Public Storage 2000 Annual Report Download - page 38

P UBLIC S TORAGE , I NC . 2000 A NNUAL R EPORT
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Due to the fill-up nature of a newly developed self-storage facility, our earnings have been negatively impacted by our development
activities. Unlike many other types of real estate, we do not pre-lease our storage space prior to the opening of a newly developed
facility. Generally, it takes approximately 24 months for a newly developed facility to reach a stabilized occupancy level of 90%. At
this stabilized occupancy level, operating costs represent approximately 30% of stabilized rental revenues. Since the operating costs
are substantially fixed in nature, a newly developed facility will not reach a break-even operating cash flow until it achieves an
occupancy level of approximately 30%. At December 31, 2000, the 30 newly developed facilities had an average occupancy level of
approximately 40%. We expect that over at least the next twelve months our development activities will continue to have a negative
impact to our earnings as additional newly developed facilities are opened. See “Liquidity and Capital Resources – Acquisition and
Development of Facilities.”
During 2000, the Company acquired 12 operating self-storage facilities for an aggregate cost of $61.2 million. Included in the above
table for 2000, under the caption “Other Facilities”, are revenues of $2,442,000 and cost of operations of $790,000 with respect to
these facilities.
As described in Note 3 to the financial statements, on September 15, 2000, we acquired the remaining ownership interests in a
partnership of which we are the general partner, for an aggregate acquisition cost of $81.2 million, consisting of cash of $66.8 million
and the reduction of our pre-existing investment in the amount of $14.4 million. Included in the table on page 34, under the caption
“Other Facilities”, for 2000 are revenues of $3,242,000 and cost of operations of $1,051,000, with respect to these facilities.
Commercial property operations: Commercial property operations included in the consolidated financial statements include
commercial space owned by the Company and Consolidated Entities. Effective April 1, 1998, our investment in PSB is accounted
for on the equity method of accounting, and accordingly our share of PSB’s earnings is reflected as “Equity in earnings of real
estate entities.”
During 2000, we acquired two commercial facilities (which are expected to be converted into storage facilities) for an aggregate cost
of $5,930,000. Included within commercial property operations for 2000 with respect to these facilities was revenues of $475,000 and
cost of operations of $131,000.
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) 2000 1999 Change 1999 1998 Change
Rental income $11,341 $8,204 38.2% $8,204 $23,112 (64.5)%
Cost of operations 3,826 2,826 35.4% 2,826 7,951 (64.5)%
Net operating income 7,515 5,378 39.7% 5,378 15,161 (64.5)%
Depreciation expense 2,291 1,686 35.9% 1,686 4,437 (62.0)%
Operating income $ 5,224 $3,692 41.5% $3,692 $10,724 (65.6)%
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.
C ONTAINERIZED S TORAGE O PERATIONS
In August 1996, Public Storage Pickup & Delivery (“PSPUD”), a subsidiary of the Company, made its initial entry into the containerized
storage business through its acquisition of a single facility operator located in Irvine, California. At December 31, 2000, PSPUD
operated 41 facilities in 13 states. The facilities are located in major markets in which we have significant market presence with respect
to our traditional storage facilities.