to maintain facilities:
Self-storage facilities (29,677) (30,834) (15,957)
Commercial properties (2,037) (4,283) (4,409)
Add back: minority interest share of capital
improvements to maintain facilities 2,476 2,513 3,159
Funds available for principal payments on debt,
common dividends and reinvestment 228,750 164,649 138,670
Cash distributions to common shareholders (100,726) (86,181) (67,709)
Funds available for principal payments on debt and reinvestment $ 128,024 $ 78,468 $ 70,961
The Company expects to fund its growth strategies with cash on hand at December 31, 1998, internally generated retained cash flows, proceeds
from issuing equity securities and borrowings under its $150 million credit facility. The Company intends to repay amounts borrowed under the credit
facility from undistributed operating cash flow or, as market conditions permit and are determined to be advantageous, from the public or private
placement of equity securities.
The Company believes that its size and financial flexibility enables it to access capital for growth when appropriate. The Company’s financial profile
is characterized by a low level of debt to total capitalization, increasing net income, increasing cash flow from operations, and a conservative dividend
payout ratio with respect to the common stock. The Company’s credit ratings on its Senior Preferred Stock by each of the three major credit agencies
are Baa2 by Moody’s and BBB+ by Standard and Poor’s and Duff & Phelps.
The Company’s portfolio of real estate facilities remains substantially unencumbered. At December 31, 1998, the Company had mortgage debt out-
standing of $35.4 million and had consolidated real estate facilities with a book value of $2.6 billion. The Company has been reluctant to finance its
acquisitions with debt and generally will only increase its mortgage borrowing through the assumption of pre-existing debt on acquired real estate
facilities.
Over the past three years the Company has funded substantially all of its acquisitions with permanent capital (both common and preferred stock).
The Company has elected to use preferred stock despite the fact that the dividend rates of its preferred stock exceeds current interest rates on
conventional debt. The Company has chosen this method of financing for the following reasons: (i) the Company’s perpetual preferred stock has no
sinking fund requirement, or maturity date and does not require redemption, all of which eliminate any future refinancing risks, (ii) preferred stock
allows the Company to leverage the common stock without the attendant interest rate or refinancing risks of debt, and (iii) like interest payments,
dividends on the preferred stock can be applied to the Company’s REIT distributions requirements, which have helped the Company to maintain
a low common stock dividend payout ratio and retain cash flow.