Public Storage 2003 Annual Report Download - page 40

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marketing efforts. During 2002, the Consistent Group of facilities exhibited reductions in rental
income and net operating income before depreciation of 3.3% and 5.7%, respectively. During 2003,
while revenues increased 2.1%, net operating income before depreciation decreased 1.8% due to a
10.6% increase in operating expenses. We believe that these trends in 2003 and 2002 were attributable
to the impact of changes in our marketing strategy as well as to general economic conditions. See
Self-Storage Operations  Consistent Group of Facilities for further discussion. We expect future
increases in rental income to come from increases in occupancy and increases in realized rent, although
there can be no assurance.
• We will continue to develop new self-storage locations, though at a lower level than occurred in
previous years. During the five years ending December 31, 2003, the Company and the Consolidated
Development Joint Venture developed and opened a total of 80 storage facilities at a cost of
approximately $534.6 million. In 2003, we opened 14 facilities with an aggregate cost of
$107,126,000. At December 31, 2003, we have a development pipeline which includes 13 self-storage
facilities that are expected to cost an aggregate of $95.5 million, which we expect will open over the
next 12-24 months.
• We will look to expand and further invest into our existing self-storage locations. During 2002 and
2003, we closed 31 containerized storage facilities of which 19 were facilities that combine industrial
space previously used by the containerized storage operations with traditional self-storage space.
These facilities offer the opportunity to build out additional traditional self-storage space at a low cost.
We have added 208,000 net rentable square feet of traditional self-storage space in connection with
converting 5 of these facilities for an aggregate cost of $5,569,000 in 2003, and at December 31, 2003
have 13 additional conversions in process with 779,000 net rentable square feet of self-storage space at
a cost of $25,515,000. In addition to these conversions of space, we have 12 expansions of existing
self-storage facilities in our pipeline, with an estimated cost of $35,354,000.
• We will acquire facilities from third parties. This activity has not contributed significantly to our
growth over the past three years, as we have acquired only 10 self-storage facilities from third parties.
We believe that our national telephone reservation system and marketing organization present an
opportunity for increased revenues through higher occupancies of the properties acquired from third
parties, as well as cost efficiencies through greater critical mass.
• We will attempt to continue to acquire self-storage facilities from affiliates or interests in affiliated
entities that own self-storage facilities which we manage, as they become available from time to time.
The pool of such available acquisitions has continued to decrease as we have acquired such remaining
interests over the last several years.
• We will continue to focus on improving the containerized storage operations. Over the last three years,
we have developed facilities that combine containerized storage and traditional self-storage. These
facilities have replaced facilities previously leased from third parties, thereby reducing third-party lease
expense. During 2002 and 2003, we closed a total of 31 facilities which were deemed to be non-
strategic to the Companys business plan. We continue to evaluate the optimum level of containerized
facility operations in each market in which we operate and may close additional facilities during 2004.
In addition, we continue to refine the operating model of the containerized storage business.
• Through our investment in PSB, we will continue to participate in the growth of this companys
investment in approximately 18.3 million net rentable square feet of commercial space at December
31, 2003.