Public Storage 2000 Annual Report Download - page 39

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P
UBLIC S TORAGE , I NC . 2000 A NNUAL R EPORT
Due to the start-up nature of the business, PSPUD incurred operating losses totaling approximately $5.1 million, $7.4 million, and
$28.4 million for the years ended December 31, 2000, 1999 and 1998, respectively, summarized as follows:
Containerized storage: Year Ended December 31, Dollar Year Ended December 31, Dollar
(Dollar amounts in thousands) 2000 1999 Change 1999 1998 Change
Rental and other income $37,914 $27,028 $10,886 $27,028 $ 24,466 $ 2,562
Cost of operations:
Direct operating costs 27,849 18,397 9,452 18,397 24,902 (6,505)
Marketing and advertising 1,283 1,333 (50) 1,333 9,206 (7,873)
Facility lease expense 8,666 9,779 (1,113) 9,779 14,400 (4,621)
Total cost of operations 37,798 29,509 8,289 29,509 48,508 (18,999)
Operating gain (loss) prior to depreciation 116 (2,481) 2,597 (2,481) (24,042) 21,561
Depreciation expense
(a)
5,251 4,915 336 4,915 4,317 598
Operating losses $ (5,135) $ (7,396) $ 2,261 $ (7,396) $(28,359) $ 20,963
(a) Depreciation for 2000 includes $450,000 with respect to real estate assets.
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. Rental income increased to $37,914,000 in 2000 as compared to
$27,028,000 in 1999 as a result of higher per container rents and an increase in occupied containers. 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.
At December 31, 2000, there were approximately 59,443 occupied containers compared to 57,405 at December 31, 1999 and
48,360 at December 31, 1998.
Direct operating costs principally include payroll, equipment lease expense, utilities and vehicle expenses (fuel and insurance).
In addition, during 2000, included in direct operating costs was $1,853,000 expensed due to the obsolescence of containers.
Marketing and advertising 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.
Substantially all of the facilities in which PSPUD operates are leased from third parties. Over the past three years, facility lease
expense has continued to decrease ($8,666,000 in 2000, $9,779,000 in 1999, and $14,400,000 in 1998). The reduction from 1999
to 2000 is principally the result of moving the operations from leased facilities to wholly-owned facilities, and thus eliminating the lease
expense paid to third parties. The reduction from 1998 to 1999 is principally the result of the reduction in the number of facilities
being operated.
At December 31, 2000, 25 of the 41 containerized storage facilities are leased from third parties. We anticipate developing 45
combination facilities (which includes 14 storage facilities that are being converted to combination facilities) that combine self-storage
and containerized storage space in the same location. These facilities are expected to replace 22 of the leased facilities during 2001.
We expect that an increasing part of the containerized storage business will be operated from this type of facility. To the extent that
these developed combination facilities replace existing third-party leased facilities, lease expense should continue to be reduced.
The containerized storage operations may continue to adversely impact the Company’s future earnings and cash flows. There
can be no assurance as to the level of the containerized storage business’s expansion, level of gross rentals, level of move-outs or
profitability.
Equity in earnings of real estate entities: In addition to our ownership of equity interests in PSB, we had general and limited
partnership interests in 11 limited partnerships at December 31, 2000 (PSB and the limited partnerships are collectively referred to as
the “Unconsolidated Entities”). Due to our limited ownership interest and control of these entities, we do not consolidate the accounts
of these entities for financial reporting purposes, and account for such investments using the equity method.