Public Storage 1999 Annual Report Download - page 41

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Cost of operations includes all direct and indirect costs of operating and managing the facilities. The following table summarizes major
operating expenses with respect to the Consistent Group:
(In thousands) 1999 1998 1997
Payroll expense $ 33,997 $ 33,549 $ 32,721
Property taxes 33,592 33,416 31,977
Advertising 5,655 3,836 3,265
Telephone reservation center costs 5,943 5,356 3,401
Other 34,743 35,130 33,417
$113,930 $111,287 $104,781
Increases in advertising cost are principally due to expanded yellow page advertising in telephone directories partially offset by a reduction
in television advertising.Total advertising cost was $5,655,000, $3,836,000, and $3,265,000 in 1999, 1998, and 1997, respectively. Promotional
advertising has increased customer call volume into our national reservation system, where, as indicated above, one of our representatives
discusses with the customer space requirements, price and location preferences and also informs the customer of other products and services
provided by the Company and its subsidiaries.
Telephone reservation center costs have increased due to the expansion of our national telephone reservation. In connection with the
national telephone reservation system, the Company implements various pricing and promotional discount strategies designed to increase
rental activity. Consistent Group promotional discounts (which are included as a reduction to gross rents to arrive at rental income) were
$12,792,000 in 1997, $11,509,000 in 1998 and $11,259,000 in 1999.
Port abl e Sel f-St orage Operat ions
In August 1996, PSPUD, a subsidiary of the Company, made its initial entry into the portable self-storage business through its acquisition of a
single facility operator located in Irvine, California. At December 31, 1999, PSPUD operated 36 facilities in 11 states. The facilities are located
in major markets in which we have significant market presence with respect to our traditional self-storage facilities.
Due to the start-up nature of the business, PSPUD incurred operating losses totaling approximately $9.9 million, $31.4 million, and $31.7
million for the years ended December 31, 1999, 1998 and 1997, respectively, summarized as follows:
Portable self-storage: Year Ended December 31, Dollar Year Ended December 31, Dollar
(Dollar amounts in thousands) 1999 1998 Change 1998 1997 Change
Rental and other income $27,028 $ 24,466 $ 2,562 $ 24,466 $ 7,893 $16,573
Cost of operations:
Direct operating costs 18,397 24,902 (6,505) 24,902 14,445 10,457
Marketing and advertising 1,333 9,206 (7,873) 9,206 10,441 (1,235)
Facility lease expense 9,779 14,400 (4,621) 14,400 6,200 8,200
Total cost of operations 29,509 48,508 (18,999) 48,508 31,086 17,422
Operating loss prior to depreciation and
general and administrative expense (2,481) (24,042) 21,561 (24,042) (23,193) (849)
Depreciation
(A)
4,915 4,317 598 4,317 1,394 2,923
General and administrative
(A)
2,512 3,039 (527) 3,039 7,078 (4,039)
Operating losses $ (9,908) $(31,398) $ 21,490 $(31,398) $(31,665) $ 267
(A) Amounts reflect that portion of consolidated depreciation and general and administrative expense that is directly attributable to the Portable Self-Storage business.
We believe that the quarterly losses from the portable self-storage operations peaked during the third quarter of 1997. Operating losses were
approximately $12,069,000 for the third quarter of 1997 and have subsequently decreased each quarter through the fourth quarter of 1999 where
operating losses were approximately $1,037,000. Operations before depreciation for the last six months of 1999 were approximately breakeven.
Publ ic St orage, Inc. 1999 Annual Report