Public Storage 1999 Annual Report Download - page 42

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The number of portable self-storage facilities PSPUD operated increased from 4 at December 31, 1996 to 49 at December 31, 1997 due to
the opening of 45 facilities in 1997. The number of facilities decreased to 43 at December 31, 1998, due to the opening of 13 facilities and the
closure of several facilities in non-strategic markets and the consolidation of several other facilities into existing facilities within the same markets.
The number of facilities decreased further to 36 at December 31, 1999 due to the closure and consolidation of several additional facilities.
Rental and other income includes monthly rental charges to customers for storage of the containers and service fees charged for pickup and
delivery of containers to customers’homes. The increase in rental and other income from $7,893,000 in 1997 to $24,466,000 in 1998 is the
result of the significant expansion of the business throughout that period of time. Rental income increased to $27,028,000 in 1999 compared
to $24,466,000 in 1998 principally as a result in increases in the number of occupied containers.
We believe that marketing and advertising activities positively impact move-in activity. Commencing in the third quarter of 1997, PSPUD
began to advertise the portable self-storage product on television in selected markets. Television advertising was curtailed in the second half of
1998. Advertising and marketing expense decreased to $1,333,000 in 1999 from $9,206,000 in 1998 primarily due to the curtailment of
television advertising in the second half of 1998. Advertising and marketing expense decreased to $9,206,000 in 1998 from $10,441,000 in
1997, due primarily to reductions in television advertising.
Substantially all of the facilities have been leased from third parties. Facility lease expense decreased to $9,779,000 in 1999 from $14,400,000
in 1998, principally as a result of the reduction in the number of facilities. Facility lease expense increased to $14,400,000 in 1998 from
$6,200,000 in 1997 due to the aforementioned increase in the number of facilities in 1998 and 1997.
We are currently developing combination facilities that combine mini-warehouse and portable self-storage space in the same location.We
expect that an increasing part of the portable self-storage business will be operated from this type of a facility.To the extent that these developed
Combination Facilities replace existing third-party leased space, lease expense should be reduced.
General and administrative expense (which is a component of total general and administrative expense presented on the income statement)
was $2,512,000, $3,039,000, and $7,078,000 in 1999, 1998, and 1997, respectively. Amounts in 1998 and 1997 reflect the training and
recruiting of personnel, equipment, computer software, and professional fees in organizing the portable self-storage business. Amounts in 1999
and 1998 include amounts incurred in connection with terminated leases.
On March 28, 2000, a Form 10 registration statement was filed with the Securities and Exchange Commission outlining a plan of distribution
with respect to the portable storage operations and our truck rental activities. Under this plan, after the reorganization and recapitalization of
certain affiliated entities, we will distribute to our common shareholders all of the common stock of an entity that will primarily own the
portable storage business and truck rental activities. There is no current trading market for the stock of this entity.We will apply to have the
entity’s common stock quoted on the NASDAQ National Market.
Commercial property operations: Our commercial property operations principally consist of our investment in PSB, an affiliated real estate
investment trust, and to a much lesser extent commercial space owned by the Company and Consolidated Entities. The following table sets
forth the historical commercial property amounts included in the financial statements:
Commercial Property Operations Year Ended December 31, Year Ended December 31,
(Amounts in thousands) 1999 1998 Change 1998 1997 Change
Rental income $8,204 $23,112 (64.5)% $23,112 $40,575 (43.0)%
Cost of operations 2,826 7,951 (64.5)% 7,951 16,665 (52.3)%
Net operating income $5,378 $15,161 (64.5)% $15,161 $23,910 (36.6)%
From the time of PSB’s formation through March 31, 1998, we consolidated the accounts of PSB in our financial statements. During the
second quarter of 1998, our ownership interest in PSB was reduced below 50% and, as a result, we no longer had a controlling interest in PSB.
Accordingly, effective April 1, 1998, we no longer include the accounts of PSB in the consolidated financial statements and have accounted for
our investment using the equity method. For all periods after March 31, 1998, the income statement includes our share of income in PSB.
Further, commercial property operations for the periods after March 31, 1998 reflect only the commercial property operations of facilities
owned by us which have both storage and commercial use combined at the same property location.
U B L I C T O R A G E ,N C . 1999 N N U A L RE P O R T