Public Storage 1999 Annual Report Download - page 45

43
Throughout the three year period ended December 31, 1999, we completed several acquisitions of storage facilities from affiliated entities
and, as a result, storage properties which were managed by us became owned facilities and the related management fee income with respect to
these facilities ceased. Accordingly, property management operations with respect to storage facilities have continuously decreased during the
three year period ended December 31, 1999. Since we have acquired in the past, and may continue to seek to acquire in the future, real estate
facilities owned by the Unconsolidated Entities, our facility management income may decrease in 2000 compared to 1999.
Sales of packaging material and truck rentals have increased as a result of our retail expansion program (described below). The strategic
objective of the retail expansion program is to create a “Retail Store” that will (i) rent spaces for the attached 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 have been retrofitted
to existing storage facility rental offices or “built-in” as part of the development of new 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 our 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 $2,189,000, $1,878,000 and $2,938,000 in 1999, 1998 and 1997, respectively. The changes
in interest income from mortgage notes receivable reflect the changes in mortgage notes receivable balances. Fluctuations in the level of
invested cash balances, caused by the timing of investing equity offering proceeds in real estate assets, led to a decrease in interest income in
1999 as compared to 1998, and led to an increase in interest income in 1998 as compared to 1997.
Depreciation and amortization: Depreciation and amortization expense was $137,719,000 in 1999, $111,799,000 in 1998 and $92,750,000
in 1997. Depreciation expense with respect to the real estate facilities was $123,495,000 in 1999, $98,173,000 in 1998 and $82,047,000 in
1997; the increases are due to the acquisition of additional real estate facilities in 1997 through 1999. Depreciation expense with respect to non
real estate assets, primarily depreciation of equipment associated with the portable self-storage operations, was $4,915,000 in 1999, $4,317,000
in 1998, and $1,394,000 in 1997; the increases are due to the expansion in the portable self-storage operations. Amortization expense with
respect to intangible assets totaled $9,309,000 for each of the three years ended December 31, 1999.
General and administrative expense: General and administrative expense was $12,491,000 in 1999, $11,635,000 in 1998 and $13,462,000
in 1997. 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, certain overhead associated with the acquisition and development of real estate facilities, and certain
overhead associated with the portable self-storage business.
Included in general and administrative expense for 1999, 1998, and 1997 is approximately $2,512,000, $3,039,000, and $7,078,000,
respectively, with respect to our portable self-storage business; amounts incurred in 1998 and 1997 include significant amounts related to
recruiting and training personnel, equipment, computer software and professional fees in organizing the portable self-storage business.
Prior to the impact of the portable self-storage business, we experienced and expect 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 $7,971,000 in 1999, $4,507,000 in 1998 and $6,792,000 in 1997. Debt and related interest expense
remain relatively low compared to our overall asset base. Capitalized interest expense totaled $4,509,000 in 1999, $3,481,000 in 1998 and
$2,428,000 in 1997 in connection with our development activities. Interest expense before the capitalization of interest was $12,480,000 in
1999, $7,988,000 in 1998 and $9,220,000 in 1997. The decrease in interest expense in 1998 as compared to 1997 principally is due to the
retirement of debt in 1998 of approximately $15,132,000. The increase in interest expense in 1999 as compared to 1998 is due to the
$100 million of notes payable assumed in the merger with Storage Trust.
U B LI C T O RAG E,N C . 1999 N N UAL RE P O RT