Public Storage 2001 Annual Report Download - page 56

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P
UBLIC S TORAGE ,I NC . 2001 A NNUAL R EPORT
through the use of cash provided by operating activities. The remaining cash flow generated is available to make both scheduled
and optional principal payments on debt and for reinvestment.
For the Year Ended December 31,
(Amount in thousands) 2001 2000 1999
Net cash provided by operating activities $ 538,534 $ 522,565 $ 463,292
Allocable to minority interests (Preferred Units) (31,737) (24,859) —
Allocable to minority interests (common equity) (22,125) (20,635) (25,300)
Cash from operations allocable to our shareholders 484,672 477,071 437,992
Capital improvements to maintain our facilities:
Storage facilities (34,436) (32,410) (28,267)
Commercial properties (1,042) (613) (756)
Add back: minority interest share of capital
improvements to maintain facilities 1,267 728 1,269
Remaining operating cash flow available for
distributions to our shareholders 450,461 444,776 410,238
Distributions paid:
Preferred stock dividends (117,979) (100,138) (94,793)
Equity Stock, Series A dividends (19,455) (11,042) —
Regular distributions to Common and Class B shareholders (162,481) (115,460) (113,297)
Special distributions to Common and Class B shareholders
(a)
(42,115) (78,673) (82,086)
Cash available for principal payments on debt and reinvestment $ 108,431 $ 139,463 $ 120,062
(a) The special distribution for 2001 was declared in August 2001 and paid in September 2001. The special distribution for 2000 was declared
in August 2000 and paid in September 2000. The special distribution for 1999 was declared in 1999 and paid in January 2000. In each
instance, the special distribution enabled the Company to maintain its REIT status with respect to the distribution requirements.
Our financial profile is characterized by a low level of debt to total capitalization, increasing net income, increasing cash flow
from operations, and a conservative dividend payout ratio with respect to the common stock. We expect to fund our growth
strategies with cash on hand at December 31, 2001, internally generated retained cash flows, and proceeds from issuing equity
securities. In general, our current strategy is to continue to finance our growth with permanent capital; either common or preferred
equity. We have in the past used our $200 million line of credit as temporary “bridge” financing, and repaid those amounts with
internally generated cash flows and proceeds from the placement of permanent capital. As of December 31, 2001, outstanding
borrowings under our $200 million bank line of credit totaled $25 million. In addition, outstanding debt at December 31, 2001
totaled $143.6 million, consisting of mortgage debt of $23.8 million and unsecured debt of $119.8 million. By comparison, our
real estate facilities had a net book value of approximately $3.8 billion at December 31, 2001. Accordingly, our portfolio of real
estate facilities is substantially unencumbered.
Over the past three years we have funded substantially all of our acquisitions with permanent capital (both common and
preferred securities). We have elected to use preferred securities as a form of leverage despite the fact that the dividend rates of
our preferred securities exceed the prevailing market interest rates on conventional debt. We have chosen this method of financing
for the following reasons: (i) under the REIT structure, a significant amount of operating cash flow needs to be distributed to our
shareholders making it difficult to repay debt with operating cash flow alone, (ii) our perpetual preferred stock has no sinking fund
requirement, or maturity date and does not require redemption, all of which eliminate any future refinancing risks, (iii) after the
end of a non-call period, we have the option to redeem the preferred stock at any time, which in 2001 enabled us to effectively
refinance higher coupon preferred stock with new preferred stock at lower rates, (iv) preferred stock does not contain onerous
covenants, thus allowing us to maintain significant financial flexibility, and (v) dividends on the preferred stock can be applied to
our REIT distribution requirements.
Our credit ratings on each of our series of Cumulative Preferred Stock by each of the three major credit agencies are “Baa2” by